AETHER SYSTEMS LLC, S-1/A, 2000-03-16

AETHER SYSTEMS LLC
S-1/A, 2000-03-16
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000.

REGISTRATION NO. 333-30852
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------

Amendment No. 2

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)

<TABLE>
<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

EXPLANATORY NOTE

This registration statement contains three separate prospectuses. Two
prospectuses relate to a public offering of our common stock, par value $.01 per
share. One of the common stock prospectuses will be used in connection with a
United States and Canadian offering and the other will be used in a concurrent
international offering. The two common stock prospectuses will be identical
except for the front and back cover pages and underwriting section. The form of
prospectus for the United States and Canadian common stock offering is included
in this registration statement and the form of the front and back cover pages
and underwriting section for the international common stock prospectus follows
the United States common stock prospectus. The third prospectus relates to a
concurrent United States and Canadian offering of our convertible subordinated
notes due 2005 and this prospectus follows the pages for the international
common stock prospectus.
<PAGE> 3

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 MARCH 16, 2000

PROSPECTUS
- -----------------------

3,000,000 SHARES

[AETHER LOGO]

COMMON STOCK
------------------------

Aether Systems, Inc. is selling 2,374,741 shares and Aether stockholders
are selling 625,259 shares. The U.S. underwriters are offering 2,550,000 shares
in the U.S. and Canada and the international managers are offering 450,000
shares outside the U.S. and Canada.

The shares are quoted on the Nasdaq National Market under the symbol
"AETH." On March 15, 2000, the last sale price of the shares as reported on the
Nasdaq National Market was $245 per share.

Concurrent with this offering, we are offering $200,000,000 aggregate
principal amount of our % convertible subordinated notes due 2005. The notes
will be convertible into shares of our common stock at the option of the holder.
We are offering the convertible notes through a separate prospectus. Completion
of the convertible notes offering is not a condition to the completion of this
offering.

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price................................... $ $
Underwriting discount................................... $ $
Proceeds, before expenses, to Aether.................... $ $
Proceeds, before expenses, to the selling
stockholders.......................................... $ $
</TABLE>

The U.S. underwriters may also purchase up to an additional 137,877
shares from Aether, and up to an additional 244,623 shares from the selling
stockholders, at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an additional 24,331 shares
from Aether and up to an additional 43,169 shares from the selling stockholders.

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.

The shares will be ready for delivery on or about , 2000.

------------------------
MERRILL LYNCH & CO.
ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
BEAR, STEARNS & CO. INC.
FRIEDMAN BILLINGS RAMSEY
------------------------

The date of this prospectus is , 2000.
<PAGE> 4

DESCRIPTION OF INSIDE FRONT COVER: The inside front cover contains the
Aether Systems logo and the slogan: "Wireless solutions for a portable planet."
Above the logo and slogan is a photograph depicting a finger pointing to a
globe.
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 9
Forward-Looking Statements.................................. 19
Use of Proceeds............................................. 20
Price Range of Common Stock................................. 20
Dividend Policy............................................. 20
Concurrent Offering......................................... 21
Capitalization.............................................. 22
Dilution.................................................... 24
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 36
Management.................................................. 55
Transactions Between Aether and its Officers, Directors or
Significant Stockholders.................................. 66
Principal and Selling Stockholders.......................... 70
Description of Capital Stock................................ 74
United States Federal Tax Consequences to Non-U.S. Holders
of Common Stock........................................... 77
Shares Eligible for Future Sale............................. 80
Underwriting................................................ 82
Legal Matters............................................... 86
Experts..................................................... 86
Where You Can Find More Information......................... 86
Index to Financial Statements............................... F-1
</TABLE>

------------------------------

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. 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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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, systems and software enabling people to
use handheld devices for mobile data communications and real-time transactions.
We design, develop, sell and support complete wireless systems for corporations
seeking to make data available to mobile workers or consumers. Our capabilities
include our wireless data engineering and development expertise, our wireless
integration software, our customer service and network operations center and,
following our acquisition of Riverbed Technologies, Inc., our mobile data
management software.

We seek to develop and deliver wireless data services across a variety of
industries and market segments in the United States and internationally. Our
strategy initially focused on developing services for the financial services
sector, whose participants we believe are among the earliest adopters of
wireless data services. In the financial services industry, our current services
include TradeRunner, a real-time wireless trading and financial information
service offered to the online customers of Morgan Stanley Dean Witter Online,
the Reuters MarketClip service for financial market price quotes, alerts and
information and several services that deliver financial market information using
one- and two-way pagers. We currently are developing wireless trading and
financial services for other major financial institutions, including Charles
Schwab & Co., Inc.

While seeking to extend our service offerings in the financial services
sector, we also seek to move into other industries and market segments. Since
January 2000, we have entered into the following acquisitions, investments,
agreements and letters of intent in pursuit of this strategy:

- We acquired Riverbed, a company that develops and licenses mobile data
management software. This acquisition gives us access to the industries
Riverbed currently serves, including healthcare, transportation logistics
and sales force automation.

- We acquired LocusOne Communications, Inc., which develops wireless data
systems for companies that distribute goods and services using their own
delivery fleets. This acquisition extends our business to the
transportation logistics and delivery industry.

- We entered into a non-binding letter of intent with Reuters PLC to form a
new company to develop wireless data systems in Europe, initially
focusing on the financial services industry.

- We agreed to form a new company, Inciscent, Inc., to develop wireless
e-mail, two-way wireless data and Internet access and other applications
for the small business and home office market segments. We agreed to form
Inciscent with paging company Metrocall, Inc., Internet service provider
PSINet Inc., investment firm Hicks, Muse, Tate & Furst Incorporated and
other investors. As part of the investment, we also agreed to acquire
approximately 9.9% of the outstanding capital stock of Metrocall for
approximately $17 million.

- We increased our investment in OmniSky Corporation (formerly doing
business as OpenSky), a company we formed with 3Com Corporation. With our
engineering assistance, OmniSky is developing wireless e-mail, Internet
access and other electronic transactions primarily for the consumer
market, and we have the right to offer these capabilities to our business
customers.

We have all the resources necessary to provide our customers with complete
wireless data systems. We have a large, experienced development team with 136
engineers. We have developed our package of wireless messaging software and
software development tools known as Aether Intelligent Messaging, or AIM, 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. Through our
acquisition of Riverbed, we also provide a suite of software products that
extend corporate data to mobile handheld devices. We operate our own
high-security network operations center, which connects customer and other data
to wireless networks, and

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we maintain our own customer service center. We established the WAP Enterprise
Center, which is comprised of engineers who develop applications for wireless
phones that use the Wireless Application Protocol (so called WAP smartphones)
and the systems to support data communication to these devices. 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 and software vendors such as 3Com, Ericsson LM, Novatel
Wireless, Inc. and Phone.com, Inc.

We believe we can provide our corporate customers with more attractive
service offerings by coupling general wireless applications like e-mail and
Internet access with custom corporate applications. We believe our involvement
with OmniSky and Inciscent will allow us to achieve this.

Our Strategy. Our strategy is to be the dominant provider of wireless data
services and systems to corporations by using our engineering expertise, our
software platforms, our customer service and network operations center and our
other resources. We seek to maximize recurring revenue by developing wireless
data services for a variety of industries and market segments in the United
States and internationally. We believe our capabilities and experience have
established us as an early market leader in wireless data services, and a key
element of our strategy is to move quickly into new opportunities to extend our
leadership position. Our strategy includes the following key elements:

- Target a variety of industries and market segments for development of
wireless data communications and services in the United States and
internationally.

- Continue to develop the market for existing and new services in the
financial services sector.

- Offer the widest range of software products to address every aspect of
wireless integration and mobile data management for mobile workers and
consumers.

- Continue to develop mass-market wireless applications like e-mail and
Internet access and bundle them with custom corporate applications.

- 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.

- Apply the expertise we gain through engineering services and research and
development activities to emerging business opportunities.

Operating results. We had revenue of $1.8 million in 1997, $1.5 million in
1998 and $6.3 million in 1999. We had net losses of $2.7 million in 1997, $4.7
million in 1998 and $30.7 million in 1999. As of December 31, 1999, we had
cumulative losses of $38.5 million. On a pro forma basis, giving effect to the
acquisitions of Mobeo, Inc. in September 1999, LocusOne in February 2000, and of
Riverbed in March 2000, we had revenue of $16.2 million and a net loss of $432.3
million in 1999.

Other information. We are a Delaware corporation. In October 1999, we
completed our initial public offering of 6,900,000 shares of our common stock at
an initial offering price of $16.00 per share, which resulted in net proceeds of
approximately $101.1 million. All references to "we," "us," "our" or "Aether" in
this prospectus mean Aether Systems, Inc. and its subsidiaries or predecessors.

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> 8

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by us................... 2,374,741 shares
Common stock offered by the selling
stockholders............................... 625,259 shares
Total common stock to be outstanding after
the
offering................................... 34,722,832 shares. This excludes:
- shares of common stock issuable
upon conversion of the convertible notes
being offered concurrently;
- 3,929,338 shares of common stock issuable
upon exercise of options outstanding at
December 31, 1999 or issued in connection
with our acquisitions of Riverbed and
LocusOne, with a weighted average exercise
price of $13.46 per share;
- 2,411,708 additional shares of common stock
that will be available after the offering for
future issuance under our 1999 equity
incentive plan;
- 1,175,000 shares of common stock issuable
upon exercise of warrants with a weighted
average exercise price of $1.96 per share;
- 162,208 shares of common stock issuable
upon exercise of the underwriters'
over-allotment option; and
- 893,665 shares of common stock contingently
issuable upon exercise of warrants with an
exercise price of $.01 per share, which may
be exercised if conditions are met.
Use of proceeds.............................. We currently intend to use the net proceeds
from this offering and the concurrent notes
offering for the following:
- $100 million to acquire a 60% interest in
the company that is the subject of our letter
of intent with Reuters;
- $19 million to repay indebtedness incurred
in connection with the LocusOne acquisition;
- $17 million to make our investment in
Metrocall;
- $10 million to make our investment in
Inciscent;
- an estimated $25 million to enhance our
sales and marketing activities;
- fund potential future acquisitions and
strategic investments; and
- general corporate purposes.
Risk factors................................. See "Risk Factors" beginning at page 9 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>

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CONCURRENT OFFERING

Concurrently with our offering of common stock, we are offering by means of
a separate prospectus $200,000,000 aggregate principal amount of % convertible
subordinated notes due 2005. The convertible notes will be convertible at the
option of the holder into shares of our common stock. The completion of the
convertible notes offering is not a condition to the completion of this
offering. The sale of our convertible notes is described in greater detail on
page 21 under the heading "Concurrent Offering."

7
<PAGE> 10

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)

The following table summarizes our consolidated statements of operations
for each of the years ended December 31, 1996, 1997, 1998 and 1999 and our
consolidated balance sheet as of December 31, 1999. The pro forma consolidated
financial information gives effect to (i) the Mobeo, LocusOne and Riverbed
acquisitions, (ii) this offering of common stock and the application of the net
proceeds as described in "Use of Proceeds" on page 20 and (iii) the sale of $200
million of our convertible notes in a concurrent public offering and the
application of the net proceeds as described in "Use of Proceeds" on page 20.
The pro forma net loss per share information gives effect to our conversion from
a limited liability company to a corporation immediately prior to our initial
public offering.

We have provided the pro forma consolidated financial information for
informational purposes only and you should not assume that our results would
actually have been as shown if we had acquired Mobeo, LocusOne and Riverbed or
had completed the offerings on the assumed dates, or that the information
projects what our results will be as a result of the acquisitions or offerings.
The pro forma consolidated statement of operations information assumes that the
transactions occurred on January 1, 1999, and the pro forma consolidated balance
sheet information assumes that the transactions occurred on December 31, 1999.
See our, Mobeo's and Riverbed's financial statements and notes to those
statements included in this prospectus beginning on page F-1.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------------------------
PRO FORMA
-------------------------------------------------
ACQUISITIONS,
ACQUISITIONS AND COMMON STOCK
COMMON STOCK AND CONVERTIBLE
ACTUAL ACQUISITIONS OFFERING NOTES OFFERINGS
-------- ------------ ---------------- ---------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 78,542 $ 47,724 $ 454,830 $ 647,630
Working capital...................................... 83,128 37,071 463,152 655,952
Total assets......................................... 102,534 1,244,065 1,778,171 1,978,171
Total debt........................................... -- 19,337 362 200,362
Stockholders' equity................................. 98,342 1,219,145 1,772,227 1,772,227
</TABLE>

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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
software 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 and 36.3% was from subscriber revenue. In 1999, 41.0% of our revenue
was from engineering services and 59.0% was from subscriber revenue. In 1999, on
a pro forma basis including Mobeo, LocusOne and Riverbed, 16.0% of our revenue
was from engineering services, 69.0% was from subscriber revenue, and 15.0% was
from software and related services revenue. We have not had any AIM licensing
revenue. In addition, our monthly service subscriptions have come exclusively
from subscriptions to our financial data and online trading services, and our
strategy includes development of services in other industries. Because of this
change in focus and our recent and pending acquisitions, 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 $2.7 million, $4.7 million and $30.7 million for
the years ended December 31, 1997, 1998 and 1999, respectively, and a net loss
of $432.3 million for the year ended December 31, 1999 on a pro forma basis
including the acquisitions of Mobeo, LocusOne and Riverbed. Our amortization of
intangible assets and option and warrant expense has grown significantly as a
result of recent acquisitions. In addition, we expect to continue to incur
significant sales and marketing, systems development and administrative
expenses. Therefore, we will need to generate significant revenue to become
profitable and sustain profitability on a quarterly or annual basis. We expect
to continue to incur significant losses for the foreseeable future. As a result,
we may not be able to 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 and transaction services 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 TD Waterhouse Investor Services, Inc. and Bear, Stearns & Co. Inc.
pursuant to preliminary agreements with these parties. We cannot assure you that
these parties will enter into contracts for our services or that products
developed for our other customers will result in revenue. 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 RECENT AND PENDING ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES MAY NOT
DELIVER THE VALUE WE PAID OR WILL PAY FOR THEM AND MAY RESULT IN EXCESSIVE
EXPENSES IF WE DO NOT SUCCESSFULLY INTEGRATE THEM, OR IF THE COSTS AND
MANAGEMENT RESOURCES WE EXPEND IN CONNECTION WITH THE INTEGRATIONS EXCEED OUR
EXPECTATIONS.

We expect that our recent and pending acquisitions, investments and
strategic alliances and any acquisitions, investments or strategic alliances we
may pursue in the future will have a continuing,

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significant impact on our business, financial condition and operating results.
The value of these transactions may be less than the amount we paid for them or
invested if there is:

- a decline of their position in the respective markets they serve; or

- a decline in general of the markets they serve.

The expenses associated with these transactions may be greater and their
revenue may be smaller than expected if:

- we fail to assimilate the acquired assets with our pre-existing business;

- we lose key employees of these companies or Aether as a result of the
acquisitions;

- our management's attention is diverted by other business concerns; or

- we assume unanticipated liabilities related to the acquired assets.

In addition, the companies we have acquired or invested in or may acquire
or invest in are subject to each of the business risks we describe in this
section, and if they incur any of these risks the businesses may not be as
valuable as the amount we paid. Further, we cannot guarantee that we will
realize the benefits or strategic objectives we are seeking to obtain by
acquiring these companies. In addition, we cannot assure you that our various
pending acquisitions, investments and strategic alliances will be completed on
the terms we describe, or at all.

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 develop
and improve 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.

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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 wireless carriers are, or could become, our competitors and if
they compete with us they may refuse to provide us with their services.

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 $2.1
million for 1999. We intend to increase the market presence of our brand over
time, which will require us to substantially increase the amount we spend on
sales and marketing. We expect to spend an estimated $25 million in 2000 on
sales and marketing. We have applied for, but have not received, federal
trademark registrations for the names "Aether," "Aether Systems" and "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 our
recent acquisitions of Mobeo, LocusOne and Riverbed, we expect to market our
acquired products and services under their existing brands. We may lose existing
customers or fail to attract new customers if these 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 DEPEND ON THIRD PARTIES 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, in particular the online trading
services we have developed for Morgan Stanley Dean Witter Online and are
developing for Charles Schwab and other financial institutions. We believe that
third parties paid over $380,000 in marketing expenses in 1999 related to our
products, which represented 15% of sales and marketing expenses incurred in
connection with our services. We cannot control whether or how these third
parties who sell and market our services will perform their obligations to
market our services. 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.

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;
11
<PAGE> 14

- we may not be able to expand our 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 in the past attempted, and may in the
future attempt, to recruit our employees. Each of our 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 other executive officers.

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 have attempted to protect our technology, including the technology we
have obtained or will obtain in our acquisition, through patent, trademark and
copyright protection, as well as through trade secret laws and non-competition
and non-disclosure agreements with key employees. Patents may infringe on valid
patents held by third parties, or patents held by third parties may limit the
scope of any patents we receive. In particular, the patent we acquired in our
acquisition of Riverbed covers a technology that is subject to a number of
patents. In addition, Riverbed has no international patent protection in its
technology. 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. We have received
two claims that we have infringed patents developed by other parties. Although
we believe these claims are without merit, these and any other 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,
could divert management attention from administering our business and could
preclude us from conducting our business.

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<PAGE> 15

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, 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 Morgan Stanley Dean Witter Online
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, intentional
disruptions of service by third parties, an act of God or an act of war. A
failure in our systems could 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 could develop and 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, 724
Solutions Inc. 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" on page 53.

WE MAY LOSE THE OPPORTUNITY TO PURSUE DESIRABLE PROJECTS TO OMNISKY AND THE
COMPANY WE PLAN TO FORM WITH REUTERS.

David S. Oros, our chairman, chief executive officer and president, also
serves as a director of OmniSky and Janice M. Roberts, one of our directors, is
also a director of OmniSky. OmniSky is a

13
<PAGE> 16

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. David S. Oros will serve as chairman and interim chief
executive officer of our European strategic alliance with Reuters. This company
will be a separate business that will provide wireless data applications in
Europe. Mr. Oros and Ms. Roberts may learn of business opportunities that are
appropriate for OmniSky and us, and Mr. Oros may learn of business opportunities
that are appropriate for our pending strategic alliance with Reuters and us, and
Mr. Oros and Ms. Roberts may not be required to make those opportunities
available to us. If OmniSky or our strategic alliance with Reuters pursue
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
OmniSky, and OmniSky's contractual relationships with Aether and 3Com. Mr. Oros
may also have other conflicts of interest with Aether because of his position
with the strategic alliance with Reuters and its contractual relationships with
Aether. We describe those contracts in "Transactions between Aether and its
Officers, Directors or Significant Stockholders -- OmniSky" on page 70.

AN INTERRUPTION IN THE SUPPLY OF PRODUCTS AND SERVICES THAT WE OBTAIN FROM THIRD
PARTIES COULD CAUSE A DECLINE IN SALES OF OUR SERVICES, AND PRODUCTS WE PURCHASE
TO AVOID SHORTAGES MAY BECOME OBSOLETE BEFORE WE CAN USE THEM.

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 and Sierra Wireless Inc. are our only
suppliers of wireless modems, which are an integral hardware component of our
services. It can be difficult to obtain these wireless modems and their parts.
Although we have purchased a large supply of these modems, they may become
obsolete before we are able to use them. 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, 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 users. 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 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 1999, we earned 59.0% (or 69.0% on a pro forma basis giving effect to
the acquisitions of Mobeo, LocusOne and Riverbed) of our revenue from services
that provide financial information and wireless

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<PAGE> 17

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, and the ScoutWare family of software products we acquired in our
acquisition of Riverbed, are 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.

UNDISCOVERED YEAR 2000-RELATED COMPUTER PROBLEMS COULD DISRUPT OUR OPERATIONS.

We believe that software that is incorporated in our products and services
is year 2000 compliant. When the century changed, we experienced no disruption
to our business operations and no product failures as a result of year 2000
compliance issues or otherwise. We may face claims, however, for undiscovered
year 2000 errors in our own products or for year 2000 issues arising from
third-party products that we integrate into our products and services or with
which our systems and products exchange data. If our suppliers, vendors or
distributors fail to timely and completely correct their own year 2000 software,
firmware and hardware problems, or if any of them convert to a system that is
incompatible with our systems, our ability to deliver our products and services
could be disrupted.

THE STOCKHOLDER AGREEMENT AMONG OUR MAJOR STOCKHOLDERS WILL HAVE THE EFFECT OF
ALLOWING THEM TO CONTROL EIGHT OF OUR TWELVE DIRECTORS, WHICH WILL LIMIT THE
ABILITY OF NEW INVESTORS TO INFLUENCE CONTROL OF AETHER.

NexGen Technologies, L.L.C., Telcom-ATI Investors, L.L.C., Reuters
MarketClip Holdings Sarl, a subsidiary of Reuters Group PLC, and 3Com -- who
together will hold 54.6% of the shares of common stock outstanding following
completion of this offering -- entered into a stockholder agreement that governs
voting for our directors. The agreement provides 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 are effectively chosen by these major stockholders.
As we currently have authorized only 12 directors, the voting rights of our
stockholders other than these major stockholders effectively apply to only four
of our directors. In addition to its effect on the 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 and the concurrent offering of convertible notes
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. 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

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<PAGE> 18

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.

We may not be able to complete the proposed subordinated convertible notes
offering being conducted concurrently with this offering. Failure to complete
the notes offering may increase our need for financing.

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, HAS BEEN, AND MAY
CONTINUE TO BE, VOLATILE.

The market price of our common stock has been highly volatile and is likely
to continue to be highly volatile. The trading price of our common stock has
increased significantly from our initial offering price of $16.00 per share on
October 20, 1999. 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" on page 76 for a
more detailed discussion of these provisions.

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 $17.14 per share,
giving effect to the acquisition of LocusOne and Riverbed and the completion of
this offering and the concurrent note offering. The offering price (assuming an
offering price of $245 per

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<PAGE> 19

share) exceeds this amount by $227.86 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.

SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY DEPRESS OUR
SHARE PRICE.

After this offering, we will have outstanding 34,722,832 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, and the shares sold in our initial public offering are, freely
tradable. An additional 24,114,750 shares will be available for sale in the
public markets as follows:

<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR SALE NUMBER OF SHARES
----------------------------- ----------------
<S> <C>
(90 days after the date of this
prospectus)............................................... 19,250
October 26, 2000............................................ 19,626,646
At various times thereafter upon the expiration of one-year
holding periods........................................... 4,507,549
</TABLE>

Of these shares, 24,134,195 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 October 27, 2000.

We filed a registration statement to register all shares of common stock
that were issued to our employees under our equity incentive plan and intend to
file future registration statements. Shares issued upon exercise of stock
options will be eligible for resale in the public market without restriction. As
of March 15, 2000, options and warrants to purchase 4,688,036 shares of our
common stock were issued and outstanding and covered by the registration
statement. In addition, warrants to purchase 893,665 additional shares were
issued and outstanding on that date.

DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR CASH FLOW.

Concurrently with this offering, we anticipate offering convertible
subordinated notes in an aggregate principal amount of $200 million, or $230
million if the over-allotment option granted to the underwriters in connection
with the notes offering is exercised in full. If the notes offering is completed
as planned, we will have substantial amounts of outstanding indebtedness,
primarily consisting of the notes. As a result of this indebtedness, we will be
obligated to make principal and interest payments. There is the possibility that
we may be unable to generate cash sufficient to pay the principal of, interest
on and other amounts due in respect of our indebtedness when due. We may also
obtain additional long-term debt and working capital lines of credit to meet
future financing needs. There can be no assurance that additional financing
arrangements will be available on commercially reasonable terms or at all.

WE MAY HAVE CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF THE
SECURITIES ACT OF 1933 IN CONNECTION WITH A LETTER SENT TO EMPLOYEES IN THE
DIRECTED SHARE PROGRAM AT THE TIME OF OUR INITIAL PUBLIC OFFERING.

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<PAGE> 20

provide us with information for mailing purposes, including an estimate of the
number of shares that they would want to be given the opportunity to purchase
and to have their immediate family members provide the same information. Our
letter was not accompanied by a preliminary prospectus and may have constituted
a prospectus that does not meet the requirements of the Securities Act of 1933.
If the mailing of these original materials did constitute a violation of the
Securities Act of 1933, the recipients of the letter who purchased common stock
in our initial public offering and continue to own those shares could have the
right until October 26, 2000 to obtain recovery of the consideration paid in
connection with their purchase of common stock or, if they had already sold the
stock, sue us for damages resulting from their purchase of common stock. If all
of the recipients of the letter still hold shares they purchased in the initial
public offering, these refunds or damages could total up to approximately $6.2
million, based on the initial public offering price of $16.00 per share, in the
event that investors suffer a total loss of their investment before they sold
the shares or the relevant limitations period expired and seek refunds or
damages. If this were to occur, our business, results of operations and
financial condition could suffer.

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<PAGE> 21

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. These include projections about the industry contained on pages 37 to 38.
We have based these forward-looking statements on our current expectations and
projections about future events. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "pending,"
"potential," "continue," "expects," "anticipates," "intends," "plans,"
"believes," "predicts," "estimates" and similar expressions, although not all
forward-looking statements are identified by these words. 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> 22

USE OF PROCEEDS

We expect to receive approximately $553.1 million in net proceeds from the
sale of 2,374,741 shares of common stock, assuming an offering price of $245, by
Aether in this offering ($590.9 million if the underwriters' over-allotment
option is exercised in full) after deduction of estimated underwriting discounts
and commissions and estimated offering expenses payable by us and the exercise
of options to purchase 155,178 shares by the selling stockholders. We will not
receive any proceeds from the 625,259 shares sold by selling stockholders in the
offering. The net proceeds to us from the concurrent convertible notes offering
are expected to be approximately $192.8 million ($221.9 million if the
underwriters' over-allotment option is exercised in full) after deduction of
estimated underwriting discounts and commissions and estimated offering expenses
payable by us.

We currently intend to use $100 million of the proceeds of this offering
and the concurrent notes offering to fund our European strategic alliance with
Reuters, $19 million to repay indebtedness incurred in connection with the
LocusOne acquisition, $17 million to acquire 9.9% of the stock of Metrocall, $10
million to acquire our 27.5% interest in Inciscent and an estimated $25 million
to fund sales and marketing activities. We have not determined the use of the
remaining proceeds of this offering and the concurrent notes offering, but we
expect to use some portion of the proceeds to provide the cash portion of
acquisitions and strategic investments we may identify in the future that
advance our strategy. The offering will also create a larger public float for
our common stock and allow for the orderly liquidation of investments made by
some stockholders.

Pending these uses, the net proceeds of these offerings will be invested in
short-term, investment grade, interest-bearing instruments.

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market under the
symbol "AETH" since our initial public offering on October 20, 1999. Prior to
that time, there was no public market for the common stock. The following table
sets forth, for the periods indicated, the high and low prices per share of the
common stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
Fourth Quarter (since October 20, 1999)..................... $89 3/8 $41 1/8
2000
First Quarter (through March 15, 2000)...................... $345 $73
</TABLE>

On March 15, 2000 the reported last sale price of the common stock on the
Nasdaq National Market was $245. As of March 15, 2000 there were approximately
47 holders of record of our common stock.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock nor,
when we were organized as a limited liability company, have we 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 in 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> 23

CONCURRENT OFFERING

The convertible notes to be offered in the concurrent offering will be in
an aggregate principal amount of $200 million, excluding $30 million principal
amount subject to an over-allotment option. The convertible notes will be due on
2005. Interest will accrue on the convertible notes at the rate of %
per year on the principal amount, payable semiannually in arrears on and
of each year commencing on 2005. The convertible notes are
convertible at the option of the holder into common stock. The initial
conversion price is $ per share, which is equal to a conversion rate of
shares per $1,000 principal amount of notes, subject to adjustment. We may
redeem some or all of the notes at any time before , 2003 if the
closing price of our common stock has exceeded 150% of the conversion price, and
at any time on or after , 2003 at redemption prices that vary
depending on the date of redemption. The convertible notes will be unsecured and
will be subordinated to our existing and future senior indebtedness. The
convertible notes will be effectively subordinated to the indebtedness and other
obligations of our subsidiaries. The indenture relating to the convertible notes
does not restrict the incurrence by us and our subsidiaries of debt or other
obligations.

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<PAGE> 24

CAPITALIZATION

The table below sets forth the following information as of December 31,
1999:

- our actual capitalization;

- our pro forma capitalization giving effect to the acquisitions of
LocusOne and Riverbed as if completed on December 31, 1999;

- our pro forma capitalization giving effect to the acquisitions
described above and the sale of 2,374,741 shares of common stock in
this offering and the exercise of options to purchase 155,178 shares
by the selling stockholders; and

- our pro forma capitalization giving effect to the acquisitions
described above, the sale of shares in this offering and the
issuance and sale of $200 million of our % convertible
subordinated notes due 2005 in the concurrent offering.

The table below includes deductions for estimated underwriting discounts
and commissions, and for estimated offering expenses in connection with this
offering and the concurrent offering of convertible notes as applicable.

Actual common stock data are as of December 31, 1999 and exclude:

- 3,929,338 shares issuable upon exercise of options to purchase
shares of common stock issued, or issued in connection with our
acquisitions of Riverbed and LocusOne, under our equity incentive
plan at a weighted average exercise price of $13.46 per share;

- 1,175,000 shares issuable upon exercise of warrants exercisable at a
weighted average exercise price of $1.96 per share; and

- 893,665 shares of common stock issuable upon exercise of warrants
with an exercise price of $.01 per share.

This table should be read in conjunction with our consolidated financial
statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" beginning on page 27. Details
regarding pro forma adjustments are set forth in the Unaudited Pro Forma
Condensed Consolidated Financial Information beginning on page F-44.

22
<PAGE> 25

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------------------------------------------
PRO FORMA
--------------------------------------------------------------
ACQUISITIONS,
COMMON
ACQUISITIONS AND STOCK AND CONVERTIBLE
ACTUAL ACQUISITIONS COMMON STOCK OFFERING NOTES OFFERINGS(1)
------------ -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Notes payable, current............. $ -- $ 19,095,600 $ 120,578 $ 120,578
Notes payable, long term........... -- 241,155 241,155 241,155
Convertible subordinated notes..... -- -- -- 200,000,000
------------ -------------- -------------- --------------
Total debt................ -- 19,336,755 361,733 200,361,733
------------ -------------- -------------- --------------
Stockholders' equity:
Preferred stock, $0.01 par value;
1,000,000 shares authorized; 0
shares issued and
outstanding.................... -- -- -- --
Common stock, $0.01 par value;
75,000,000 shares authorized;
shares issued and outstanding:
actual, 27,154,398;
acquisitions, 31,691,679;
acquisitions and common stock
offering, 34,221,598; and
acquisitions, common stock and
convertible notes offering,
34,221,598..................... 271,543 316,916 342,216 342,216
Additional paid-in-capital....... 120,892,478 1,241,650,105 1,794,705,909 1,794,705,909
Accumulated deficit.............. (22,613,640) (22,613,640) (22,613,640) (22,613,640)
Notes receivable from
stockholder.................... (137,879) (137,879) (137,879) (137,879)
Unrealized loss on investments
available for sale............. (70,069) (70,069) (70,069) (70,069)
------------ -------------- -------------- --------------
Total stockholders'
equity.................. 98,342,433 1,219,145,433 1,772,226,538 1,772,226,538
------------ -------------- -------------- --------------
Total capitalization...... $ 98,342,433 $1,238,482,188 $1,772,588,271 $1,972,588,271
============ ============== ============== ==============
</TABLE>

- ---------------

(1) Completion of the convertible notes offering is not a condition to the
completion of this offering.

23
<PAGE> 26

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 December 31, 1999 was $40.8
million, or $1.29 per share of common stock, after giving effect to the
acquisitions of LocusOne and Riverbed.

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 2,374,741 shares of common stock in this
offering at an assumed offering price of $245 per share of common stock, the
exercise of options to purchase 155,178 shares by the selling stockholders, and
our concurrent offering of an aggregate principal amount of $200 million in
convertible notes, and after deducting the commissions and estimated offering
expenses for these offerings, our as adjusted pro forma net tangible book value
as of December 31, 1999 would have been $586.6 million, or $17.14 per share of
common stock. This figure represents an immediate increase in net tangible book
value of $15.85 per share of common stock to existing stockholders and an
immediate dilution of $227.86 per share of common stock to new investors. The
following table illustrates this per share dilution to new investors:

<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $245.00

Pro forma net tangible book value per share as of December
31, 1999............................................... $ 1.29
Increase per share to existing stockholders attributable
to the offerings....................................... $15.85
------
As adjusted pro forma net tangible book value per share
after the offerings....................................... $ 17.14
-------
Dilution per share to new investors in this offering........ $227.86
=======
</TABLE>

As of December 31, 1999, we had outstanding options to purchase 2,758,358
shares under our equity incentive plan at a weighted average exercise price of
$5.66 and warrants to purchase 1,175,000 shares at a weighted average exercise
price of $1.96 per share. We issued options to purchase 308,500 shares in the
LocusOne acquisition at a weighted average exercise price of $92.00 per share
and options to purchase 862,480 shares in the Riverbed acquisition at a weighted
average exercise price of $10.30 per share. In addition, we expect to have
options to purchase approximately 2,411,708 additional shares available for
future grant under our equity incentive plan, assuming completion of this
offering. If the option holders exercise these outstanding options, or any
options we grant in the future, there will be further dilution to new investors.

