<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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OMNISKY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 4812 77-0516363
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1001 ELWELL COURT
PALO ALTO, CALIFORNIA 94303
(650) 969-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PATRICK S. MCVEIGH
CHIEF EXECUTIVE OFFICER
OMNISKY CORPORATION
1001 ELWELL COURT
PALO ALTO, CALIFORNIA 94303
(650) 969-7700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
AARON J. ALTER, ESQ.
RICHARD S. ARNOLD, JR., ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94104
(650) 493-9300
DANIELLE CARBONE, ESQ.
SHEARMAN & STERLING
1550 EL CAMINO REAL, SUITE 100
MENLO PARK, CALIFORNIA 94025
(650) 330-2200
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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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C>
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE
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Common Stock $0.001 par value........................... $115,000,000 $30,360
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act.
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 HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JUNE 16, 2000
Shares
[OmniSky logo]
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "SKYY."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 8.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS
PUBLIC AND COMMISSIONS PROCEEDS TO OMNISKY
-------- ---------------------- -------------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
CHASE H&Q
DONALDSON, LUFKIN & JENRETTE
SALOMON SMITH BARNEY
DLJDIRECT INC.
The date of this prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER]
The inside front cover of the prospectus includes the following text which
appears centered at the top of the page in large font:
OmniSky takes the Internet out.
Below the above text appears two columns of text. The first column reads:
OmniSky helps you make things happen when your life and work take you
beyond the walls of a traditional office. Stay in touch with your
e-mail. Access the Internet.
The second column reads:
Receive news, get stock quotes, phone numbers and traffic reports. Order
goods and services when you are on the go.
To the right of the two columns of text is a picture of a Palm V attached to a
wireless modem with the OmniSky logo. The antenna on the modem is shown fully
extended. The screen on the Palm V shows a screen shot from the E*Trade web
site.
Centered on the page is a large picture of a Palm V shown being attached to a
wireless modem with the OmniSky logo. An arrow demonstrates how the Palm V
attaches to the wireless modem. The screen on the Palm V shows the OmniSky user
interface.
Starting at the upper left hand corner of the above picture of the Palm V and
moving counterclockwise, the following paragraphs are positioned around the Palm
V with dotted lines pointing from each paragraph to the Palm V:
Convenient User Interface
- Designed to organize wireless content into useful topic areas
- Can be customized to provide faster access to selected content
E-mail Access
- Send and receive e-mail on the go from up to six personal e-mail
accounts
- Review the sender, subject and beginning of an e-mail before
downloading the message
The Web in Your Hand
- Access over 1000 links to content modified for display on handheld
devices
- Visit virtually any Web site by entering its Web address
<PAGE> 4
Wireless Modem
- Cellular Digital Packet technology for fast, reliable access
E-commerce
- Purchase products and services online
- Comparison shop to find the best prices
Popular Content
- Some of the most recognized names on the Internet are prominently
positioned in our service
Nationwide Coverage
- Flat rate monthly pricing
In the lower right hand corner of the page is a picture of a smiling man using
the OmniSky service.
The OmniSky logo appears on the bottom of the page against a dark background,
together with the words "Think it. Do it."
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 8
USE OF PROCEEDS....................... 20
DIVIDEND POLICY....................... 20
CORPORATE INFORMATION................. 20
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 21
CAPITALIZATION........................ 22
DILUTION.............................. 23
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 25
BUSINESS.............................. 32
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
MANAGEMENT............................ 45
STOCK PLANS........................... 51
RELATED PARTY TRANSACTIONS............ 55
PRINCIPAL STOCKHOLDERS................ 56
DESCRIPTION OF CAPITAL STOCK.......... 59
SHARES ELIGIBLE FOR FUTURE SALE....... 62
UNDERWRITING.......................... 64
NOTICE TO CANADIAN RESIDENTS.......... 67
LEGAL MATTERS......................... 68
EXPERTS............................... 68
WHERE YOU CAN FIND MORE INFORMATION
ABOUT US............................ 68
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS.......................... F-1
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
3
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in the offering. You should read the entire
prospectus carefully. Except where we state otherwise, all information in this
prospectus (1) reflects the conversion of all outstanding shares of our
preferred stock into 63,030,536 shares of common stock effective automatically
upon the closing of this offering and (2) assumes no exercise of the
underwriters' over-allotment option.
OMNISKY CORPORATION
OUR COMPANY
We offer a wireless service under the OmniSky brand that enables our
subscribers to access and navigate the Internet, send and receive e-mail
messages and securely conduct e-commerce transactions over handheld mobile
devices. We have designed an easy-to-use wireless Internet portal specifically
for use with handheld mobile devices. Our wireless portal organizes information
into various categories, including entertainment, finance, news, shopping,
sports, travel and local information, allows for text based searches and can be
customized by the subscriber. We provide our subscribers with access to Internet
content in a format that is modified for enhanced viewing and performance on the
relatively small display screens of handheld mobile devices. We receive that
content from more than 1,000 links to popular data sources and content
providers, including CNBC, eBay, ESPN, E*Trade, Ticketmaster, Fox Sports and
Yahoo!. With our wireless service, our subscribers also have the ability to
browse virtually any web site, whether or not the content of that site has been
modified for use on a handheld mobile device. For a fixed monthly fee, we
provide our subscribers with nationwide access, unlimited usage and full-time
customer support.
Internet usage, including e-mail messaging, information services and
e-commerce, is becoming an increasingly important part of everyday life. To
date, desktop computers have been the primary means of accessing the Internet.
As individuals, in both their personal and professional lives, have become more
mobile, we believe there continues to be a growing trend toward remote wireless
access to the Internet. As this trend builds momentum, we believe that
individuals will increasingly demand real-time access to highly personalized
Internet content, including e-mail, information services and e-commerce, on
handheld mobile devices.
Individuals seeking wireless Internet access today are faced with a number
of challenges, including a limited supply of Internet data and content that has
been specially modified for use and performance on handheld mobile devices. As a
result, most Internet data and content cannot currently be easily and
effectively accessed using handheld mobile devices. Individuals seeking this
access also tend to face high and unpredictable costs when using wireless
network technologies, limited geographic coverage areas, data security concerns
and a variety of different devices and services that, individually, do not
typically provide all of the functionality that we believe many individuals are
seeking.
WE RECENTLY LAUNCHED OUR WIRELESS SERVICE NATIONALLY
We began preliminary, or beta, testing of our wireless service in December
1999 and stopped accepting new beta orders on March 31, 2000 with approximately
5,500 subscribers. During our beta test, our wireless service was selected as
the best software/service for wireless data in 2000 by Mobile Insights, Inc., a
leading information source for the mobile computing and data communications
market. We formally launched our wireless service nationally in May 2000. On
, 2000, we had subscribers.
4
<PAGE> 7
OUR STRATEGY
Our mission is to become the leading global provider of wireless service to
users of handheld mobile devices. To achieve our objective, we intend to:
- aggressively market the OmniSky brand;
- continue to extend our service offerings to additional types of handheld
mobile devices, operating systems and wireless data network technologies;
- leverage our easy-to-use wireless Internet portal to generate e-commerce
and advertising revenues;
- expand our wireless service internationally through a joint venture we
have created with News Corporation, in which we each own a 50% stake;
- leverage the experience that our management team has in the Internet,
wireless and handheld mobile device industries by generating
opportunities from the industry relationships they have developed over
many years;
- further develop our web-based and retail sales and distribution channels;
and
- pursue selected acquisitions of businesses or technologies that may
enable us to increase our subscriber base or enhance our wireless service
offerings.
WE HAVE A LIMITED OPERATING HISTORY, HAVE A LARGE ACCUMULATED DEFICIT AND EXPECT
TO INCUR CONTINUING LOSSES
We have a limited operating history and only formally launched our wireless
service in May 2000. Through March 31, 2000, we had generated only nominal
revenues and had an accumulated deficit of $15.5 million. We have incurred
increasing losses and had an operating loss for the three month period ended
March 31, 2000 of $8.6 million. We expect to continue to incur net losses for
the foreseeable future and may never achieve profitable operations. The market
for our wireless service has not yet developed, and we cannot assure you that it
will develop or that, if it develops, individuals will use our wireless service.
AS WE CONTINUE TO ROLLOUT OUR WIRELESS SERVICE, WE EXPECT TO FACE INTENSE
COMPETITION
The market for wireless services is becoming increasingly competitive. We
expect that we will compete primarily on the basis of the functionality,
breadth, quality and price of our wireless service. We expect to encounter
competition from wireless Internet service providers, popular web portals,
wireless telecommunications carriers and many others that may decide to enter
the wireless service industry. Many of our competitors may have substantially
greater financial, technical, marketing and distribution resources than we do.
5
<PAGE> 8
THE OFFERING
Common stock offered....... shares
Common stock to be
outstanding after this
offering................... shares
Proposed Nasdaq National
Market symbol.............. SKYY
Use of proceeds............ We plan to use the net proceeds from this offering
to fund:
- sales, marketing and research and development
programs, including national advertising and
branding campaigns that we began in May 2000 in
connection with our formal wireless service
launch;
- the expansion of Internet services and devices
offered to our subscribers;
- expenses we expect to incur in connection with
our international joint venture with News
Corporation;
- the continued development of our infrastructure,
network and support services; and
- working capital and general corporate purposes.
See "Use of Proceeds."
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of , 2000.
This number excludes:
- shares of common stock subject to outstanding options at a
weighted average exercise price of $ per share; and
- additional shares of common stock reserved for future issuance
under our stock option, director stock option and employee stock purchase plans.
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The pro forma information in the following table gives effect to the
automatic conversion of all outstanding shares of our preferred stock into
shares of our common stock upon the closing of this offering.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1999 THREE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, MARCH 31,
1999 2000
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<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 1,315
Cost of revenue............................................. -- 2,853
Loss from operations........................................ (6,951) (8,761)
Net loss.................................................... (6,929) (8,586)
Net loss per share:
Basic and diluted......................................... $ -- $ (10.61)
Weighted average shares................................... -- 809,615
Pro forma net loss per share:
Basic and diluted (unaudited)............................. $ (0.31) $ (0.18)
Weighted average shares (unaudited)....................... 22,147,767 48,178,355
</TABLE>
The following table summarizes:
- actual balance sheet data;
- pro forma balance sheet data after giving effect to the receipt of
approximately $83.0 million of net proceeds from the sale and issuance of
our Series C preferred stock and the conversion of all outstanding shares
(including the Series C preferred stock) of our preferred stock into
shares of our common stock upon the closing of this offering; and
- pro forma as adjusted balance sheet data, adjusted to give effect to our
sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share and after deducting
estimated underwriting discounts and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents.................................. $ 14,090 $ 97,066 $
Working capital............................................ 14,758 97,734
Total assets............................................... 41,846 124,822
Convertible preferred stock................................ 35,680 --
Total stockholders' (deficit) equity....................... (13,482) 105,174
</TABLE>
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RISK FACTORS
You should carefully consider the risks described below before buying
shares in this offering. The risks and uncertainties described below are not the
only risks we face. These risks are the ones we consider to be significant to
your decision whether to invest in our common stock at this time. There may be
risks that you view differently than we do, and there are other risks and
uncertainties that are not presently known to us or that we currently deem
immaterial, but that may in fact impair our business operations. If any of the
following risks actually occur, our business, results of operations and
financial condition could be seriously harmed, the trading price of our common
stock could decline and you may lose all or part of your investment.
RISK FACTORS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY, HAVING LAUNCHED OUR WIRELESS SERVICE
NATIONALLY IN MAY 2000 AFTER SEVERAL MONTHS OF BETA TESTING. IT MAY, THEREFORE,
BE DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND FUTURE PROSPECTS.
We founded our company in May 1999. We only began beta testing our wireless
service in December 1999. We formally launched our wireless service nationally
in May 2000. As a result of our limited operating history and the recent
national launch of our wireless service, your evaluation of our business and an
investment in our company will be more difficult. Since we have limited
meaningful historical data upon which to base our planned operating expenses,
and since our wireless service is still relatively new, it is difficult for us
and for you to assess whether our strategy will be successful or whether we will
be able to adjust our business model to meet the demands of our subscribers over
time. When making an investment decision regarding our common stock, you should
consider the risks, expenses and difficulties that may be encountered or
incurred by us as a young company in a new and rapidly evolving market,
including our ability to:
- market a service with only limited market acceptance to date;
- expand our marketing, sales, engineering and support organizations, as
well as our distribution channels;
- negotiate and maintain favorable rates with wireless network carriers;
- manage expanding operations, including our ability to expand our systems
if our subscriber base grows substantially;
- attract and retain management and technical personnel; and
- anticipate and respond to competition and changes in technologies.
Our business strategy may not be successful, and it may not successfully address
the risks we have described or other risks which we may not have anticipated.
WE HAVE A HISTORY OF LOSSES SINCE OUR FORMATION, EXPECT TO INCUR SIGNIFICANT
OPERATING EXPENSES AND LOSSES IN THE FUTURE AS WE ROLL-OUT OUR WIRELESS SERVICES
AND MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY.
We are not, and have never been, profitable. Through March 31, 2000, we had
generated only nominal revenues and had an accumulated deficit of approximately
$15.5 million. We have incurred increasing losses and had an operating loss for
the three month period ended March 31, 2000 of $8.6 million. We expect to
continue to incur losses and to have negative cash flow on a quarterly and
annual basis for the foreseeable future. We also anticipate that our expenses
will increase substantially as we continue to increase our sales and marketing
efforts, expand our research and development programs, extend our wireless
service to new platforms and devices and enhance our administrative operations.
Since we have only limited experience in managing our business, these efforts
may prove more expensive than
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<PAGE> 11
we currently anticipate. We cannot predict if we will ever achieve profitability
and if we do, we may not be able to sustain or increase our profitability. If we
continue to incur net losses, our stock price will suffer.
IF WE ARE UNABLE TO INCREASE SUBSTANTIALLY THE NUMBER OF OUR SUBSCRIBERS IN THE
FUTURE, WE WILL BE UNABLE TO GENERATE THE INCREASED REVENUE NECESSARY TO ACHIEVE
PROFITABILITY.
We had subscribers for our wireless service as of , 2000. We
will have to increase substantially the number of our subscribers in order to
achieve profitability. In addition to increasing our subscriber base, we will
have to limit the number of subscribers who deactivate our service. Adding new
subscribers will depend to a large extent on the success of our marketing
campaigns and the future development by manufacturers of handheld mobile devices
that support our wireless service and that are widely accepted by consumers.
Limiting the number of customer deactivations requires that we provide our
subscribers with a favorable and cost-effective experience in using our wireless
service. Our subscribers' experience may be unsatisfactory to the extent that
our service malfunctions or our portal and customer care efforts do not meet our
subscribers' expectations. In addition, other factors, some of which may be
beyond our control, such as technological limitations, may cause our
subscribers' experience with our wireless service not to meet their expectations
and lead them to terminate our wireless service.
WE ARE CURRENTLY DEPENDENT ON ONE SUPPLIER FOR THE WIRELESS MODEMS THAT OUR
SUBSCRIBERS NEED TO RECEIVE OUR WIRELESS SERVICE ON THE PALM V DEVICE. IF THAT
SUPPLIER IS UNABLE TO TIMELY MEET OUR NEEDS, OUR ABILITY TO EXPAND OUR
SUBSCRIBER BASE WILL BE SEVERELY LIMITED AND WE WILL LOSE REVENUE.
Novatel is currently the single source of supply for the wireless modems
that our subscribers require to receive our wireless service on the Palm V
handheld mobile device, manufactured by Palm, Inc. Any difficulties encountered
by our supplier that result in product defects or poor quality, production
delays, cost overruns, or the inability to fulfill orders or provision modems on
a timely basis would hurt our reputation, result in loss of revenue and limit
our ability to expand our subscriber base. If we cannot obtain an adequate
supply of wireless modems, we will be unable to timely deliver our wireless
service to subscribers. Neither we nor our supplier maintains an extensive
inventory of wireless modems. We have experienced delays in receiving modems
from Novatel, and if we continue to experience delays and, as a result, we are
unable to timely deliver wireless modems to our potential subscribers, our
business will be seriously harmed. Under our agreement with Novatel, we have a
right to acquire the first 100,000 wireless modems built by Novatel for the Palm
V device. After we acquire those 100,000 modems, the wireless modems may be
marketed and sold directly by Novatel to third parties, including our
competitors. If Novatel decides to market and sell the wireless modems directly,
our revenue would decrease since we would no longer be receiving any revenue
from sales of those devices. We have not qualified any alternative sources for
the supply of our wireless modems.
WE DEPEND UPON WIRELESS NETWORKS OWNED AND OPERATED BY OTHERS TO DELIVER OUR
WIRELESS SERVICES. IF WE DO NOT HAVE CONTINUED ACCESS TO SUFFICIENT CAPACITY ON
RELIABLE WIRELESS NETWORKS, WE MAY BE UNABLE TO DELIVER OUR WIRELESS SERVICE AND
OUR SALES COULD DECREASE.
We depend entirely on wireless carriers to transmit our wireless service to
our subscribers and must purchase air-time from them for that purpose. Our
ability to grow and achieve profitability depends partly on our ability to
obtain sufficient capacity on the networks of those carriers, including AT&T
Wireless Services and Verizon Wireless and on the reliability and security of
their systems. We depend on these networks to provide uninterrupted service and
would not be able to satisfy our customers' needs if these carriers fail to
provide the required capacity or needed levels 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 and
we were unable to pass along increased prices to our customers. Some of these
wireless carriers are, or could become, our competitors and if they compete with
us they may refuse to provide us with access to their networks.
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WE RELY ON THIRD PARTIES TO BILL OUR SUBSCRIBERS, TO PROVIDE A SIGNIFICANT
PORTION OF OUR CUSTOMER SUPPORT, TO PROVIDE US WITH INTERNET CONTENT AND TO
PERFORM OTHER CRITICAL BUSINESS FUNCTIONS. ANY FAILURE BY THOSE THIRD PARTIES TO
DELIVER THEIR PRODUCTS AND SERVICES TO US COULD HARM OUR BUSINESS.
In designing, developing and supporting our wireless service, we rely on
third parties to provide many of the products and services that are essential to
delivering our wireless service. For instance, we rely on
- a third party billing and customer support company to bill our
subscribers and to provide a significant portion of our customer support;
- Aether Systems, one of our principal stockholders, to operate our network
operations center; and
- many content providers and content aggregators to provide us with the
Internet data and content that we make available, on a modified basis, to
our subscribers.