24
<PAGE> 27

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share amounts)

The table that follows presents portions of our consolidated financial
statements and is not complete. You should read the following selected
consolidated financial data together with our consolidated 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
consolidated statement of operations data for the years ended December 31, 1997,
1998 and 1999, and the consolidated balance sheet data as of December 31, 1998
and 1999, are derived from our consolidated financial statements, which have
been audited by KPMG LLP, independent auditors, and which are included in this
prospectus beginning on page F-1. The consolidated statement of operations data
for the year ended December 31, 1996 and the consolidated balance sheet data as
of December 31, 1996 and 1997 are derived from audited financial statements that
do not appear in this prospectus. 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 27.

The pro forma consolidated financial information gives effect to (i) the
Mobeo, LocusOne and Riverbed acquisitions, (ii) this offering of common stock
and the application of the net proceeds as described in "Use of Proceeds" on
page 20 and (iii) the sale of $200 million of our convertible notes in a
concurrent public offering and the application of the net proceeds as described
in "Use of Proceeds" on page 20. The pro forma net loss per share information
gives effect to our conversion from a limited liability company to a corporation
immediately prior to our initial public offering.

We have provided the pro forma consolidated financial information for
informational purposes only and you should not assume that our results would
actually have been as shown if we had acquired Mobeo, LocusOne and Riverbed or
completed the offerings on the assumed dates, or that the information projects
what our results will be as a result of the acquisitions or if we complete the
offerings. The pro forma consolidated statement of operations information
assumes that the transactions occurred on January 1, 1999, and the pro forma
consolidated balance sheet information assumes that the transactions occurred on
December 31, 1999. See our, Mobeo's and Riverbed's financial statements and
notes to those statements included in this prospectus beginning on page F-1.

25
<PAGE> 28

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1999 PRO FORMA
------------

HISTORICAL
----------------------------------------------------
1996 1997 1998 1999 ACQUISITIONS
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Subscriber revenue......... $ -- $ 161 $ 549 $ 3,732 $ 11,200
Engineering services
revenue.................. 1,355 1,625 963 2,594 2,594
Software and related
services revenue......... -- -- -- -- 2,443
---------- ----------- ----------- ----------- -----------
Total revenue.......... 1,355 1,786 1,512 6,326 16,237
Cost of subscriber
revenue.................. -- 447 797 2,110 4,639
Cost of engineering
services revenue......... 1,007..... 846 304 1,366 1,366
Cost of software and
related services
revenue.................. -- -- -- -- 1,541
---------- ----------- ----------- ----------- -----------
Total cost of
revenue............. 1,007 1,293 1,101 3,476 7,546
---------- ----------- ----------- ----------- -----------
Gross profit........... 348 493 411 2,850 8,691
Operating expenses:
Research and development... 161 734 1,267 2,614 5,481
General and
administrative........... 395 1,505 2,773 5,891 8,907
Selling and marketing...... -- 333 840 2,095 6,831
Depreciation and
amortization............. 45 189 265 1,089 386,351
Option and warrant
expense.................. -- 40 33 19,198 30,910
---------- ----------- ----------- ----------- -----------
Total operating
expenses............... 601 2,801 5,178 30,887 438,480
---------- ----------- ----------- ----------- -----------
Operating loss............... (253) (2,308) (4,767) (28,037) (429,789)
Interest income, net......... 8 7 70 (60) 108
Equity in losses of
investments................ (172) (144) -- (2,425) (2,425)
Realized gain (loss) on sale
of investments............. -- (302) 4 (169) (169)
---------- ----------- ----------- ----------- -----------
Net loss..................... $ (417) $ (2,747) $ (4,693) $ (30,691) $ (432,275)
========== =========== =========== =========== ===========
Pro forma net loss per
share-basic and
diluted.................. $ (0.04) $ (0.22) $ (0.29) $ (1.45) $ (16.79)
========== =========== =========== =========== ===========
Pro forma weighted average
shares used in computing
net loss per share-basic
and diluted.............. 10,554,795 12,655,901 15,916,383 21,207,225 25,744,506
========== =========== =========== =========== ===========

<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 PRO FORMA
----------------------------------
ACQUISITIONS,
COMMON STOCK
ACQUISITIONS AND
AND COMMON CONVERTIBLE NOTES
STOCK OFFERING OFFERINGS
-------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Subscriber revenue......... $ 11,200 $ 11,200
Engineering services
revenue.................. 2,594 2,594
Software and related
services revenue......... 2,443 2,443
----------- -----------
Total revenue.......... 16,237 16,237
Cost of subscriber
revenue.................. 4,639 4,639
Cost of engineering
services revenue......... 1,366 1,366
Cost of software and
related services
revenue.................. 1,541 1,541
----------- -----------
Total cost of
revenue............. 7,546 7,546
----------- -----------
Gross profit........... 8,691 8,691
Operating expenses:
Research and development... 5,481 5,481
General and
administrative........... 8,907 8,907
Selling and marketing...... 6,831 6,831
Depreciation and
amortization............. 386,351 386,351
Option and warrant
expense.................. 30,910 30,910
----------- -----------
Total operating
expenses............... 438,480 438,480
----------- -----------
Operating loss............... (429,789) (429,789)
Interest income, net......... 108 (14,332)
Equity in losses of
investments................ (2,425) (2,425)
Realized gain (loss) on sale
of investments............. (169) (169)
----------- -----------
Net loss..................... $ (432,275) $ (446,715)
=========== ===========
Pro forma net loss per
share-basic and
diluted.................. $ (15.29) $ (15.80)
=========== ===========
Pro forma weighted average
shares used in computing
net loss per share-basic
and diluted.............. 28,274,425 28,274,425
=========== ===========
</TABLE>

1996 1997 1998 1999
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents......... $ 51 $ 132 $ 1,755 $ 78,542
Working capital
(deficit)........... 181 (323) 7,519 83,128
Total assets.......... 1,269 822 8,765 102,534
Total debt............ -- 150 -- --
Members' capital...... 1,101 74 8,030 --
Stockholders'
equity.............. -- -- -- 98,342

<CAPTION>
AS OF DECEMBER 31, 1999 PRO FORMA
------------------------------------------------------------
ACQUISITIONS, COMMON
ACQUISITIONS AND STOCK AND CONVERTIBLE
ACQUISITIONS COMMON STOCK OFFERING NOTES OFFERINGS
------------ --------------------- ---------------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents......... $ 47,724 $ 454,830 $ 647,630
Working capital
(deficit)........... 37,071 463,152 655,952
Total assets.......... 1,244,065 1,778,172 1,978,171
Total debt............ 19,337 362 200,362
Members' capital...... -- -- --
Stockholders'
equity.............. 1,219,145 1,772,227 1,772,227
</TABLE>

26
<PAGE> 29

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, Inc. 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 completing our initial public offering of common stock on October 26,
1999, the limited liability company was converted into a corporation called
Aether Systems, Inc.

Development of our business. 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). 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. We also expect to derive revenue from licensing our software.

In August 1999, we formed a new company with 3Com called OpenSky, which was
renamed OmniSky in October 1999. We formed OmniSky with 3Com to pursue
opportunities in the emerging consumer and business mass markets for wireless
e-mail, Internet access and other electronic transactions applications. As of
February 15, 2000, we owned 33% of OmniSky. OmniSky is obligated to pay us $1.50
per month per subscriber for use of our network operations center. We have the
right to offer OmniSky's services to our subscribers in exchange for a monthly
fee to OmniSky of $3 per subscriber. On November 15, 1999, OmniSky launched its
service in a limited test phase of 5,000 subscribers and in January 2000
expanded the program to up to 7,000 subscribers. As of February 16, 2000,
OmniSky had enrolled approximately 6,800 subscribers. We provide engineering
services to OmniSky under a $3 million agreement that extends through June 2000.

On September 28, 1999, we acquired Mobeo, which 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 February 3, 2000, we acquired LocusOne, which provides wireless data
systems to companies that distribute goods and services using their own delivery
fleets.

On February 7, 2000, we agreed to invest $10 million to acquire a 27.5%
interest in Inciscent, a new company we formed with Metrocall, PSINet, Hicks,
Muse, Tate & Furst and other investors through which we plan to develop wireless
e-mail, Internet access and other applications for the small office and home
office market segments. As part of the investment, we also agreed to acquire
approximately 9.9% of the outstanding capital stock of Metrocall for
approximately $17 million. Under the agreement, we will grant a perpetual AIM
license to Inciscent for $1 million and perform engineering services under a $4
million contract.

On February 8, 2000, we signed a letter of intent with Reuters to establish
a European wireless venture, which will be headquartered in the United Kingdom
and initially focused on financial markets. The letter of intent provides that
we will acquire a 60% interest in the new company for $100 million. Our letter
of intent with Reuters does not commit either us or Reuters to form the new
company and remains subject to definitive documentation and the receipt of
proceeds from this offering to fund the investment.

27
<PAGE> 30

On March 6, 2000, we acquired Riverbed, which develops software that
extends the accessibility of applications and information from corporate
networks and databases to handheld devices.

Our subscriber and revenue information. Our subscriber base has
historically been derived from financial data and online trading services. The
following table shows the number of subscribers to our financial data services
and online trading services as of December 31 of each of the years shown.

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- -----
<S> <C> <C> <C>
Financial data services..................................... 116 656 4,288
Online trading services..................................... -- -- 277
--- --- -----
Total subscribers................................. 116 656 4,565
</TABLE>

The growth in subscribers over these periods was primarily the result of
the attraction of new subscribers to our services, the introduction of new
services and, in 1999, subscribers added through our acquisition of Mobeo. In
1997 our subscriber base was comprised of users of our AirBroker service.
Reuters MarketClip was introduced in March 1998 and produced the majority of our
subscriber growth in 1998. MarketClip provides real-time wireless access to
financial data. Reuters MarketClip yearly subscriptions started to expire in
March 1999 and 77.2% of all subscribers eligible to renew during the period from
March to December 1999 renewed their contracts for an additional one-year
period. In October 1999, we introduced Morgan Stanley Dean Witter Online
TradeRunner. TradeRunner provides real-time wireless financial data and enables
subscribers to trade stocks and options using wireless handheld devices. The
introduction of online trading service subscribers was due to the launch of
TradeRunner in October 1999.

The majority of the growth in financial data services subscribers in 1999
is attributable to the acquisition of Mobeo, which had 3,294 subscribers as of
December 31, 1999. Mobeo's subscriber base is primarily attributable to its
foreign exchange products. Mobeo had 3,339 subscribers as of December 31, 1998
and 2,811 subscribers as of December 31, 1997. The net increase in Mobeo's
subscriber base from the end of 1997 to the end of 1998 was due to new
subscriptions of 1,660 and terminations of 1,132 subscriptions. The net decrease
in subscribers from December 31, 1998 to December 31, 1999 was due to the
termination of 1,186 subscriptions and the addition of 1,124 new subscriptions.
We believe that a substantial number of Mobeo subscriber terminations and
additions is the result of changes in personnel at financial institutions whose
traders are Mobeo subscribers. We believe the decrease in new subscribers
between 1998 and 1999 was caused by a consolidation among financial institutions
and the transition associated with the sale of Mobeo and its integration into
our operations. We plan to increase sales and marketing efforts with respect to
our foreign exchange services and to bundle the services with additional
applications. We expect that growth from online trading services will exceed
growth from financial data services as we introduce new services.

For the year ended December 31, 1999, our cost to acquire subscribers was
greater than the revenue we derived from those subscribers over the initial
one-year contract term. The cost to acquire subscribers during this period was
approximately $2.2 million and the contracts entered into during that period
provide for payments of approximately $499,000 during the one-year term of the
contracts. We expect that revenue from new customers will begin to exceed
subscriber acquisition costs when the number of subscribers increases to cover
our fixed costs. 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.

We expect to derive revenue from the licensing of our AIM software platform
and the ScoutWare software suite we acquired upon completion of our acquisition
of Riverbed. We also expect to derive licensing revenue associated with our
e-Mobile Delivery transportation logistics and delivery services. To date, we
have not received any revenue from licensing our AIM software platform.

LocusOne's revenue primarily consists of service revenue relating to
systems integration and ongoing support, software licensing and equipment sales.
LocusOne also receives recurring revenue for use of its network operations
center, which is expected to become a higher percentage of total revenue in the
future.

28
<PAGE> 31

LocusOne's customers include Physician Sales & Service, Inc., MAC Papers, Inc.,
Office Depot, Inc., NuCo2, Inc. and Suntory Water Group. These customers
accounted for a substantial majority of LocusOne's revenue in 1999.

Riverbed's revenue primarily consists of fees generated from licensing
software and providing related services, including maintenance and technical
support, training and consulting. A substantial majority of Riverbed's 1999
revenue was received from 3Com, Extensity, Inc., Aether, Oracle and OmniSky.

Operating losses. 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. In addition, our acquisitions of
Mobeo, LocusOne and Riverbed will result in option and warrant expense and very
significant amortization of intangible assets. As a result, we expect to
continue to incur operating losses for the foreseeable future.

RESULTS OF OPERATIONS

We currently derive our revenue primarily from the sale of wireless data
services and by providing wireless engineering services. Revenue from wireless
data services generally consists of:

- a one-time, non-refundable per-subscriber activation fee, which we
recognize upon service activation;

- monthly per-subscriber service fees, which we recognize as services are
provided; and

- monthly per-subscriber exchange fees for access to financial information
from the securities exchanges and markets, which we recognize as services
are provided. We pay a corresponding fee to the various exchanges and
markets on a regular basis.

We also derive revenue from providing our subscribers with the option to
purchase wireless handheld devices from us at cost, which we bill over the
initial term of the contract. Contracts with our wireless data subscribers are
generally 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. With the
acquisitions of LocusOne and Riverbed, we expect to derive revenue from software
licensing, including licensing fees, maintenance fees and support fees.

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, subcontractors and other
non-reimbursed, project-related costs. With the acquisitions of LocusOne and
Riverbed, we expect to incur costs relative to software licensing, including
royalty payments and personnel 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
other costs. Selling and marketing expenses consist primarily of advertising and
promotions, sales and marketing personnel, travel and entertainment and other
costs.

29
<PAGE> 32

Depreciation and amortization expenses consist primarily of amortization of
intangible assets acquired in the Mobeo acquisition and depreciation expenses
arising from equipment purchased for our network operations center and other
property and equipment purchases. With the acquisitions of LocusOne and
Riverbed, depreciation and amortization expenses will consist primarily of
amortization related to goodwill and other intangibles to be recognized as a
result of these acquisitions.

Option and warrant expense consists of expenses recorded to account for the
difference, on the date of grant, between the fair market value and the exercise
price of options issued to employees and the fair value of equity-based awards
to non-employees. With the acquisitions of Mobeo, LocusOne and Riverbed, we
expect to have substantial additional option and warrant expense.

Other income (expense) consists of interest income, interest expense,
equity in losses of our investment in OmniSky, and realized losses on our
investments.

FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999

Subscriber revenue. Subscriber revenue of $161,400 for the year ended
December 31, 1997 is attributable to our AirBroker service, which provides
real-time financial information via cellular phones. Subscriber revenue
increased to $549,057 for the year ended December 31, 1998 primarily due to the
launch of Reuters MarketClip in March 1998. Subscriber revenue increased to $3.7
million for the year ended December 31, 1999 as a result of an increase in
MarketClip subscribers, the introduction of TradeRunner and the acquisition of
Mobeo in September 1999. Services acquired from Mobeo contributed revenue of
$2.4 million for the year ended December 31, 1999.

On a pro forma basis, giving effect to the acquisitions of Mobeo, LocusOne
and Riverbed, subscriber revenue for the year ended December 31, 1999 was $11.2
million. Mobeo accounted for 88.2% of this subscriber revenue. Subscriber
revenue for Mobeo increased from $7.1 million for the year ended December 31,
1997 to $8.6 million for the year ended December 31, 1998 and to $9.9 million
for the year ended December 31, 1999. The increases from 1997 to 1998 and from
1998 to 1999 were primarily due to price increases for Mobeo's foreign exchange
information services.

Engineering services revenue. Engineering services revenue decreased from
$1.6 million for the year ended December 31, 1997 to $1.0 million for the year
ended December 31, 1998 and increased to $2.6 million for the year ended
December 31, 1999. 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. One of our investors accounted
for approximately 37% of engineering services revenue for 1997. The increase
from 1998 to 1999 was primarily due to the contract with OmniSky described in
the section entitled, "-- Overview." We recognized $2.2 million under this
contract for the year ended December 31, 1999.

The acquisitions of Mobeo, LocusOne and Riverbed did not have a material
effect on engineering services revenue on a pro forma basis for the year ended
December 31, 1999.

Software and related services revenue. We did not earn any software and
related services revenue in 1997, 1998 and 1999. On a pro forma basis, giving
effect to the acquisitions of Mobeo, LocusOne and Riverbed, software and related
services revenue was $2.4 million in 1999, primarily as a result of licenses
sold by Riverbed on its ScoutWare software platform and systems integration and
support services provided by LocusOne.

Cost of subscriber revenue. Cost of subscriber revenue increased from
$447,480 for the year ended December 31, 1997 to $797,165 for the year ended
December 31, 1998 and to $2.1 million for the year ended December 31, 1999. 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. The increase from 1998 to 1999 was a result of an increase in
MarketClip subscribers, the introduction of TradeRunner and the acquisition of
Mobeo in September 1999. Cost of subscriber revenue from services acquired from
Mobeo totaled $859,223 in 1999. We expect the number of subscribers for
financial services and online trading
30
<PAGE> 33

services to increase resulting in an increase in the cost of subscriber revenue.
Mobeo has entered into a new airtime supply agreement with a paging company. In
the first quarter of 2000, Mobeo will provide a new pager to each of its
subscribers at no cost as the existing pagers are not compatible with the new
supplier's network. As a result, we expect to record approximately $500,000 of
expense in the first quarter of 2000 relating to supplying these pagers.

On a pro forma basis, giving effect to the acquisitions of Mobeo, LocusOne
and Riverbed, cost of subscriber revenue for the year ended December 31, 1999
was $4.6 million. Mobeo accounted for 73.0% of these costs. Cost of subscriber
revenue for Mobeo decreased from $3.1 million for the year ended December 31,
1997 to $3.0 million for the year ended December 31, 1998 and increased to $3.4
million for the year ended December 31, 1999. The decrease from 1997 to 1998 was
primarily due to cost savings related to a change in financial data providers
and the increase from 1998 to 1999 was primarily due to an increase in
subscriber revenue. As a percentage of subscriber revenue, cost of subscriber
revenue decreased from 35.4% in 1998 to 34.3% in 1999.

Cost of engineering services revenue. Cost of engineering services revenue
decreased from $846,140 for the year ended December 31, 1997 to $304,137 for the
year ended December 31, 1998 and increased to $1.4 million for the year ended
December 31, 1999. The decrease from 1997 to 1998 was primarily due to our
decision to focus our efforts on developing our AIM software platform and
wireless data services. The increase from 1998 to 1999 was primarily due to the
contract with OmniSky described in the section entitled, "-- Overview."

The acquisitions of Mobeo, LocusOne and Riverbed did not have a material
effect on cost of engineering services revenue on a pro forma basis for the year
ended December 31, 1999.

Cost of software and related services revenue. We had no costs associated
with software and related services revenue in 1997, 1998 and 1999. However, we
did incur research and development expenses as discussed below. On a pro forma
basis, giving effect to the acquisitions of Mobeo, LocusOne and Riverbed, cost
of software and related services revenue was $1.5 million in 1999 and included
royalty fees and personnel costs of Riverbed and LocusOne.

Research and development expenses. Research and development expenses
increased from $733,630 for the year ended December 31, 1997 to $1.3 million for
the year ended December 31, 1998 and to $2.6 million for the year ended December
31, 1999. 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 acquisitions of Mobeo, LocusOne
and Riverbed, research and development expenses for the year ended December 31,
1999 were $5.5 million. Riverbed accounted for 37.4% of the expenses, Mobeo
accounted for 22.1% of the expenses and LocusOne accounted for 1.0% of the
expenses. Research and development expenses for Mobeo increased from $174,867
for the year ended December 31, 1997 to $496,570 for the year ended December 31,
1998 and to $1.2 million for the year ended December 31, 1999. The increase from
1997 to 1998 was primarily due to an increase in the number of engineering
personnel, and the increase from 1998 to 1999 was primarily due to additional
expenses associated with the development of wireless software applications.

General and administrative expenses. General and administrative expenses
increased from $1.5 million for the year ended December 31, 1997 to $2.8 million
for the year ended December 31, 1998 and to $5.9 million for the year ended
December 31, 1999. 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 acquisitions of Mobeo, LocusOne
and Riverbed, general and administrative expenses for the year ended December
31, 1999 were $8.9 million. Mobeo accounted for 16.7% of these expenses,
Riverbed accounted for 11.8% of these expenses and LocusOne accounted for 9.2%
of these expenses. General and administrative expenses for Mobeo increased from
$1.9 million for the year ended December 31, 1997 to $2.7 million for the year
ended December 31, 1998 and decreased to $2.3 million for the year ended
December 31, 1999 before pro forma adjustment. The increase from 1997

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to 1998 was primarily due to personnel and related costs. The decrease from 1998
to 1999 is primarily attributable to decreased compensation and professional fee
expense as a result of our acquisition of Mobeo.

Selling and marketing expenses. Selling and marketing expenses increased
from $333,191 for the year ended December 31, 1997 to $840,455 for the year
ended December 31, 1998 and to $2.1 million for the year ended December 31,
1999. Of the increase from 1997 to 1998, $324,152 was due to an increase in
advertising and promotion costs related to the launch of Reuters MarketClip in
March 1998, and the remaining amount relates to an increase in personnel and
costs associated with sales and marketing. From 1998 to 1999, the increase
relates primarily to increases in the number of sales and marketing personnel.
This expense is expected to increase significantly in 2000 as a result of
increased spending in advertising.

On a pro forma basis, giving effect to the acquisitions of Mobeo, LocusOne
and Riverbed, selling and marketing expenses for the year ended December 31,
1999 were $6.8 million. Mobeo accounted for 26.6% of these expenses, Riverbed
accounted for 41.9% of these expenses and LocusOne accounted for 7.9% of these
expenses. Selling and marketing expenses for Mobeo increased from $1.8 million
for the year ended December 31, 1997 to $2.3 million for the year ended December
31, 1998 and to $2.6 million for the year ended December 31, 1999 before pro
forma adjustment. The increases from 1997 to 1998 and from 1998 to 1999 were
primarily due to increased personnel overhead costs.

Depreciation and amortization expenses. Depreciation and amortization
expenses increased from $189,160 for the year ended December 31, 1997 to
$264,685 for the year ended December 31, 1998 and to $1.1 million for the year
ended December 31, 1999. The increase from 1998 to 1999 was primarily due to
amortization of goodwill and other intangibles related to the Mobeo acquisition
and additional capital expenditures.

On a pro forma basis, giving effect to the acquisitions of Mobeo, LocusOne
and Riverbed, depreciation and amortization expenses for the year ended December
31, 1999 were $386.4 million. This amount primarily reflects amortization
related to goodwill and other intangibles to be recognized as a result of the
acquisitions of Mobeo, LocusOne and Riverbed.

Option and warrant expense. Option and warrant expense decreased from
$40,277 for the year ended December 31, 1997 to $32,580 for the year ended
December 31, 1998 and increased to $19.2 million for the year ended December 31,
1999. The changes in option and warrant expense for 1998 and 1999 reflect
changes in the extent to which options with exercise prices less than the fair
value on the date of grant were granted during the period. Approximately $16.5
million of the expense in 1999 relates to warrants granted to the chief
executive officer and other key executives which became fully vested as a result
of our initial public offering.

On a pro forma basis, giving effect to the acquisitions of Mobeo, LocusOne
and Riverbed, option and warrant expense for the year ended December 31, 1999
was $30.9 million. The increase from Aether's historical amount is primarily due
to expenses associated with options granted to employees of LocusOne and to the
selling stockholders of Mobeo for consulting and employee services.

Interest income, net. Net interest income increased from $7,788 for the
year ended December 31, 1997 to $70,308 for the year ended December 31, 1998 and
decreased to net interest expense of $60,282 for the year ended December 31,
1999. The increase from 1997 to 1998 was primarily due to increased cash
balances as a result of our private placement financings completed in August
1998 and October 1998. The decrease to a net expense from 1998 to 1999 relates
to interest and related expense of a loan that funded the purchase price of
Mobeo, partially offset by interest earned on the proceeds from our initial
public offering. The loan was repaid at the time of our initial public offering.

Equity in losses of investments. Our equity in the loss of Real World
Solutions, a joint venture, and Navox, Inc., was $144,825 for the year ended
December 31, 1997. This amount related to losses of Real World Solutions and
Navox recorded by us under the equity method of accounting. The $2.4 million of
equity in losses of investments in 1999 relates to our proportionate share of
losses in OmniSky under the equity method of accounting.
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Realized loss on sale of investment. In the year ended December 31, 1997,
we sold our interest in Real World Solutions and recorded a loss of $302,145. In
the year ended December 31, 1999, we recorded a loss of approximately $169,000
resulting from the sale of short-term investments.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we financed our operations primarily through private
placements of our equity securities and our initial public offering, which in
the aggregate resulted in net proceeds of $116.8 million through December 31,
1999. As of December 31, 1999, we had $80.6 million in cash and short-term
investments and $83.1 million of working capital.

Net cash used in operating activities was $1.5 million for the year ended
December 31, 1997, $4.4 million for the year ended December 31, 1998 and $12.1
million for the year ended December 31, 1999. The principal use of cash in each
of these periods was to fund our losses from operations. In October 1999, the
Company agreed to pay for the purchase of 25,000 Minstrel V modems from OmniSky
for a price per modem of $230. OmniSky has an exclusive buying arrangement with
Novatel for Minstrel V modems, which began in December and runs through March
2000. As of December 31, 1999 we have paid for 20,000 of the 25,000 modems for a
total purchase price of $4.6 million. The modems are being delivered to us
through April 2000.

Net cash used in investing activities was $209,723, for the year ended
December 31, 1997, $6.5 million for the year ended December 31, 1998 and $12.6
million for the year ended December 31, 1999. 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 year ended December 31, 1999, we invested a net of $3.9
million in short-term investments, $11.5 million to acquire Mobeo, $2.5 million
to increase our investment in OmniSky to 33% and $2.4 million in property and
equipment.

Net cash provided by financing activities was $1.8 million for the year
ended December 31, 1997, $12.5 million for the year ended December 31, 1998 and
$101.4 million for the year ended December 31, 1999. Cash provided by financing
activities in 1997 and 1998 was primarily attributable to proceeds from private
sales of our equity securities and cash provided by financing activities in 1999
consisting primarily of proceeds from our initial public offering. 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 our initial public offering, and
Merrill Lynch Capital Corporation for the primary purpose of funding the
acquisition of Mobeo. On October 26, 1999, we completed our initial public
offering and raised net proceeds (after expenses of the offering) of
approximately $101.1 million. A portion of the proceeds of the initial public
offering was used to pay off the $14.8 million loan.

On January 18, 2000, OmniSky sold equity capital through a private
placement and as a result we invested $6.7 million to retain our 33% interest in
OmniSky.

On February 3, 2000, we acquired the capital stock of LocusOne for a
purchase price of $40 million, including $21 million in cash at the time of
closing. The remaining $19 million is in the form of two notes payable as
discussed below.

For 2000, we expect to have the following additional expenditures and
requirements:

- On February 7, 2000, we agreed to acquire a 27.5% interest in Inciscent
for $10 million, a new company we formed with Metrocall, PSINet, Hicks,
Muse, Tate & Furst and other investors through which we plan to develop
wireless e-mail, Internet access and other applications for the small
office and home office market segments. As part of the investment, we
also agreed to acquire approximately 9.9% of the outstanding capital
stock of Metrocall for approximately $17 million.

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- On February 8, 2000, we signed a letter of intent with Reuters to
establish a European wireless company headquartered in the United
Kingdom, which will be initially focused on financial markets. The letter
of intent provides that we will acquire a 60% interest in the company for
$100 million. The formation of this company remains subject to definitive
documentation and our receiving money to fund the investment.

- As part of our LocusOne acquisition, we issued two notes that are due in
2000. One note totaling $5.4 million is payable at the time of the
closing of this offering. The remaining $13.6 million note is payable at
December 31, 2000 and will be repaid with proceeds of this offering to be
placed in escrow.

- We estimate we will pay $25 million to enhance our sales and marketing
activities, $12 million of which we have already committed to spend for a
nationwide broadcast and print branding and advertising campaign.

- Other potential acquisitions, investments and agreements we may identify.

We currently anticipate that our available cash resources combined with the
net proceeds from this offering and the concurrent offering of convertible notes
will be sufficient to fund our operating needs for at least the next 12 months,
including the expansion of our sales and marketing program. We expect that our
available cash resources combined with the net proceeds from these offerings
will also support our current acquisition strategy during this period. This
offering is not contingent upon the completion of the convertible notes
offering.

YEAR 2000 IMPACT

Many currently-installed computer systems and software products are coded
to accept or recognize only two digits rather than four digits to define the
year in the date code field. These systems and software products 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. Although January 1, 2000 has passed without any disruption of
operations, problems related to the year 2000 could still surface.

The discussion below includes the products and infrastructure of Aether and
its recent acquisition, Mobeo, except where noted.

We took 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. The Reuters MarketClip and Morgan
Stanley Dean Witter Online TradeRunner applications have operated successfully
in the year 2000. All our computer hardware has been inventoried and checked
against the manufacturers' year 2000 compliance declarations. All non-compliant
hardware was upgraded, or replaced. All third-party software, including
operating systems and applications, has been inventoried and checked against the
manufacturers' compliance statements. We upgraded and fixed software as
recommended by the manufacturers.

We received assurances from external entities that could affect our
business. We have on file the compliance statements of our data providers,
landline and wireless network carriers, device manufacturers and current
corporate customers whose systems might impact our own systems.

We have reviewed potential failures that may yet arise as a result of the
year 2000 transition. With the assistance of an outside consultant, we conducted
a business impact analysis and mapped the most critical of these failures into a
contingency plan that identified proactive measures to be taken to prepare for
system failures as well as those people responsible. In the event of a material
system or product failure in spite of our efforts to date, a crisis management
plan has been developed and is in place if needed.

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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.

Although we have taken the steps described above to make our systems year
2000 compliant and have experienced no year 2000 disruptions to date, 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 or our acquired companies have received from
third parties regarding their compliance is 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.

Riverbed was established in October 1998 and thus substantially all of its
network systems, personal computers, laptop computers and handheld computers
were purchased during 1999. Equipment and applications were purchased only from
vendors with favorable year 2000 compliance statements. Riverbed software
applications were tested for year 2000 compliance and defects were repaired. No
disruption of operations occurred during the transition to January 1, 2000.

LocusOne validated its hardware and software systems against vendor
compliance statements. One server was determined to be non-compliant and was
replaced. The software of one of LocusOne's wireless network carriers had
several year 2000 formatting problems that LocusOne accommodated in its software
and procedures. These formatting problems do not affect the operation of the
wireless service. LocusOne tested its software and systems for year 2000
compliance and all systems and services functioned properly. No disruption of
operations occurred during the transition to January 1, 2000.

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. This
statement, as amended, is effective for all fiscal quarters beginning after June
15, 2000. We do not expect SFAS No. 133 to have a material effect on its
financial position or results of operations.

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. At December 31, 1999, we had short-term
investments of approximately $2.1 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 December 31, 1999, the value of our short-term investments
was approximately $70,069 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
short-term, investment grade, interest-bearing instruments.