There are other third parties upon which we rely for manufacturing,
research and development, network operations and product fulfillment. We depend
on third parties to deliver and support reliable products and services, enhance
their current products and services, develop new products and services on a
timely and cost-effective basis and respond to emerging industry standards and
other technological changes. These third parties may experience difficulty in
supplying us products or services sufficient to meet our needs as our subscriber
base grows or they may terminate or fail to renew contracts for supplying us
these products or services on terms we find acceptable. If popular content
providers, for instance, decide not to renew contracts with us or enter into new
contracts with us, we might then be unable to offer our subscribers the content
they desire. Any significant interruption in the supply of any of these products
or services could cause a decline in sales and an increase in deactivations. Any
decline in the quality of the products and services of these third parties could
also harm our business.
WE MUST CONTINUE TO DEVELOP AND ENHANCE THE WIRELESS SERVICE THAT WE OFFER, AND
RESPOND TO TECHNOLOGICAL CHANGES, IF WE EXPECT TO BE SUCCESSFUL.
Our wireless service will have to achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements if we are to be successful. Our wireless service is integrated with
handheld mobile devices that evolve quickly and can become obsolete in a short
period of time. Our wireless service must also be compatible with the data
networks of wireless carriers that also can change rapidly. As a result of the
complexities inherent in our wireless service, adapting our service to be
compatible with new or modified handheld mobile devices and wireless data
networks may require long development and testing periods. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of service enhancements. Additionally, new service
enhancements may not achieve market acceptance. If we cannot effectively develop
and improve our wireless service, we may be unable to recover our fixed costs or
otherwise become profitable.
OVER THE PAST SEVERAL MONTHS, WE HAVE ADDED MANY NEW EMPLOYEES, INTRODUCED NEW
SYSTEMS AND EFFECTED OTHER CHANGES TO ADDRESS OUR RAPID GROWTH. THAT GROWTH HAS
PLACED A SIGNIFICANT STRAIN ON OUR MANAGEMENT AND RESOURCES.
We have grown from 25 employees as of December 31, 1999 to 86 as of June
15, 2000. During that period, we also began to introduce new internal accounting
systems, began to prepare for the national launch of our wireless service, which
included testing various technologies and coordinating the national media
campaign for our wireless service, sought additional office space and undertook
many other initiatives in connection with the ongoing development of our
business. Our growth has placed, and any further growth is likely to continue to
place, a significant strain on our management and resources. Our ability to
achieve and maintain profitability will depend on our ability to manage our
growth effectively, implement and expand operational and customer support
systems and hire additional personnel. We may not be able to augment or improve
existing systems and controls or implement new systems and controls to respond
to any future growth. We may also face difficulties integrating and collecting
information from certain of our third-party providers that we need to manage our
business effectively. In addition, future
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growth may result in increased responsibilities for our management personnel,
which may limit their ability to effectively manage our business.
OUR BUSINESS DEPENDS ON THE COMPATIBILITY OF THE WIRELESS MODEMS USED TO RECEIVE
OUR WIRELESS SERVICE AND THE USER INTERFACE THAT OUR SUBSCRIBERS INSTALL ON
THEIR HANDHELD MOBILE DEVICES.
In order to use our wireless service, our subscribers must install our user
interface on their handheld mobile device and must attach their handheld mobile
device to a wireless modem. If we are unsuccessful in our efforts to maintain
compatibility with handheld mobile devices and operating systems introduced in
the future, our business may fail. At this time, our wireless modem and user
interface are compatible only with the operating system used in the Palm V
handheld mobile device. In order to make our wireless modem and user interface
compatible with operating systems used by other handheld mobile device
manufacturers, such as Hewlett-Packard and Handspring devices, we will need to
develop or have developed new modems and arrange for their manufacture and
develop new user interfaces. To the extent that manufacturers of handheld mobile
devices, including Palm, develop new or modify existing operating systems or
change the hardware configuration of their handheld mobile devices, we may need
to modify our existing user interface and the modem to maintain the
compatibility of our wireless service with these handheld mobile devices. Any
modification to our existing user interface and the modem may involve
significant research and development and production costs as well as long
lead-times resulting in lost revenue.
WE HAVE EXPERIENCED AND MAY CONTINUE TO EXPERIENCE NEGATIVE GROSS MARGINS ON OUR
SUBSCRIBER REVENUE AS A RESULT OF THE FLAT MONTHLY FEE WE CHARGE OUR SUBSCRIBERS
FOR UNLIMITED USAGE.
We provide our subscribers with unlimited Internet access across the United
States for a fixed monthly fee. Our costs, however, depend in large part on the
fees we pay to wireless carriers for transmitting our wireless service over
their networks. Wireless carriers currently charge us based on the aggregate
usage per month of our subscribers. One rate is charged to us while our
subscribers are in their home market and a significantly higher rate is charged
to us as our subscribers travel outside of their home market and incur roaming
fees. Our pricing strategy contemplates that many of our subscribers will be
usage-intensive subscribers and/or travel frequently outside of their home
market. However, our business is new, and we have little historical experience
with which to predict usage patterns by our subscribers. Our pricing strategy,
therefore, may not be optimal. The operating systems that we currently use to
monitor airtime charges do not permit us to timely and effectively respond to
changes in volume and geographic location of subscriber usage. Our inability to
make timely changes in our overall use of airtime could directly affect our
costs. While we may look to acquire or develop automated control systems to help
us manage our airtime usage, we may not be able to do so in the near term on a
cost-effective basis. Even if we do obtain those systems, we still may not be
able to effectively monitor all subscriber usage or to improve our gross
margins.
WE FACE COMPETITION FROM EXISTING AND NEW COMPETITORS AND FROM NEW PRODUCTS THAT
COULD CAUSE US TO LOSE MARKET SHARE AND CAUSE OUR REVENUE TO DECLINE.
The widespread adoption of open industry standards in the wireless data
communications market may make it easier for new market entrants and existing
competitors to introduce products that compete with our wireless service. We
developed our wireless service using mostly standard industry development tools.
Many of our agreements with wireless network carriers and content providers, and
our agreement with Palm, are non-exclusive. Our competitors, therefore, may use
many of the same products and services in competition with us. In addition, our
competitors may market their products and services more effectively than we do,
which could decrease demand for our product and cause our revenue to decline.
Currently, some of our competitors include:
- Palm.net, a service provided by Palm, Inc.;
- Research in Motion, a provider of wireless e-mail;
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<PAGE> 14
- GoAmerica, a wireless Internet service provider; and
- wireless and other network service providers, such as Sprint PCS.
We may also face competition in the future from established companies,
including popular web portals, wireless application service providers and
wireless network carriers, who have not previously entered the market for
wireless Internet and data services. Barriers to entry are relatively low, and
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. In addition, many competitors and
potential competitors have greater resources, which may enable them to penetrate
the market more quickly.
DURING THE BETA TEST, WE SUBSIDIZED, AND MAY CONTINUE TO SUBSIDIZE, THE PURCHASE
BY OUR SUBSCRIBERS OF THE WIRELESS MODEMS THAT ARE NECESSARY TO RECEIVE OUR
WIRELESS SERVICE. THOSE SUBSIDIES HAVE ADVERSELY AFFECTED OUR GROSS MARGINS AND
MAY CONTINUE TO DO SO.
To help market our wireless services during the beta test that we
conducted, we resold wireless modems to the participants in those trials at
prices which were below the costs that we paid to the manufacturer of those
devices. While we have not determined whether we intend to continue that
practice, if we do determine to provide our subscribers with wireless modems at
prices below our costs, such a strategy would likely have an adverse affect on
our gross margins.
WE EXPECT THAT OUR QUARTERLY OPERATING RESULTS WILL BE SUBJECT TO FLUCTUATIONS
AND SEASONALITY. IF WE FAIL TO MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR
INVESTORS, OUR SHARE PRICE MAY DECREASE SIGNIFICANTLY.
Our revenues may be lower in the second and third quarters of the year.
This weakness may be due to the fact that our devices are highly
consumer-oriented, and consumer buying is traditionally lower in these quarters.
We also anticipate timing our marketing campaigns to coincide with relatively
higher consumer spending in the first and fourth quarters, which would
contribute to these seasonal variations. In addition, as we expand our
operations, we expect that our operating expenses, particularly our sales,
marketing and research and development costs, will continue to increase. If
revenues decrease and we are unable to reduce those costs rapidly, our operating
results would be adversely affected. Over the next several quarters we expect
expenses to grow more rapidly than revenues, which will hurt our quarterly
operating results. As a result of seasonality and increasing operating expenses,
our future quarterly operating results may fluctuate significantly and may not
meet the expectations of securities analysts or investors. If this occurs, the
price of our stock would likely decline.
WE BELIEVE THAT WE NEED TO DEVELOP MARKET AWARENESS OF OUR WIRELESS SERVICE AND
BRAND TO BE SUCCESSFUL. IF WE FAIL TO DEVELOP THE OMNISKY BRAND, WE MAY NOT BE
SUCCESSFUL.
Our sales and marketing activities to date have been limited. Through
December 31, 1999, our sales and marketing expenses were approximately $2.0
million. During the first quarter of this year, they were approximately $2.3
million. We intend to invest significantly in promoting our brand over time,
which will require us to increase substantially the amount we spend on sales and
marketing. We have applied for, but have not received, federal trademark
registrations for the OmniSky logo, OmniSky and Think it. Do it., and we may not
be able to use these trademarks effectively or at all if we fail to obtain such
registrations.