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BUSINESS

OVERVIEW

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. Technology and communications
research firm International Data Corporation, or IDC, estimates there were
approximately 212 million worldwide users of the Internet at the end of 1999 and
that the number of users will increase to 510 million by the end of 2003. IDC
also 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 Internet
commerce in the United States will increase from an estimated $406 billion in
2000 to $2.7 trillion in 2004. All of the projections and estimates in this
"Market Opportunity" section are based on the qualifications described on page
19 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. IDC estimates that in
1998 there were 303 million worldwide cellular and personal communications
systems, or PCS, subscribers, and that number is expected to increase to 1.1
billion in 2003. Use of wireless telecommunications has grown rapidly as
cellular, paging and 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.
Forrester Research forecasts that 7.1 million European business professionals
and young adults will own Web-enabled smartphones using the Wireless Application
Protocol, or WAP, by the end of 2000 and that there will be 40 million Europeans
using WAP smartphones by the end of 2001.

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.

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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

Mobile workers and consumers typically gain remote access to electronic
data and transactional capabilities in one of two ways:

- through continuous, real-time communications between databases and
handheld devices using wireless communications networks, or

- by periodically updating, or synchronizing, data between the device and
database using a direct connection, such as a phone line.

We provide the services and resources necessary to provide these capabilities
using our engineering staff, our wireless integration and mobile data management
software and our customer service and network operations center. Our
capabilities address most of the common issues companies face when building and
supporting wireless and other mobile data systems.

Issue: Wireless and other mobile data communications systems are complex.

Many information technology managers lack the engineering and system
resources to design, develop, install and maintain new software and
systems that give their companies' workforces and customers mobile
access to corporate applications.

Solution: We provide comprehensive mobile communications services.

We have all the resources necessary to design, develop, install and
maintain wireless and other mobile data communications systems for
customers. We have 136 engineers. Our engineers use our Aether
Intelligent Messaging software platform, or AIM, to extend corporate
applications to almost any wireless environment. Through our acquisition
of Riverbed, we are able to provide a complete suite of software
products that extend corporate data to mobile handheld devices. We have
established relationships with the leading wireless network carriers,
including AT&T Wireless Services, Bell Atlantic Mobile, BellSouth
Wireless Data and GTE 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 disparate
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.

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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 supports the most
widely used wireless data networks in the United States, known as CDPD,
Mobitex and ARDIS, as well as circuit-switched network protocols,
including GSM and CDMA. 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. Our WAP
Enterprise Center has a team of engineers and sales executives dedicated
to supporting and developing applications for 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 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 software platforms 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.

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 redundant elements and serves
as a high-security physical link between data feeds from our business
customers' and others' data systems and
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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 our customers, who include Reuters,
Morgan Stanley Dean Witter Online and Charles Schwab. We believe that
our network operations center is a vital component of our wireless data
service offerings that differentiates us from our competitors. We
encrypt, or scramble, digital messages as they move along wireless
networks using technology licensed from Certicom Corp. Recently we
reached an agreement to use "digital signature" technology provided by
Diversinet, which authenticates the identity of the sender and recipient
of such messages.

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 to corporations by using our engineering expertise, our software
platforms, our customer service and network operations center and our other
resources. We seek to maximize recurring revenue by developing wireless data
services. We believe our capabilities and experience have established us as an
early market leader in wireless data services, and a key element of our strategy
is to move quickly into new opportunities to extend our leadership position. Our
strategy includes the following key elements:

Target a variety of industries and market segments for development of
wireless data communications and services in the United States and
internationally. Our strategy initially focused on developing services for the
financial services sector, whose participants we believe are among the earliest
adopters of wireless data services. While seeking to extend our offerings in the
financial services sector, we also seek to move into other industries and market
segments in the United States and internationally. Since January 2000, we have
entered into the following acquisitions, investments, agreements and letters of
intent in pursuit of this strategy:

- We acquired LocusOne, which develops wireless data systems for companies
that distribute goods and services using their own delivery fleets. This
acquisition extends our business to the transportation logistics and
delivery industry.

- We entered into a non-binding letter of intent with Reuters to form a new
company to develop wireless data systems in Europe, initially focusing on
the financial services industry.

- We agreed to form a new company, Inciscent, to develop wireless e-mail,
Internet access and other applications for the small business and home
office market segments. We agreed to form Inciscent with paging company
Metrocall, Internet service provider PSINet, investment firm Hicks, Muse,
Tate & Furst and other investors.

- We increased our investment in OmniSky, a company we formed with 3Com.
With our engineering assistance, OmniSky is developing wireless e-mail,
Internet access and other electronic transactions capabilities primarily
for the consumer market, and we have the right to offer these
capabilities to our business customers.

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- We entered into a non-binding memorandum of understanding with Nextel
Finance Company to develop wireless data services using the Nextel
wireless communications network. Nextel and Aether plan to jointly
develop and market applications for mobile workforces in financial
services, transportation and other industries. Applications are being
planned for WAP-enabled Nextel phones as well as for Palm and Windows CE
devices that are connected to Nextel wireless phones.

- We entered into a non-binding letter of intent with Proxicom, Inc., an
Internet consulting and development company, to jointly pursue
opportunities to provide wireless data services to companies.

- We entered into a non-binding letter of intent with CyberBills, an online
bill-paying service, to develop a wireless electronic bill presentment
and payment service for CyberBills' consumer distribution network.

In furtherance of our acquisition strategy, we routinely review and conduct
investigations of potential acquisitions. When we believe a favorable
opportunity exists, we seek to enter into discussions with the owners or
management regarding the possibility of an acquisition, investment or joint
venture. At any given time, we may be in discussions with one or more parties.
We are currently reviewing acquisitions, investments and joint ventures that
could extend our business into new areas but are not actively engaged in
negotiations at this time.

Continue to develop the market for existing and new services in the
financial services sector. 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. We have
targeted two types of financial services subscribers, individual investors and
market professionals, each of whom understands the value of receiving real-time
information and trading capabilities. We are currently focused on launching
commercial service for our most recent customers and attracting additional
financial institutions as customers.

Offer the widest range of software products that address every aspect of
wireless integration and mobile data management for mobile workers and
consumers. We plan to provide services and products that meet all mobile and
wireless software needs, including our AIM wireless integration software and the
ScoutWare mobile data management software suite. These offerings give corporate
software engineers a complete set of development tools for designing mobile and
wireless data applications for a wide variety of handheld devices and networks.

Continue to develop mass-market wireless applications like e-mail and
Internet access and bundle them with custom corporate applications. Our
involvement with OmniSky, a company we formed in August 1999 with 3Com, allows
us to combine, or "bundle," our custom corporate wireless data services with
wireless e-mail and Internet access offered by OmniSky. We also recently
announced the formation of our WAP Enterprise Center, which provides engineers
who develop applications for wireless phones that offer data services (so called
WAP smartphones) and the systems to support data communications to these
devices. Through our recent investment in Inciscent, a company we formed with
Metrocall, PSINet, Hicks, Muse, Tate & Furst and other investors, we also plan
to develop wireless e-mail, Internet access and other applications for the small
office and home office market segments.

Expand our customer base and strengthen the Aether brand through enhanced
sales and marketing efforts. We are increasing our sales and marketing
expenditures significantly to increase our direct sales force and advertise the
Aether brand. We intend to build our sales force focused on companies that want
to provide wireless access to their data applications. As a result of our
acquisition of Riverbed, we are incorporating Riverbed's ScoutWare software
sales force with our AIM software platform sales effort. We will target large
corporations in 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 software platforms to provide their applications with wireless
capabilities. Our branding efforts will include advertising, public relations,
speaking engagements and sponsorship of major conferences.

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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 by 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.

Apply the expertise we gain through engineering services and research and
development activities to emerging business opportunities. While we no longer
provide engineering services strictly to generate revenue, we do take on
engineering assignments that might allow us to embrace technological advances or
expand into new industry sectors or services. To this end, we have established a
new research and development division that will evaluate new technologies,
applications and business opportunities that demonstrate significant market
potential. The division will initially be staffed by seven engineers, including
our chief technology officer, who will head that division.

SERVICES AND PRODUCTS

The services and products we currently offer or are developing or acquiring
include:

- delivering wireless information and transaction services;

- software licensing; and

- providing engineering services for the design, development and support of
wireless data systems.

The following table sets forth summary information regarding services and
products we now offer or are developing or acquiring.

WIRELESS INFORMATION AND TRANSACTION SERVICES
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SERVICE USERS OF SERVICE DATE INTRODUCED REVENUE TYPE SERVICE DESCRIPTION
- -------------------------- ------------------------ --------------- ----------------- -----------------------------------
<S> <C> <C> <C> <C>
EXISTING FINANCIAL SERVICES
Reuters MarketClip Individual investors March 1998 Monthly recurring Market quotes, news and alerts
TradeRunner Morgan Stanley Dean August 1999 Monthly recurring Equities and options trading,
Witter Online investors market quotes, news and alerts
F/X Alert Financial market September 1999 Monthly recurring Foreign exchange quotes, news and
professionals alerts

FINANCIAL SERVICES UNDER DEVELOPMENT
PocketBroker Charles Schwab online Monthly recurring Equities and options trading,
investors market quotes, news and alerts
PitViper Chicago Board of Trade Monthly recurring Entry and reconciliation of
floor traders commodities orders
Name to be determined National Discount Monthly recurring Equities and options trading,
Brokers online investors market quotes, news and alerts
Name to be determined Brokers or firms Monthly recurring Customer account access and
clearing through Bear trading, market quotes, news and
Stearns alerts
Name to be determined TD Waterhouse Investor Monthly recurring Equities and options trading,
Services online market quotes, news and alerts
investors

WIRELESS TRANSPORTATION & DELIVERY SERVICES
e-Mobile Delivery Physician Sales & January 1998 Monthly recurring LocusOne software suite and
Service September 1998 and/or licensing application service that enables
MAC Papers June 1999 wireless transactions at the point
Office Depot September 1998 of sale, customer contact or
NuCo2 August 1999 delivery
Suntory Water Group
</TABLE>

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<TABLE>
<CAPTION>
SOFTWARE LICENSING
- ----------------------------------------------------------------------------------------------------------------------------------
PRODUCT LICENSEES OF SOFTWARE DATE OF CONTRACT REVENUE TYPE SOFTWARE FUNCTION
- -------------------------- ------------------------ ---------------- ----------------- ---------------------------------------
<S> <C> <C> <C> <C>
Aether Intelligent Inciscent* Upfront and/or Allows for secure, efficient transport
Messaging per-user of data over wireless networks; also
licensing fees provides tools for wireless
applications development
ScoutWare Palm Computing September 1999 Per-user Riverbed ScoutWare software suite links
U.S. Postal Service June 1999 licensing fees mobile devices to corporate data
Becton Dickinson November 1999 systems, provides application
Oracle March 1999 development and management tools
</TABLE>

* We will license AIM to Inciscent for a one-time charge of $1 million when we
close our investment in Inciscent. We have licensed AIM to OmniSky on a
royalty-free basis in connection with our equity investment in OmniSky.

<TABLE>
<CAPTION>
ENGINEERING SERVICES
- -----------------------------------------------------------------------------------------------------------------------
CUSTOMER DATE OF CONTRACT REVENUE TYPE SERVICE DESCRIPTION
- -------------------------- ------------------------ --------------- ------------------------------------------------
<S> <C> <C> <C>
Response Services Center January 2000 Engineering Develop location-tracking capabilities for
fees towing firms, vehicle fleets
Merrill Lynch October 1999 Engineering Develop wireless financial services for
fees financial professionals
OmniSky August 1999 Engineering Develop and provide e-mail, Internet access and
fees electronic transactions capabilities on wireless
handheld devices
</TABLE>

Wireless Information and Transaction Services

Our wireless information and transaction services and customers are
described below.

- 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. 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 service to Reuters
MarketClip that provides market information using mobile phones.

- Morgan Stanley Dean Witter Online TradeRunner. In August 1999, we
launched TradeRunner, a service that allows Morgan Stanley Dean Witter
Online's 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 Morgan Stanley Dean Witter Online 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 Morgan Stanley Dean
Witter Online's regular commission fees for any trades. We support
TradeRunner through our customer service and network operations center.
The service operates using CDPD or Mobitex networks.

- F/X Alert. As a result of the Mobeo acquisition, we offer real-time
information on foreign exchange rates and selected commodities markets.
These services deliver time-sensitive financial information from Reuters
over wireless networks that reach the largest 100 metropolitan markets in
the United States. F/X Alert offers real-time price quotes, news and
alert tracking for more than 150 financial instruments including foreign
exchange, fixed income, futures/derivatives and commodities. In addition,
we continue to offer other Mobeo services, called Scrappy, Energy and
Pocket Futures, which track the scrap metals, energy and futures markets,
respectively, as well as 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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<PAGE> 45

- Charles Schwab PocketBroker. In December 1999, we signed a definitive
agreement with Charles Schwab to develop a wireless financial trading and
information service for Schwab's brokerage customers. We are currently
testing a pilot version of the service. We and our network carriers have
agreed to pay for advertising and marketing of this service and match the
amount spent by Schwab up to an agreed upon maximum amount. In addition,
we have agreed to provide engineering support to implement Schwab's
service at no charge for two years. At launch, we will charge Schwab
customers who subscribe to this service a flat monthly fee for unlimited
usage.

- Chicago Board of Trade PitViper. 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.

- Additional financial services under development. We are also developing
wireless financial trading and information services for National Discount
Brokers, Bear Stearns and TD Waterhouse Investor Services. We announced
our agreement to build a wireless financial trading and information
service for National Discount Brokers in November. That agreement calls
for us to develop wireless stock-trading capability along with OmniSky's
wireless e-mail and Internet access on Palm, WindowCE and other devices.
The Bear Stearns project involves developing wireless trading
applications for its brokers, clients and other financial professionals.
We recently signed a letter of intent to develop a wireless financial
trading and information service for TD Waterhouse. The Bear Stearns and
TD Waterhouse projects are each in a preliminary stage, and we cannot
assure you that definitive agreements will be signed for either of them.

- Wireless transportation and delivery services (e-Mobile
Delivery). e-Mobile Delivery, a service we offer following our
acquisition of LocusOne, allows corporations to track customer orders,
inventory and fleet vehicle locations more efficiently. The e-Mobile
Delivery group of products offers comprehensive ways to automate the
point of customer contact, sales, delivery or service. These products
integrate with corporate data systems and work using a variety of wired
and wireless communications networks. LocusOne customers for the e-Mobile
group of products include Physician Sales & Service, MAC Papers, Office
Depot, NuCo2 and Suntory Water Group.

Software Licensing

We currently license our AIM software platform, which is the core
technology underpinning most of our wireless data services, and, through our
acquisition of Riverbed, license the ScoutWare software platform. We describe
these software platforms below.

Aether Intelligent Messaging

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 the wireless data services we offer our customers. We have
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.

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<PAGE> 46

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 Morgan Stanley Dean Witter Online, 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 no
loss in the reliability of message delivery. As a result, users get data
quickly and at a low cost. The AIM software platform uses a sophisticated
technology known as elliptic curve cryptography, or ECC, which was
developed by Certicom, to encode the data so it cannot be read by a third
party that intercepts the data. Additionally, we recently reached an
agreement to use "digital signature" technology provided by Diversinet,
which authenticates the identity of the sender and recipient of such
messages.

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<PAGE> 47

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 ARDIS;

- mobile device operating systems: Palm computing platform, Windows CE,
two-way pagers and Windows 95/98/NT and their corresponding modems;
and

- corporate operating systems: Windows NT, Sun Solaris and Linux.

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 protocols, devices and systems emerge.

ScoutWare

Through our acquisition of Riverbed, we offer Riverbed's ScoutWare family
of software products. ScoutWare is a package of mobile data management software
and development tools that allows remote and mobile workers to exchange
information with corporate databases and the Internet. ScoutWare also gives
information technology personnel tools to manage, deploy and connect their
corporate data with handheld devices. We are in the process of integrating
ScoutWare with our AIM wireless integration platform, to offer customers a
complete set of wireless and mobile data solutions. ScoutWare products reside
both on handheld devices and on corporate computer servers. Mobile workers use
ScoutWare when they electronically exchange, or synchronize, data between their
handheld devices and corporate databases. There are four product categories in
the ScoutWare software suite -- ScoutSync, ScoutIT, ScoutArchitect and
ScoutWeb -- each of which is explained below:

- ScoutSync provides the core connection between a handheld device and a
corporate database. ScoutSync operates on both the Palm Operating System
and the Windows CE operating system to connect to a corporate network
using the common Internet protocol TCP/IP. Any number of remote devices
may be simultaneously connected to a single network, and the devices can
be a combination of Palm or Windows CE devices. ScoutSync can exchange
information either over a wireless network or through a cradle that is
connected to a computer linked to a corporate network. ScoutSync is made
up of four key components, illustrated in the diagram below:

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<PAGE> 48

[SCOUTSYNC SOFTWARE PLATFORM WORKS FLOW CHART]

(1) ScoutSync Client, a software application that is loaded
into the handheld device, allows the device to initiate and
carry out a synchronization session.

(2) ScoutSync Server, a software application that resides on a
computer workstation linked to the corporate network,
allows two-way communication between a device and corporate
data sources and lets system administrators monitor, update
and back up remote devices.

(3) ScoutSync Service, a set of computerized instructions that
resides on the ScoutSync Server, manages central processing
components, called "conduits," enabling them to transfer
data between the remote device and a corporation's software
programs.

(4) ScoutSync Conduit, a central processing component that
resides on a ScoutSync Server, carries out synchronization
tasks and can access and manipulate files and databases on
both the corporate database side and the mobile device
side.

- ScoutIT allows corporate information technology professionals to manage
the interaction between corporate databases and handheld
devices. Residing on a Windows NT server, ScoutIT allows information
technology managers to control how handheld devices share information
with corporate databases. Managers can administer a system allowing
thousands of remote devices to send and receive information from a single
location, including backing up and restoring data to ensure security,
upgrading and configuring applications and tracking how applications are
being used.

- ScoutArchitect is a package of software applications and software
developer tools that allows developers to create mobile-ready versions of
their corporate software applications. ScoutArchitect allows corporate
developers to quickly identify the most critical elements of a corporate
software application for a handheld device. Applications can be developed
independent of the software the device operates on or development
environment, allowing the customer to avoid reconstruction of critical
elements of an application when moving to different operating software or
development

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tools. ScoutArchitect also includes programmer and application interfaces
that allow independent software vendors to write handheld device
applications that can plug into their own applications and systems.

- ScoutWeb will allow handheld devices to receive Internet and intranet
data. Riverbed is developing ScoutWeb to manipulate data from the
Internet so that the data can be effectively used on mobile devices,
including WAP smartphones. We expect ScoutWeb will be available for
commercial use by March 2000.

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. 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 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 engineering assignments that might allow us to embrace
technological advances or expand into new industry sectors or services. In
addition to our contract with OmniSky, our current engineering services clients
include Response Services Center, LLC, an emergency vehicle response company,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated. Through our work with
Response Services, we hope to develop new services for the transportation
industry. Through our work with Merrill Lynch, we are developing wireless
financial information services for financial professionals. We generally charge
our clients for engineering time on an hourly basis or a per project flat fee.

OMNISKY

We believe we can provide our corporate customers with more attractive
service offerings by coupling general wireless applications like e-mail and
Internet access with custom corporate applications. Our involvement with
OmniSky, a company we formed in August 1999 with 3Com, allows us to achieve
this. OmniSky's main business objectives and strategies include those set forth
below.

- OmniSky will pursue opportunities in the emerging consumer and business
mass markets by developing 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.

- OmniSky 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. OmniSky may also seek to bundle its
service package with devices that are distributed by major national
computer retailers.

- OmniSky will seek to develop services that can access all platforms and
devices, rather than committing to a single device or network protocol.

- OmniSky is currently conducting a test program with approximately 6,800
Palm V users to obtain feedback on its initial service offering. OmniSky
expects to make this service commercially available in the second quarter
of 2000.

We have a 33% equity interest in OmniSky on a fully diluted basis in the
form of 10,000,000 shares of Series A Preferred Stock and 1,439,809 shares of
Series B Preferred Stock. We have a letter agreement with OmniSky to provide
engineering services through June 2000 for the design and development of
OmniSky's proposed system and services, and OmniSky 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 OmniSky services for a period of
five years as an added feature to the

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other services we offer at a monthly cost to us of $3 per subscriber. We
describe the details of our interest in OmniSky in "Transactions Between Aether
and Its Officers, Directors and Significant Shareholders -- OmniSky" on page 70.

Our chairman, chief executive officer and president, David S. Oros, is a
member of the OmniSky board of directors. Janice M. Roberts, one of our
directors, is also a director of OmniSky. Patrick McVeigh, former vice president
of worldwide sales for the Palm Computing division of 3Com, serves as president
and chief executive officer of OmniSky and also serves on the OmniSky board of
directors. OmniSky is based in Palo Alto, California.

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
from ten in 1998 to 136 in March 2000. Many of our engineers come from
engineering departments at established companies, including IBM, Westinghouse
Electric Corporation and UPS/Roadnet. Seven of our engineers, including our
chief technology officer, comprise our research and development division. This
group evaluates emerging technologies and business opportunities and plays a key
role in determining which projects to pursue.

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 power failure, we maintain backup power supplies, including
diesel-powered generators that are tested and serviced regularly. We believe our
network operations center is capable of meeting the security standards for
services we developed or are developing for our clients, who include Reuters,
Morgan Stanley Dean Witter Online and Charles Schwab. 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. Through our acquisitions of Mobeo and LocusOne, we also
maintain network operation facilities in Bethesda, Maryland and Jacksonville,
Florida. We are planning to establish a backup facility in mid-2000.

In December 1999, we established the WAP Enterprise Center. The center is
comprised of engineers who develop applications for WAP smartphones and the
systems to support data communication to these devices. The center currently is
developing WAP-enabled financial trading applications that will work with WAP
smartphones and is exploring WAP-based opportunities with wireless carriers, WAP
vendors and enterprise customers.

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Sales and Marketing

We are expanding our sales and marketing efforts for our services in the
financial services and other industries as well as for software licensing. As of
March 2000, we had 63 sales and marketing professionals. We intend to grow this
number significantly in the next 12 months, with sales and marketing personnel
focusing on each industry we pursue, as well as a dedicated sales and marketing
team for software licensing. Our business development personnel and senior
executives also spend a considerable amount of time developing potential
customer relationships and selling and promoting our services. We intend to
spend an estimated $25 million on a branding campaign in 2000 including print
and television advertising. Our current customer segments, the services we sell
to them and how we reach them are described below.

- Individual investors and financial market professionals. We believe
individual investors are the primary subscribers to our wireless
financial information and trading services, such as MarketClip and
TradeRunner. 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. Our customer service
center handles in-bound calls generated from these marketing efforts and
signs up new subscribers. We also seek to develop relationships with
financial institutions, whose market professionals become the end users
of our services, such as F/X Alert. We market our products through direct
sales executives in New York, Atlanta and Chicago and through occasional
advertising in financial trade publications.

- Companies that track inventory, deliveries and logistics. We target
sales of our e-Mobile Delivery service to companies that need to track
the movement of their drivers and inventories across broad geographic
areas on a real-time basis. Examples of customers include Physician Sales
& Service, MAC Papers, Office Depot, NuCo2 and Suntory Water Group. We
work with strategic partners, including Symbol Technologies, Intermec
Technologies Corp. and BellSouth Wireless Data to market e-Mobile
Delivery and maintain a staff of three sales and marketing professionals
who are located in Richmond, Virginia, Boston, Massachusetts and Atlanta,
Georgia. We plan to expand marketing efforts through direct mail and
advertising to transportation logistics personnel.

- Corporate software developers and independent software vendors. We
target as potential licensees of our AIM software platform large
corporations with significant mobile workforce who wish to develop their
own wireless applications, as well as software vendors and manufacturers
of handheld devices. As a result of our acquisition of Riverbed, we
target the same customer segments for the ScoutWare suite of mobile data
management products. Each of our salespeople offer AIM licensing along
with our full array of wireless data design, development and support
services. In our experience, corporate customers who initially sought
only to license our AIM software have often decided to purchase complete
wireless data communications systems and services from us. Riverbed has a
sales team of 30 dedicated to sales of its ScoutWare software and has
licensed this software to Palm Computing, the U.S. Postal Service, Becton
Dickinson, Oracle and others. As a result of our acquisition of Riverbed,
our combined sales forces target independent software vendors for
licensing of both AIM and ScoutWare through conferences, trade shows,
vendor forums and trade advertising.

- Engineering services clients. As part of our business development
effort, we seek out engineering assignments that might allow us to
embrace technological advances or expand into new industry sectors or
services.

Product Fulfillment, Customer Service and Billing

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 train our customer service representatives to handle inquiries about our
services, device features and wireless communications. Our customer service
personnel are available weekdays from 8:00 a.m. until 8:00 p.m. Eastern time. We
currently employ ten customer service representatives and plan to triple that
number during the first half of 2000.

We handle customer billing for all subscription fees, device and modem
purchases, securities exchange and market fees and other charges. We bill
monthly for subscriber services, which our non-corporate customers 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 third parties. These relationships take time
to develop, and we therefore believe they provide us with an advantage by
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 Metrocall, AT&T Wireless
Services, Bell Atlantic Mobile, BellSouth Wireless Data, ARDIS, SBC
Communications, Inc. and GTE Corp. As a result, we can give our customers a wide
variety of wireless carrier choices.

Hardware and Software Vendors

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 August 1999, a
subsidiary of Ericsson, one of the largest manufacturers of wireless phones,
agreed to assist us in developing services using WAP phones and next-generation,
high-speed GPRS data networks. In December 1999, we announced a strategic
alliance with Phone.com to jointly pursue corporate customers using Phone.com's
WAP browser technology for Web-enabled smartphones and our development and
service capabilities. 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 us 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. We
also have a license to use financial data from 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.
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RECENT DEVELOPMENTS

Riverbed

On March 6, 2000, we acquired Riverbed for shares of our common stock. In
the merger, we issued 4,537,281 shares of our common stock and converted
existing options held by Riverbed employees into options to acquire shares of
our common stock. If all current Riverbed options vest and are exercised, we
would be obligated to issue 862,480 shares of our common stock. As part of the
transaction, we are holding in escrow 270,000 of the shares payable to Riverbed
shareholders for 12 months to secure their post-closing indemnification
obligations to us and we have agreed to indemnify up to $40.5 million of damages
the sellers may incur. Immediately after the closing, we appointed two Riverbed
nominees -- E. Wayne Jackson and Robin T. Vasan -- to our board of directors.

As a result of our acquisition of Riverbed, the shareholders of Riverbed
became parties to the registration rights agreement we entered into at the time
of our initial public offering with several of our shareholders, and the
shareholders of Riverbed are deemed to have equivalent rights to the original
holders and their assignees. In addition, the shareholders of Riverbed, in the
aggregate, have the right to one additional shelf registration after October 20,
2000, or sooner if any of the original holders sell shares sooner pursuant to
Rule 144. The additional shelf registration is limited to the number of shares a
holder could sell under Rule 144.

Reuters Strategic Alliance

On February 8, 2000, we signed a letter of intent with Reuters to establish
a European wireless venture headquartered in the United Kingdom, which will be
initially focused on financial markets. The letter of intent provides that we
will acquire a 60% interest for $100 million and receive three of five board
seats. The letter of intent requires Reuters to contribute $21.6 million in cash
plus other assets in return for a 40% interest and Reuters will receive two of
five board seats. Dave Oros, our chief executive officer, will serve as chairman
of the new company and interim chief executive officer. The letter of intent is
not binding on us or Reuters and remains subject to definitive documentation and
our receiving money to fund the investment.

Metrocall

On February 8, 2000, we agreed to acquire for $10 million a 27.5% interest
in Inciscent in the form of Series A Preferred Stock. This newly-formed company
with Metrocall, PSINet, Hicks, Muse, Tate & Furst and other investors was formed
to develop wireless e-mail, Internet access and other applications for the small
office and home office market segments. Under the voting rights agreement,
Aether will have the right to appoint two of the seven directors of Inciscent.

Upon the closing of our investment in Inciscent, we will receive
registration rights, including two demand registration rights that we can use
after the earlier of the third anniversary of closing or six months after an
initial public offering. The registration rights agreement will also grant us a
right of first offer on additional issuances of Inciscent securities.

We will also enter into a co-sale agreement, which, among other things,
will require the holders of common stock to first offer any securities to
Inciscent and then to holders of at least 250,000 shares before selling the
securities to a third party and will further require all selling holders to
first offer their shares to holders of at least 250,000 shares. This agreement
will allow holders of at least 250,000 shares to sell a pro rata portion of
their stock to a third party along with the selling holders to the extent the
right of first refusal is not exercised. If holders of at least 66.7% of the
stock propose to sell their shares to a third party, these selling holders will
be able to force the remaining holders to participate in the sale. As part of
our closing obligations, we agreed to enter into a definitive services agreement
to provide Inciscent with a non-exclusive, perpetual, non-transferable license
to use our AIM software platform for $1 million, and also agreed to provide
technical consulting and development services billed on a time and materials
basis. As part of the investment we also agreed to acquire approximately 9.9% of
the outstanding capital stock of Metrocall for approximately $17 million.

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LocusOne

On February 3, 2000, we acquired all of the capital stock of LocusOne for a
purchase price of $40 million, including the retirement of a line of credit and
payment of the legal fees of LocusOne. At closing, we paid $20 million in cash
and granted options to acquire 308,500 shares to existing LocusOne employees. At
the closing of this offering, we will be required to pay the former LocusOne
holders $5.4 million and place $13.6 million in escrow to pay all remaining
obligations, which will be paid on December 31, 2000. In connection with this
acquisition, the two principal stockholders of LocusOne have entered into
non-compete agreements with us expiring on the later of February 2, 2002 or ten
months after their termination with LocusOne.

New Customers

On January 12, 2000, we signed a definitive agreement with Response
Services Center, LLC to develop an emergency roadside assistance system.

On December 28, 1999, we signed a non-binding memorandum of understanding
with TD Waterhouse to develop a wireless financial trading and information
service for its brokerage customers.

On November 4, 1999, we signed a definitive agreement with National
Discount Brokers to provide its investors with wireless financial trading and
information services, including OmniSky e-mail and Internet access.

On October 11, 1999, we signed an engineering services contract with
Merrill Lynch to develop a wireless financial information service for use by its
financial professionals.

Other Strategic Alliances

On February 15, 2000, we entered into a non-binding memorandum of
understanding with Nextel to provide wireless data services using the Nextel
wireless communications network for mobile workforces in financial services,
transportation and other industries.

On February 7, 2000, we entered into a non-binding letter of intent with
Proxicom, an Internet consulting and development company, to jointly pursue
opportunities to provide wireless data services to companies.

On January 27, 2000, we signed a non-binding letter of intent with
CyberBills to develop a wireless electronic bill presentment and payment
service.

On December 21, 1999, we announced an agreement to use "digital signature"
technology provided by Diversinet.

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 724
Solutions;

- Wireless communications software companies, including Phone.com, Nettech
Systems Inc. and Dynamic Mobile Data;

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- Wireless data services providers, such as Wireless Knowledge, a joint
venture of Microsoft and Qualcomm Incorporated, Research In Motion,
GoAmerica and Saraide.com, which was recently acquired by Infospace.com;

- Wireless systems integrators, such as IBM and GTE;

- Wireless network carriers, such as AT&T Wireless Services, Bell Atlantic
Mobile, Sprint PCS, Nextel Communications, Inc. and Metricom, Inc.; and

- Mobile data management software providers, including Puma Technology,
Inc., AvantGo, Inc. and Extended Systems, 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, Wireless Solutions for a Portable Planet(TM) Portable Planet(TM) and
e-Mobile(TM). In addition, we own federal trademark registrations for
LocusOne(TM). We do not have any federal trademark registrations in the name
"Aether," "AIM" or "e-Mobile" and we may not be able to obtain such
registrations due to conflicting marks or for other reasons. We have been
informed that another party claims intellectual property in the mark e-Mobile.
Following our acquisition of Riverbed, we will also own applications for federal
registration or common law rights in the following trademarks: Riverbed
Technologies(TM), ScoutSync(TM), ScoutWeb(TM), ScoutWare(TM), ScoutIT(TM), Free
to Go Mobile(TM) and Solutions for the Mobile Enterprise(TM). Reuters and
Reuters MarketClip(TM) are the property of Reuters Group PLC. Morgan Stanley
Dean Witter Online TradeRunner(TM) is the property of Morgan Stanley Dean Witter
Online. This prospectus also includes trade 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 patent, copyright, trademark, service mark,
trade secret laws and contractual restrictions to establish and protect certain
proprietary rights in our services. We have applied for a patent on our AIM
platform, which addresses the technology employed to integrate various data
sources with wireless networks and devices. 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. Riverbed has applied for a patent on its ScoutWare(TM)
technology, which relates to a system and method for synchronizing information
records between a remote device and a server in a computer network. There can be
no assurances that these applications will be granted or, if granted, that
holders of other patents will not claim that the patents infringe their patents.