IF WE FAIL TO EXPAND OUR SALES CHANNELS, OUR ABILITY TO INCREASE REVENUE AND OUR
SUBSCRIBER BASE WILL BE LIMITED.
In order to grow our business, we need to expand our sales channels, which
currently consist of sales through our web site, through a toll-free telephone
number and a limited number of retail outlets. We intend to establish reseller
relationships with stores owned by telecommunication carriers, as well as a
variety of additional retail outlets, but we may be unsuccessful in such
efforts. We will need to train store personnel on how to sell our wireless
services to potential customers. If we fail to expand our sales channels or
properly train store sales personnel, our ability to increase our revenue and
subscriber base will be limited.
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WE MAY SEEK TO ACQUIRE TECHNOLOGIES OR COMPANIES IN THE FUTURE TO DEVELOP OUR
BUSINESS. THESE ACQUISITIONS COULD DISRUPT OUR BUSINESS AND DILUTE OUR
INVESTORS' HOLDINGS.
We may acquire technologies or companies in the future to further develop
our business. Entering into an acquisition entails many risks, any of which
could materially harm our business, including:
- diversion of management's attention from other business concerns;
- failure to effectively integrate the acquired technology or company into
our business;
- the loss of key employees from either our current business or the
acquired business; and
- assumption of significant liabilities of the acquired company.
To date, we have not completed any acquisitions, and we may not be able to
do so in the future in an effective manner. In addition, our investors' holdings
will be diluted if we issue equity securities or securities convertible into
equity in connection with any acquisition.
ANY OF OUR KEY EMPLOYEES COULD TERMINATE THEIR EMPLOYMENT WITH US AT ANY TIME.
We depend in large part on the continued services and performance of our
senior management team and other key personnel. The loss of any member of our
senior management team, particularly Patrick McVeigh, our Chairman and Chief
Executive Officer, or Barak Berkowitz, our President, would adversely affect us
and impair our ability to achieve our business objectives. We do not currently
have employment agreements with any of our officers or employees. Any of our
officers or employees could terminate their employment with us at any time. The
loss of any of those individuals could seriously interrupt our business.
WE MAY BE SUBJECT TO LIABILITY FOR DISSEMINATING INFORMATION TO OUR SUBSCRIBERS,
AND OUR INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT US FROM THIS LIABILITY.
We may be subject to claims relating to information disseminated to our
subscribers through our wireless service. 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. The law relating
to the liability of services like ours is unsettled, although some cases have
been decided which imposed liability on Internet service providers for
disseminating defamatory statements through their service. 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.
WE DEPEND ON RECRUITING, TRAINING AND RETAINING KEY PERSONNEL WITH INTERNET,
WIRELESS DATA AND TECHNOLOGY EXPERIENCE. WE MAY NOT BE ABLE TO DEVELOP NEW
PRODUCTS OR SUPPORT EXISTING PRODUCTS IF WE CANNOT HIRE OR RETAIN QUALIFIED
EMPLOYEES.
Our future success will depend, in large part, on our ability to recruit
and retain experienced research and development, sales and marketing, customer
service and management personnel. Because of the technical nature of our
wireless service and the dynamic market in which we compete, our performance
depends on attracting and retaining highly qualified employees. Competition for
these personnel in the wireless data and technology industries is intense and
finding personnel with experience in both industries is even more difficult,
especially in the Silicon Valley region of California in which we are located.
We are in a relatively new market and there are a limited number of people with
the appropriate combination of skills needed to provide the services that our
subscribers demand. In addition, new employees generally require substantial
training, which requires significant resources and management attention. Even if
we invest significant resources to recruit, train and retain qualified
personnel, we may not be successful in our efforts. A major part of our
compensation to our key employees is in the form of stock option grants. A
prolonged depression in our stock price could make it difficult for us to retain
our employees and recruit additional qualified personnel.
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OUR SUBSCRIBERS MUST INSTALL OUR USER INTERFACE ON THEIR HANDHELD MOBILE DEVICES
TO RECEIVE OUR WIRELESS SERVICE. IF THAT USER INTERFACE CONTAINED DEFECTS OR
ERRORS OUR REPUTATION WOULD BE ADVERSELY AFFECTED.
Our wireless service depends on software in our network and a user
interface that is installed on our subscribers' handheld mobile devices. The
technology necessary to support our wireless service is complex and must meet
stringent technical requirements. Services that are as complex as ours are
likely to contain undetected errors or defects, especially when first introduced
or when new versions are released. In addition, our user interface may not
properly operate when integrated with the systems of our subscribers and content
providers, or when used to deliver services to a large number of our
subscribers.
While we continually test our wireless service for errors and work with
subscribers through our customer support services to identify and correct bugs,
errors in the service may be found in the future. Testing for errors is
complicated in part because it is difficult to simulate or fully anticipate the
computing environments in which our subscribers use our wireless service. Our
wireless service may not be free from errors or defects even after it has been
tested, which could result in the rejection of our service and damage to our
reputation, as well as lost revenue, diverted development resources and
increased support costs.
IF OUR INTELLECTUAL PROPERTY IS NOT ADEQUATELY PROTECTED, WE MAY LOSE OUR
COMPETITIVE ADVANTAGE.
We depend on our ability to develop and maintain important proprietary
aspects of our technology. We seek to protect our software, documentation and
other written materials under trade secret and copyright laws, as well as
confidentiality provisions in contracts with our customers, all of which afford
limited protection. We may seek to protect our proprietary technology under
patent laws.
Despite the measures we have taken to protect our intellectual property, we
cannot assure you that these steps will be adequate, that we will be able to
secure patent or trademark registrations for all of our patent applications or
trademarks in the United States or other countries, or that third parties will
not breach the confidentiality provisions in contracts or infringe or
misappropriate our copyrights, pending patents, trademarks and other proprietary
rights. In the event that a third party breaches the confidentiality provisions
in our contracts or misappropriates or infringes on our intellectual property,
we may not have adequate remedies. In addition, third parties may independently
discover or invent competing technologies or reverse engineer our trade secrets,
software or other technology. Moreover, the laws of some foreign countries may
not protect our proprietary rights to the same extent as do the laws of the
United States. Therefore, the measures that we are taking to protect proprietary
rights may not be adequate.
THIRD PARTIES MAY CLAIM THAT OUR PRODUCT INFRINGES ON THEIR INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSES FOR LITIGATION OR FOR
DEVELOPING OR LICENSING NEW TECHNOLOGY.
Although we are not currently aware of any claims asserted by third parties
that we infringe on their intellectual property, in the future such third
parties may assert a claim that our current or future products infringe on their
intellectual property. We cannot predict whether third parties will assert these
types of claims against us or against the licensors of technology licensed to
us, or whether those claims will harm our business. If we are forced to defend
against these types of claims, whether they are with or without any merit or
whether they are resolved in favor of or against us or our licensors, we may
face costly litigation and diversion of management's attention and resources. As
a result of these disputes, we may have to develop costly non-infringing
technology, or enter into licensing agreements. These agreements, if necessary,
may not be available on terms acceptable to us, or at all, which could increase
our expenses or make our product less attractive to customers.
WE MAY BE SUBJECT TO LIABILITY CLAIMS THAT COULD RESULT IN SIGNIFICANT COSTS.
We may be subject to claims for damages related to any errors in our
wireless service, including hardware manufactured for us by third parties and
failures to complete e-commerce transactions over our wireless service. A major
liability claim could materially adversely affect our business because of the
costs of defending against these types of lawsuits, diversion of key employees'
time and attention from the
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<PAGE> 17
business and potential damage to our reputation. Our license agreements with
customers contain provisions designed to limit exposure to potential liability
claims. Limitation of liability provisions contained in our license agreements
may not be effective under the laws of some jurisdictions. As a result, we could
be required to pay substantial amounts of damages in settlement or upon the
determination of any of these types of claims.
SOME OF OUR DIRECTORS AND SIGNIFICANT STOCKHOLDERS MAY HAVE CONFLICTS OF
INTEREST WITH RESPECT TO CERTAIN PROJECTS THAT WE MAY PURSUE.
In addition to serving on our board, David Oros, Janice Roberts and Thomas
Wheeler serve on the board of Aether Systems, Inc. Aether provides wireless
service to enterprises, which is similar in some respects to our service. Due to
these similarities, Mr. Oros, Ms. Roberts and Mr. Wheeler may, in the course of
their service on our board, be faced with issues that could pose a conflict of
interest for them involving transactions or opportunities that both we and
Aether might be interested in pursuing. Mr. Oros, Ms. Roberts and Mr. Wheeler
would likely recuse themselves from participating in board decisions regarding
those transactions and opportunities, which would deprive us of their experience
and judgment. In addition, Aether, 3Com Corporation and News Corporation each
hold significant amounts of our capital stock. There may be transactions which
we intend to pursue that could also be of interest to those stockholders and
which could therefore pose conflicts between those stockholders and us.
WE HAVE FORMED AN INTERNATIONAL JOINT VENTURE WITH NEWS CORPORATION THAT WILL
REQUIRE SIGNIFICANT ATTENTION FROM OUR MANAGEMENT. AS PART OF OPERATING THE
JOINT VENTURE, WE WILL NEED TO ADDRESS MANY IMPORTANT ISSUES THAT WERE NOT
ADDRESSED IN DETAIL WHEN WE AGREED TO FORM THE JOINT VENTURE.
We formed an international joint venture with News Corporation in April
2000 to pursue business opportunities outside of the United States. Although we
each have an equal equity interest in the joint venture and have signed an
agreement establishing our relationship, there are many details that remain to
be decided regarding the operation of the business, including the timing for
entering various jurisdictions, the nature of the services that will be provided
in those jurisdictions, the overall management structure and many other similar
matters. Developing the joint venture will require that we devote significant
management attention to it, which will be difficult for us to do because of our
limited resources. We cannot be certain as to whether the joint venture will be
successful or not.
ALTHOUGH WE HAVE FORMED AN INTERNATIONAL JOINT VENTURE WITH NEWS CORPORATION TO
PURSUE INTERNATIONAL BUSINESS OPPORTUNITIES, NEITHER WE NOR NEWS CORPORATION IS
EXCLUSIVELY OBLIGATED TO PURSUE THOSE OPPORTUNITIES THROUGH THE JOINT VENTURE.
Although we have formed an international joint venture with News
Corporation to pursue international business opportunities, our agreement with
News Corporation does not impose exclusivity obligations on either party. If
either party determines in good faith that it would be inappropriate to conduct
business through the joint venture in any market, that party is free, without
liability to the joint venture or the other party, to conduct that business
outside of the joint venture. If that occurs, the business of the joint venture
could suffer and its value could be adversely affected.
IF WE DO NOT HAVE SUFFICIENT CAPITAL TO FUND OUR OPERATIONS, WE MAY BE FORCED TO
DISCONTINUE PRODUCT DEVELOPMENT, REDUCE SALES AND MARKETING EFFORTS OR FOREGO
ATTRACTIVE BUSINESS OPPORTUNITIES.
We may not have sufficient capital to fund our operations and additional
capital may not be available on acceptable terms, if at all. Any of these
outcomes could adversely affect our ability to respond to competitive pressures
or prevent us from conducting all or a portion of our planned operations. We
expect that the net proceeds from this offering, cash on hand and revenue from
operations will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. Our actual funding
requirements may differ materially as a result of many factors, including the
success of our service launch, the development of new products and technologies
and the continued growth of the company. We may need to raise additional funds,
and additional financing may not be available on acceptable terms, if at all.
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We may also require additional capital to acquire or invest in complementary
businesses or products or obtain the right to use complementary technologies. If
we issue additional equity securities or securities convertible into equity to
raise funds, your ownership percentage in us will be reduced.
WE DO NOT HAVE ANY SIGNIFICANT EXPERIENCE CONDUCTING OPERATIONS INTERNATIONALLY.
To date, we have derived all of our revenues from sales to subscribers in
the United States. We plan to expand our international operations in the future,
principally through a joint venture that we formed with News Corporation. We
expect to face many barriers in competing internationally, including:
- costs of customizing products for foreign countries;
- restrictions on the use of technology;
- dependence on local vendors;
- difficulties in protecting intellectual property rights;
- compliance with multiple, conflicting and changing governmental laws and
regulations and potential political instability;
- foreign currency fluctuations;
- locally-based competitors who are more familiar with local interests and
practices;
- financing our international business opportunities; and
- import and export restrictions and tariffs.
UNDISCOVERED YEAR 2000-RELATED COMPUTER PROBLEMS COULD DISRUPT OUR OPERATIONS.
We believe that the software we use in our wireless service is year 2000
compliant. We have not, so far, experienced any disruptions to our operations as
a result of year 2000 compliance issues. We intend to continue to monitor these
issues over the next several months. If any such computer problems arise, we
could experience disruptions in our wireless service or other adverse
consequences to our business.
RISK FACTORS RELATED TO OUR INDUSTRY
OUR BUSINESS WILL NOT GROW IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW.
Our future success is substantially dependent on continued growth in the
use of the Internet. Our business may be adversely affected if the number of
users on the Internet does not increase or if commerce over the Internet does
not become more accepted and widespread. The use and acceptance of the Internet
may not increase for a number of reasons, including the cost and availability of
Internet access.
Published reports have also indicated that capacity constraints caused by
growth in the use of the Internet may impede further development of the Internet
to the extent that users experience delays, transmission errors and other
difficulties. If the necessary infrastructure, products, services or facilities
are not developed, or if the Internet does not become a viable and widespread
commercial medium, we will not be able to grow our business.
OUR BUSINESS WILL NOT GROW IF THE USE OF WIRELESS SERVICES DOES NOT CONTINUE TO
GROW.
The markets for wireless services and related products are still evolving,
and continued growth in demand for, and acceptance of, these services remains
uncertain. Our product depends on the acceptance by consumers of wireless
services and Internet-enabled devices. Current barriers to market acceptance of
these services include cost, reliability, platform and distribution channel
constraints, functionality and ease-of-use. We cannot be certain that these
barriers will be overcome. Since the market for our wireless
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service is new and evolving, it is difficult to predict the size of this market
or its future growth rate, if any. We cannot assure you that a sufficient volume
of subscribers will demand wireless services on handheld mobile devices. If the
market for wireless services grows more slowly than currently anticipated, our
revenue may not grow.
CHANGES IN GOVERNMENT REGULATIONS MAY RESULT IN INCREASED EXPENSES, TAXES OR
LICENSING FEES, WHICH COULD DECREASE THE DEMAND FOR OUR PRODUCT AND ADVERSELY
AFFECT OUR RESULTS.
We are not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally and laws and
regulations directly applicable to access to, or commerce on, the Internet. In
addition, wireless modems and handheld mobile devices are subject to the
regulations of the Federal Communications Commission applicable to such
communications and computing devices. A number of legislative and regulatory
proposals under consideration by federal, state, provincial, local and foreign
governmental organizations may lead to laws or regulations concerning various
aspects of the Internet, including but not limited to, online content, user
privacy, taxation, access charges and liability for third-party activities.
Additionally, it is uncertain how existing laws governing issues such as
property ownership, copyright, trade secrets, libel and personal privacy will be
applied to the Internet. The adoption of new laws or the broader application of
existing laws may expose us to significant liabilities and additional
operational requirements and may decrease the growth in the use of the Internet,
which could in turn decrease the demand for our product and increase our cost of
doing business.
RISK FACTORS RELATED TO OUR OFFERING
OUR EXISTING STOCKHOLDERS HOLD A MAJORITY OF OUR STOCK AND WILL BE ABLE TO
CONTROL MATTERS REQUIRING STOCKHOLDER APPROVAL.
Upon completion of this offering, our executive officers, directors and
their affiliates will beneficially own, in the aggregate, approximately %
of our outstanding capital stock. Aether Systems Inc., 3Com Ventures Inc., an
affiliate of 3Com Corporation, and Omni Holdings, Inc., an affiliate of News
Corporation, will beneficially own %, % and %, respectively, at
that time. As a result, these stockholders will be able to exercise significant
control over all matters requiring stockholder approval, including the election
of directors and approval of significant corporate transactions, which may have
the effect of delaying or preventing a third party from acquiring control over
us even if our other stockholders believe that it is desirable.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.
An active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price will be
determined by negotiations between us and representatives of the underwriters,
and we cannot assure you that the trading price of our common stock will not
decline below the initial public offering price. The market price of our common
stock may fluctuate significantly in response to a number of factors such as
changes in accounting rules and regulations, market trends and company
performance, some of which are beyond our control. In the past, securities class
action litigation has often been brought against a company following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. Regardless of its outcome, securities litigation
may result in substantial costs and divert management's attention and resources,
which could harm our business and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE BY OUR EXISTING STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options, in the public market
following this offering, the market price of our common stock could fall. In
addition, such sales could create the perception to the public of difficulties
or
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problems with our products and services. As a result, these sales also might
make it more difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants after ,
2000. Of these shares, the shares sold in this offering are
freely tradable. The remaining 73,980,536 shares will become eligible for sale
in the public market as follows, with certain exceptions that are described in
the paragraph following the table:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR SALE
---------------- -----------------------------
<C> <S>
At the date of this prospectus
90 days after the date of this prospectus
180 days after the date of this prospectus, subject to
restrictions under the federal securities laws
More than 180 days after the date of this prospectus,
subject to restrictions under the federal securities laws
</TABLE>
The above table assumes the effectiveness of lock-up arrangements with the
underwriters, under which our employees, directors and stockholders have agreed
not to sell or otherwise dispose of their shares of common stock for a period of
180 days after the date of this prospectus. Most of the shares that will be
available for sale after the 180th day after the date of this prospectus will be
subject to certain volume restrictions because they are held by our affiliates.
In addition, we cannot assure you that some or all of these lock-up restrictions
will not be removed prior to 180 days after the date of this prospectus without
prior notice by the underwriters.
WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS THAT DIFFER FROM
THOSE DESCRIBED IN THIS PROSPECTUS.
While we intend to allocate the net proceeds of this offering to certain
uses described in this prospectus under the heading "Use of Proceeds," there may
be unforeseen factors or circumstances that arise which cause us to change our
current allocations. Our management may decide to use the net proceeds of this
offering in ways that differ from those described in this prospectus and with
which you may not agree.
PROVISIONS OF DELAWARE LAW, OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
DELAY OR PREVENT A TAKEOVER OF US, EVEN IF DOING SO WOULD BENEFIT OUR
STOCKHOLDERS.