Inc. 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. We have received two claims that we have infringed
patents developed by other parties. Although we believe these claims are without
merit, these and other 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, could divert management attention from
administering our business and could preclude us from conducting our business.
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 OmniSky 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 in which we
have offices and are required by law to do so. Some 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 35,018
square foot facility under a lease expiring in February 2010 with no renewal
option. We also lease an aggregate of 44,048 square feet for our offices in Long
Beach, California, Boca Raton, Florida, Jacksonville, Florida, Bethesda,
Maryland, Portsmouth, New Hampshire, New York, New York, Richmond, Virginia and
Vienna, Virginia. EMPLOYEES

As of March 15, 2000, we had a total of approximately 291 employees, and
136 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 AND DIRECTORS

Our executive officers and directors, and their ages and positions are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David S. Oros........................ 40 Chairman, Chief Executive Officer and President
George M. Davis...................... 43 President, Enterprise Solutions and Services
Group
E. Wayne Jackson III................. 38 President, Software Products Group and Director
David C. Reymann..................... 41 Chief Financial Officer
Dale R. Shelton...................... 38 Chief Technology Officer
Brian W. Keane....................... 41 Senior Vice President, Business Affairs
Mitch I. Selbiger.................... 41 Senior Vice President, Marketing
J. Carter Beese, Jr.(1)(2)........... 43 Director
Frank A. Bonsal, Jr.(2).............. 63 Director
Mark D. Ein.......................... 35 Director
Rahul C. Prakash(1).................. 38 Director
Janice M. Roberts.................... 44 Director
Dr. Rajendra Singh................... 43 Director
George P. Stamas..................... 49 Director
Robin T. Vasan....................... 33 Director
Devin N. Wenig....................... 33 Director
Thomas E. Wheeler(1)................. 53 Director
</TABLE>

- ---------------

(1) Member of the compensation committee.

(2) Member of the audit committee.

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 OmniSky. 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 and will be appointed as president of our enterprise solutions and services
group at the closing of the Riverbed acquisition. 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 of 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.

E. Wayne Jackson III became president of our software products group and a
director at the completion of our acquisition of Riverbed. Since October 1998,
Mr. Jackson has served as the president and chief executive officer and a
director of Riverbed, which he co-founded with Mr. Rensin. From September 1994
until October 1997, Mr. Jackson served as director of the emerging technologies
division of Noblestar Systems Corp. Riverbed was created by Noblestar in 1998.
He received a B.S. in business administration, finance, from James Madison
University.

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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, investor relations 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.

Dale R. Shelton has served as our chief technology officer since February
2000. From June 1996 to February 2000, he served as our senior vice president,
engineering, during which time he directed 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.

Brian W. Keane has served as senior vice president, business affairs since
joining us in August 1999. Mr. Keane is responsible for mergers and
acquisitions, strategic investments, joint ventures and new strategic business
initiatives. 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 a B.A. in history and mathematics from
Cornell University and an M.B.A. from Harvard Business School.

Mitch I. Selbiger has served as our senior vice president, marketing since
January 2000. Mr. Selbiger is responsible for our advertising, branding,
marketing and public relations activities. From March 1999 until January 2000,
Mr. Selbiger served as vice president of marketing for OTG Software. Prior to
that, from July 1998 until March 1999, he served as vice president of marketing
for NetFactory. From August 1997 to July 1998, he served as director of eastern
area marketing for Netscape Communications, Inc. 1995 to 1997, he served as
director of government marketing for Sybase, Inc. Mr. Selbiger received a B.S.
in business administration from the University of Vermont and an M.B.A. from
George Washington University.

J. Carter Beese, Jr. was elected a director of Aether on October 20, 1999.
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. was elected a director of Aether on October 20, 1999.
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 was a co-founder of Aether, and was elected a director of
Aether on October 20, 1999. Mr. Ein is the founder and chief executive officer
of Venturehouse Group, a holding company that was
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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 Co. 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 was elected a director of Aether on October 20, 1999.
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 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., a worldwide provider of wireless
engineering and design services. 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 was elected a director of Aether on October 20, 1999.
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 OmniSky. 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 was elected a director of Aether on October 20, 1999.
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., 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., XM Satellite Radio Holdings, Inc. and
LCC International, Inc. He received a Ph.D. in electrical engineering from
Southern Methodist University.

George P. Stamas was elected a director of Aether on October 20, 1999.
Since January 2000, Mr. Stamas has served as a Vice Chair of DeutscheBanc Alex.
Brown. From April 1996 until December 1999, Mr. Stamas was a partner with the
law firm of Wilmer, Cutler & Pickering and now serves as a consultant to Wilmer,
Cutler & Pickering. 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.

Robin T. Vasan was appointed as a director of Aether at the completion of
our acquisition of Riverbed. Since June 1998, Mr. Vasan has been a general
partner of Mayfield Fund, a venture capital fund. From June 1994 until February
1997, he served as vice president, core technology of Risk Management Solutions,
an insurance software company. In 1997 and 1998, he attended Harvard Business
School. He received a B.A.S. in industrial engineering and economics from
Stanford University and an

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M.B.A. from Harvard Business School. Mr. Vasan is a member of the board of
directors of WebMethods, Inc., a business-to-business infrastructure software
and service company.

Devin N. Wenig was elected a director of Aether on October 20, 1999. In
April 1994, Mr. Wenig joined Reuters America, Inc. and was promoted to managing
director of Reuters Information in February 2000, where he has global
responsibility for the regional and central marketing function, product
development, electronic commerce, the data groups and commercial policy 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
Multex.com. He received a B.S. from Union College and a J.D. from Columbia
University.

Thomas E. Wheeler was elected a director of Aether on October 20, 1999.
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.

Our board has twelve directors. NexGen, Telcom-ATI Investors, L.L.C.,
Reuters and 3Com -- who will together hold 54.6% of the shares of common stock
outstanding after the offering -- are parties to a stockholders agreement that
governs voting for our directors. The agreement requires 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. Messrs. Oros and Ein were
appointed by NexGen, Dr. Singh and Mr. Prakash were appointed by Telcom-ATI
Investors, Mr. Wenig was appointed by Reuters and Ms. Roberts was appointed by
3Com as directors under the stockholder agreement. The terms of the stockholder
agreement are further described in "Transactions Between Aether and its
Officers, Directors and Significant Stockholders."

Directors serve for a term of one year.

Our executive officers are 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

The compensation committee consists of Messrs. Beese, Prakash and Wheeler.
The compensation committee:

- determines the compensation of senior executive officers (such as the
chief executive 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 delegates 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.

The audit committee consists 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;

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- verifies that auditors 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
have granted options to purchase 12,600 shares to each director and options to
purchase 4,000 shares to each member of the audit and compensation committees.
The exercise price of these options is equal to $16.00 per share. Mr. Wenig's
options are held in trust, and he currently has no beneficial interest in the
options.

The following table identifies options that we have granted to non-employee
directors since January 1, 1997.

<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING EXERCISE
NON-EMPLOYEE DIRECTOR OPTIONS(#) PRICE($)
--------------------- ----------------- --------
<S> <C> <C>
J. Carter Beese, Jr. .............. 75,000 $ 0.40
20,600 16.00
Frank A. Bonsal, Jr. .............. 37,500 1.77
16,600 16.00
Mark D. Ein........................ 100,000 1.60
17,500 4.00
12,600 16.00
Rahul C. Prakash................... 16,600 16.00
Janice M. Roberts.................. 12,600 16.00
Dr. Rajendra Singh................. 12,600 16.00
George P. Stamas................... 6,250 0.40
5,000 2.40
12,600 16.00
Devin N. Wenig..................... 12,600 16.00
Thomas E. Wheeler.................. 37,500 1.77
16,600 16.00
</TABLE>

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EXECUTIVE COMPENSATION

Summary Compensation. The following table sets forth compensation for 1998
and 1999 awarded to, earned by or paid to our chief executive officer and the
four other most highly paid executive officers. We refer to these five officers
as the "named executive officers."

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------- -------------------------
SHARES
OTHER ANNUAL UNDERLYING ALL OTHER
COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (#) ($)
--------------------------- ---- ---------- --------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
David S. Oros................ 1999 $200,000 $250,000 -- 945,100 --
Chairman, Chief Executive 1998 200,000 150,000 -- -- --
Officer and President
George M. Davis.............. 1999 157,292 24,504 -- 55,000 $7,750
President, Enterprise 1998 133,333 52,895 $2,420 75,000 --
Solutions and Services
Group
Dale R. Shelton.............. 1999 129,167 20,000 -- 42,500 --
Chief Technology Officer 1998 109,200 4,000 -- 50,000 --
David C. Reymann............. 1999 126,042 -- -- 51,250 --
Chief Financial Officer 1998 64,905 -- -- 62,500 --
Brian W. Keane............... 1999 56,817 50,000 -- 125,000 --
Senior Vice President, 1998 -- -- -- -- --
Business Affairs
</TABLE>

Option Grants. The following table shows information regarding stock
options granted to the named executive officers during the year ended December
31, 1999. No stock appreciation rights were granted to these individuals during
the year.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF STOCK
OF TOTAL PRICE APPRECIATION FOR
NUMBER OF SHARES OPTIONS EXERCISE OPTION TERM($)
UNDERLYING OPTIONS GRANTED TO PRICE PER EXPIRATION ---------------------------------------
NAME GRANTED(#)(*) EMPLOYEES SHARE($) DATE 0%(6) 5%(7) 10%(7)
---- ------------------ ---------- --------- ------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
David S. Oros........ 775,000(1) 28.04% $ 1.60 June 22, 2009 $11,160,000 $18,958,293 $30,922,407
157,500(1) 5.70% $ 4.00 September 20, 2009 $ 1,890,000 $ 3,474,814 $ 5,906,231
12,600(2) 0.46% $16.00 October 20, 2009 $ -- $ 126,785 $ 321,298
George M. Davis...... 50,000(1) 1.81% $ 1.60 June 22, 2009 $ 720,000 $ 1,223,116 $ 1,994,994
5,000(3) 0.18% $ 8.00 September 26, 2009 $ 30,000 $ 74,023 $ 141,562
Dale R. Shelton...... 37,500(1) 1.36% $ 1.60 June 22, 2009 $ 540,000 $ 917,337 $ 1,496,245
5,000(3) 0.18% $ 8.00 September 26, 2009 $ 30,000 $ 74,023 $ 141,562
David C. Reymann..... 18,750(1) 0.68% $ 1.60 June 22, 2009 $ 270,000 $ 388,668 $ 678,123
12,500(4) 0.45% $ 8.00 October 11, 2009 $ 100,000 $ 225,779 $ 418,748
20,000(3) 0.72% $ 8.00 September 26, 2009 $ 120,000 $ 296,090 $ 566,248
Brian W. Keane....... 125,000(5) 4.52% $ 4.80 August 16, 2009 $ 900,000 $ 1,843,342 $ 3,290,614
</TABLE>

- ---------------

* Options expire 90 days after the termination of employment of the option
holder.

(1) The warrants are immediately exercisable in their entirety.

(2) Fifty percent of the options will become exercisable beginning on October
20, 2000, and the other 50% will become exercisable on October 20, 2001.
None of the options will become exercisable prior to such dates 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.

(3) The options will become immediately exercisable in their entirety on
September 26, 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.

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<PAGE> 63

(4) The options will become immediately exercisable in their entirety on October
11, 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.

(5) One-third of the options are immediately exercisable. The remaining
two-thirds of the options become exercisable annually over a two-year period
in equal one-third increments, beginning on August 16, 2000.

(6) The options listed in this column were issued with an exercise price below
the fair market value of the option at the time of issuance.

(7) 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. Prior to
October 20, 1999, the fair market value on the date of grant was determined
by our board of directors. There is no assurance provided to any executive
officer or any other holder of our securities that the actual price
appreciation over the ten-year option term will be at the assumed 5% and 10%
levels or at any other defined level.

Aggregate Option Exercises and Holdings. No options were exercised by the
named executive officers during the year ended December 31, 1999. The following
table provides information concerning the shares represented by outstanding
options held by each of the named executive officers as of December 31, 1999.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DEC. 31, IN-THE-MONEY OPTIONS AT
1999(#) DEC. 31, 1999($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David S. Oros................................ 932,500 12,600 $64,920,313 $ 700,875
George M. Davis.............................. 175,000 80,000 $12,404,375 $5,578,250
Dale R. Shelton.............................. 150,000 67,500 $10,638,751 $4,715,187
David C. Reymann............................. 39,583 74,167 $ 2,774,115 $4,600,104
Brian W. Keane............................... 41,667 83,333 $ 2,784,375 $5,568,750
</TABLE>

- ---------------

(1) Options were "in the money" because the closing price of Aether's common
stock on December 31, 1999 exceeded the exercise price of the options. The
value of unexercised options represents the difference between the exercise
price of net options and $71.625, which was the last reported sale price of
Aether common stock on December 31, 1999.

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS

We have entered into employment contracts with Messrs. Oros, Reymann and
Jackson.

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

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<PAGE> 64

us an amount equal to the salary he would have received during the balance of
the term of the employment contract. 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 our board of directors, or being convicted or pleading no contest
to any felony or any misdemeanor involving fraud, breach of trust or
misappropriation. Each of these warrants became exercisable upon completion of
our initial public offering.

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 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.

At the closing of our acquisition of Riverbed, we amended Mr. Jackson's
existing employment agreement with Riverbed to provide that he would serve as
president of our software products group. Mr. Jackson is paid a base salary of
$194,000 per year. The contract is on a year-to-year basis and automatically
extends for additional one-year periods on each January 22 until terminated by
Aether or Mr. Jackson on 30 days notice. If we terminate him without cause, he
will be entitled to receive from us an amount equal to 12 months of his base
salary.

1999 EQUITY INCENTIVE PLAN

Before our initial public offering, we adopted 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 administers the
equity incentive plan unless the board of directors specifies another committee
of the board of directors or chooses to act itself as administrator. The board
of directors has given Mr. Oros authority as a special committee of the Board to
make option grants.

Under the equity incentive plan, we can grant options for approximately 6.9
million shares of common stock (assuming completion of the Riverbed acquisition
and this offering), 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 original pool. The
administrator will determine the prices, exercise schedules, expiration dates
and other material conditions under which optionees may exercise their options.
The exercise price of these options may be less than the fair market value of
the common stock on the date of grant when the administrator considers that to
be appropriate. We replaced the options Aether Systems LLC granted with options
under this plan when we converted to a corporation before completion of our
initial public 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:

- 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

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<PAGE> 65

- 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 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 September 20,
2009.

SENIOR BONUS PLAN

We adopted a senior bonus plan before our initial public offering. 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 administers the senior bonus plan and selects 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 consists solely of
two outside directors and one director affiliated with a 5% stockholder. 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 judgment 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. None of our employees exceeded 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.

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<PAGE> 66

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;

- 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
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<PAGE> 67

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. 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 limits 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 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 permit us to advance expenses incurred by an indemnified
party in connection with the defense of any action or 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 entered into separate indemnification agreements with each of our
directors and officers. These agreements 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 certificate of incorporation and bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers. We also 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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<PAGE> 68

TRANSACTIONS BETWEEN AETHER AND ITS
OFFICERS, DIRECTORS OR SIGNIFICANT STOCKHOLDERS

Since January 1, 1997, 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 equity interests in
connection with the initial capitalization of our predecessor, Aether Systems,
LLC, and subsequent financings. Immediately prior to our initial public offering
on October 26, 1999, we converted into a Delaware corporation at which time,
each holder of units in our limited liability company was converted into two and
one-half shares of our common stock and each option or warrant for one unit was
converted into an option or warrant for two and one-half shares of our common
stock. The discussion below gives only the number of shares into which units
were converted.

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 7,500,000 shares and Transettlements contributed $1,000,000 in cash
in exchange for 2,500,000 shares. In May 1996, Transettlements contributed an
additional $500,000 in exchange for an additional 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 725,000
shares from Transettlements and 107,500 shares from NexGen and contributed
$1,000,000 to Aether in exchange for 1,562,500 shares. Additionally, Telcom
Ventures was granted an option to purchase 1,775,000 shares from Transettlements
and two options to purchase a total of 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 575,308 shares. In June 1999, Telcom
Ventures exercised its option with Transettlements and one of its options with
NexGen to purchase 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 833,333 shares at $1.20 per share and 1,004,903 shares at
$1.49 per share for total proceeds to Aether of approximately $2.5 million. At
that time, Aether redeemed 208,333 shares held by NexGen for $249,999 and
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 shares
at the option of the holder at the rate of $250,000 divided by the per share
price to be paid in the anticipated private placements. In connection with the
issuance of these notes, we also issued warrants to acquire 14,140 shares with
an exercise price of $0.01 per share to each of Telcom Ventures and Pyramid.
Pyramid converted its $250,000 loan plus accrued interest in August 1998 to
142,950 shares at a per share price of $1.77 and exercised its warrant and
acquired 14,140 shares. In August 1998, we repaid the amount owed

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Telcom Ventures, including $2,520 in interest. In August 1999, Telcom Ventures
exercised its warrant and acquired 14,140 shares at a per share price of $0.01.

In August 1998, Reuters received 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
2,500,000 shares. At the same time, we issued 3Com a conditional warrant to
purchase 893,665 shares exercisable at $0.01 per share if the milestones
described below are achieved before October 20, 2001. 3Com achieved the first
milestone entitling it to exercise 143,665 shares as a result of having
completed a joint sales and marketing plan. 3Com may exercise an additional
375,000 shares if and when we receive $6 million in engineering services revenue
from business opportunities introduced by 3Com. 3Com may exercise an additional
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 875,000
shares at an exercise price of $.01 per share. We subsequently agreed with Mr.
Oros to amend the exercise price to $1.60 per share. We also gave Mr. Oros the
right to allocate to key employees of his choosing warrants to acquire 125,000
shares having the same terms and conditions. Mr. Oros has awarded warrants to
acquire 50,000 shares to Mr. Davis, 37,500 shares to Mr. Shelton and 18,750
shares to Mr. Reymann. Mr. Oros subsequently received our permission to
subdivide his warrant to give Mark Ein a warrant to acquire 100,000 shares,
leaving Mr. Oros with a warrant to acquire 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 175,000 shares at
an exercise price of $4 per share 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 17,500 shares to Mr. Ein.

In August 1999, we issued to Mr. Ein 100,000 shares upon exercise of his
options at an exercise price of $0.40 per share. In September 1999, Mr. Beese
exercised an option for 75,000 shares at an exercise price of $0.40 per share.

NexGen, Telcom-ATI Investors, Reuters and 3Com entered into a stockholder
agreement under which these parties 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
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 more members, the parties will vote to elect two
members named jointly by NexGen and Telcom-ATI Investors. In connection with the
acquisition of Riverbed, these stockholders amended the stockholder agreement to
allow for a board of 12 members. The right to name directors will end when
parties to the agreement reduce their share ownership below levels set forth in
the agreement.

We entered into a registration rights agreement with NexGen, Telcom-ATI
Investors, Reuters, 3Com and Transettlements, which entitles these parties to an
aggregate of three demand registrations at any time after October 27, 2000, and
at the request of these parties, to 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.
The agreement also requires us to file a shelf registration statement covering
the sale of all shares held by parties to the stockholder agreement from time to
time. The agreement requires 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 no earlier than October 20, 2000. Following our acquisition of
Riverbed, the shareholders of Riverbed became parties to this registration
rights agreement under which the shareholders of Riverbed and their assignees
have equivalent rights to the original holders and their assignees thereunder.
In addition, the shareholders of Riverbed and their assignees, in the aggregate,
have the right to one additional shelf registration after October 20, 2000 (or
earlier if the

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original holders sell shares in reliance on Rule 144) provided that the sales by
any Riverbed shareholder or assignee under such additional right will not exceed
the amount that would be permitted under Rule 144(e) if the one year holding
period had expired.

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. At December 31, 1999, the
balance outstanding on these notes was $150,445. During 1999, NexGen paid
interest of $0 on the notes. On February 15, 2000, NexGen made an additional
payment of $151,716 in full satisfaction of the 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 Morgan Stanley Dean Witter Online and other
services we are developing. 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
shares of Aether if Aether or any stockholder sells shares and, as a result, a
competitor of Reuters holds 50% or more of our shares, 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 uses 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
1999 we paid Reuters $122,356 under this contract and the average monthly fee
per subscriber was $8.02.

OMNISKY

On August 9, 1999, we formed a new company with 3Com in which we acquired
an interest in AirWeb Corporation, which was doing business as OpenSky and is
currently known as OmniSky Corporation. 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.
In connection with the formation of OmniSky, 3Com paid $7.0 million in cash and
agreed to contribute to OmniSky 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, which initially represented a 33% equity interest in OmniSky on a fully
diluted basis. The management team of OmniSky acquired in the aggregate 4.2
million shares of common stock and options to acquire an additional 5.8 million
shares. Following our initial public offering, we exercised a warrant to acquire
an additional 3,000,000 shares of Series A Preferred Stock for $2,500,000
increasing our equity interest in OmniSky to 33% on a fully diluted basis. In
January 2000, we exercised our right of first refusal to maintain our 33% equity
interest by acquiring 1,439,809 shares of Series B Preferred Stock for $6.7
million, net of the cancellation of approximately $613,000 of indebtedness owed
by OmniSky to us. 3Com did not exercise its right of first offer and thus its
33% interest has been diluted.

As part of our investment with 3Com in OmniSky, we each received
registration rights, including two demand registration rights that we can use
after the earlier of the completion of OmniSky'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 OmniSky securities to OmniSky and then to us and 3Com before selling
the securities to a third party. This agreement also allows us and
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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
offer their shares to OmniSky.

Aether, 3Com and OmniSky's management are each entitled to appoint one
director to OmniSky's board of directors. OmniSky's board of directors currently
includes: David S. Oros, our chairman, chief executive officer and president and
Janice M. Roberts, who is one of our directors. We have entered into a voting
agreement with 3Com and OmniSky's management in which each of the parties has
agreed to vote in favor of each of the directors named by Aether, 3Com and
OmniSky's management until the earliest of (1) OmniSky's completion of an
initial public offering of at least $15 million, (2) OmniSky's completion of a
sale of substantially all of the assets of OmniSky or the transfer of more than
50% of the voting power of OmniSky or (3) the parties' termination of the
agreement. OmniSky 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 OmniSky under
which we have agreed to provide OmniSky, 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
originally provided that OmniSky will pay us $250,000 per month for these
services but we subsequently amended it to be on a time and materials basis. In
addition, they paid us $500,000 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, OmniSky has agreed to provide us the right to resell OmniSky's
basic package of services. We also have a right of first refusal for development
of all investment banking and brokerage applications for OmniSky 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.

In October 1999, we agreed to purchase 25,000 Minstrel V modems from
OmniSky for a price per modem of $230, which was OmniSky's cost. OmniSky has an
exclusive buying arrangement with Novatel for Minstrel V modems, which runs
through March 2000. We have paid for 20,000 of the 25,000 modems in two
installments: $1,400,000 on October 15, 1999 and $3,200,000 on November 15,
1999. The modems are being delivered to us through April of 2000.

RIVERBED

On March 6, 2000, we acquired Riverbed for an aggregate of 5.4 million
shares of our common stock. We issued 4,537,281 million shares in exchange for
the outstanding shares of Riverbed capital stock and reserved an additional
862,480 shares of our common stock for issuance upon exercise of options issued
to Riverbed employees. At the closing, E. Wayne Jackson, the chairman and chief
executive officer of Riverbed, became the president of our software products
group and a director of Aether and Robin T. Vasan, a director of Riverbed,
became a director of Aether. In addition, Mr. Jackson entered into an employment
agreement, which includes a provision restricting him from competing with us or
Riverbed, for one year following his termination. As part of the closing,
licensing fees for our AIM software platform that have been incurred by Riverbed
are no longer payable.

REUTERS

On February 8, 2000, we entered into a letter of intent with Reuters under
which we will contribute $100 million for 60% of a new European company. Under
the letter of intent, Reuters will own the remaining 40% through a contribution
of assets and $22 million in cash. David S. Oros, our chief executive officer,
will serve as chairman and interim chief executive officer of the new company.
This letter of intent is non-binding, and there is no assurance that we will
successfully complete definitive documentation with respect to this transaction.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of our common stock as of March 15, 2000, and as adjusted
to reflect the sale of 2,374,741 shares of common stock offered in this offering
(assuming no exercise of the over-allotment option), as to:

- each person (or group of affiliated persons) known by us to own
beneficially more than 5% of our outstanding common stock;

- each stockholder selling shares of our common stock in this offering;

- each of our directors and persons we have identified will become
directors;

- each of the executive officers named in the summary compensation table;
and

- all our directors and executive officers as a group.

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 May 20, 2000, are included as shares
beneficially owned. For the purposes of calculating percent ownership as of
March 15, 2000, 32,192,913 shares were issued and outstanding and, for any
individual who beneficially owns shares represented by options exercisable on or
before May 20, 2000, 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.

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<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
SHARES BEFORE THE OFFERING SHARES AFTER THE OFFERING
--------------------------- SHARES TO -------------------------
NAME AND ADDRESS NUMBER PERCENT BE SOLD** NUMBER PERCENT
---------------- ------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Robin T. Vasan(12)..................... 0 * 0 0 *
c/o Mayfield Fund
2800 Sand Hill Road
Menlo Park, CA 94025
Devin N. Wenig......................... 0 * 0 0 *
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Thomas E. Wheeler(13).................. 47,500 * 0 47,500 *
All directors and executive officers as
a group
(16 persons)(14)..................... 15,787,985 46.7% 160,000 15,282,519 43.5%
5% AND SELLING STOCKHOLDERS:
3Com Corporation(15)................... 2,643,665 8.2% 0 2,643,665 7.6%
5400 Bayfront Plaza
Santa Clara, CA 95052
NexGen Technologies, L.L.C.(16)........ 6,791,668 21.1% 169,792 6,621,876 19.1%
Pyramid Ventures, Inc.(17)............. 1,995,325 6.2% 49,883 1,945,442 5.6%
One Bankers Trust Plaza
130 Liberty Street
New York, NY 10006
Reuters MarketClip Holdings Sarl(18)... 2,828,055 8.8% 0 2,828,055 8.1%
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Telcom-ATI Investors, L.L.C.(19)....... 7,026,948 20.6% 175,674 6,851,274 18.7%
211 N. Union St., Suite 300
Alexandria, VA 22314
Transettlements, Inc................... 625,000 1.9% 45,000 580,000 1.7%
1745 Phoenix Blvd.
Atlanta, GA 30349
FBR Technology Venture Partners L.P.... 935,344 2.9% 23,384 911,960 2.6%
11600 Sunrise Valley Drive, Suite 460
Reston, VA 20191
Steven Roth............................ 26,593 * 665 25,928 *
34 Pepperell Court
Bethesda, MD 20817
Kate June Opalack(20).................. 5,571 * 139 5,432 *
Matthew Paul Opalack(20)............... 5,571 * 139 5,432 *
Nancy W. Opalack(20)................... 5,571 * 139 5,432 *
Elizabeth Ruth Rensin Irrevocable
Trust(20)............................ 2,972 * 74 2,898 *
Cynthia L. Jackson(20)(21)............. 232,619 * 74 202,545 *
Joan H. and E. Wayne Jackson, Jr....... 1,486 * 37 1,449 *
P.O. Box 1487
8381 Raymond Brown Lane
(Route 705)
Gloucester, VA 23061
The Adam Wayne Jackson Irrevocable
Trust................................ 1,486 * 37 1,449 *
P.O. Box 1487
8381 Raymond Brown Lane
(Route 705)
Gloucester, VA 23061
</TABLE>

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<PAGE> 74

- ---------------
* Less than 1%.

** Shares set forth in this column are shares to be sold by the person named
and do not include shares over which the named person has indirect
beneficial ownership.

(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.

(2) Includes exercisable options to purchase 125,000 shares of common stock and
warrants to purchase 50,000 shares of common stock.

(3) Includes exercisable options to purchase 112,500 shares of common stock and
warrants to purchase 37,500 shares of common stock.

(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 Telcom-ATI Investors and excludes the
indirect interest Mr. Bonsal has in 6,713 shares Telcom-ATI Investors has
the right the acquire.

(5) 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 Telcom-ATI Investors and excludes the
indirect interest Mr. Beese has in 38,355 shares Telcom-ATI Investors has
the right to acquire.

(6) Includes warrants to purchase 100,000 shares of common stock and warrants
to purchase 17,500 shares of common stock at $4 per share.

(7) Includes 2,972 shares owned by his wife, Cynthia L. Jackson and options to
purchase 36,757 shares exercisable on or before May 20, 2000.

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<PAGE> 75

acquire a non-voting limited liability company membership interest in
Telcom-ATI Investors and the indirect interest Mr. Prakash has in
approximately 19,000 shares Telcom-ATI Investors has the right to acquire.

(9) 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.

(10) Includes 5,151,948 shares owned by Telcom-ATI Investors and entities it
controls, and an additional 1,875,000 shares which Telcom-ATI Investors has
the right to acquire over which Dr. Singh exercises voting and investment
control by virtue of his position as chairman and chief executive officer
of Telcom-ATI Investors.

(11) Includes exercisable 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 Telcom-ATI Investors and excludes the
indirect interest Mr. Stamas has in 5,753 shares Telcom-ATI Investors has
the right to acquire. Mr. Stamas also disclaims beneficial ownership of the
1,995,325 shares beneficially owned by Pyramid Ventures, Inc., an affiliate
of Deutsche Banc Alex. Brown.

(12) Mr. Vasan is a partner with Mayfield Fund. Mr. Vasan disclaims beneficial
ownership of shares held by Mayfield Fund except to the extent of any
pecuniary interest.

(13) Includes exercisable options to purchase 37,500 shares of common stock.
Also includes 5,000 shares owned by the Carol and Tom Wheeler Foundation of
which Mr. Wheeler is the trustee.

(14) Includes all the shares and options identified above.

(15) Includes exercisable warrants to purchase 143,665 shares of common stock.

(16) Telcom-ATI Investors, L.L.C. has exercised its option to acquire 1,875,000
shares of common stock currently held by NexGen, which is scheduled to
close in April 2000. Excluding these shares, the percentage of shares held
by NexGen would be 15.3% before the offering and 13.7% after the offering.

(17) Pyramid Ventures, Inc. is an indirect wholly-owned subsidiary of
DeutscheBank AG.

(18) Reuters MarketClip Holdings Sarl is an indirect wholly-owned subsidiary of
Reuters Group PLC.

(19) Includes an option to acquire 1,875,000 shares of common stock from NexGen
at a price of $1.92 per share. Telcom has exercised this option and plans
to close the purchase in April 2000.

(20) c/o Riverbed Technologies, Inc.
8229 Boone Boulevard
Suite 500
Vienna, VA 22182

(21) Includes 229,647 shares and options owned by her husband, E. Wayne Jackson
III.

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DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists 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 March 15, 2000, there were 32,192,913 shares of common stock
outstanding that were held of record by approximately 47 recordholders. As of
the same date, there were options and warrants to purchase a total of 5,581,701
shares of common stock. As of March 15, 2000, there would be 34,722,832 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. After completion of the concurrent offering of
convertible notes there will be convertible notes outstanding that are
convertible into an aggregate of shares of common stock.

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

Aether is authorized to issue 1,000,000 shares of undesignated preferred
stock. The board of directors has 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

NexGen, Telcom-ATI Investors, Reuters and 3Com entered into a stockholders
agreement which requires 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 terms of this agreement in further
detail in "Transactions Between Aether and its Officers, Directors or
Significant Stockholders" on page 69.

REGISTRATION RIGHTS OF STOCKHOLDERS

We and NexGen, Telcom-ATI Investors, Reuters, 3Com, J. Carter Beese, Jr.
and Mark D. Ein entered into a registration rights agreement requiring us to
register their shares on demand beginning October 27, 2000. Following our
acquisition of Riverbed, the former Riverbed stockholders became parties to this
agreement. We describe the terms of this agreement in further detail in
"Transactions Between Aether and its Officers, Directors or Significant
Stockholders" on page 69.

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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

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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 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
are currently exercisable and remain exercisable until June 2002. The remaining
warrants become exercisable from time to time upon the satisfaction of
conditions described on page 69 of this prospectus.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is BankBoston, N.A.

LISTING

Our shares of common stock are quoted on the Nasdaq National Market under
the symbol "AETH."