Provisions of Delaware law, our certificate of incorporation and bylaws
could have the effect of delaying or preventing a third party from acquiring us,
even if a change in control would be beneficial to our stockholders. These
provisions include:
- authorizing the issuance of preferred stock without stockholder approval;
- providing for a classified board of directors with staggered, three-year
terms;
- requiring two-thirds of the outstanding shares to approve amendments to
some provisions of our certificate of incorporation and bylaws; and
- prohibiting stockholder actions by written consent.
NEW INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION FROM THIS
OFFERING.
We expect that the initial public offering price of our common stock will
be substantially higher than the book value per share of the outstanding common
stock. As a result, investors purchasing stock in this offering will experience
an immediate dilution in the net tangible book value of the common stock of
$ per share, based on the number of outstanding shares as of ,
2000, assuming conversion of all outstanding shares of our preferred stock into
common stock on the closing of this offering. In the
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past, we issued options to acquire our common stock at prices significantly
below the initial offering price. To the extent these outstanding options are
ultimately exercised, there will be further dilution to investors in this
offering.
THE TERMS OF ANY FUTURE FINANCING ARRANGEMENTS MAY RESTRICT OUR OPERATIONS.
We may in the future enter into financing arrangements with equipment
lessors, financial institutions or other lenders. These financing arrangements
would likely require that we satisfy many financial covenants and could limit
our ability to incur other indebtedness, pay dividends or engage in certain
other types of transactions in the future. We may also be required to pledge
certain assets to secure some of these financing arrangements, which would allow
our lenders under those arrangements, in the event of a default, to foreclose
upon the assets securing their obligations.
INVESTORS SHOULD NOT EXPECT TO RECEIVE DIVIDENDS.
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends in the foreseeable future.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the
shares of common stock we are offering will be approximately $ million, or
$ million if the underwriters exercise their overallotment option in
full. We based our estimate of our net proceeds on an assumed initial public
offering price of $ per share and deducted the underwriting discount of
approximately $ million and the estimated offering expenses of
approximately $ million payable by us.
We plan to use the net proceeds from this offering as follows:
- approximately $ million for sales, marketing and research and
development programs, including national advertising and branding
campaigns that we began in May 2000 in connection with our formal
wireless service launch;
- approximately $ million in connection with the expansion of
Internet services and devices offered to our subscribers;
- approximately $ million to help finance our international joint
venture with News Corporation;
- approximately $ million in connection with the continued
development of our infrastructure, network and support services; and
- the remainder for working capital and general corporate purposes.
The actual amount of net proceeds that we spend on any particular use may
change depending upon many factors, including our future subscriber growth and
the amount of cash generated by our business. We also may use a portion of the
net proceeds to acquire technology or businesses that are complementary to our
business, although we currently have no commitments or agreements to do so.
Until we use the net proceeds from this offering, we plan to invest those
proceeds in short-term, interest-bearing, U.S. government and investment grade
securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.
CORPORATE INFORMATION
We were incorporated in Delaware in May 1999 under the corporate name
AirWeb Corporation. In November 1999, we changed our corporate name to OmniSky
Corporation. Our principal executive offices are located at 1001 Elwell Court,
Palo Alto, California 94303 and our telephone number is (650) 969-7700. Our web
site is located at http://www.omnisky.com. Information contained on our web site
does not constitute part of this prospectus.
We have trademarks pending for the OmniSky logo, OmniSky and Think it. Do
it. All other trademarks or service marks appearing in this prospectus are
trademarks or service marks of the companies that use them.
20
<PAGE> 23
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus constitute
forward-looking statements. These statements involve risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue" or the negative of these terms or other comparable
terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results.
21
<PAGE> 24
CAPITALIZATION
The following table sets forth:
- our actual cash, cash equivalents, restricted cash and capitalization as
of March 31, 2000;
- our pro forma capitalization after giving effect to (i) the automatic
conversion of all outstanding shares of preferred stock into common stock
upon the closing of this offering; (ii) the issuance in April and May
2000 of 2,550,000 shares of restricted common stock to employees at
purchase prices of $1.50 and $2.30 per share in exchange for recourse
notes receivable totaling approximately $4.2 million; and (iii) the
issuance from April through June 2000 of 13,953,012 shares of Series C
convertible preferred stock at a purchase price of $6.51 for net proceeds
of approximately $83.0 million ($90.8 million less commissions and less
the value of 225,000 shares sold to employees, for which the Company
recorded related recourse notes receivable from stockholders totaling
approximately $1.5 million), and the conversion of those shares into the
same number of shares of common stock; and
- our pro forma as adjusted capitalization to give effect to the sale of
shares of common stock at an assumed initial public
offering price of $ per share in this offering, after deducting the
underwriting discount and estimated offering expenses payable by us.
This table excludes the following shares:
- 5,356,000 shares of common stock subject to outstanding options as of
March 31, 2000; and
- 6,244,000 additional shares of common stock reserved for future issuance
under our stock option, director stock option and employee stock purchase
plans.
<TABLE>
<CAPTION>
MARCH 31, 2000
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
Cash, cash equivalents and investments.................... $ 14,090 $ 97,066 $
======== ======== ========
Restricted cash........................................... $ 800 $ 800 $ 800
======== ======== ========
Convertible preferred stock:
Series A, $0.001 par value, 25,000,000 authorized;
issued and outstanding: 20,219,335 actual, zero pro
forma, and zero pro forma as adjusted................ $ 15,393 $ -- $ --
Series A warrants....................................... 314 -- --
Series B, $0.001 par value, 5,000,000 authorized; issued
and outstanding: 4,319,427 actual, zero pro forma,
and zero pro forma as adjusted....................... 19,973 -- --
Series C; $0.001 par value, 14,500,000 shares
authorized; zero shares issued and outstanding
(actual, pro forma, and pro forma as adjusted)....... -- -- --
-------- -------- --------
Total convertible preferred stock.................... 35,680 -- --
-------- -------- --------
Stockholders' (deficit) equity :
Common stock, $0.001 par value, 100,000,000 shares
authorized; 8,400,000 actual, 73,980,536 pro forma,
and pro forma as adjusted............................ 8 74
Additional paid-in capital.............................. 11,095 135,370
Receivable from stockholders............................ (315) (6,000)
Deferred stock compensation............................. (8,755) (8,755)
Deficit accumulated during the development stage........ (15,515) (15,515)
-------- -------- --------
Total stockholders' (deficit) equity................. (13,482) 105,174
-------- -------- --------
Total capitalization................................. $ 22,198 $105,174 $
======== ======== ========
</TABLE>
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<PAGE> 25
DILUTION
The pro forma net tangible book value of our common stock, on March 31,
2000 after giving effect to the conversion of all outstanding shares of our
preferred stock into common stock, was approximately $100.1 million, or
approximately $1.35 per share. Pro forma net tangible book value per share
represents the amount of our total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding assuming (i) the
automatic conversion of all outstanding shares of preferred stock into common
stock upon the closing of this offering; (ii) the issuance in April and May 2000
of 2,550,000 shares of restricted common stock to employees at purchase prices
of $1.50 and $2.30 per share in exchange for recourse notes receivable totaling
approximately $4.2 million; and (iii) the issuance from April through June 2000
of 13,953,012 shares of Series C convertible preferred stock at a purchase price
of $6.51 for net proceeds of approximately $83.0 million ($90.8 million less
commissions and less the value of 225,000 shares sold to employees, for which
the Company recorded related recourse notes receivable from stockholders
totaling approximately $1.5 million), and the conversion of those shares into
the same number of shares of common stock. Dilution in net tangible book value
per share represents the difference between the amount per share paid by
purchasers of shares of our common stock in this offering and the net tangible
book value per share of our common stock immediately afterwards. After giving
effect to our sale of shares of common stock offered by this
prospectus at an assumed initial public offering price of $ per share and
after deducting the underwriting discounts and estimated offering expenses
payable by us, our net tangible book value would have been approximately
$ million, or $ per share. This represents an immediate increase in
net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors purchasing shares of common stock in this offering. The following
table illustrates this dilution.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of March
31, 2000............................................... $1.35
Increase per share attributable to new investors..........
As adjusted pro forma net tangible book value per share
after the offering........................................
Dilution in pro forma net tangible book value per share to
new investors............................................. $
</TABLE>
This table excludes all options that will remain outstanding upon
completion of this offering. As of March 31, 2000, there were options
outstanding to purchase a total of 5,356,000 shares of common stock with an
average exercise price of $0.58 per share. The exercise of outstanding options
having an exercise price less than the offering price would increase the
dilutive effect to new investors.
The following table sets forth, as of March 31, 2000, on the pro forma
basis described above, the differences between the number of shares of common
stock purchased from us, the total price paid and average price per share paid
by existing stockholders and by the new investors in this offering at an assumed
initial public offering price of $ per share, calculated before deducting
the estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 73,980,536 % $131,061,000 % $ 1.77
New investors.................
---------- ----- ------------ ----- --------
Total....................... 100.0% $ 100.0% $
========== ===== ============ ===== ========
</TABLE>
If the underwriters' over-allotment option is exercised in full, the
following will occur:
- the number of shares of common stock held by existing stockholders will
represent approximately % of the total number of shares of our common
stock outstanding after this offering, and
- the number of shares held by new public investors will increase to
or approximately % of the total number of shares of our
common stock outstanding after this offering.