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UNITED STATES FEDERAL TAX CONSEQUENCES TO
NON-U.S. HOLDERS OF COMMON STOCK

GENERAL

The following is a general discussion of the material U.S. federal income
and estate tax consequences of the ownership and disposition of our common stock
by a non-U.S. holder. As used in this discussion, a "non-U.S. holder" is any
person other than:

- a citizen or resident of the United States,

- a corporation or other entity created or organized in or under the laws
of the United States, any state thereof, or the District of Columbia,

- an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or

- a trust that is subject to the primary supervision of a U.S. court and
the control of one or more U.S. persons.

This discussion is based on the Internal Revenue Code of 1986, as amended,
(the "Code"), U.S. Treasury regulations, and administrative and judicial
interpretations thereof, all of which may be subject to change, possibly with
retroactive effect. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to a particular non-U.S. holder
in light of the holder's particular circumstances or to non-U.S. holders that
may be subject to special rules. This discussion also does not address the tax
consequences arising under the laws of any state, local, or non-U.S.
jurisdiction.

THE FOLLOWING DISCUSSION IS INCLUDED IN THIS PROSPECTUS ONLY FOR GENERAL
INFORMATION. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE U.S.
FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF HOLDING AND DISPOSING OF
SHARES OF OUR COMMON STOCK.

An individual may be deemed to be a resident alien of the United States, as
opposed to a nonresident alien, by virtue of being present in the United States
for at least 31 days in the calendar year and for an aggregate of at least 183
days during the three-year period ending in the current calendar year. In
determining the 183-day period, all of the days in the current year are counted,
one-third of the days in the preceding year are counted, and one-sixth of the
days in the second preceding year are counted. Resident aliens are subject to
U.S. federal income and estate taxes in the same manner as U.S. citizens and
residents.

DIVIDENDS

In the event that we pay dividends on our common stock, dividends paid to a
non-U.S. holder will generally be subject to a U.S. withholding tax at a rate of
30 percent, unless an applicable income tax treaty were to provide for a lower
withholding rate. You should consult your tax advisor regarding your entitlement
to benefits under a relevant income tax treaty.

Dividends that (1) are effectively connected with a non-U.S. holder's
conduct of a trade or business in the U.S. and (2) if an income tax treaty
applies, attributable to a permanent establishment or, in the case of an
individual, a "fixed base" in the United States as provided in that treaty are
subject to U.S. federal income tax on a net income basis at graduated rates, and
are exempt from the 30 percent withholding tax if the non-U.S. holder files the
appropriate U.S. Internal Revenue Service ("IRS") form with the payor. In
addition, if received by a non-U.S. holder that is a corporation, those
dividends may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30 percent rate or such lower rate as may be specified
by an applicable income tax treaty.

Dividends paid prior to January 1, 2001 to an address in a foreign country
are presumed, absent actual knowledge to the contrary, to be paid to a resident
of that country for purposes of the withholding

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<PAGE> 80

tax discussed above and for purposes of determining the applicability of a tax
treaty rate. For dividends paid after December 31, 2000:

- a non-U.S. holder of our common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements,

- in the case of Class A common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number, and

- look-through rules will apply for tiered partnerships.

A non-U.S. holder may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
or withholding requirements with respect to gain recognized on the disposition
of our common stock unless one of the following situations applies:

- The gain is (1) effectively connected with a U.S. trade or business of
the non-U.S. holder or a U.S. partnership, trust, or estate in which the
non-U.S. holder is a partner or beneficiary, and (2) if required by an
applicable tax treaty, the gain is attributable to a permanent
establishment or fixed base of the non-U.S. holder in the United States.
In these cases, the non-U.S. holder will generally be taxed on its net
gain at regular graduated U.S. federal income tax rates, unless an
applicable treaty provides otherwise. If, in these cases, the non-U.S.
holder is a foreign corporation, it may be subject to an additional
"branch profits tax" at a 30 percent rate or such lower rate as may be
specified by an applicable tax treaty.

- The non-U.S. holder is an individual who holds the common stock as a
capital asset within the meaning of section 1221 of the Code and who is
present in the United States for 183 or more days in the taxable year of
the disposition and meets certain other requirements. In such a case,
unless an applicable treaty provides otherwise, the non-U.S. holder would
generally be subject to a flat 30 percent tax on the net gain derived
from the sale, which gain, along with other capital gains from U.S.
sources, may be offset by capital losses of the non-U.S. holder for the
taxable year from sources within the United States.

- The non-U.S. holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain expatriates.

- We are, or have previously been, a "United States real property holding
corporation" for U.S. federal income tax purposes at any time during the
shorter of (1) the five-year period preceding the non-U.S. holder's
disposition of our common stock, or (2) the period during which the
non-U.S. holder held the common stock. In such a case, the non-U.S.
holder would be subject to U.S. federal income tax on its net gain at
regular graduated rates, except as described below. Generally, a
corporation is a United States real property holding corporation if the
fair market value of its interests in U.S. real property represents 50
percent or more of the fair market value of its worldwide real property
interests plus other assets used or held for use in a trade or business.
We do not believe that we are or ever have been, nor do we anticipate
becoming, a United States real property holding corporation for U.S.
federal income tax purposes. In the event that we were to become a United
States real property holding corporation, any gain realized by a non-U.S.
holder that directly or indirectly held 5 percent or less of our
outstanding common stock at all times during the applicable period would
not be subject to tax if such stock were "regularly traded" on an
established securities market. If our common stock were not treated as
regularly traded, the purchaser of such stock from any non-U.S. holder
would be required to withhold 10 percent of the proceeds of the sale
unless we could certify that we are not and were not during the
applicable period a United States real property holding corporation.

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<PAGE> 81

FEDERAL ESTATE TAX

For U.S. federal estate tax purposes, an individual's gross estate will
include common stock owned, or treated as owned, by that individual at the time
of his or her death. This is generally the case regardless of whether such
individual was a U.S. citizen or resident. Thus, such common stock owned by
non-U.S. holders may be subject to U.S. federal estate tax, unless an applicable
estate tax or other treaty limits such an inclusion.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Generally, we must report annually to the IRS and to each non-U.S. holder
the amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of these information returns may also be
made available to the tax authorities in the country in which the non-U.S.
holder is a resident under provisions of an applicable income tax treaty or
agreement.

Dividends paid to a non-U.S. holder at an address within the United States
may be subject to backup withholding at a rate of 31 percent if the non-U.S.
holder fails to establish that it is entitled to an exemption or to provide a
correct taxpayer identification number and other information to the payor. Under
currently applicable law, non-U.S. holders of common stock generally will be
exempt from backup withholding on dividends paid prior to January 1, 2001 to an
address outside the United States. For dividends paid after December 31, 2000,
however, a non-U.S. holder of common stock that fails to certify its non-U.S.
holder status in accordance with applicable U.S. Treasury regulations may be
subject to backup withholding at a rate of 31 percent on payments of dividends.

The payment by or through a United States office of a broker of the
proceeds of a sale of our common stock generally will be subject to both backup
withholding and information reporting unless the holder certifies to the payor
its status as a non-U.S. holder under penalties of perjury or otherwise
establishes an exemption.

Information reporting and backup withholding generally will not apply to a
payment by or through a foreign office of a foreign broker of the proceeds of a
sale of our common stock effected outside the United States. However,
information reporting requirements, but currently not backup withholding, will
apply to a payment by or through a foreign office of a broker of the proceeds of
a sale of our common stock effected outside the United States if that broker:

- is a United States person for U.S. federal income tax purposes;

- is a foreign person that derives 50 percent or more of its gross income
for certain periods from the conduct of a trade or business in the United
States;

- is a "controlled foreign corporation" as defined in the Code; or

- is a foreign partnership with certain U.S. connections (for payments made
after December 31, 2000).

Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption. In addition, effective after December 31, 2000, backup withholding
may apply to the payment of disposition proceeds by or through a non-U.S. office
of a broker in the above cases unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge or reason to know that the holder is a U.S. person. Non-U.S. holders
should consult their own tax advisors regarding the application of the
information reporting and backup withholding rules to them, including changes to
these rules that will become effective after December 31, 2000.

Amounts withheld under the backup withholding rules do not constitute a
separate United States federal income tax. Rather, any amounts withheld under
the backup withholding rules will be refunded or allowed as a credit against the
holder's U.S. federal income tax liability, if any, provided the required
information or appropriate claim for refund is filed with the IRS.

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<PAGE> 82

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock, including shares
issued upon exercise of outstanding options and warrants or conversion of
outstanding convertible notes, in the public market following this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through sale of our equity securities. Sales
of substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise the equity capital in the future.

As of March 15, 2000, assuming the completion of this offering, we would
have outstanding 34,722,832 shares of common stock. Of these shares, 10,588,637
shares (including the 3,000,000 shares to be sold in this offering (10,868,555
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.

Of the 34,722,832 shares outstanding upon completion of this offering,
24,134,195 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 directors of Aether have agreed with
the underwriters not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any of the 393,000 shares they hold or have the
right to acquire (or additional shares they may acquire) for a period of 90 days
from the date of this prospectus. Pursuant to "lock-up" agreements, all selling
stockholders have agreed with the underwriters not to offer, sell, contract to
sell, grant any option to purchase or otherwise dispose of any of the
approximately 21,077,855 shares they hold or have the right to acquire (or
additional shares they may acquire) until October 21, 2000. 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 90 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, 10,588,637 shares (10,868,555 shares if
the underwriters' over-allotment option is exercised in full) will be
immediately available for sale in the public market;

- 90 days after the date of the prospectus, approximately 19,250 shares
will be eligible for sale;

- on October 26, 2000, 19,626,646 shares will be eligible for sale under
Rule 144; and

- at various times after October 26, 2000, 4,507,549 shares will be
eligible for sale under Rule 144.

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.

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<PAGE> 83

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 March 15, 2000, we have outstanding options and warrants to
purchase 5,581,701 shares of common stock to specified persons pursuant to our
equity incentive plan. We have filed a registration statement on Form S-8 to
register 5,400,000 shares of common stock reserved for issuance under our equity
incentive plan. See "Management -- Executive Compensation" on page 64. Shares
issued under the foregoing plan 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 24,102,861 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" on page 76.

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<PAGE> 84

UNDERWRITING

GENERAL

We intend to offer the shares in the U.S. and Canada through the U.S.
underwriters and elsewhere through the international managers. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, FleetBoston Robertson Stephens Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, U.S. Bancorp Piper Jaffray
Inc., Bear, Stearns & Co. Inc. and Friedman, Billings, Ramsey & Co., Inc. are
acting as U.S. representatives of the U.S. underwriters named below. Subject to
the terms and conditions described in a U.S. purchase agreement among us, the
selling stockholders and the U.S. underwriters, and concurrently with the sale
of 450,000 shares to the international managers, we and the selling stockholders
have agreed to sell to the U.S. underwriters, and the U.S. underwriters
severally have agreed to purchase from us and the selling stockholders, the
number of shares listed opposite their names below.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ---------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................
FleetBoston Robertson Stephens Inc.........................................
Donaldson, Lufkin & Jenrette Securities Corporation........................
U.S. Bancorp Piper Jaffray Inc.............................................
Bear, Stearns & Co. Inc....................................................
Friedman, Billings, Ramsey & Co., Inc......................................
---------
Total....................................................... 2,550,000
=========
</TABLE>

We and the selling stockholders have also entered into an international
purchase agreement with the international managers for sale of the shares
outside the U.S. and Canada for whom Merrill Lynch International is acting as
lead manager. Subject to the terms and conditions in the international purchase
agreement, and concurrently with the sale of 2,550,000 shares to the U.S.
underwriters pursuant to the U.S. purchase agreement, we and the selling
stockholders have agreed to sell to the international managers, and the
international managers severally have agreed to purchase 450,000 shares from us
and the selling stockholders. The initial public offering price per share and
the total underwriting discount per share are identical under the U.S. purchase
agreement and the international purchase agreement.

The U.S. underwriters and the international managers have agreed to
purchase all of the shares sold under the U.S. and international purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
U.S. and international purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
U.S. underwriters and the international managers are conditioned on one another.

We and the selling stockholders have agreed to indemnify the U.S.
underwriters and the international managers against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
U.S. underwriters and international managers may be required to make in respect
of those liabilities.

The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreements, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.

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<PAGE> 85

COMMISSIONS AND DISCOUNTS

The U.S. representatives have advised us and the selling stockholders that
the U.S. underwriters propose initially to offer the shares to the public at the
initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per share. The
U.S. underwriters may allow, and the dealers may reallow, a discount not in
excess of $ per share to other dealers. After the initial public offering,
the public offering price, concession and discount may be changed.

The following table shows the public offering price, underwriting discount
and the proceeds before expenses to us and the selling stockholders. This
information assumes either no exercise or full exercise by the U.S. underwriters
and the international managers of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTIONS WITH OPTIONS
--------- --------------- ------------
<S> <C> <C> <C>
Public offering price.......................... $ $ $
Underwriting discount.......................... $ $ $
Proceeds, before expenses, to Aether........... $ $ $
Proceeds, before expenses, to the selling
stockholders................................. $ $ $
</TABLE>

The expenses of the offering, not including the underwriting discount, are
estimated at $1.3 million and are payable by Aether.

OVER-ALLOTMENT OPTION

We and the selling stockholders have granted options to the U.S.
underwriters to purchase up to 382,500 additional shares at the public offering
price less the underwriting discount. The U.S. underwriters may exercise these
options for 30 days from the date of this prospectus solely to cover any
over-allotments. If the U.S. underwriters exercise these options, each will be
obligated, subject to conditions contained in the U.S. purchase agreement, to
purchase a number of additional shares proportionate to that U.S. underwriter's
initial amount reflected in the above table.

We and the selling stockholders have also granted options to the
international managers, exercisable for 30 days from the date of this prospectus
to purchase up to 67,500 additional shares to cover any over-allotments on terms
similar to those granted to the U.S. underwriters.

INTERSYNDICATE AGREEMENT

The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the U.S. underwriters and any dealer to whom
they sell shares will not offer to sell or sell shares to persons who are
non-U.S. or non-Canadian persons or to persons they believe intend to resell to
persons who are non-U.S. or non-Canadian persons, except in the case of
transactions under the intersyndicate agreement. Similarly, the international
managers and any dealer to whom they sell shares will not offer to sell or sell
shares to U.S. persons or Canadian persons or to persons they believe intend to
resell to U.S. or Canadian persons, except in the case of transactions under the
intersyndicate agreement.

INTERNET DISTRIBUTION

fbr.com, a division of FBR Investment Services, Inc., is an affiliate of
Friedman, Billings, Ramsey & Co., Inc., a U.S. representative. Friedman,
Billings, Ramsey & Co., Inc. has agreed to allocate a certain number of shares
to fbr.com for sale to its online brokerage account holders. An electronic
prospectus is available on the Web site maintained by fbr.com. Other than the
prospectus in electronic format, the information on

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<PAGE> 86

the fbr.com Web site relating to this offering is not a part of this prospectus
and should not be relied upon by prospective investors.

NO SALES OF SIMILAR SECURITIES

We and the selling stockholders and our executive officers and directors
have agreed, with exceptions, not to sell or transfer any common stock for 90
days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch. Specifically, we and these other individuals have
agreed not to directly or indirectly

- offer, pledge, sell or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or

- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any common stock whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.

This lockup provision applies to common stock and to securities convertible
into or exchangeable or exercisable for or repayable with common stock. It also
applies to common stock owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.

QUOTATION ON THE NASDAQ NATIONAL MARKET

The shares are quoted on the Nasdaq National Market under the symbol
"AETH."

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common stock. However, the U.S. representatives may engage in transactions that
stabilize the price of the common stock, such as bids or purchases to peg, fix
or maintain that price.

If the underwriters create a short position in the common stock in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the U.S. representatives may reduce that short
position by purchasing shares in the open market. The U.S. representatives may
also elect to reduce any short position by exercising all or part of the
over-allotment option described above. Purchases of the common stock to
stabilize its price or to reduce a short position may cause the price of the
common stock to be higher than it might be in the absence of such purchases.

Neither we 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 the common stock. In addition, neither
we nor any of the underwriters makes any representation that the U.S.
representatives or the lead manager will engage in these transactions or that
these transactions, once commenced, will not be discontinued without notice.

PASSIVE MARKET MAKING

sales of common stock and extending through the completion of distribution. A
passive market maker must display its bid at a price not in excess of the
highest independent bid of that security. However, if all independent bids are
lowered below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.

OTHER RELATIONSHIPS

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received and may receive
customary fees and commissions for these transactions.

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<PAGE> 88

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
consultant to Wilmer, Cutler & Pickering, is 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, which owns 7,026,948 shares of common
stock. 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 consolidated financial statements and schedule of Aether Systems, Inc.
as of December 31, 1998 and 1999, and for each of the years in the three-year
period ended December 31, 1999 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
said firm as experts in auditing and accounting.

The financial statements of Riverbed Technologies, Inc. as of December 31,
1998 and 1999, and for the period from October 21, 1998 (date of inception) to
December 31, 1998 and for the year ended December 31, 1999, have been included
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent certified public accountants, appearing elsewhere herein, and
upon authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange
Act and we file reports, proxy and information statements and other information
with the Commission. You may read and copy all or any portion of the reports,
proxy and information statements or other information we file at the
Commission's principal office in Washington, D.C., and copies of all or any part
thereof may be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New
York 10048 after payment of fees prescribed by the Commission. Please call the
Commission at 1-800-SEC-0330 for further information on operation of the public
reference rooms. The Commission also maintains a World Wide Web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
at the address http://www.sec.gov.

We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act with respect to the common stock to be sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits to the registration statement. For
further information with respect to Aether Systems, Inc. and our common stock
offered hereby, reference is made to the Registration Statement and the exhibits
filed as a part of the Registration Statement. Statements contained in this
prospectus concerning the contents of any contract or any other document are not
necessarily complete; reference is made in each instance to the copy of such
contract or any other document filed as an exhibit to the registration
statement. Each such statement is qualified in all respects by such reference to
such exhibit. The registration statement, including exhibits thereto, may be
inspected without charge at the locations described above, or obtained upon
payment of fees prescribed by the Commission.

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<PAGE> 89

INDEX TO FINANCIAL STATEMENTS

AETHER SYSTEMS, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations and Other
Comprehensive Loss for the years ended December 31, 1997,
1998 and 1999............................................. F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

MOBEO, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-20
Balance Sheets as of December 31, 1997 and 1998............. F-21
Statements of Operations for the years ended December 31,
1996, 1997 and 1998....................................... F-22
Statements of Changes in Stockholders' Equity (Deficit) for
the years ended December 31, 1996, 1997 and 1998.......... F-23
Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998....................................... F-24
Notes to Financial Statements............................... F-25
</TABLE>

RIVERBED TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-31
Balance Sheets as of December 31, 1998 and 1999............. F-32
Statements of Operations for the period from October 21,
1998 (Date of Inception) to December 31, 1998 and for the
year ended December 31, 1999.............................. F-33
Statements of Stockholders' Equity (Deficit) for the period
from October 21, 1998 (Date of Inception) to December 31,
1998 and for the year ended December 31, 1999............. F-34
Statements of Cash Flows for the period from October 21,
1998 (Date of Inception) to December 31, 1998 and for the
year ended December 31, 1999.............................. F-35
Notes to Financial Statements............................... F-36
</TABLE>

UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Unaudited Pro Forma Condensed Consolidated
Financial Information..................................... F-44
Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1999...................................... F-45
Unaudited Pro Forma Condensed Consolidated Balance Sheet
Adjustments for Completed Transactions as of December 31,
1999...................................................... F-47
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended
December 31, 1999......................................... F-50
Unaudited Pro Forma Condensed Consolidated Statement of
Operations Adjustments for Completed Transactions for the
year December 31, 1999.................................... F-52
</TABLE>

F-1
<PAGE> 90

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Aether Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Aether
Systems, Inc. and subsidiary as of December 31, 1998 and 1999, and the related
consolidated statements of operations and other comprehensive loss,
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aether
Systems, Inc. and subsidiary as of December 31, 1998 and 1999, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.

KPMG LLP

McLean, Virginia
February 9, 2000

F-2
<PAGE> 91

AETHER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
---------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $1,755,350 $ 78,541,792
Short-term investments.................................... 6,191,287 2,091,962
Trade accounts receivable, net of allowance for doubtful
accounts of $157,061 and $56,371 at December 31, 1998
and 1999, respectively................................. 118,489 1,002,845
Inventory, net of allowance for obsolescence of $169,630
and $115,153 at December 31, 1998 and 1999,
respectively........................................... 143,617 688,494
Prepaid expenses and other current assets................. 45,646 4,994,965
---------- ------------
Total current assets.............................. 8,254,389 87,320,058
Property and equipment, net................................. 510,437 2,795,920
Intangible assets, net...................................... -- 12,209,442
Other assets................................................ -- 208,698
---------- ------------
$8,764,826 $102,534,118
========== ============

LIABILITIES, MEMBERS' CAPITAL AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 195,930 $ 1,425,435
Accrued expenses.......................................... 288,350 1,619,947
Accrued employee compensation and benefits................ 250,975 971,110
Deferred revenue.......................................... -- 175,193
---------- ------------
Total current liabilities......................... 735,255 4,191,685
Members' capital............................................ 8,029,571 --
Stockholders' equity:
Preferred stock, $0.01 par value; 1,000,000 shares
authorized; 0 shares issued and outstanding at December
31, 1999,.............................................. -- --
Common stock, $0.01 par value; 75,000,000 shares
authorized; 27,154,398 issued and outstanding at
December 31, 1999...................................... -- 271,543
Additional paid-in-capital................................ -- 120,892,478
Accumulated deficit....................................... -- (22,613,640)
Notes receivable from stockholder......................... -- (137,879)
Unrealized loss on investments available for sale......... -- (70,069)
---------- ------------
Total stockholders' equity........................ -- 98,342,433
---------- ------------
Commitments and contingencies
$8,764,826 $102,534,118
========== ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 92

AETHER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Subscriber revenue................................... $ 161,400 $ 549,057 $ 3,731,792
Engineering services revenue......................... 1,624,733 963,165 2,594,476
----------- ----------- ------------
Total revenue.............................. 1,786,133 1,512,222 6,326,268
Cost of subscriber revenue........................... 447,480 797,165 2,109,807
Cost of engineering services revenue................. 846,140 304,137 1,366,426
----------- ----------- ------------
Total cost of revenue...................... 1,293,620 1,101,302 3,476,233
----------- ----------- ------------
Gross profit............................... 492,513 410,920 2,850,035
----------- ----------- ------------
Operating expenses:
Research and development (exclusive of option and
warrant expense of $0, $0, and $150,288 for the
year ended December 31, 1997, 1998 and 1999,
respectively)................................... 733,630 1,267,320 2,613,726
General and administrative (exclusive of option and
warrant expense of $40,277, $32,580, and
$18,004,623 for the years ended December 31,
1997, 1998, and 1999, respectively)............. 1,504,250 2,773,332 5,891,504
Selling and marketing (exclusive of option and
warrant expense of $0, $0 and $1,043,298 for the
years ended December 31, 1997, 1998, and 1999,
respectively)................................... 333,191 840,455 2,095,074
Depreciation and amortization...................... 189,160 264,685 1,089,013
Option and warrant expense......................... 40,277 32,580 19,198,209
----------- ----------- ------------
2,800,508 5,178,372 30,887,526
----------- ----------- ------------
Operating loss............................. (2,307,995) (4,767,452) (28,037,491)
Other income (expense):
Interest income.................................... 7,788 140,479 996,436
Interest expense................................... -- (70,171) (1,056,718)
Equity in losses of investments.................... (144,825) (2,425,000)
Realized gain (loss) on sale of short-term
investments..................................... -- 3,872 (168,721)
Realized loss on sale of investment................ (302,145) -- --
----------- ----------- ------------
Net loss................................... $(2,747,177) $(4,693,272) $(30,691,494)
Other comprehensive loss-unrealized holding gain
(loss) on investments available for sale........... -- (58,030) (12,039)
----------- ----------- ------------
Comprehensive loss................................... $(2,747,177) $(4,751,302) $(30,703,533)
=========== =========== ============
Pro forma statement of operations data (unaudited):
Loss before income taxes, as reported.............. $(2,747,177) $(4,693,272) $(30,691,494)
Pro forma income tax provision (benefit)........... -- -- --
----------- ----------- ------------
Pro forma net loss................................. $(2,747,177) $(4,693,272) $(30,691,494)
=========== =========== ============
Pro forma net loss per share-basic and diluted..... $ (0.22) $ (0.29) $ (1.45)
=========== =========== ============
Pro forma weighted average shares outstanding-basic
and diluted..................................... 12,655,901 15,916,383 21,207,225
=========== =========== ============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 93

AETHER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE UNREALIZED
PREFERRED COMMON PAID-IN ACCUMULATED FROM LOSS ON MEMBERS'
STOCK STOCK CAPITAL DEFICIT STOCKHOLDER INVESTMENTS CAPITAL
--------- -------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997........ $-- $ -- $ -- $ -- $ -- $ -- $ 1,100,866
Issuance of member units in
February 1997.................. -- -- -- -- -- -- 1,000,000
Issuance of member units in
December 1997.................. -- -- -- -- -- -- 690,369
Unit option and warrant
expense........................ -- -- -- -- -- -- 40,277
Note receivable from member...... -- -- -- -- -- -- (10,000)
Net loss......................... -- -- -- -- -- -- (2,747,177)
--- -------- ------------ ------------ --------- -------- -----------
Balance at December 31, 1997...... -- -- -- -- -- -- 74,335
Issuance of member units in
January 1998................... -- -- -- -- -- -- 1,499,314
Issuance of warrants in
June 1998...................... -- -- -- -- -- -- 50,000
Exercise of warrants in August
1998........................... -- -- -- -- -- -- 56
Conversion of note payable and
issuance of member units in
August 1998.................... -- -- -- -- -- -- 252,467
Issuance of member units in
August 1998.................... -- -- -- -- -- -- 5,000,000
Issuance of member units in
October 1998................... -- -- -- -- -- -- 6,000,000
Unit option and warrant
expense........................ -- -- -- -- -- -- 32,580
Unrealized loss on investments
available for sale............. -- -- -- -- -- (58,030)
Note receivable from member...... -- -- -- -- -- -- (127,879)
Net loss......................... -- -- -- -- -- -- (4,693,272)
--- -------- ------------ ------------ --------- -------- -----------
Balance at December 31, 1998...... -- -- -- -- -- 8,029,571
Issuance of replacement options
to Mobeo, Inc. employees....... -- -- -- -- -- -- 374,000
Exercise of unit options and
warrants....................... -- -- -- -- -- -- 70,000
Option and warrant expense....... -- -- -- -- -- -- 2,323,698
Net loss -- pre merger........... -- -- -- -- -- -- (8,077,854)
Merger of Aether Technologies
International, L.L.C. into
Aether Systems, Inc. in October
1999........................... -- 200,670 2,714,654 -- (137,879) (58,030) (2,719,415)
Net proceeds of initial public
offering....................... -- 69,000 101,044,831 -- -- --
Unrealized loss on investments
available for sale............. -- -- -- -- -- (12,039) --
Option and warrant expense....... -- -- 16,874,511 -- -- -- --
Exercise of stock options........ -- 1,873 258,482 -- -- -- --
Net loss -- post merger.......... -- -- -- (22,613,640) -- -- --
--- -------- ------------ ------------ --------- -------- -----------
Balance at December 31, 1999...... $-- $271,543 $120,892,478 $(22,613,640) $(137,879) $(70,069) $ --
=== ======== ============ ============ ========= ======== ===========

TOTAL
------------
<S> <C>
Balance at January 1, 1997........ $ 1,100,866
Issuance of member units in
February 1997.................. 1,000,000
Issuance of member units in
December 1997.................. 690,369
Unit option and warrant
expense........................ 40,277
Note receivable from member...... (10,000)
Net loss......................... (2,747,177)
------------
Balance at December 31, 1997...... 74,335
Issuance of member units in
January 1998................... 1,499,314
Issuance of warrants in
June 1998...................... 50,000
Exercise of warrants in August
1998........................... 56
Conversion of note payable and
issuance of member units in
August 1998.................... 252,467
Issuance of member units in
August 1998.................... 5,000,000
Issuance of member units in
October 1998................... 6,000,000
Unit option and warrant
expense........................ 32,580
Unrealized loss on investments
available for sale............. (58,030)
Note receivable from member...... (127,879)
Net loss......................... (4,693,272)
------------
Balance at December 31, 1998...... 8,029,571
Issuance of replacement options
to Mobeo, Inc. employees....... 374,000
Exercise of unit options and
warrants....................... 70,000
Option and warrant expense....... 2,323,698
Net loss -- pre merger........... (8,077,854)
Merger of Aether Technologies
International, L.L.C. into
Aether Systems, Inc. in October
1999........................... --
Net proceeds of initial public
offering....................... 101,113,831
Unrealized loss on investments
available for sale............. (12,039)
Option and warrant expense....... 16,874,511
Exercise of stock options........ 260,355
Net loss -- post merger.......... (22,613,640)
------------
Balance at December 31, 1999...... $ 98,342,433
============
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 94

AETHER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,747,177) $(4,693,272) $(30,691,494)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization........................... 189,160 264,685 1,089,013
Provision (recovery) for doubtful accounts.............. -- 157,061 (59,530)
Provision (recovery) for inventory obsolescence......... -- 169,630 (54,477)
Realized (gain) loss on sale of short-term
investments............................................ -- (3,872) 168,721
Equity in losses of investments......................... 144,825 -- 2,425,000
Realized loss on sale of investment..................... 302,145 -- --
Issuance of warrants.................................... -- 50,000 --
Option and warrant expense.............................. 40,277 32,580 19,198,209
Changes in assets and liabilities:
(Increase) decrease in trade accounts receivable...... 74,812 (153,417) (1,730,942)
Increase in inventory................................. -- (313,247) (490,400)
(Increase) decrease in prepaid expenses and other
current assets....................................... 3,828 (30,529) (3,785,442)
Increase (decrease) in accounts payable............... 67,360 83,421 (376,810)
Increase in accrued expenses and employee compensation
and benefits......................................... 272,622 216,457 2,051,732
Increase (decrease) in deferred revenue............... 162,500 (162,500) 175,193
----------- ----------- ------------
Net cash used by operating activities.............. (1,489,648) (4,383,003) (12,081,227)
----------- ----------- ------------
Cash flows (used) by investing activities:
Sales of short-term investments........................... 49,977 1,295,525 12,640,562
Purchases of short-term investments....................... -- (7,535,118) (8,721,997)
Acquisition of Mobeo, Inc., net of cash acquired.......... -- -- (11,547,976)
Purchases of property and equipment....................... (441,700) (228,274) (2,447,106)
Investment in OmniSky, Inc................................ -- -- (2,500,000)
Long-term investments..................................... (23,000) -- --
Proceeds from sale of investment in joint venture......... 205,000 -- --
----------- ----------- ------------
Net cash used in investing activities.............. (209,723) (6,467,867) (12,576,517)
----------- ----------- ------------
Cash flows provided by financing activities:
Issuance of member units.................................. 1,690,369 12,501,781 --
Proceeds from issuance of common stock.................... -- -- 101,113,831
Repayments from member.................................... (50,000) -- --
Proceeds from note payable................................ 150,000 500,000 --
Repayments on notes payable............................... -- (400,000) --
Proceeds from credit facility............................. -- -- 14,830,000
Repayments of credit facility............................. -- -- (14,830,000)
Issuance of notes receivable from member.................. (10,000) (127,879) --
Exercise of options and warrants.......................... -- 56 330,355
----------- ----------- ------------
Net cash provided by financing activities.......... 1,780,369 12,473,958 101,444,186
----------- ----------- ------------
Net increase in cash and cash equivalents.......... 80,998 1,623,088 76,786,442
Cash and cash equivalents, at beginning of period........... 51,264 132,262 1,755,350
----------- ----------- ------------
Cash and cash equivalents, at end of period................. $ 132,262 $ 1,755,350 $ 78,541,792
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 3,894 $ 20,171 $ 1,026,643
=========== =========== ============
</TABLE>

- ---------------
Supplemental disclosure of noncash investing and financing activities:
In 1997, the Company made a $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.
In 1998 and 1999, the Company incurred unrealized holding losses associated
with its investments available for sale totaling $58,030 and $12,039. These
amounts have been reported as reductions in members' capital and
stockholders' equity, respectively.
In September 1999, the Company issued 18,442 unit options (46,105 shares)
valued at $374,000 as part of the cost to acquire Mobeo, Inc. This amount
has been reported as an increase in members' capital.
In October 1999, approximately $1.1 million of trade receivables owed to the
Company by OmniSky, Inc. were settled against amounts due in connection
with the purchase of 20,000 modems from OmniSky, Inc.