23
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The statement of operations data for the period from May 7, 1999
(inception) to December 31, 1999, and for the three months ended March 31, 2000,
and the balance sheet data at December 31, 1999 and March 31, 2000, are derived
from our consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent accountants and are included elsewhere
in this prospectus. When you read this selected consolidated financial data, it
is important that you also read the historical consolidated financial statements
and related notes included in this prospectus, as well as the section of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The pro forma information in the following table
gives effect to the automatic conversion of all outstanding shares of our
preferred stock into shares of our common stock upon the closing of this
offering. Historical results are not necessarily indicative of future results.
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1999
(INCEPTION) TO THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1999 2000
-------------- ---------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $ -- $ 1,315
Operating costs and expenses:
Cost of revenue........................................... -- 2,853
Engineering and development............................... 2,352 1,334
Sales and marketing....................................... 1,978 2,261
General and administrative................................ 1,342 1,936
Amortization of deferred stock compensation............... 660 1,237
Depreciation and amortization............................. 619 455
----------- -----------
Loss from operations........................................ (6,951) (8,761)
Interest income............................................. 22 175
----------- -----------
Net loss.................................................... $ (6,929) $ (8,586)
=========== ===========
Net loss per share (basic and diluted)...................... -- $ (10.61)
=========== ===========
Weighted average shares outstanding (basic and diluted)..... -- 809,615
=========== ===========
Pro forma net loss per share basic and diluted
(unaudited)............................................... $ (0.31) $ (0.18)
=========== ===========
Shares used in calculation of pro forma net loss per share
basic and diluted (unaudited)............................. 22,147,767 48,178,355
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,767 $ 14,090
Working capital............................................. 3,501 14,758
Total assets................................................ 21,445 41,846
Convertible preferred stock................................. 15,707 35,680
Total stockholders' (deficit) equity........................ (6,269) (13,482)
</TABLE>
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated
in forward-looking statements for many reasons, including the risks described in
"Risk Factors" and elsewhere in this prospectus. You should read the following
discussion with the "Selected Financial Data" and our financial statements and
related notes included elsewhere in this prospectus.
OVERVIEW
We formed our company in May 1999 to develop a wireless service for
handheld mobile devices. From May 1999 through April 2000, we were in a
development phase, which included conducting a beta test of our wireless
service. In May 2000, we formally launched our wireless service nationally.
In December 1999, we began beta testing our wireless service. During that
beta period, for a price of $299, our subscribers received:
- a wireless modem that attaches to a Palm V handheld mobile device that is
necessary for our subscribers to receive our wireless service on the Palm
V device;
- our wireless service through April 2000; and
- a lifetime discount of 15% off of the flat monthly subscriber fee that we
charge.
At March 31, 2000, when we stopped accepting new orders for our beta test,
we had approximately 5,500 subscribers for our wireless service.
In May 2000, we formally launched our wireless service with a nationwide
marketing campaign. We began shipping wireless modems on May 31, 2000 to
individuals who subscribed to our service after the formal launch. At
, 2000, we had subscribers, including subscribers continuing
service from our beta test.
We provide our subscribers with a comprehensive wireless service for their
handheld mobile devices by offering:
- access to a broad range of Internet content and data and the ability to
manage up to six of their existing e-mail accounts and securely conduct
e-commerce transactions;
- Internet data and content that has been modified for enhanced viewing and
performance on handheld mobile devices and the ability to browse
virtually any web site, whether or not its content has been so modified;
- an easy-to-use wireless Internet portal which serves as our subscribers'
gateway to the Internet;
- nationwide coverage for a fixed monthly subscriber fee; and
- full-time customer support.
Our subscribers currently pay us a flat monthly fee of $39.95 to receive
our wireless service. In addition, to obtain our wireless service, subscribers
purchase a wireless modem that we have initially priced at $299.
REVENUE RECOGNITION AND POLICIES
Revenue and deferred revenue
We derive revenue from providing wireless service for handheld mobile
devices, from the sale of related equipment needed to receive that service, from
the sale of accessories and from content.
During our beta test, which ran from December 1999 through April 2000, we
charged our subscribers a flat fee, which covered both the wireless modem and
our wireless service for the duration of the beta
25
<PAGE> 28
test. In light of that pricing structure, we have recognized revenue and the
related cost of revenue ratably over the beta test from the first date after the
30 day acceptance period ended for each subscriber. We recognized no revenue
from the beta test in the period ended December 31, 1999 and $1.3 million in the
three months ended March 31, 2000.
Wireless service revenue consists of a flat monthly rate for unlimited,
nationwide use of our service. We bill our subscribers monthly in advance and
recognize revenue ratably over the service period beginning with the expiration
of the customer acceptance period. We offer our subscribers an unconditional 30
day acceptance period within which they may test our service without obligation.
At the end of that acceptance period, subscribers may cancel our wireless
service without any cost to them. As a result, we defer revenue for the first
month of a subscriber's service until the 30 day acceptance period has been
completed. We record amounts billed or received in advance of revenue as
deferred revenue. We currently do not require our subscribers to commit to a
minimum term of service. No service revenue has been recognized through March
31, 2000.
Equipment revenue consists of the fees we charge for the wireless modem our
subscribers currently must purchase to receive our service. We recognize
equipment revenue upon shipment or customer acceptance, whichever is later. No
equipment revenue has been recognized through March 31, 2000.
Content revenue, which can consist of advertising fees related to
advertisements delivered through our wireless portal, sponsorships and slotting
fees which we receive for positioning web sites in agreed upon locations in our
wireless portal, and revenue from mobile e-commerce, which may include fees we
receive from transactions that are conducted through our wireless service, such
as stock trading, are recorded ratably over the service period. We anticipate
that advertising, e-commerce and other content revenue will grow in importance
as we begin to leverage our customer base. No content revenue has been
recognized through March 31, 2000.
Cost of revenue
Our cost of wireless service revenue consists principally of activation
fees, airtime and other costs related to our wireless service revenue and costs
related to our equipment revenue.
Our cost of wireless service revenue includes the network operations and
airtime costs we incur to provide our wireless service, as well as costs related
to providing technical support. We recognize each of these costs as it is
incurred. We currently receive network operations support from one of our
stockholders. We transmit our wireless service through the wireless data
networks of several different wireless carriers. We incur activation charges
when we initiate a subscriber's service with the wireless network carriers. The
airtime costs we incur from those wireless network carriers are based on the
volume of data and content that we transmit over their data networks to our
subscribers. Our agreements with our wireless network carriers provide for a
flat rate charge per subscriber for a specified amount of service. We incur
additional charges from the wireless network carriers when our aggregate
subscribers' usage exceeds those specified contractual limits. We permit our
subscribers to use our wireless service on a nationwide basis without incurring
additional charges. Our costs are lower when our subscribers use our wireless
service in their home area and higher when they roam outside of that home area
as we incur roaming fees from our wireless network carriers in those instances.
Our cost of equipment revenue consists of the cost of the equipment we sell
to our subscribers, which is currently only the wireless modem that our
subscribers need to receive our service, shipping costs and the direct
provisioning costs that we incur when we initiate service with the wireless
network carriers.
STOCK SPLIT
On April 4, 2000, we effected a two-for-one common stock split. Upon
completion of our stock split, we had approximately 10,500,000 shares of common
stock outstanding. The consolidated financial statements and all references to
common stock contained in this prospectus give retroactive effect to that stock
split.
26
<PAGE> 29
RESULTS OF OPERATIONS
We have a limited operating history, having formed our company in May 1999
and launched our beta test in December 1999. We began shipping wireless modems
and providing wireless service to our beta test participants at the end of
December 1999, but we did not recognize any revenue for the period from our
inception in May 1999 through December 31, 1999.
We have experienced cumulative losses since our inception as a result of
our efforts to develop and market our wireless service. Through March 31, 2000,
our cumulative net losses totaled $15.5 million. We expect to incur significant
operating expenses over the next several years in connection with the continued
development and expansion of our business. In particular, we expect our sales
and marketing expenses to increase as we establish our brand and build our
infrastructure. We also anticipate incurring additional expenses in connection
with the launch of our service in new markets and making our service compatible
with new handheld mobile devices, platforms and networks. During the beta test,
we discounted the price of wireless modems in order to encourage participation,
and in the future, we may choose to continue to discount the price of wireless
modems for business reasons. Over time, we expect revenues from the sale of
wireless modems to our subscribers as a percentage of our total revenues to
decrease significantly as we concentrate our efforts on providing our wireless
service to handheld mobile devices.
We expect to experience seasonality in our business. We anticipate sales of
handheld mobile devices, through which our subscribers receive our service, to
be higher in the fourth fiscal quarter due to increased consumer spending
patterns during the holiday season. We also expect that equipment sales may
decline during the summer months because of typical decreased consumer spending
patterns during this period. The timing of the sale of equipment has an impact
on when we begin to generate service revenue from new customers. In addition, to
the extent that we depend upon sales of handheld mobile devices to enable our
subscribers to receive our wireless service, shortages in the availability of
these devices or other events which affect the availability or desirability of
these devices, could affect our business and revenues. These seasonal variations
may lead to fluctuations in our quarterly operating results.
All of our operations in 1999 and in the three months ended March 31, 2000
were in the United States, and we had only one operating segment.