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 95

AETHER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS

Aether Systems, Inc. and its subsidiary (the "Company") designs, develops,
sells and supports wireless data services and systems enabling people to use
handheld devices for mobile data communications and real-time 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 and through strategic acquisitions. The
Company has a limited operating history and has incurred net losses since its
inception. The Company expects to continue to incur significant sales and
marketing, systems development and administrative expenses. The Company may
require additional capital in the future to meet its operating and capital
needs.

(2) MERGER AND INITIAL PUBLIC OFFERING

The Company is the successor to the business formerly conducted by Aether
Systems, L.L.C. ("Aether") (previously Aether Technologies International,
L.L.C.), which was formed in January, 1996. Effective October 26, 1999, in
connection with the Company's initial public offering of common stock, Aether
merged with and into Aether Systems, Inc. The Company is the surviving company
in the merger, and owns all of the assets and rights and is subject to all of
the obligations and liabilities of Aether. Immediately prior to the merger, each
member of the Company contributed its membership units in Aether Systems, L.L.C.
to Aether Systems, Inc., a newly formed Delaware corporation, in exchange for
two and one-half shares of common stock of Aether Systems, Inc. Effective with
the merger, the Company converted to a Subchapter C Corporation under the
Internal Revenue Code of 1986 as amended.

On October 26, 1999, the Company completed its initial public offering,
which involved the sale of 6,900,000 shares of common stock at $16.00 per share,
including 900,000 shares from the exercise of the underwriters' over-allotment
option, at the initial public offering price less underwriting discounts and
offering expenses. Net proceeds to the Company after deducting underwriting
discounts, commissions and other expenses of the offering were approximately
$101.1 million.

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include the accounts of Aether
Systems, Inc. and its wholly owned subsidiary, Mobeo, Inc. All significant
intercompany transactions and balances have been eliminated in consolidation.

(b) 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.
Certain of the Company's customers are billed in advance with revenue deferred
and recognized on a monthly basis over the term of the agreement. 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

F-7
<PAGE> 96
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

relation to total estimated costs. Anticipated contract losses are recognized as
soon as they become known and estimable.

Cost of subscriber revenue consists primarily of airtime costs, financial
data costs, wireless handheld device costs, and securities exchange and market
fees. Since the Company's service agreements are generally for a one-year period
and subject to cancellation, non-payment and non-return risk, the Company
expenses the cost of wireless handheld devices upon shipment to the customer.
Cost of engineering services revenue consists of cash compensation and related
costs for engineering personnel and materials.

(d) 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 $193,000 and $5,521,000 in overnight repurchase agreements,
$1,562,000 and $68,831,000 in money market accounts, and $0 and $3,979,000 in
commercial paper at December 31, 1998 and 1999, respectively.

(e) 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.

(f) 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 due to the relatively short duration of the
instruments.

(g) 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.

(h) Inventory

Inventory, net of allowance for obsolete and slow-moving inventory,
consists primarily of handheld and laptop computers, pagers, 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.

(i) Property and Equipment

Property 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 shorter of the
lease term or the estimated useful life of the asset.

F-8
<PAGE> 97
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

(j) Investment in OmniSky, Inc.

The Company uses the equity method of accounting for advances to and
earnings and losses of its investment in OmniSky, Inc.

(k) Goodwill and Recovery of Long-Lived Assets

Cost in excess of the fair value of tangible and identifiable intangible
net assets acquired is included in intangible assets and is amortized on a
straight-line basis over seven years.

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 undiscounted 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.

(l) Stock 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 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.

(m) Pro Forma Income (Loss) Data (Unaudited)

The accompanying unaudited pro forma information has been prepared as if
the Company was treated as Subchapter C Corporation for Federal and state income
tax purposes from January 1, 1997. 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 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.

(n) Research and Development

Research and development costs are expensed as incurred.

(o) Advertising Expense

Advertising costs are expensed as incurred. Advertising expense was
approximately $248,000, $504,000, and $933,000 for the years ended December 31,
1997, 1998 and 1999, respectively.

(p) Income Taxes

F-9
<PAGE> 98
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect of a tax rate change on deferred tax assets and liabilities
is recognized in income in the period that includes the enactment date.

Prior to October 26, 1999, Aether had elected limited liability status and,
as such, was not directly subject to Federal and state income taxes. Rather, the
members were responsible for income taxes on their proportionate share of
taxable income and entitled to their proportionate share of tax deductions and
tax credits.

(q) Use of Estimates

The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

(r) 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.

For the years ended December 31, 1998 and 1999, other comprehensive income
(loss) consists of unrealized losses on investments available for sale.

(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.

(4) 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 approximately $11.5 million,
including acquisition costs of approximately $112,000, and 18,442 unit options
(46,105 shares) with an exercise price of $12.00 per unit ($4.80 per share)
valued at approximately $374,000. The acquisition was completed on September 28,
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 provided for the grant of an
aggregate 125,000 unit options (312,500 shares) with an exercise price of $15.00
per unit ($6.00 per share). The Company also issued 22,000 options (55,000
shares) at an exercise price of $6.00 per unit ($2.40 per share) and 30,000
options (75,000 shares) at an exercise price of $12.00 per unit ($4.80 per
share) to employees of Mobeo. The Company has recorded option and warrant
expense of approximately $418,000 in 1999 associated with

F-10
<PAGE> 99
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

these options and expects to record an additional $2.9 million in option and
warrant expense over the remaining service and vesting periods.

The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the assets acquired and liabilities assumed have
been recorded at their estimated fair value as of the acquisition date. The
allocation of the purchase price is summarized as follows:

<TABLE>
<S> <C>
Current assets.............................................. $ 258,000
Property and equipment...................................... 372,000
Other assets................................................ 133,000
Current liabilities......................................... (1,606,000)
Goodwill and other intangibles.............................. 12,765,000
-----------
Total consideration paid.................................... $11,922,000
===========
</TABLE>

The following summary, prepared on a pro forma basis, presents the results
of operations (unaudited) of the Company as if the Mobeo acquisition had been
completed as of January 1, 1998:

<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- -----------------
<S> <C> <C>
Revenue.............................................. $10,093,008 $ 13,836,410
Net loss............................................. (6,842,574) (31,749,078)
Net loss per share -- basic and diluted.............. (.43) (1.50)
</TABLE>

The unaudited pro forma results of operations are not necessarily
indicative of what actually would have occurred if Mobeo had been owned for the
entire periods presented or a projection of the Company's results of operations
for any future period.

(5) INVESTMENT IN OMNISKY, INC.

On August 9, 1999, the Company entered into a new venture with 3Com
Corporation ("3Com"), forming a new Company called OpenSky, which was later
renamed OmniSky, Inc. ("OmniSky"). OmniSky 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 OmniSky 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
its ownership in OmniSky to 33% on a fully diluted basis. On November 9, 1999,
the Company exercised its option to acquire these additional shares. The chief
executive officer of the Company serves as a member of OmniSky's board of
directors. The Company provides engineering services to OmniSky under an
agreement in the amount of $3.0 million through June 2000. As of December 31,
1999, the Company has recognized $2.2 million in engineering services revenue
under the OmniSky agreement. This amount represents 86% of engineering services
revenue and 35% of total revenue for the year ended December 31, 1999. The
agreement also provides for OmniSky to pay $1.50 per month per subscriber for
the use of the Company's network operations center. The Company has the right to
offer OmniSky's services to its subscribers for a monthly fee of $3.00 per
subscriber. There has been no activity as of December 31, 1999 under these
provisions of the agreement.

The Company accounts for its investment in OmniSky under the equity method
of accounting. The Company recorded $2.4 million in expenses through December
31, 1999, to reflect its proportionate share of the losses in OmniSky based upon
unaudited financial information provided by OmniSky.

During 1999, OmniSky, Inc. reported a net loss of approximately $5.7
million (unaudited) and had net assets of $9.7 million (unaudited) as of
December 31, 1999.
F-11
<PAGE> 100
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

In October 1999, the Company agreed to purchase 25,000 Minstrel V modems
from OmniSky for $230 per modem. OmniSky has an exclusive buying arrangement
with Novatel for Minstrel V modems, which began in December 1999 and will run
through March of 2000. The Company purchased 20,000 of the 25,000 for cash of
$3.5 million and cancellation of $1.1 million of trade receivables owed to the
Company by Omnisky. An additional $1.2 million will be paid to OmniSky, Inc. for
the remaining 5,000 modems after the delivery of the initial 20,000 modems,
which began in November 1999 and will continue through April of 2000. As of
December 31, 1999, the Company has recorded prepaid expenses of approximately
$4.5 million associated with this agreement. The Company received approximately
$58,000 of modems during 1999.

On January 18, 2000, the Company entered into a Series B Preferred Stock
Purchase Agreement, whereby the Company purchased 1,439,809 shares of Series B
preferred stock of OmniSky for an aggregate purchase price of approximately $6.7
million, consisting of cash of approximately $6.1 million and the cancellation
of approximately $600,000 of indebtedness owed to the Company by OmniSky for
engineering services. The investment was made to maintain the Company's 33
percent ownership in OmniSky. The Company's per share purchase price was the
same as the other Series B Preferred Stock investors.

(6) SHORT-TERM INVESTMENTS

As of December 31, 1998, short-term available for sale investments consists
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>

As of December 31, 1999, short-term available for sale investments consists
of:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST HOLDING GAINS HOLDING LOSSES VALUE
---------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities........... $1,828,460 $95 $(45,895) $1,782,660
Corporate debt securities.......... 333,571 -- (24,269) 309,302
---------- --- -------- ----------
$2,162,031 $95 $(70,164) $2,091,962
========== === ======== ==========
</TABLE>

F-12
<PAGE> 101
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

Maturities of debt securities classified as available for sale were as
follows at December 31, 1999:

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due within one year......................................... $ 325,076 $ 326,177
Due after one year through five years....................... 855,751 834,434
Due after five years through ten years...................... 717,944 667,257
Due after ten years......................................... 263,260 264,094
---------- ----------
$2,162,031 $2,091,962
========== ==========
</TABLE>

(7) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------------
USEFUL LIVES 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Furniture and fixtures.......................... 7 Years $ 102,345 $ 593,030
Computer and equipment.......................... 3 - 5 Years 684,328 2,113,229
Software........................................ 3 Years 175,000 175,000
Leasehold improvements.......................... 5 Years 47,854 946,927
----------- ---------- -----------
1,009,527 3,828,186
Less depreciation and amortization.............. (499,090) (1,032,266)
---------- -----------
$ 510,437 $ 2,795,920
========== ===========
</TABLE>

(8) INTANGIBLE ASSETS

Intangible assets consists of the following:

<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES 1999
------------ ------------
<S> <C> <C>
Goodwill.................................................... 7 Years $ 6,165,279
Acquired subscribers........................................ 5 Years 6,400,000
Assembled workforce......................................... 3 Years 200,000
------------
12,765,279
Less accumulated amortization............................... (555,837)
------------
$ 12,209,442
============
</TABLE>

Goodwill represents the purchase price in excess of the fair value of the
tangible and identifiable intangible assets acquired.

(9) NOTES PAYABLE TO MEMBERS

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 per annum 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

F-13
<PAGE> 102
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

member elected to convert the note and accrued interest of $2,467 into 57,180
membership units (142,950 shares) in accordance with its terms.

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 (14,140 shares) at an exercise price of
$0.01 per unit to Pyramid and Telcom Ventures (note 13). The estimated value of
the warrants on the grant date of $50,000 was recognized in interest expense in
1998. Pyramid exercised its warrants to purchase 5,656 member units (14,140
shares) in August 1998. In August 1999, Telcom Ventures exercised its warrants
to purchase 5,656 member units (14,140 shares).

All outstanding membership units were subsequently exchanged for common
stock in connection with the Company's initial public offering, effective
October 26, 1999 (Note 2).

(10) INCOME TAXES

Effective October 26, 1999, in connection with the Company's initial public
offering of common stock, Aether merged with and into the Company and the merged
entity became a Subchapter C Corporation under the Internal Revenue Code of
1986. As a result, the Company recorded a deferred tax expense of approximately
$1.4 million, principally relating to intangible assets other than goodwill
acquired as part of the Mobeo acquisition prior to becoming a Subchapter C
Corporation, offset, in part, by deferred tax assets associated with option and
warrant expense. The Company recorded a deferred tax benefit of $1.4 million
related to losses generated subsequent to the change in tax status.

The Company has provided no income taxes on a pro forma basis due to the
losses incurred in all periods.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1999, are
presented below:

<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 2,274,000
Depreciation and amortization............................. 54,000
Option and warrant expense................................ 7,903,000
-----------
Gross deferred tax assets................................... $10,231,000
Valuation allowance for deferred tax assets................. (7,692,000)
-----------
Net deferred tax assets..................................... 2,539,000
-----------
Deferred tax liabilities:
Allowance for doubtful accounts........................... 18,000
Intangibles............................................... 2,521,000
-----------
Net deferred tax liabilities................................ 2,539,000
-----------
Deferred income taxes, net.................................. $ --
-----------
</TABLE>

As of December 31, 1999, the Company had Federal and state net operating
loss carryforwards of approximately $5,400,000 which expire in 2019.

In addressing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent on the generation of future taxable income during the
periods in which

F-14
<PAGE> 103
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.

(11) LEASES

The Company is obligated under noncancelable operating leases for office
space, that expire at various dates through 2010. Future minimum lease payments
under noncancelable operating leases are approximately as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 648,000
2001........................................................ 664,000
2002........................................................ 676,000
2003........................................................ 705,000
2004........................................................ 736,000
Thereafter.................................................. 3,866,000
----------
Total minimum lease payments................................ $7,295,000
==========
</TABLE>

Rent expense under operating leases was approximately $84,000, $91,000, and
$282,000 for the years ended December 31, 1997, 1998 and 1999, respectively.

(12) PENSION PLANS

The Company has two defined contribution plans under Section 401(k) of the
Internal Revenue Code that provide for voluntary employee contributions of 1 to
15 percent of compensation for substantially all employees. The Company
contributed $4,000 to one of the plans for the year ended December 31, 1999.

(13) STOCK OPTIONS AND WARRANTS

(a) Options

In 1996, the Company adopted a Unit Option Plan. In September 1999, the
Company adopted the 1999 Equity Incentive Plan (the "Plan") to replace the Unit
Option Plan. Under the 1999 Equity Incentive Plan, the Company has the ability
to grant options to acquire up to 5.4 million shares of common stock to its
employees, directors, and service providers. 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.

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 (875,000 shares) at an exercise price of $4.00
per unit ($1.60 per share) and the right to grant an additional 50,000 unit
options (125,000 shares) at an exercise price of $4.00 per unit ($1.60 per
share) to other key executives. These options expire in June 2009. In September
1999, the Company granted the Executive an additional 70,000 unit options
(175,000 shares) at an exercise price of $10.00 per unit ($4.00 per share).
These options expire in September 2009. Both grants of options became fully
vested in October 1999, as a result of the completion of the Company's initial
public offering. In October 1999, the Company recorded option and warrant
expense of $16.5 million, which is equal to the difference between the fair
value of the shares of Aether System Inc.'s common stock and the exercise price
measured at the date of the initial public offering, times the number of
options.

The Company recorded total option and warrant expense of $40,277, $32,580
and $19,198,209 in 1997, 1998, and 1999, respectively. The Company expects to
record an additional $5.9 million in option and warrant expense through June 30,
2002 for the difference between the exercise price and the fair market value of
the units or stock at the date of grant.

F-15
<PAGE> 104
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

The Company applies APB 25 and related interpretations in accounting for
its unit option plan. Had compensation cost been recognized consistent with SFAS
No. 123, the Company's net loss would have increased by $24,000, $41,000, and
$4,243,000 for 1997, 1998, and 1999, respectively.

The per share weighted-average value of options granted by the Company
during 1997, 1998, and 1999 was $0.16, $0.55, and $9.21, 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 for
options granted in 1997 and 1998. In 1999, an expected option life of four years
and volatility of 70 percent was used for option grants. In addition, the
calculations assumed a risk-free interest rate of 5.77 percent to 6.25 percent
in 1997, 4.55 percent to 5.51 percent in 1998, and 4.60 percent to 6.11 percent
in 1999.

A summary of the stock option and warrant activity, as adjusted for the
exchange of unit options and warrants for stock options, is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
----------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
OF SHARES (PER SHARE) OF SHARES (PER SHARE) OF SHARES (PER SHARE)
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year......................... 693,438 $0.40 1,000,000 $0.40 1,545,000 $0.85
Options and warrants granted... 306,562 $0.40 604,688 $1.54 2,763,856 $6.19
Options exercised.............. -- -- -- -- (365,498) $0.54
Options canceled............... -- -- (59,688) $0.40 (10,000) $1.49
--------- ----- --------- ----- --------- -----
Outstanding at end of year..... 1,000,000 $0.40 1,545,000 $0.85 3,933,358 $4.48
========= ===== ========= ===== ========= =====
Options exercisable at
year-end..................... 596,720 $0.40 991,093 $0.50 2,450,657 $2.13
========= ===== ========= ===== ========= =====
</TABLE>

The following table summarizes information about stock options at December
31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE EXERCISE NUMBER AT AVERAGE EXERCISE
RANGE OF EXERCISE NUMBER AT CONTRACTUAL PRICE DECEMBER 31, PRICE
PRICES DECEMBER 31, 1999 LIFE (PER SHARE) 1999 (PER SHARE)
- ----------------- ----------------- ----------- ---------------- ------------ ----------------
(IN YEARS)
<S> <C> <C> <C> <C> <C>
$ 0.40 - $ 0.40 617,314 2.19 $ 0.40 591,219 $0.40
$ 1.49 - $ 8.00 3,085,044 8.36 $ 2.98 1,859,438 $2.68
$52.25 - $79.75 231,000 9.90 $35.34 -- --
---------- ----------
3,933,358 6.83 $ 4.48 2,450,657 $2.13
========== ==========
</TABLE>

(b) Warrants Issued to Members

The Company granted warrants to purchase an aggregate 11,312 member units
(28,280 shares) at an exercise price of $0.01 per unit to Telcom Ventures and
Pyramid, as consideration for obtaining short-term loans (note 9).

In connection with the sale of membership units to 3Com, the Company
granted a conditional warrant to 3Com to purchase 357,466 member units (893,665
shares) at an exercise price of $0.01 per unit. 3Com vested in 57,466 units
(143,665 shares) in June 1999 upon completion of a joint sales and marketing
plan. As a result, the Company recorded option and warrant expense of
approximately $862,000. 3Com vests in the remaining 300,000 warrants (750,000
shares) as follows: 150,000 warrants (375,000 shares) upon the occurrence of the
Company obtaining $6 million in engineering services

F-16
<PAGE> 105
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

revenue from opportunities introduced by 3Com and 150,000 warrants (375,000
shares) 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 warrants, which
will be determined in part based on the market price of the common stock. The
Company would begin to recognize this expense based on the 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, 1999, the Company
believes that it is not yet probable that 3Com will attain the specified
milestones relating to the remaining warrants to purchase 750,000 shares and,
accordingly, no expense relating to these warrants has been recorded.

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 was for a one-year term, with the possibility
of extension for an additional one-year term and accrued interest at a variable
rate. The credit facility was collateralized by substantially all of the assets
of the Company and contained certain financial covenants. In connection with the
credit facility, the Company granted warrants to Merrill Lynch Capital
Corporation to purchase up to 967,876 (2,419,690 shares) of the member units in
the Company which became exercisable for no consideration if the Company did not
repay the credit facility in a timely manner. On September 28, 1999, the Company
borrowed approximately $14,830,000 under the credit facility, primarily to pay
the purchase price of Mobeo. On October 26, 1999, the Company repaid the amount
outstanding under the credit facility and the warrants were canceled.

(14) OTHER RELATED-PARTY TRANSACTIONS

(a) Notes Receivable from Stockholder

As of December 31, 1998 and 1999, the Company has amounts due from a
stockholder under short-term promissory notes of $137,879. The Company has
classified the notes as a reduction of stockholders' equity in the accompanying
consolidated statements of stockholders' equity. The notes are callable by the
Company at any time and bear interest at a rate of 7.5 percent per annum. The
notes and accrued interest were repaid in February 2000.

(b) Consulting Agreements with Stockholders

The Company derived approximately 34 percent and 39 percent of its revenue
for 1997 and 1998, respectively, from consulting services arrangements with one
and two of its stockholders, respectively. The Company had trade no accounts
receivable due from these stockholders as of December 31, 1998 and 1999,
respectively.

As of December 31, 1997, the Company had received advances 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.

In 1998, the Company purchased approximately $560,000 of equipment and
inventory from a stockholder.

F-17
<PAGE> 106
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

(15) 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 was
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 50 percent and 2 percent of its revenue for 1997 and 1998,
respectively, under consulting arrangements with Navox. The Company had no trade
accounts receivables due from Navox as of December 31, 1998 and 1999,
respectively. The Company does not anticipate significant revenue from Navox in
the future.

(16) RESERVED SHARE PROGRAM

Prior to October 20, 1999, the effectiveness of the Company's registration
statement for its initial public offering, the Company sent a letter to
approximately 90 employees, officers and directors of the Company whom it had
designated as potential offerees of up to 390,000 shares of common stock in a
directed share program in connection with its initial public offering. These
materials were not accompanied by a preliminary prospectus and may have
constituted a prospectus that does not meet the requirements of the Securities
Act of 1933. If the mailing of these original materials did constitute a
violation of the Securities Act of 1933, the recipients of the letter who
purchased common stock in the initial public offering could have the right, for
a period of one year from the date of their purchase of common stock, to obtain
recovery of the consideration paid in connection with their purchase of common
stock or, if they have already sold the stock, sue the Company for damages
resulting from their purchase of common stock. These refunds or damages could
total up to approximately $6.2 million, based on the initial public offering
price of $16.00 per share, in the event that investors suffer a total loss of
their investment during this period and seek refunds or damages.

(17) CONTINGENCY

The Company has received two claims that it has infringed patents developed
by other parties. Management believes that these claims are without merit and
intends to contest them vigorously. If the Company is unsuccessful in its
defense, it could be liable for damages or could be required to enter into
costly royalty arrangements.

(18) SUBSEQUENT EVENTS

(a) Acquisition of LocusOne Communications, Inc.

On February 3, 2000, the Company acquired all the outstanding common stock
and preferred stock of LocusOne Communications, Inc. ("LocusOne") for a purchase
price of approximately $40 million. LocusOne is a developer of wireless
communications for the supply chain management industry. The

F-18
<PAGE> 107
AETHER SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS-(CONTINUED)

acquisition will be accounted for under the purchase method of accounting.
Approximately $19.0 million of the purchase price is payable in the form of
non-interest bearing notes payable due no later than December 31, 2000.

(b) Inciscent

On February 7, 2000 the Company agreed to form a new company with
Metrocall, Inc., PSINet, Inc. and Hicks, Muse, Tate & Furst Incorporated to be
called Inciscent. Inciscent will offer technology services to small and
medium-sized businesses and home office customers. The Company agreed to acquire
a 27.5% interest in Inciscent for $10 million. The Company also agreed to
acquire a 9.9% interest in Metrocall for $17 million.

On February 8, 2000, the Company entered into a non-binding letter of
intent with Reuters PLC to establish a new company focused on financial markets
in Europe. The Company plans to acquire a 60% interest in this new company for
$100 million.

(d) Pending Acquisition of Riverbed Technologies, Inc.

On February 9, 2000, the Company entered into an definitive merger
agreement to acquire Riverbed Technologies, Inc. ("Riverbed") for approximately
4,537,000 shares of common stock, plus the issuance of options to acquire
approximately 862,000 additional shares of common stock for replacement of
existing options of Riverbed's employees. Riverbed develops products to extend
the accessibility of applications and information from corporate networks and
databases to handheld devices. The acquisition will be accounted for under the
purchase method of accounting and is subject to regulatory approval and
shareholder vote by Riverbed shareholders.

F-19
<PAGE> 108

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-20
<PAGE> 109

MOBEO, INC.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 125,446 $ 193,913
Accounts receivable, net.................................. 278,620 293,895
Prepaid expenses and other................................ 37,032 28,724
Income tax refund receivable.............................. 20,756 20,756
Deferred income tax....................................... 142,365 186,549
---------- ----------
Total current assets.............................. 604,219 723,837
Property and equipment, net................................. 321,876 405,148
Patents, net................................................ -- 30,307
Deposits.................................................... 24,475 23,609
Deferred income tax......................................... 71,476 14,542
---------- ----------
Total assets...................................... $1,022,046 $1,197,443
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 989,316 $1,130,184
Accrued expenses.......................................... 275,541 390,172
Income tax payable........................................ -- --
Capital lease obligations................................. 12,159 --
Deferred revenue.......................................... 71,220 104,170
---------- ----------
Total current liabilities......................... 1,348,236 1,624,526
---------- ----------
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
Accumulated deficit....................................... (455,795) (556,688)
Notes receivable-related parties.......................... (43,020) (43,020)
---------- ----------
Total stockholders' deficit....................... (326,190) (427,083)
---------- ----------
Total liabilities and stockholders' deficit....... $1,022,046 $1,197,443
========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-21
<PAGE> 110

MOBEO, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Service revenue.......................................... $6,484,864 $7,088,993 $8,580,786
Cost of services......................................... 2,947,185 3,148,051 3,040,743
---------- ---------- ----------
Gross profit............................................. 3,537,679 3,940,942 5,540,043
---------- ---------- ----------
Selling, general and administrative expenses:
Sales and marketing.................................... 1,641,502 1,812,696 2,302,360
General and administrative............................. 1,149,218 1,937,829 2,706,544
Research and development............................... 94,609 174,867 496,570
Depreciation and amortization.......................... 355,276 464,419 112,903
---------- ---------- ----------
3,240,605 4,389,811 5,618,377
---------- ---------- ----------
Other expense (income):
Interest expense (income).............................. -- 2,628 (4,969)
Loss on disposal of assets............................. -- 148,000 14,778
---------- ---------- ----------
Total other expenses (income).................. -- 150,628 9,809
---------- ---------- ----------
Income (loss) before income taxes........................ 297,074 (599,497) (88,143)
Provision for (benefit from) income taxes................ 120,150 (211,841) 12,750
---------- ---------- ----------
Net income (loss)........................................ $ 176,924 $ (387,656) $ (100,893)
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-22
<PAGE> 111

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)
----- --- -------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements

F-23
<PAGE> 112

MOBEO, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 176,924 $(387,656) $(100,893)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Bad debt expense........................................ 23,976 62,956 51,620
Deferred income taxes................................... 62,200 (211,841) 12,750
Depreciation and amortization........................... 355,276 464,419 112,903
Loss on disposal of assets.............................. 57,472 148,009 14,778
Allowance for notes receivable-related parties.......... -- 122,583 --
Changes in assets and liabilities:
Accounts receivable.................................. 74,989 (181,580) (66,895)
Income tax refund receivable......................... 6,414 (16,259) --
Restricted cash...................................... 15,000 -- --
Deposits, prepaid expenses and other................. 24,353 (30,990) 9,174
Accounts payable and accrued expenses................ (66,407) 179,434 255,499
Income tax payable................................... (60,940) (49,560) --
Deferred revenue..................................... (127,115) 4,114 32,950
--------- --------- ---------
Net cash provided by operating activities.......... 542,142 103,629 321,886
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment........................ (347,526) (68,558) (210,804)
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)
--------- --------- ---------
Cash flows from financing activities:
Principal payments on capital leases...................... (42,268) (48,414) (12,159)
--------- --------- ---------
Net cash used in financing activities.............. (42,268) (48,414) (12,159)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (18,902) (7,696) 68,467
Cash and cash equivalents at beginning of the year.......... 152,044 133,142 125,446
--------- --------- ---------
Cash and cash equivalents at end of the year................ $ 133,142 $ 125,446 $ 193,913
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 20,360 $ 13,428 $ 1,378
========= ========= =========
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 $ --
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-24
<PAGE> 113

MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

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

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.

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, are
net of an allowance for doubtful accounts of $30,000 and $32,700, 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.

F-25
<PAGE> 114
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

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.

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.

F-26
<PAGE> 115
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

3. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
System hardware and software................................ $ 278,202 $ 196,038
Office furniture and equipment.............................. 216,158 454,817
Leasehold improvements...................................... 44,106 44,106
--------- ---------
538,466 694,961
Less accumulated depreciation and amortization.............. (216,590) (289,813)
--------- ---------
$ 321,876 $ 405,148
========= =========
</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.

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.

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 $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
DECEMBER 31,
-------------------
1997 1998
--------- -------
<S> <C> <C>
Current provision (benefit):
Federal..................................................... $ -- $ --
State and local............................................. -- --
--------- -------
-- --
--------- -------
Deferred provision (benefit):
Federal..................................................... (169,073) 10,200
State and local............................................. (42,768) 2,550
--------- -------
(211,841) 12,750
--------- -------
Total provision for (benefit from) income taxes............. $(211,841) $12,750
========= =======
</TABLE>

F-27
<PAGE> 116
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

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,
-------------------
1997 1998
-------- --------
<S> <C> <C>
Current deferred tax assets
Allowance for doubtful accounts............................. $ 64,848 $ 65,995
Deferred revenue............................................ 30,264 36,611
Other....................................................... 10,714 3,163
Net operating loss carryback................................ 36,539 80,780
-------- --------
Total current deferred tax assets........................... $142,365 $186,549
-------- --------
Noncurrent deferred tax assets
Accumulated depreciation.................................... 71,476 14,542
-------- --------
Total noncurrent deferred tax assets........................ 71,476 14,542
-------- --------
Total deferred tax assets................................... $213,841 $201,091
======== ========
</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 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.

F-28
<PAGE> 117
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

As of December 31, 1998, a total of 35 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 no options were exercisable. The weighted-average fair
value of options granted during the year ended December 31, 1998.

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 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 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 to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Net loss as reported........................................ $(100,893)
Pro forma net loss.......................................... $(103,313)
</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: dividend
yield of 0%, expected volatility of 0%, risk-free interest rate of 5.07% and
expected term of 9 years.

As of December 31, 1998, the weighted average remaining contractual life of
the options is 9.7 years.

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, respectively, related to purchases of financial information for
transmission to customers.

F-29
<PAGE> 118
MOBEO, INC.
NOTES TO FINANCIAL STATEMENTS

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.

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, the Company had $13,000 and
$7,000, 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.

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:

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.

F-30
<PAGE> 119

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Riverbed Technologies, Inc.

We have audited the accompanying balance sheets of Riverbed Technologies,
Inc. (the Company) as of December 31, 1998 and 1999, and the related statements
of operations, stockholders' equity (deficit), and cash flows for the period
from October 21, 1998 (date of inception) to December 31, 1998 and for the year
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Riverbed Technologies, Inc.
as of December 31, 1998 and 1999 and the results of its operations and its cash
flows for the period from October 21, 1998 (date of inception) to December 31,
1998 and for the year ended December 31, 1999, in conformity with generally
accepted accounting principles.

KPMG LLP

McLean, Virginia
February 15, 2000

F-31
<PAGE> 120

RIVERBED TECHNOLOGIES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1999
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ -- $ 5,340,801
Short-term investments.................................... -- 3,936,542
Accounts receivable....................................... 21,883 619,071
Prepaids and other........................................ -- 428,855
-------- -----------
Total current assets.............................. 21,883 10,325,269
Property and equipment, net................................. 48,161 718,075
-------- -----------
Total assets...................................... $ 70,044 $11,043,344
======== ===========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 46,789 $ 637,378
Accrued expenses.......................................... -- 497,135
Deferred revenues......................................... 3,000 68,510
Advance from stockholder.................................. 81,834 --
Note payable -- current portion........................... -- 120,578
-------- -----------
Total current liabilities................................. 131,623 1,323,601
-------- -----------
Long-term liabilities:
Note payable -- less current portion...................... -- 241,155
-------- -----------
Total liabilities................................. 131,623 1,564,756
-------- -----------
Series A preferred stock, convertible, $0.01 par value, zero
and 3,500,000 shares authorized, issued and outstanding at
December 31, 1998 and 1999, respectively (liquidation
value $3,829,863)......................................... -- 3,785,531
Series B preferred stock, convertible, $0.01 par value, zero
and 4,145,211 shares authorized, issued and outstanding at
December 31, 1998 and 1999, respectively (liquidation
value $12,053,001)........................................ -- 11,985,989
Stockholders' equity (deficit):
Common stock, $0.01 par value, 100,000 and 14,354,789
shares authorized at December 31, 1998 and 1999,
respectively; 100,000 and 2,887,793 shares issued and
outstanding at December 31, 1998 and 1999,
respectively........................................... 1,000 28,878
Additional paid-in-capital................................ (1,000) 561,033
Accumulated deficit....................................... (61,579) (6,882,843)
-------- -----------
Total stockholders' equity (deficit).............. (61,579) (6,292,932)
-------- -----------
Commitments and contingencies
Total liabilities, redeemable preferred stock and
stockholders' equity (deficit).................. $ 70,044 $11,043,344
======== ===========
</TABLE>

See accompanying notes to financial statements.
F-32
<PAGE> 121

RIVERBED TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Software license revenue................................. $ -- $ 757,899
Maintenance, consulting and support revenue.............. -- 169,186
-------- -----------
Total revenue.................................. -- 927,085
Cost of software revenue................................. -- 221,101
Cost of maintenance, consulting and support revenue...... -- 506,383
-------- -----------
Total cost of revenue.......................... -- 727,484
-------- -----------
Gross profit............................................. -- 199,601
Operating expenses:
Sales and marketing...................................... 38,115 2,865,470
Research and development................................. 10,091 2,050,778
General and administrative............................... 13,373 1,055,071
Stock option expense..................................... -- 1,200,294
-------- -----------
61,579 7,171,613
-------- -----------
Operating loss................................. (61,579) (6,972,012)
Interest income (expense), net........................... -- 150,748
-------- -----------
Loss before income taxes................................. (61,579) (6,821,264)
Income taxes............................................. -- --
-------- -----------
Net loss................................................. $(61,579) $(6,821,264)
Preferred stock dividend requirements.................... -- (628,376)
-------- -----------
Net loss available to common stockholders................ $(61,579) $(7,449,640)
======== ===========
</TABLE>

See accompanying notes to financial statements.
F-33
<PAGE> 122

RIVERBED TECHNOLOGIES, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN- ACCUMULATED
SHARES PAR CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at inception, October
21, 1998.................... -- $ -- $ -- $ -- $ --
Shares issued at
inception................ 100,000 1,000 (1,000) -- --
Net loss.................... -- -- -- (61,579) (61,579)
--------- ------- ---------- ----------- -----------
Balance at December 31,
1998........................ 100,000 1,000 (1,000) (61,579) (61,579)
Stock split................. 1,722,917 17,229 17,229 -- --
Issuance of common shares... 984,376 9,844 -- -- 9,844
Exercise stock options...... 80,500 805 7,344 -- 8,149
Stock option expense........ -- -- 1,200,294 -- 1,200,294
Preferred stock dividend
requirements............. -- -- (628,376) -- (628,376)
Net loss.................... -- -- -- (6,821,264) (6,821,264)
--------- ------- ---------- ----------- -----------
Balance at December 31,
1999........................ 2,887,793 $28,878 $ 561,033 $(6,882,843) $(6,292,932)
========= ======= ========== =========== ===========
</TABLE>

See accompanying notes to financial statements.
F-34
<PAGE> 123

RIVERBED TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 21, 1998
(DATE OF INCEPTION) TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
---------------------- -----------------
<S> <C> <C>
Cash flow from operating activities:
Net loss............................................... $(61,579) $(6,821,264)
Adjustments to reconcile net loss to net cash used in
operating activities
Stock option expense................................ -- 1,200,294
Depreciation and amortization....................... -- 97,050
Changes in operating assets and liabilities:
Increase in accounts receivable................... (21,883) (597,188)
Increase in prepaids and other current assets..... -- (428,855)
Increase in accounts payable and accrued
expenses....................................... 46,789 1,087,724
Increase in deferred revenue...................... 3,000 65,510
-------- -----------
Net cash used in operating activities.................... (33,673) (5,396,729)
-------- -----------
Cash flows from investing activities:
Purchases of property and equipment................. (48,161) (766,964)
Purchase of short-term investments.................. -- (3,936,542)
-------- -----------
Net cash used in investing activities.................. (48,161) (4,703,506)
-------- -----------
Cash flows from financing activities:
Advance (repayment) from stockholder................ 81,834 (81,834)
Proceeds from the issuance of common stock and
exercise of stock options......................... -- 17,993
Proceeds from the issuance of preferred stock, net
of issuance costs................................. -- 15,143,144
Proceeds from line of credit........................ -- 250,000
Repayment on line of credit......................... -- (250,000)
Proceeds from note payable.......................... -- 361,733
-------- -----------
Net cash provided by financing activities................ 81,834 15,441,036
Net increase in cash and cash equivalents................ -- 5,340,801
Cash and cash equivalents, beginning of period........... -- --
-------- -----------
Cash and cash equivalents, end of period................. $ -- $ 5,340,801
======== ===========
Supplemental disclosure of cash flow information:
Interest............................................... $ -- $ 4,355
Income taxes........................................... $ -- $ --
</TABLE>

See accompanying notes to financial statements.
F-35
<PAGE> 124

RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION AND DESCRIPTION OF BUSINESS

Riverbed Technologies, Inc. (the "Company"), a Delaware corporation, was
formed on October 21, 1998 and is based in Vienna, Virginia.

The Company designs, develops, sells and supports synchronization and
management software that enables handheld devices to be used as a natural
extension of the enterprise 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
stockholders and other financing sources to fund these requirements.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Revenue Recognition

Revenues are generated from licensing software and providing services,
including maintenance and technical support, training and consulting.

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 97-2, Software Revenue
Recognition. Subsequently, in March 1998 and December 1998, the AICPA issued SOP
98-4 and SOP 98-9, respectively, which defer until the Company's fiscal year
beginning January 1, 2000, the application of several paragraphs and examples in
SOP 97-2 that limit the definition of vendor specific objective evidence
("VSOE") for determining fair value of various elements in a multiple element
arrangement. The provisions of SOP 97-2 have been applied to transactions
entered into from the inception (October 21, 1998) of the Company. Management of
the Company does not believe that the adoption of the remaining portions of SOP
97-2, which were deferred by SOP 98-4 and SOP 98-9, will have a material impact
on the Company's financial statements.

Software revenue consists of fees for licenses of the Company's software
products. The Company recognizes the revenue when the license agreement is
signed, the license fee is fixed and determinable, delivery of the software has
occurred, and collectibility of the fee is considered probable.

Services revenue consists of maintenance and technical support, training
and consulting. Revenues from maintenance and technical support, which consists
of unspecified when-and-if-available product updates and customer telephone
support services, are recognized ratably over the term of the service period.
Other services revenues are recognized as the related services is provided.

(b) Cost of Revenues

The cost of software license revenues consists primarily of third party
royalties. The cost of maintenance, consulting and support revenue consists
primarily of personnel-related costs.

Software development costs are accounted for in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed (the "Standard").
Under the Standard, capitalization of software development costs begins upon the
establishment of technological feasibility, subject to net realizable value
considerations. To

F-36
<PAGE> 125
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

date, the period between achieving technological feasibility and the general
availability of such software has been short; therefore, software development
costs qualifying for capitalization have been immaterial. Accordingly, the
Company has not capitalized any software development costs and has charged all
such costs to research and development expense. Research and development costs
are expensed as incurred.

(d) Advertising Expense

Advertising costs are expensed as incurred. Advertising expense was $0 and
$343,000 for the period from October 21, 1998 (date of inception) to December
31, 1998 and for the year ended December 31, 1999, respectively.

(e) Income Taxes

The Company recognizes income taxes using the asset and liability method,
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect of a tax rate change on deferred tax assets and liabilities is recognized
in income in the period that includes the enactment date.

(f) Cash and Cash Equivalents

Cash equivalents include all highly liquid investments with original
maturities of three months or less. Cash equivalents include approximately
$3,508,000 in money market accounts as of December 31, 1999.

(g) Short-term Investments

Short-term investments consist of highly liquid investments with original
maturities greater than three months and less than one year. Short-term
investments consisted of U.S. Treasury securities. Short-term investments are
recorded at their amortized cost which approximates fair value as of December
31, 1999.

(h) Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk
consist of accounts receivable. The Company extends credit to its customers on
an unsecured basis in the normal course of business.

For the year ended December 31, 1999, the Company derived approximately 60
percent of its revenue from three customers. As of December 31, 1999,
approximately 88 percent of the accounts receivable balance was due from four
customers.

(i) 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 the
disclosure of contingent assets and liabilities at the dates of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

F-37
<PAGE> 126
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(j) Fair Value of Financial Instruments

The carrying of the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
notes payable approximate their fair value because of the short duration of the
instruments.

(k) Property and Equipment

Property 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 five years. The costs of leasehold improvements are
amortized using the straight-line method over the shorter of the lease term or
the estimated useful life of the asset.

(l) Recovery of Long-Lived Assets

(m) Stock Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation." Under
APB No. 25, compensation cost, if any, is recognized over the respective vesting
period based on the difference, on the date of grant, between the fair value of
the Company's common stock and the exercise price. All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.

(n) Other Comprehensive Loss

The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes changes in equity of 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. The Company has had no
transactions of this nature since its inception.

(o) Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board ("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.

F-38
<PAGE> 127
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(3) CAPITALIZATION

The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 14,354,789 shares of common stock. As of December 31, 1999, the
Company had reserved shares of common stock for future issuance as follows:

<TABLE>
<S> <C>
Conversion of Series A Preferred Stock...................... 3,500,000
Conversion of Series B Preferred Stock...................... 4,145,412
Exercise of stock options pursuant to stock option plan..... 2,484,376
</TABLE>

On October 21, 1998, the Company was formed and initially capitalized when
Noblestar Systems Corporation ("NobleStar") contributed certain intangible
assets in exchange for all 100,000 shares of the Company's authorized common
stock. On January 16, 1999, the Company effected a stock split of 18.22917 to 1
of its common stock. On January 20, 1999, the Company granted 984,376 shares of
common stock to two of its founders. In connection with this grant the Company
recorded stock option expense of approximately $778,000.

(4) PREFERRED STOCK

In January 1999, the Company issued 3,500,000 shares of Series A Preferred
Stock ("Series A") at a price of $1.00 per share. Total proceeds, net of
offering expenses, were approximately $3,442,000.

In October 1999, the Company issued 4,145,211 shares of Series B Preferred
Stock ("Series B") at a price of $2.84 per share. Total proceeds, net of
offering expenses, were approximately $11,701,000.

(a) Voting Rights and Protective Provisions

The Series A and B stockholders may vote with the common stock as a single
class on all actions to be taken by the stockholders. The Series A and B
stockholders each are entitled to elect one member of the Board of Directors
provided that at least 10 percent of authorized preferred stock of each class is
then outstanding. Furthermore, as long as 10 percent of each class of preferred
stock is outstanding, approval by at least two-thirds of holders of then
outstanding shares of Series A and B is required for: (i) changing rights,
preferences or privileges of each class; and (ii) issuing any equity security
having a preference or parity with each class with respect to voting, dividends,
liquidation or redemption. Finally, as long as 10 percent of each class of
preferred stock of each class is outstanding, approval by at least fifty percent
of the holders of then outstanding shares of Series and A and B is required for:
(i) the sale of the Company or substantially all of its assets; (ii) increasing
the authorized number of shares of preferred stock or common stock; (iii)
amending the Company's charter or bylaws; (iv) materially changing the Company's
business; (v) approving an annual budget and executive compensation plan,
including expenses greater than $100,000; or (vi) increasing the number of
directors of the Company.

(b) Dividends

Series A and B stock accrues cumulative dividends at rate of 10 percent per
annum, whether or not the dividends are declared by the Board of Directors.
Unpaid and undeclared dividends on Series A and Series B was approximately
$330,000 and $280,000, respectively, as of December 31, 1999.

In the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, the holders of Series A and B
stock shall be entitled to receive an amount equal to the original share price
paid plus any unpaid cumulative dividends, whether or not declared. The Series A
and

F-39
<PAGE> 128
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

B stockholders may also participate on an equal basis with the common stock in
any remaining assets after accumulated dividend are paid.

(d) Redemption

Series A and B stock are redeemable after October 2003 upon notice to the
Company by at least 50 percent of the holders of the then outstanding stock. The
redemption price shall equal the liquidation amount and is payable in three
annual installments beginning on the redemption date.

(e) Conversion

Series A and B stock is convertible on a one-for-one basis into shares of
common stock at the option of the holder. Series A and B stock is automatically
converted into common stock in the event of an initial public offering in which
the aggregate proceeds are not less than $15,000,000 and the Company's pre-
offering valuation is at least $150,000,000.

(5) PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
<S> <C> <C>
Computer hardware........................................... $48,161 $638,594
Computer software........................................... -- 158,375
Furniture and fixtures...................................... -- 18,156
------- --------
48,161 815,125
Less: Accumulated depreciation.............................. -- 97,050
------- --------
$48,161 $718,075
======= ========
</TABLE>

(6) LINE OF CREDIT AND NOTES PAYABLE

In August 1999, the Company entered into a two-tranche credit facility with
a bank for a maximum available credit of $2,000,000. The assets and intellectual
properties of the Company collateralize the facility.

The first tranche is an equipment note payable not to exceed $500,000, of
which, approximately $362,000 was payable at December 31, 1999. Amounts
available under the equipment note payable are limited to the advance purchase
of certain equipment through June 30, 2000. At December 31, 1999, there was
approximately $138,000 available to the Company under the equipment financing.
Principal is payable in thirty-six equal installments plus interest commencing
in January 2000. Any amounts drawn down between January and June 2000, and the
related interest, are due in thirty-six equal installments commencing in July
2000. Interest accrues on the unpaid principal at 1.625% above the bank's prime
rate (10.125% at December 31, 1999).

The second tranche is a revolving line of credit not to exceed $1,500,000.
Amounts available under the revolving line of credit are limited by certain
asset based formulas and at December 31, 1999, there was approximately $836,000
available to the Company. All outstanding principal and interest is due on
January 31, 2001, the termination date of the revolving line of credit. Interest
accrues on the unpaid principal at 1.25% above the bank's prime rate (9.75% at
December 31, 1999) and is payable monthly.

Finally, as of December 31, 1999, an irrevocable standby letter of credit
for $100,000 was established in lieu of a deposit on the lease for the Company's
headquarters.
F-40
<PAGE> 129
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(7) EMPLOYEE BENEFIT PLANS

Retirement Plan

As of March 1, 1999, the Company adopted a 401(k) Retirement Plan (the
"Plan") covering substantially all its employees. Participants in the Plan may
elect to defer up to 15% of their compensation. The Company may make a
discretionary matching contribution. In 1999, the Company matched 50% of
employee contributions up to 6% of compensation. The amount recorded as expense
for the year ended December 31, 1999 was approximately $25,000.

Stock Option Plan

During 1999, the Board of Directors adopted the 1999 Stock Option Plan
("the Stock Plan"). The Company has reserved up to 2,484,376 shares for issuance
under the Stock Plan. All of the Company's employees, officers, directors,
consultants and advisors are eligible to be granted options under the Stock
Plan. The exercise price and duration of the option are determined by the Board
at the date of grant. The options generally vest ratably over a period of 4
years, and generally expire in 10 years.

The following table summarizes option activity for the year ended December
31, 1999. No options were granted in 1998.

<TABLE>
<CAPTION>
1999
---------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding at beginning of year............................ -- $ --
Granted..................................................... 1,823,641 0.60
Exercised................................................... (80,500) 0.10
Cancelled................................................... (113,996) 0.10
--------- -----
Outstanding at year end..................................... 1,629,145 0.65
========= =====
Options exercisable at year end............................. 324,252 0.35
========= =====
Options available for future grant.......................... 660,735
=========
</TABLE>

The per share weighted-average fair value of the options granted during
1999 was $1.90. The fair value of each option grant is estimated on the date of
grant, using the Black-Scholes options-pricing model with the following
assumptions: expected option life of 5 years, volatility of zero, risk-free
interest rate of 6.0% and dividend yield of zero percent.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED EXERCISABLE WEIGHTED
AT REMAINING AVERAGE AS OF AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1999 LIFE PRICE 1999 PRICE
- -------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.10 396,545 2.85 $0.10 216,336 $0.10
$0.30 284,100 3.60 $0.30 -- --
$0.85 854,000 3.83 $0.85 107,916 0.85
$2.27 94,500 3.88 $2.27 -- --
--------- -------
1,629,145 3.48 $0.65 324,252 $0.35
========= =======
</TABLE>

F-41
<PAGE> 130
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock options. The Company recorded compensation expense of
approximately $422,000 relating to options granted in the year ended December
31, 1999, equal to the difference between the estimated fair market value of the
Company's common stock on the grant date and the exercise price of the options.
The expense will be recognized ratably over the vesting period of the options,
which is generally four years.

SFAS No. 123 requires pro forma net income (loss) disclosures as if the
Company had accounted for its stock options granted under the fair value method
prescribed by that statement. Had the Company used the fair value methodology
for determining compensation expense, the following table presents the pro forma
net income (loss) that would have been recorded by the Company for the options
granted during the year ended December 31, 1999:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999,
---------------------
<S> <C> <C>
Net loss............................................ As reported $(6,821,264)
Proforma $(6,863,264)
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.

(8) INCOME TAXES

No provision for federal or state income taxes has been recorded as the
Company incurred net operating losses for all periods presented. As of December
31, 1999, the Company had net operating loss carryforwards available to offset
future taxable income of approximately $5,755,000 which expire in 2019. The
actual income tax benefit differed from the income tax benefit which would be
computed based upon the statutory federal tax rates as a result of recording a
valuation allowance.

The tax effected amounts of temporary differences as of December 31, 1998
and 1999 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ -- $ 2,359,000
Start-up costs............................................ 25,000 19,000
Accrued vacation.......................................... -- 10,000
----------- -----------
Total deferred tax assets................................. 25,000 2,388,000
Valuation allowance....................................... (25,000) (2,340,000)
----------- -----------
Net deferred tax assets................................... -- 48,000
----------- -----------
Deferred tax liabilities:
Depreciation and amortization............................. -- 48,000
----------- -----------
Total deferred tax liabilities............................ -- 48,000
----------- -----------
Net deferred taxes........................................ $ -- $ --
=========== ===========
</TABLE>

(9) LEASES

In December 1999, the Company entered into a long-term, non-cancelable
operating lease for its headquarters. The Company also leases other facilities
and certain office equipment under short-term, non-

F-42
<PAGE> 131
RIVERBED TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

cancelable operating leases. Future minimum lease payments under non-cancelable
operating leases are as follows:

<TABLE>
<CAPTION>
MINIMUM
LEASE
YEARS ENDING DECEMBER 31, PAYMENTS
- ------------------------- ----------
<S> <C>
2000...................................................... $ 563,000
2001...................................................... 572,000
2002...................................................... 587,000
2003...................................................... 52,000
----------
$1,774,000
==========
</TABLE>

Rent expense under operating leases was approximately $400 and $107,000,
for the period from October 21, 1998 (date of inception) to December 31, 1998
and the year ended December 31, 1999, respectively.

(10) RELATED PARTY TRANSACTIONS

In 1998, the Company's operations were funded through non-interest bearing
advances made by Noblestar. As of December 31, 1998, approximately $82,000 was
due to Noblestar for such advances. These amounts were repaid in 1999.

(11) SUBSEQUENT EVENT

On February 9, 2000, the Company entered into a definitive merger agreement
to be acquired by Aether Systems, Inc. for approximately 4,537,000 shares of
Aether's common stock, plus the issuance of options to acquire approximately
863,000 shares of Aether's common stock for replacement of existing options
issued to the Company's employees. The acquisition is subject to regulatory and
stockholder approval.

F-43
<PAGE> 132

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 acquisition of
Mobeo, Inc. completed on September 28, 1999, the acquisition of LocusOne
Communications, Inc. completed on February 3, 2000, and the acquisition of
Riverbed Technologies, Inc. completed March 6, 2000, which are collectively
referred to in this "Unaudited Pro Forma Condensed Consolidated Financial
Information" section as the "Completed Transactions."

The pro forma condensed consolidated statement of operations for the year
ended December 31, 1999 has been prepared to give effect to the Mobeo, LocusOne
and Riverbed acquisitions as if they had occurred on January 1, 1999. The pro
forma as adjusted statement of operations gives effect to the Mobeo, LocusOne,
and Riverbed acquisitions plus the offering of shares covered by this prospectus
and the application of the net proceeds. The pro forma as further adjusted
statement of operations also gives effect to the concurrent offering of
convertible notes and the application of the net proceeds. The pro forma
condensed consolidated balance sheet as of December 31, 1999 gives effect to the
LocusOne and Riverbed acquisitions as if they had occurred on December 31, 1999.
The acquisition of Mobeo, which occurred prior to December 31, 1999, is already
reflected in the Company's historical consolidated balance sheet as of December
31, 1999. The pro forma as adjusted balance sheet gives effect to the LocusOne
and Riverbed acquisitions plus the offering of shares covered by this prospectus
and the application of the net proceeds. The pro forma as further adjusted
balance sheet also gives effect to the concurrent offering of convertible notes
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, Mobeo, LocusOne
and Riverbed. The acquisitions are 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 Aether, Mobeo and Riverbed which are
included elsewhere in this prospectus. The unaudited pro forma condensed
consolidated financial information 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 acquisitions occurred on such dates
or to project Aether's results of operations or financial position for any
future period.

F-44
<PAGE> 133

AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------------
ADJUSTMENTS
HISTORICAL FOR COMPLETED PRO FORMA
AETHER TRANSACTIONS CONSOLIDATED
------------ -------------- --------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 78,541,792 $ (30,818,052) $ 47,723,740
Short-term investments.......................... 2,091,962 3,936,542 6,028,504
Trade accounts receivable, net.................. 1,002,845 875,494 1,878,339
Inventory, net.................................. 688,494 688,494
Prepaid expenses and other current assets....... 4,994,965 435,428 5,430,393
------------ -------------- --------------
Total current assets.................... 87,320,058 (25,570,588) 61,749,470
Property and equipment, net....................... 2,795,920 915,896 3,711,816
Intangible assets, net............................ 12,209,442 1,166,185,585 1,178,395,027
Other assets...................................... 208,698 208,698
------------ -------------- --------------
$102,534,118 $1,141,530,893 $1,244,065,011
============ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,425,435 $ 717,353 $ 2,142,788
Accrued expenses................................ 1,619,947 497,135 2,117,082
Accrued employee compensation and benefits...... 971,110 971,110
Deferred revenue................................ 175,193 176,650 351,843
Notes payable current portion................... -- 19,095,600 19,095,600
------------ -------------- --------------
Total current liabilities............... 4,191,685 20,486,738 24,678,423
Notes payable-less current portion................ -- 241,155 241,155
------------ -------------- --------------
4,191,685 20,727,893 24,919,578
Stockholders' equity
Preferred stock................................. -- --
Common stock.................................... 271,543 45,373 316,916
Additional paid-in-capital...................... 120,892,478 1,120,757,627 1,241,650,105
Accumulated deficit............................. (22,613,640) (22,613,640)
Notes receivable from shareholder............... (137,879) (137,879)
Unrealized loss on investments.................. (70,069) (70,069)
------------ -------------- --------------
Total stockholders' equity.............. 98,342,433 1,120,803,000 1,219,145,433
------------ -------------- --------------
$102,534,118 $1,141,530,893 $1,244,065,011
============ ============== ==============
</TABLE>

F-45
<PAGE> 134
AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA STOCK OFFERING PRO FORMA DEBT OFFERING AS FURTHER
CONSOLIDATED ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ADJUSTED
-------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 47,723,740 $407,106,083(A) $ 454,829,823 $192,800,000(B) $ 647,629,823
Short-term investments......... 6,028,504 6,028,504 6,028,504
Trade accounts receivable,
net.......................... 1,878,339 1,878,339 1,878,339
Inventory, net................. 688,494 688,494 688,494
Prepaid expenses and other
current assets............... 5,430,393 5,430,393 5,430,393
-------------- ------------ -------------- ------------ --------------
Total current assets..... 61,749,470 407,106,083 468,855,553 192,800,000 661,655,553
Property and equipment, net...... 3,711,816 3,711,816 3,711,816
Intangible assets, net........... 1,178,395,027 1,178,395,027 1,178,395,027
Other assets..................... 208,698 127,000,000(A) 127,208,698 7,200,000(B) 134,408,698
-------------- ------------ -------------- ------------ --------------
$1,244,065,011 $534,106,083 $1,778,171,094 $200,000,000 $1,978,171,094
============== ============ ============== ============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............... $ 2,142,788 $ $ 2,142,788 $ $ 2,142,788
Accrued expenses............... 2,117,082 2,117,082 2,117,082
Accrued employee compensation
and benefits................. 971,110 971,110 971,110
Deferred revenue............... 351,843 351,843 351,843
Notes payable.................. 19,095,600 (18,975,022)(A) 120,578 120,578
-------------- ------------ -------------- ------------ --------------
Total current
liabilities............ 24,678,423 (18,975,022) 5,703,401 5,703,401
Notes payable.................... 241,155 241,155 241,155
Convertible subordinated notes
payable...................... -- -- 200,000,000(B) 200,000,000
-------------- ------------ -------------- ------------ --------------
24,919,578 (18,975,022) 5,944,556 200,000,000 205,944,556
Stockholders' equity
Preferred stock................ -- -- --
Common stock................... 316,916 25,300(A) 342,216 342,216
Additional paid-in-capital..... 1,241,650,105 553,055,804(A) 1,794,705,909 1,794,705,909
Accumulated deficit............ (22,613,640) (22,613,640) (22,613,640)
Notes receivable from
shareholder.................. (137,879) (137,879) (137,879)
Unrealized loss on
investments.................. (70,069) (70,069) (70,069)
-------------- ------------ -------------- ------------ --------------
Total stockholders'
equity................. 1,219,145,433 553,081,105 1,772,226,538 1,772,226,538
-------------- ------------ -------------- ------------ --------------
$1,244,065,011 $534,106,083 $1,778,171,094 $200,000,000 $1,978,171,094
============== ============ ============== ============ ==============
</TABLE>

- ---------------

(A) Reflects the sale of 2,374,741 shares of common stock in the offering
assuming an offering price of $245 per share, after deducting underwriter's
discounts and commissions and offering expenses, the exercise of options to
purchase 155,178 shares by the selling stockholders, the repayment of
approximately $19 million of indebtedness incurred in connection with the
LocusOne acquisition, the investment of $100 million in the new company
formed with Reuters, the investment of $17 million in Metrocall, and the
investment of $10 million in Inciscent.

(B) Reflects the sale of an aggregate $200 million of % convertible
subordinated notes due in 2005 in the concurrent offering, less the
underwriter's discounts and commissions and offering expenses recorded as
deferred financing fees of $7.2 million.

F-46
<PAGE> 135

AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
ADJUSTMENTS FOR COMPLETED TRANSACTIONS

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------------------------
PRO FORMA PRO FORMA ADJUSTMENTS
HISTORICAL ACQUISITION HISTORICAL ACQUISITION FOR COMPLETED
LOCUSONE ADJUSTMENTS RIVERBED ADJUSTMENTS TRANSACTIONS
----------- ------------ ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS

Current assets:
Cash and cash
equivalents............ $ 16,125 $(21,174,978)(A) $ 5,340,801 $ (15,000,000)(B) $ (30,818,052)
Short term investments... -- 3,936,542 3,936,542
Trade accounts
receivable, net........ 256,423 619,071 875,494
Prepaid expenses and
other current assets... 6,573 428,855 435,428
----------- ------------ ----------- -------------- --------------
Total current
assets.......... 279,121 (21,174,978) 10,325,269 (15,000,000) (25,570,588)
Property and equipment,
net...................... 197,821 718,075 915,896
Intangible assets, net..... -- 39,861,173(A) -- 1,126,324,412(B) 1,166,185,585
----------- ------------ ----------- -------------- --------------
$ 476,942 $ 18,686,195 $11,043,344 $1,111,324,412 $1,141,530,893
=========== ============ =========== ============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable......... $ 79,975 $ $ 637,378 $ $ 717,353
Accrued expenses......... -- 497,135 497,135
Line of credit........... 863,000 (863,000)(A) -- --
Deferred revenue......... 108,140 68,510 176,650
Notes payable -- current
portion................ -- 18,975,022(A) 120,578 19,095,600
----------- ------------ ----------- -------------- --------------
Total current
liabilities..... 1,051,115 18,112,022 1,323,601 20,486,738
Notes payable -- less
current portion.......... -- 241,155 241,155
Redeemable preferred
stock.................... 2,250,000 (2,250,000)(A) 15,771,520 (15,771,520)(B) --
Stockholders' equity
(deficit):
Common stock............. 45,000 (45,000)(A) 28,878 16,495(B) 45,373
Additional
paid-in-capital........ -- 561,033 1,120,196,594(B) 1,120,757,627
Accumulated deficit...... (2,869,173) 2,869,173(A) (6,882,843) 6,882,843(B) --
----------- ------------ ----------- -------------- --------------
Total stockholders' equity
(deficit)................ (2,824,173) (2,824,173) (6,292,932) 1,127,095,932 1,120,803,000
----------- ------------ ----------- -------------- --------------
$ 476,942 $ 18,686,195 $11,043,344 $1,111,324,412 $1,141,530,893
=========== ============ =========== ============== ==============
</TABLE>

- ---------------

(A) The LocusOne acquisition is to be accounted for as a purchase pursuant to
Accounting Principles Board Opinion No. 16. Under such purchase accounting
principles, LocusOne'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 LocusOne's
net tangible and identifiable intangible assets is goodwill.

F-47
<PAGE> 136

The purchase price for LocusOne is as follows:

<TABLE>
<S> <C>
Cash consideration...................................... $21,024,978
Notes payable........................................... 18,975,022
Estimated costs and expenses............................ 150,000
-----------
Total purchase price.......................... $40,150,000
===========
</TABLE>

Aether made a payment of $20,000,000 at closing. In addition, Aether
repaid outstanding indebtedness and certain legal fees of LocusOne
totalling approximately $1,000,000. The remaining amount is payable in
the form of two non-interest bearing notes payable. One note totaling
$5.4 million is payable at the time of closing of this offering and
the remaining $13.6 million is payable at December 31, 2000.

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 the acquired assets and
liabilities of LocusOne. The preliminary allocation of the purchase
price is as follows:

<TABLE>
<S> <C>
Current assets.......................................... $ 279,121
Fixed assets............................................ 197,821
Current liabilities..................................... (188,115)
Goodwill................................................ 39,861,173
-----------
Total purchase cost........................... $40,150,000
===========
</TABLE>

(B) The Riverbed acquisition is to be accounted for as a purchase pursuant to
Accounting Principles Board Opinion No. 16. Under such purchase accounting
principles, Riverbed'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 Riverbed's
net tangible and identifiable intangible assets is goodwill.

The purchase price for Riverbed is as follows:

<TABLE>
<S> <C>
Issuance of Aether stock............................. $ 951,756,000
Issuance of replacement options...................... 169,047,000
Estimated costs and expenses......................... 15,000,000
--------------
Total purchase price....................... $1,135,803,000
==============
</TABLE>

Aether issued approximately 4,537,000 shares of its common stock for all of
the outstanding common and preferred stock of Riverbed. The Company has valued
the common stock based on the market price of Aether's common stock over the
period two days before and two days after the acquisition was agreed to and
announced, in accordance with FASB Emerging Issues Task Force Issue 95-19.
Aether has also reserved approximately 863,000 common shares for issuance upon
exercise of replacement options issued to Riverbed employees. The value of these
options was calculated using the Black-Sholes option pricing model with the
following assumptions: expected dividend yield 0 percent, risk-free interest
rate of 6.7 percent, expected life of 5 years and volatility of 70 percent.

F-48
<PAGE> 137

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 the assets and liabilities of Riverbed. The
preliminary allocation of the purchase price is as follows:

<TABLE>
<S> <C>
Current assets....................................... $ 10,325,269
Fixed assets......................................... 718,075
Current liabilities.................................. (1,323,601)
Long-term liabilities................................ (241,155)
Goodwill............................................. 1,126,324,412
--------------
Total purchase cost........................ $1,135,803,000
==============
</TABLE>

The above purchase price allocation is preliminary and may change upon
final determination of the fair value of assets and liabilities acquired. The
Company has not specifically identified amounts to assign to intangibles other
than goodwill; changes in the amounts allocated to such assets could result in
changes to the amount of goodwill recorded, and such changes could be material.
A preliminary amortization period for goodwill of three years has been used for
purposes of the pro forma financial information. However, the results of the
full valuation may indicate that a portion of the purchase price should be
allocated to in-process research and development. Such amounts, if any, will be
expensed immediately following the date of acquisition. In addition, to the
extent that the full valuation indicates that a portion of the purchase price
should be allocated to identifiable intangible assets other than goodwill, the
Company may be required to record a deferred tax liability, as such intangible
assets would have no basis for tax reporting purposes.

F-49
<PAGE> 138

AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------------
ADJUSTMENTS
HISTORICAL FOR COMPLETED PRO FORMA
AETHER TRANSACTIONS CONSOLIDATED
------------ ------------- -------------
<S> <C> <C> <C>
Subscriber revenue............................... $ 3,731,792 $ 7,467,834 $ 11,199,626
Engineering services revenue..................... 2,594,476 2,594,476
Software and related services revenue............ -- 2,443,349 2,443,349
------------ ------------- -------------
Total revenue............................... 6,326,268 9,911,183 16,237,451
Cost of subscriber revenue....................... 2,109,807 2,529,296 4,639,103
Cost of engineering services revenue............. 1,366,426 1,366,426
Cost of software and related services revenue.... -- 1,540,687 1,540,687
------------ ------------- -------------
Total cost of revenue....................... 3,476,233 4,069,983 7,546,216
------------ ------------- -------------
Gross profit........................... 2,850,035 5,841,200 8,691,235
------------ ------------- -------------
Operating expenses:
Research and development....................... 2,613,726 2,867,490 5,481,216
General and administrative..................... 5,891,504 3,015,595 8,907,099
Selling and marketing.......................... 2,095,074 4,736,035 6,831,109
Depreciation and amortization.................. 1,089,013 385,261,778 386,350,791
Option and warrant expense..................... 19,198,209 11,711,792 30,910,001
------------ ------------- -------------
30,887,526 407,592,690 438,480,216
------------ ------------- -------------
Operating loss......................... (28,037,491) (401,751,490) (429,788,981)
Other income (expense):
Interest income (expense), net................. (60,282) 168,342 108,060
Equity in losses of investments................ (2,425,000) (2,425,000)
Realized loss on sale of short-term
investments................................. (168,721) (168,721)
------------ ------------- -------------
Net loss.................................... $(30,691,494) $(401,583,148) $(432,274,642)
============ ============= =============
Pro forma net loss per share -- basic and
diluted........................................ $ (16.79)
=============
Pro forma weighted average shares used in per
share computations -- basic and diluted........ 25,744,506
=============
</TABLE>

F-50
<PAGE> 139

AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
PRO FORMA STOCK OFFERING PRO FORMA DEBT OFFERING AS FURTHER
CONSOLIDATED ADJUSTMENTS AS ADJUSTED ADJUSTMENTS ADJUSTED
------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Subscriber revenue........... $ 11,199,626 $ $ 11,199,626 $ $ 11,199,626
Engineering services
revenue.................... 2,594,476 2,594,476 2,594,476
Software and related services
revenue.................... 2,443,349 2,443,349 2,443,349
------------- ------------ ------------- ------------ -------------
Total revenue............ 16,237,451 16,237,451 16,237,451
Cost of subscriber revenue... 4,639,103 4,639,103 4,639,103
Cost of engineering services
revenue.................... 1,366,426 1,366,426 1,366,426
Cost of software and related
services revenue........... 1,540,687 1,540,687 1,540,687
------------- ------------ ------------- ------------ -------------
Total cost of revenue.... 7,546,216 7,546,216 7,546,216
------------- ------------ ------------- ------------ -------------
Gross profit........ 8,691,235 8,691,235 8,691,235
------------- ------------ ------------- ------------ -------------
Operating expenses:
Research and development... 5,481,216 5,481,216 5,481,216
General and
administrative........... 8,907,099 8,907,099 8,907,099
Selling and marketing...... 6,831,109 6,831,109 6,831,109
Depreciation and
amortization............. 386,350,791 386,350,791 386,350,791
Option and warrant
expense.................. 30,910,001 30,910,001 30,910,001
------------- ------------ ------------- ------------ -------------
438,480,216 438,480,216 438,480,216
------------- ------------ ------------- ------------ -------------
Operating loss...... (429,788,981) (429,788,981) (429,788,981)
Other income (expense):
Interest income (expense),
net...................... 108,060 108,060 (14,440,000)(B) (14,331,940)
Equity in losses of
investments.............. (2,425,000) (2,425,000) (2,425,000)
Realized loss on sale of
short-term investments... (168,721) (168,721) (168,721)
------------- ------------ ------------- ------------ -------------
Net loss................. $(432,274,642) $ $(432,274,642) $(14,440,000) $(446,714,642)
============= ============ ============= ============ =============
Pro forma net loss per
share -- basic and
diluted.................... $ (16.79) $ (15.29) $ (15.80)
============= ============= =============
Pro forma weighted average
shares used in per share
computations -- basic and
diluted.................... 25,744,506 28,274,425(A) 28,274,425
============= ============= =============
</TABLE>

- ---------------

(A) Reflects the sale of 2,374,741 shares of common stock in the offering and
the exercise of options to purchase 155,178 shares by the selling
stockholders.

(B) Reflects interest expense associated with the concurrent sale of $200
million of convertible subordinated notes due in 2005 in the concurrent
offering at an assumed interest rate of 6.5%.

F-51
<PAGE> 140

AETHER SYSTEMS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTMENTS FOR COMPLETED TRANSACTIONS

<TABLE>
<CAPTION>
PERIOD FROM JANUARY 1, 1999 YEAR ENDED
THROUGH SEPTEMBER 28, 1999 DECEMBER 31, 1999
--------------------------- -------------------------------------------------------------
PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ACQUISITION HISTORICAL ACQUISITION HISTORICAL ACQUISITION
MOBEO(A) ADJUSTMENTS LOCUS ONE ADJUSTMENTS RIVERBED ADJUSTMENTS
----------- ------------ ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Subscriber revenue....... $7,467,834 $ $ $ $ $
Software and related
services revenue....... -- 1,616,264 927,085 (100,000)(H)
---------- ----------- ----------- ------------ ----------- -------------
Total revenue........ 7,467,834 1,616,264 927,085 (100,000)
---------- ----------- ----------- ------------ ----------- -------------
Cost of subscriber
revenue................ 2,529,296 -- --
Cost of software and
related
services revenue....... -- 813,203 727,484
---------- ----------- ----------- ------------ ----------- -------------
Total cost of
revenue............ 2,529,296 813,203 727,484
---------- ----------- ----------- ------------ ----------- -------------
Gross profit......... 4,938,538 803,061 199,601
---------- ----------- ----------- ------------ ----------- -------------
Operating expenses:
Research and
development.......... 763,666 53,046 2,050,778
General and
administrative....... 1,994,525 (855,891)(C) 821,890 1,055,071
Selling and
marketing............ 2,069,413 (740,921)(C) 542,073 2,865,470
Depreciation and
amortization......... 82,915 1,667,511(B) 96,181 7,973,700(E) -- 375,441,471(I)
Option and warrant
expense.............. -- 1,225,875(D) 299,561 8,986,062(F) 1,200,294
---------- ----------- ----------- ------------ ----------- -------------
4,910,519 1,296,574 1,812,751 16,959,762 7,171,613 375,441,471
---------- ----------- ----------- ------------ ----------- -------------
Operating income
(loss)............. 28,019 (1,296,574) (1,009,690) (16,959,762) (6,972,012) (375,441,471)
Other income (expense):
Interest income
(expense), net....... 17,594 (20,125) 20,125(G) 150,748
---------- ----------- ----------- ------------ ----------- -------------
Net income (loss).... $ 45,613 $(1,296,574) $(1,029,815) $(16,939,937) $(6,821,264) $(375,541,471)
========== =========== =========== ============ =========== =============

ADJUSTMENTS
FOR
COMPLETED
TRANSACTIONS
-------------
<S> <C>
Subscriber revenue....... $ 7,467,834
Software and related
services revenue....... 2,443,349
-------------
Total revenue........ 9,911,183
-------------
Cost of subscriber
revenue................ 2,529,296
Cost of software and
related
services revenue....... 1,540,687
-------------
Total cost of
revenue............ 4,069,983
-------------
Gross profit......... 5,841,200
-------------
Operating expenses:
Research and
development.......... 2,867,490
General and
administrative....... 3,015,595
Selling and
marketing............ 4,736,035
Depreciation and
amortization......... 385,261,778
Option and warrant
expense.............. 11,711,792
-------------
407,592,690
-------------
Operating income
(loss)............. (401,751,490)
Other income (expense):
Interest income
(expense), net....... 168,342
-------------
Net income (loss).... $(401,583,148)
=============
</TABLE>

- ---------------

(A) Reflects the historical results of Mobeo for the period from January 1,
1999 to September 28, 1999. The results of Mobeo from September 29, 1999 to
December 31, 1999 are included in Aether's historical results for the year
ended December 31, 1999.

(B) Reflects the amortization of intangible assets, including goodwill, over
three to seven year periods.

(C) Reflects the elimination of compensation expense associated with certain
management employees of Mobeo who ceased employment following the
acquisition and who were not replaced.

(D) Reflects the amortization of the estimated fair value of options granted to
two former owners of Mobeo for consulting services over the two-year life
of the consulting arrangement. Also reflects amortization of the intrinsic
value of options granted to employees of Mobeo over the vesting period.

(E) Reflects the amortization of intangible assets, including goodwill, over a
five-year period. The estimated amount of amortization of intangible assets
is based on a preliminary allocation of the purchase price and may change
upon final determination, and such change could be material.

(F) Reflects the amortization of the intrinsic value of options granted to
employees of LocusOne over the three-year vesting period.

(G) Reflects the elimination of interest expense, as LocusOne's outstanding debt
was repaid by Aether as part of the acquisition.

(H) Reflects the elimination of software revenue related to a sale by Riverbed
to the Company. The cost of such sale has not been eliminated, as the
amounts are insignificant.

(I) Reflects the amortization of intangible assets, including goodwill, over a
three-year period. The purchase price allocation is preliminary and may
change upon final determination of the fair value of assets and liabilities
acquired. The Company has not specifically identified amounts to assign to
intangibles other than goodwill; changes in the amounts allocated to such
assets could result in changes to the amount of goodwill recorded, and such
changes could be material. A preliminary amortization period for goodwill
of three years has been used for purposes of the pro forma financial
information. However, the results of the full valuation may indicate that a
portion of the purchase price should be allocated to in-process research
and development. Such amounts, if any, will be expensed immediately
following the date of acquisition. In addition, to the extent that the full
valuation indicates that a portion of the purchase price should be
allocated to identifiable intangible assets other than goodwill, the
Company may be required to record a deferred tax liability, as such
intangible assets would have no basis for tax reporting purposes. This may
result in recording additional goodwill amortization and a deferred tax
benefit.

F-52
<PAGE> 141

---------------------------------------------------------------------------
----------------------------------------------------------------------------

3,000,000 SHARES

[AETHER LOGO]

COMMON STOCK

-------------------------

PROSPECTUS
-------------------------

MERRILL LYNCH & CO.

ROBERTSON STEPHENS

DONALDSON, LUFKIN & JENRETTE

U.S. BANCORP PIPER JAFFRAY

BEAR, STEARNS & CO. INC.

FRIEDMAN BILLINGS RAMSEY

, 2000

----------------------------------------------------------------------------
----------------------------------------------------------------------------
<PAGE> 142

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED MARCH 16, 2000

PROSPECTUS
- -----------------------

3,000,000 SHARES

[AETHER LOGO]

COMMON STOCK
------------------------

Aether Systems, Inc. is selling 2,374,741 shares and Aether stockholders
are selling 625,259 shares. The international managers are offering 450,000
shares outside the U.S. and Canada and the U.S. underwriters are offering
2,550,000 shares in the U.S. and Canada.

The shares are quoted on the Nasdaq National Market under the symbol
"AETH." On March 15, 2000, the last sale price of the shares as reported on the
Nasdaq National Market was $245 per share.

INVESTING IN THE COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
------------------------

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price............................. $ $
Underwriting discount............................. $ $
Proceeds, before expenses, to Aether.............. $ $
Proceeds, before expenses, to the selling
stockholders.................................... $ $
</TABLE>

The international managers may also purchase up to an additional 24,331
shares from Aether, and up to an additional 43,169 shares from the selling
stockholders, at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an additional 137,877 shares from
Aether and up to an additional 244,623 shares from the selling stockholders.

The shares will be ready for delivery on or about , 2000.

------------------------

MERRILL LYNCH INTERNATIONAL
ROBERTSON STEPHENS INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
U.S. BANCORP PIPER JAFFRAY
BEAR, STEARNS INTERNATIONAL LIMITED
FRIEDMAN, BILLINGS, RAMSEY INTERNATIONAL, LTD.
------------------------
The date of this prospectus is , 2000.
<PAGE> 143

UNDERWRITING

GENERAL

We intend to offer the shares outside the U.S. and Canada through the
international managers and in the U.S. and Canada through the U.S. underwriters.
Merrill Lynch International is acting as lead manager for the international
managers named below. Subject to the terms and conditions described in an
international purchase agreement among us, the selling stockholders and the
international managers, and concurrently with the sale of 2,550,000 shares to
the U.S. underwriters, we and the selling stockholders have agreed to sell to
the international managers, and the international managers severally have agreed
to purchase from us and the selling stockholders, the number of shares listed
opposite their names below.

<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- ---------
<S> <C> <C>
Merrill Lynch International................................................
FleetBoston Robertson Stephens International Limited.......................
Donaldson, Lufkin & Jenrette International.................................
U.S. Bancorp Piper Jaffray Inc.............................................
Bear, Stearns International Limited........................................
Friedman, Billings, Ramsey International, Ltd..............................
---------
Total....................................................... 450,000
=========
</TABLE>

We and the selling stockholders have also entered into a U.S. purchase
agreement with the U.S. underwriters for sale of the shares in the U.S. and
Canada for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, FleetBoston
Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
U.S. Bancorp Piper Jaffray Inc., Bear, Stearns & Co. Inc. and Friedman,
Billings, Ramsey & Co., Inc. are acting as U.S. representatives. Subject to the
terms and conditions in the U.S. purchase agreement, and concurrently with the
sale of 450,000 shares to the international managers pursuant to the
international purchase agreement, we and the selling stockholders have agreed to
sell to the U.S. underwriters, and the U.S. underwriters severally have agreed
to purchase 2,550,000 shares from us and the selling stockholders. The initial
public offering price per share and the total underwriting discount per share
are identical under the international purchase agreement and the U.S. purchase
agreement.

The international managers and the U.S. underwriters have agreed to
purchase all of the shares sold under the international and U.S. purchase
agreements if any of these shares are purchased. If an underwriter defaults, the
international and U.S. purchase agreements provide that the purchase commitments
of the nondefaulting underwriters may be increased or the purchase agreements
may be terminated. The closings for the sale of shares to be purchased by the
international managers and the U.S. underwriters are conditioned on one another.

We and the selling stockholders have agreed to indemnify the international
managers and the U.S. underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
international managers and the U.S. underwriters may be required to make in
respect of those liabilities.

COMMISSIONS AND DISCOUNTS

The lead manager has advised us and the selling stockholders that the
international managers propose initially to offer the shares to the public at
the initial public offering price on the cover page of this

82
<PAGE> 144

prospectus and to dealers at that price less a concession not in excess of
$ per share. The international managers may allow, and the dealers may
reallow, a discount not in excess of $ per share to other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.

The following table shows the public offering price, underwriting discount
and the proceeds before expenses to us and the selling stockholders. This
information assumes either no exercise or full exercise by the international
managers and the U.S. underwriters of their over-allotment options.

The expenses of the offering, not including the underwriting discount, are
estimated at $1.3 million and are payable by Aether.

OVER-ALLOTMENT OPTION

We and the selling stockholders have granted options to the international
managers to purchase up to 67,500 additional shares at the public offering price
less the underwriting discount. The international managers may exercise these
options for 30 days from the date of this prospectus solely to cover any over-
allotments. If the international managers exercise these options, each will be
obligated, subject to conditions contained in the international purchase
agreement, to purchase a number of additional shares proportionate to that
international manager's initial amount reflected in the above table.

We and the selling stockholders have also granted options to the U.S.
underwriters, exercisable for 30 days from the date of this prospectus to
purchase up to 382,500 additional shares to cover any over-allotments on terms
similar to those granted to the international managers.

INTERSYNDICATE AGREEMENT

The international managers and the U.S. underwriters have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the international managers and the U.S.
underwriters may sell shares to each other for purposes of resale at the initial
public offering price, less an amount not greater than the selling concession.
Under the intersyndicate agreement, the international managers and any dealer to
whom they sell shares will not offer to sell or sell shares to U.S. or Canadian
persons or to persons they believe intend to resell to U.S. or Canadian persons,
except in the case of transactions under the intersyndicate agreement.
Similarly, the U.S. underwriters and any dealer to whom they sell shares will
not offer to sell or sell shares to persons who are non-U.S. or non-Canadian
persons or to persons they believe intend to resell to persons who are non-U.S.
or non-Canadian persons, except in the case of transactions under the
intersyndicate agreement.

NO SALES OF SIMILAR SECURITIES

- offer, pledge, sell or contract to sell any common stock,

- sell any option or contract to purchase any common stock,

- purchase any option or contract to sell any common stock,

- grant any option, right or warrant for the sale of any common stock,

83
<PAGE> 145

- lend or otherwise dispose of or transfer any common stock,

- request or demand that we file a registration statement related to the
common stock, or

QUOTATION ON THE NASDAQ NATIONAL MARKET

The shares are quoted on the Nasdaq National Market under the symbol
"AETH."

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

UK SELLING RESTRICTIONS

Each international manager has agreed that

- it has not offered or sold and will not offer or sell any shares of
common stock to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which do not constitute an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995;

- it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and

- it has issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of
common stock to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions)
Order 1996 as amended by the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom such
document may otherwise lawfully be issued or passed on.

84
<PAGE> 146

NO PUBLIC OFFERING OUTSIDE THE UNITED STATES

No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the shares of common
stock, or the possession, circulation or distribution of this prospectus or any
other material relating to our company, the selling stockholders or shares of
our common stock in any jurisdiction where action for that purpose is required.
Accordingly, the shares of our common stock may not be offered or sold, directly
or indirectly, and neither this prospectus nor any other offering material or
advertisements in connection with the shares of common stock may be distributed
or published, in or from any country or jurisdiction except in compliance with
any applicable rules and regulations of any such country or jurisdiction.

Purchasers of the shares offered by this prospectus may be required to pay
stamp taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price on the cover page of this
prospectus.

PASSIVE MARKET MAKING

In connection with this offering, underwriters and selling group members
may engage in passive market making transactions in the common stock on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act during a period before the commencement of offers or sales of
common stock and extending through the completion of distribution. A passive
market maker must display its bid at a price not in excess of the highest
independent bid of that security. However, if all independent bids are lowered
below the passive market maker's bid, that bid must then be lowered when
specified purchase limits are exceeded.

OTHER RELATIONSHIPS

Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received or may receive customary
fees and commissions for these transactions.

85
<PAGE> 147

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

3,000,000 SHARES

[AETHER LOGO]

COMMON STOCK

---------------------

PROSPECTUS
---------------------

MERRILL LYNCH INTERNATIONAL

ROBERTSON STEPHENS INTERNATIONAL

DONALDSON, LUFKIN & JENRETTE INTERNATIONAL

U.S. BANCORP PIPER JAFFRAY

BEAR, STEARNS INTERNATIONAL LIMITED

FRIEDMAN, BILLINGS, RAMSEY INTERNATIONAL, LTD.

, 2000

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 148

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 MARCH 16, 2000

PROSPECTUS
$200,000,000

[AETHER LOGO]

% CONVERTIBLE SUBORDINATED NOTES DUE 2005
------------------------

The notes are convertible, at the option of the holder, at any time on
or prior to maturity into shares of common stock of Aether. The notes are
convertible at a conversion price of $ per share, which is equal to a
conversion rate of shares per $1,000 principal amount of notes, subject
to adjustment. Our common stock is traded on the Nasdaq National Market under
the symbol "AETH." On March 15, 2000 the last sale price of our common stock as
reported on the Nasdaq National Market was $245 per share. The notes will not be
listed on any securities exchange or quoted on the Nasdaq Stock Market.

We will pay interest on the notes on and of
each year, beginning , 2000. The notes will mature on ,
2005. We may redeem some or all of the notes at any time prior to ,
2003 at a redemption price of $1,000 per $1,000 principal amount of the notes,
plus accrued and unpaid interest, if any, to the redemption date, if the closing
price of our common stock has exceeded 150% of the conversion price then in
effect. We may redeem some or all of the notes at any time on or after
, 2003 at redemption prices described in this prospectus.

The notes will be subordinated to our senior indebtedness. In addition,
the notes will effectively rank junior to our subsidiaries' liabilities.

Concurrent with this offering, we are offering through a separate
prospectus 2,374,741 shares of our common stock and the Aether stockholders
identified in the separate prospectus are offering 625,259 shares of our common
stock. Completion of the common stock offering is not a condition to the
completion of this offering.

INVESTING IN THE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
------------------------

<TABLE>
<CAPTION>
PER NOTE TOTAL
-------- -----
<S> <C> <C>
Public offering price(1).................................... % $
Underwriting discount....................................... % $
Proceeds, before expenses, to Aether........................ % $
(1) Plus accrued interest from , 2000, if settlement occurs after that date
</TABLE>

The underwriters may also purchase up to an additional $30,000,000
principal amount of notes from Aether at the public offering price, less the
underwriting discount, within 30 days from the date of this prospectus to cover
over-allotments.

The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about , 2000.
------------------------
MERRILL LYNCH & CO. ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
BEAR, STEARNS & CO. INC.
FRIEDMAN BILLINGS RAMSEY
------------------------
The date of this prospectus is , 2000.
<PAGE> 149

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 10
Forward-Looking Statements.................................. 20
Use of Proceeds............................................. 21
Price Range of Common Stock................................. 21
Dividend Policy............................................. 21
Concurrent Offering......................................... 22
Capitalization.............................................. 23
Selected Consolidated Financial Data........................ 25
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 27
Business.................................................... 37
Management.................................................. 56
Transactions Between Aether and its Officers, Directors or
Significant Stockholders.................................. 67
Principal Stockholders...................................... 71
Description of Notes........................................ 74
Description of Capital Stock................................ 89
U.S. Federal Income Tax Considerations to U.S. Holders...... 92
Shares Eligible for Future Sale............................. 95
Underwriting................................................ 97
Legal Matters............................................... 100
Experts..................................................... 100
Where You Can Find More Information......................... 100
Index to Financial Statements............................... F-1
</TABLE>

------------------------------

3
<PAGE> 151

PROSPECTUS SUMMARY

OUR COMPANY

- We entered into a non-binding letter of intent with Reuters PLC to form a
new company to develop wireless data systems in Europe, initially
focusing on the financial services industry.

4
<PAGE> 152

- Target a variety of industries and market segments for development of
wireless data communications and services in the United States and
internationally.

- Continue to develop the market for existing and new services in the
financial services sector.

- Offer the widest range of software products to address every aspect of
wireless integration and mobile data management for mobile workers and
consumers.

- Continue to develop mass-market wireless applications like e-mail and
Internet access and bundle them with custom corporate applications.

- 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.

- Apply the expertise we gain through engineering services and research and
development activities to emerging business opportunities.

5
<PAGE> 153

THE OFFERING

The following is a brief summary of some of the terms of this notes
offering. For a more complete description of the terms of the notes, see
"Description of Notes" in this prospectus.

Securities Offered.................. $200,000,000 aggregate principal amount
(excluding $30,000,000 aggregate
principal amount subject to the
over-allotment option) of %
Convertible Subordinated Notes due
2005.

Maturity............................ , 2005.

Interest............................ % per annum on the principal amount,
payable semiannually on and
of each year beginning
, 2000.

Conversion Rights................... The notes are convertible, at the
option of the holder, at any time on or
before maturity into shares of our
common stock at a conversion price of
$ per share, which is equal to
a conversion rate of shares
per $1,000 principal amount of notes.
The conversion rate is subject to
adjustment.

Ranking............................. The notes will be unsecured and
subordinated to our existing and future
senior indebtedness. In addition, the
notes will effectively rank junior to
our subsidiaries' liabilities. As of
March 15, 2000, we had approximately
$19.0 million of senior indebtedness
outstanding which we incurred in
connection with our acquisition of
LocusOne. The notes will also be
subordinate to approximately $360,000
of senior indebtedness which was
incurred by one of our subsidiaries in
connection with our acquisition of
Riverbed. Because the notes are
subordinated, in the event of
bankruptcy, liquidation or dissolution
and acceleration of payment on the
senior indebtedness, holders of the
notes will not receive any payment
until holders of any senior
indebtedness we may incur have been
paid in full. The indenture under which
the notes will be issued will not
prevent us or our subsidiaries from
incurring senior indebtedness or other
obligations.

Provisional Redemption.............. We may redeem the notes, in whole or in
part, at any time before ,
2003 at a redemption price equal to
$1,000 per $1,000 principal amount of
notes to be redeemed plus accrued and
unpaid interest, if any, to the date of
redemption if the closing price of our
common stock has exceeded 150% of the
conversion price then in effect for at
least 20 trading days within a period
of 30 consecutive trading days ending
on the trading day before the date of
mailing of the provisional redemption
notice. Upon any provisional
redemption, we will make an additional
payment in cash with respect to the
notes called for redemption in an
amount equal to $ per

6
<PAGE> 154

$1,000 principal amount of notes, less
the amount of any interest actually
paid on the note before the call for
redemption. WE WILL BE OBLIGATED TO
MAKE THIS ADDITIONAL PAYMENT ON ALL
NOTES CALLED FOR PROVISIONAL
REDEMPTION, INCLUDING ANY NOTES
CONVERTED AFTER THE NOTICE DATE AND
BEFORE THE PROVISIONAL REDEMPTION DATE.

Optional Redemption................. We may redeem some or all of the notes
at any time on or after ,
2003 at redemption prices described in
this prospectus plus accrued and unpaid
interest.

Change of Control................... Upon a change of control event, each
holder of the notes may require us to
repurchase some or all of its notes at
a purchase price equal to 100% of the
principal amount of the notes plus
accrued and unpaid interest. We may, at
our option, instead of paying the
change in control purchase price in
cash, pay it in our common stock valued
at 95% of the average of the closing
sales prices of our common stock for
the five trading days immediately
preceding and including the third day
prior to the date we are required to
repurchase the notes. We cannot pay the
change in control purchase price in
common stock unless we satisfy the
conditions described in the indenture
under which the notes will be issued.

Use of Proceeds..................... We currently intend to use the net
proceeds from this offering and the
concurrent common stock offering for
the following:
- $100 million to acquire a 60%
interest in the company that is the
subject of our letter of intent with
Reuters;

- $19 million to repay indebtedness
incurred in connection with the
LocusOne acquisition;

- $17 million to make our investment in
Metrocall;

- $10 million to make our investment in
Inciscent;

- an estimated $25 million to enhance
our sales and marketing activities;

- fund potential future acquisitions
and strategic investments; and

- general corporate purposes.

DTC Eligibility..................... Except as provided in this prospectus,
the notes will be issued in fully
registered book-entry form without
coupons and in minimum denominations of
$1,000. Purchasers will not receive
individually certificated notes.
Instead, the notes will be represented
by one or more permanent global notes
without coupons depos-

7
<PAGE> 155

ited with a custodian for and
registered in the name of a nominee of
The Depository Trust Company (DTC) in
New York, New York. Beneficial
interests in any global note will be
shown on, and transfers thereof will be
effected only through, records
maintained by DTC and its direct and
indirect participants, and any such
beneficial interest may not be
exchanged for certificated notes,
except in limited circumstances
described in this prospectus.
Settlement and all secondary market
trading activity for the notes will be
in same day funds. See "Description of
Notes -- Book-Entry System" on page 86.

Listing............................. The notes will not be listed on any
securities exchange or quoted on the
Nasdaq National Market. The
underwriters have advised us that they
intend to make a market in the notes.
The underwriters are not obligated,
however, to make a market in the notes,
and any such market making may be
discontinued at any time at the sole
discretion of the underwriters without
notice.

Nasdaq National Market symbol for
our common stock.................... AETH

CONCURRENT OFFERING

Concurrently with our offering of notes, we are offering by means of a
separate prospectus 2,374,741 shares of our common stock and the Aether
stockholders identified in the prospectus for the common stock offering are
offering 625,259 shares of our common stock. The completion of the common stock
offering is not a condition to the completion of this offering.

8
<PAGE> 156

SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)

The following table summarizes our consolidated statements of operations
for each of the years ended December 31, 1996, 1997, 1998 and 1999 and our
consolidated balance sheet as of December 31, 1999. The pro forma consolidated
financial information gives effect to (i) the Mobeo, LocusOne and Riverbed
acquisitions, (ii) the sale of $200 million of our convertible notes in this
offering and the application of the net proceeds as described in "Use of
Proceeds" on page 21 and (iii) the concurrent offering of common stock and the
application of the net proceeds as described in "Use of Proceeds" on page 21.
The pro forma net loss per share information gives effect to our conversion from
a limited liability company to a corporation immediately prior to our initial
public offering.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1999 PRO FORMA
------------

HISTORICAL
-------------------------------------------------
1996 1997 1998 1999 ACQUISITIONS
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Subscriber revenue........... $ -- $ 161 $ 549 $ 3,732 $ 11,200
Engineering services
revenue.................... 1,355 1,625 963 2,594 2,594
Software and related services
revenue.................... -- -- -- -- 2,443
---------- ---------- ---------- ---------- ----------
Total revenue................ 1,355 1,786 1,512 6,326 16,237
Gross profit................... 348 493 411 2,850 8,691
Total operating expenses....... 601 2,801 5,178 30,887 438,480
---------- ---------- ---------- ---------- ----------
Operating loss................. (253) (2,308) (4,767) (28,037) (429,789)
---------- ---------- ---------- ---------- ----------
Net loss....................... $ (417) $ (2,747) $ (4,693) $ (30,691) $ (432,275)
========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges(1)................... -- -- -- --
Pro forma net loss per
share-basic and diluted...... $ (0.04) $ (0.22) $ (0.29) $ (1.45) $ (16.79)
========== ========== ========== ========== ==========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted...................... 10,554,795 12,655,901 15,916,383 21,207,225 25,744,506
========== ========== ========== ========== ==========

<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 PRO FORMA
-------------------------------------
ACQUISITIONS,
ACQUISITIONS AND CONVERTIBLE NOTES
CONVERTIBLE NOTES AND COMMON STOCK
OFFERING OFFERINGS
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Subscriber revenue........... $ 11,200 $ 11,200
Engineering services
revenue.................... 2,594 2,594
Software and related services
revenue.................... 2,443 2,443
---------- ----------
Total revenue................ 16,237 16,237
Gross profit................... 8,691 8,691
Total operating expenses....... 438,480 438,480
---------- ----------
Operating loss................. (429,789) (429,789)
---------- ----------
Net loss....................... $ (446,715) $ (446,715)
========== ==========
Ratio of earnings to fixed
charges(1)................... --
Pro forma net loss per
share-basic and diluted...... $ (17.35) $ (15.80)
========== ==========
Pro forma weighted average
shares used in computing net
loss per share-basic and
diluted...................... 25,744,506 28,274,425
========== ==========
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------------------------------------
PRO FORMA
------------------------------------------------------
ACQUISITIONS,
ACQUISITIONS AND CONVERTIBLE NOTES
CONVERTIBLE NOTES AND COMMON STOCK
ACTUAL ACQUISITIONS OFFERING OFFERINGS
-------- ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 78,542 $ 47,724 $ 94,549 $ 647,630
Working capital.............................. 83,128 37,071 102,871 655,952
Total assets................................. 102,534 1,244,065 1,425,090 1,978,171
Total debt................................... -- 19,337 200,362 200,362
Stockholders' equity......................... 98,342 1,219,145 1,219,145 1,772,227
</TABLE>

- ---------------

(1) Earnings were insufficient to cover fixed charges by $417, $2,747, $4,693
and $30,691 for years 1996, 1997, 1998 and 1999, respectively, and $446,715
on a pro forma basis for 1999 for our Mobeo, LocusOne and Riverbed
acquisitions, and our convertible notes and common stock offerings.

9
<PAGE> 157

RISK FACTORS

Investing in our notes involves risks. You should carefully consider the
following risks together with the other information contained in this prospectus
before deciding to buy our notes.

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 HAVE HISTORICALLY INCURRED LOSSES AND THESE LOSSES MAY INCREASE IN THE
FUTURE.

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.

We expect that our recent and pending acquisitions, investments and
strategic alliances and any acquisitions, investments or strategic alliances we
may pursue in the future will have a continuing,

10
<PAGE> 158