REVENUE
From December 1999 through April 2000, we were conducting our beta test
during which we charged our subscribers a fee of $299 for which they received a
wireless modem and our wireless service from the date of purchase through April
2000. We began shipping wireless modems to our subscribers in December 1999.
Because of the bundled nature of our offering during the beta test, we have
recognized the combined equipment and wireless service revenue ratably from the
date of our subscriber's purchase through the end of the beta test, although we
deferred recognition of the first month's equipment and wireless service revenue
to the completion of our 30 day acceptance period. As a result, during the
period from our inception through December 31, 1999, we did not recognize any
revenue. For the three months ended March 31, 2000, we recognized $1.3 million
of revenue.
COST OF REVENUE
During our beta test, we deferred recognition of the cost of equipment
revenue for any subscriber until completion of the 30 day acceptance period. We
recognized those costs ratably over the beta period due to the bundled nature of
our offering during that period. Since we have concluded our beta test, we
recognize the cost of equipment revenue for any new subscribers upon completion
of the 30 day acceptance period.
We recognize our other cost of revenue, such as network and support costs,
as they are incurred. We had no cost of revenue from our inception through
December 31, 1999. Our cost of revenue for the three months ended March 31, 2000
was $2.9 million, which comprises the costs we incurred for equipment that we
sold to our subscribers, our network technical support, the packaging costs for
our products and other fulfillment costs.
27
<PAGE> 30
We expect the cost of revenue associated with our network operations center
to increase as we continue to add subscribers, although we would expect these
costs to decline on a per-subscriber basis as we achieve economies of scale. Our
airtime costs for use of wireless data networks increase as we add new
subscribers, but are expected to decrease on a per-subscriber basis as we
achieve targeted subscriber levels. While we believe our flat monthly subscriber
fee should cover the related airtime costs, our profitability will depend, in
large part, upon controlling our cost of revenue.
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses include the costs we
incur to acquire and retain subscribers, the operating expenses associated with
our sales and marketing department and other general marketing costs. These
expenses also include costs incurred in connection with media and other
advertising campaigns intended to develop consumer awareness of our brand.
Sales and marketing expenses for the period from our inception through
December 31, 1999 were $2.0 million, and for the three months ended March 31,
2000 were $2.3 million, resulting principally from the costs described above
plus additional internal staff costs, consultants and trade show expenses
associated with the launch of the beta test. Our sales and marketing expenses
for the period ended December 31, 1999 have been reduced by $0.9 million and by
$0.7 million for the period ended March 31, 2000 to reflect co-marketing credits
we received from our principal wireless network carrier. At March 31, 2000, we
had an additional $8.4 million of co-marketing credits available to us from our
principal wireless network carrier, which we can use through December 2000 to
offset marketing and modem expenses.
In May 2000, we initiated a national marketing campaign in connection with
the formal launch of our wireless service. We expect to incur significant
marketing expenses in the next 12 months in connection with this national
campaign, which includes television, print and web advertising as well as direct
mailings. Our sales and marketing expenses will continue to increase as we
expand our advertising programs to increase brand awareness and as we continue
to add sales and marketing personnel. Because of our limited operating history,
we were required in many instances to prepay for our initial media purchases,
resulting in prepaid advertising of $12.9 million at March 31, 2000. We do not
expect to continue to prepay for most of our advertising in the future, although
our ability to pay for advertising in arrears will likely depend on our future
success and creditworthiness.
General and Administrative. General and administrative expenses include the
costs we incur for employee salaries and the related costs we incur in
maintaining our executive, administrative, finance, accounting and information
systems functions. General and administrative expenses also include certain of
our facility costs, professional fees and recruiting costs. In addition, we
include in general and administrative expenses the fees we pay to a third-party
that provides us with customer care, billing and other administrative services.
General and administrative expenses for the period from our inception through
December 31, 1999 were $1.3 million, and for the three months ended March 31,
2000 were $1.9 million, primarily resulting from costs associated with the
start-up of our business.
We expect our general and administrative expenses to increase significantly
as we continue to add new subscribers, which we expect will increase our
customer care and billing costs, and as we continue to add personnel and
enhanced facilities to meet the needs of our business.
Engineering and Development. Engineering and development expenses include
the salaries, fees and related costs we incur for the design and operation of
our wireless service and for the continued development, operation and management
of our technology.
Engineering and development expenses for the period from our inception
through December 31, 1999 were $2.4 million and $1.3 million for the three
months ended March 31, 2000. The costs were higher in the period ended December
31, 1999 due to initial engineering costs paid to a third party to develop the
operations center and test our service.
We expect our engineering and development expenses to increase
significantly as we continue to develop new wireless services, although we
expect these expenses to decrease in the near term as many of
28
<PAGE> 31
the costs we incurred in 1999 and the first three months of 2000 were associated
with the initial development and commercial launch of our wireless service.
Amortization of Deferred Stock Compensation. We granted stock options and
issued shares of restricted stock to certain of our officers and employees at
prices subsequently deemed to be below the fair value of the underlying stock on
the date of grant or issuance. Through March 31, 2000, we recorded aggregate
deferred stock compensation of approximately $10.7 million, of which $0.7
million was expensed in the period ended December 31, 1999, $1.2 million was
expensed in the three-month period ended March 31, 2000. The remaining $8.8
million will be expensed in future periods over what is generally a four-year
vesting period. With respect to employee stock-based compensation, we are
amortizing the deferred compensation expense over the vesting period using the
multiple option approach.
We estimate that our future deferred stock compensation expense from
options and shares granted or issued through March 31, 2000 will be $3.9
million, $2.8 million, $1.5 million and $0.6 million for the years ended 2000,
2001, 2002 and 2003, respectively, assuming no change in the number of
outstanding options or shares granted or issued at below fair value. As
additional grants have been made subsequent to March 31, 2000, we expect these
amounts to increase significantly.
Depreciation and Amortization. Because we lease wireless capacity from
wireless network carriers and rely on third parties to provide network
operations and customer care, our expenditures on property and equipment have
been relatively limited to date. As a result, depreciation and amortization
expense primarily relates to amortization of licensed technology associated with
the software we use to provide our wireless service.
For the period from our inception through December 31, 1999 and the three
months ended March 31, 2000, we amortized $595,000 and $379,000 of expense,
respectively, for our licensed technology. For those same periods, depreciation
of fixed assets was $24,000 and $76,000, respectively.
We expect our depreciation and amortization expense to increase as we
continue to grow our operations and as we acquire additional facilities and
equipment to meet that growth.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of our equity securities. These private placements included
the issuance of redeemable convertible preferred stock in August 1999 and
subsequent issuances of redeemable convertible preferred stock in January and
April through June 2000, which resulted in aggregate net proceeds to us of
approximately $29.6 million through March 31, 2000 and $112.6 million through
June 9, 2000 (which includes the Series C preferred stock). At March 31, 2000,
we had $14.1 million in cash and cash equivalents, and $14.8 million of working
capital. At June 9, 2000, we had $87.9 million in cash, cash equivalents,
investments and restricted cash. We have no outstanding indebtedness.
CASH FLOWS FROM INCEPTION THROUGH MARCH 31, 2000
Net cash used in operating activities was $13.1 million for the period from
our inception to March 31, 2000, primarily attributable to a net loss of $15.5
million, an increase in prepaid and other current assets of $17.2 million
related principally to prepaid advertising expenses, and an increase in
inventories of $3.0 million related principally to our receipt of wireless
modems from our manufacturer. These uses of cash were offset by depreciation and
amortization (including amortization of deferred stock compensation) of $3.0
million, an increase in accounts payable of $10.1 million, an increase in
accrued and other current liabilities of $3.8 million, and an increase in
amounts due to an investor of $4.8 million.
Net cash used in investing activities for the period from our inception to
March 31, 2000 was $2.5 million, resulting from purchases of property and
equipment and from a restricted cash deposit collateralizing a letter of credit.
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<PAGE> 32
Net cash provided by financing activities for the period from our inception
to March 31, 2000 was $29.6 million, resulting from net proceeds we received
from the issuance of our Series A and B redeemable convertible preferred stock
and the exercise of warrants for our preferred stock.
Our future capital requirements will depend upon many factors, including
the timing of research and development efforts and expansion of our marketing
efforts. We believe that the net proceeds of this offering, together with our
current cash and cash equivalents, will be sufficient to meet our working
capital needs, and fund our operating losses for the next 12 months. To the
extent that we grow more rapidly than expected in the future, we may need
additional cash to finance our operating and investing needs. Our management
intends to invest the cash received from this offering in excess of current
operating requirements in short-term, interest-bearing, investment-grade
securities.
CAPITAL STRUCTURE
Our capital structure at March 31, 2000 consisted of common stock and
redeemable convertible preferred stock. We had no outstanding indebtedness at
March 31, 2000.
The holders of our Series A and B preferred stock are entitled to receive
noncumulative dividends at an annual rate of 8% per share when, as and if
declared by our Board of Directors. No dividends have been declared through
March 31, 2000. The holders of our Series A and B preferred stock are entitled
to a distribution upon a liquidation or dissolution in preference to our common
shareholders of $0.75 and $4.63 per share, respectively, plus any declared but
unpaid dividends. The preferred stock is convertible, at the option of the
holder, into common stock on a two-for-one basis, subject to adjustment for
dilution. Shares of our Series A and B preferred stock will automatically
convert into shares of our common stock upon the closing of this offering. Our
preferred stockholders also have certain registration rights. During April and
May 2000, we issued 2,550,000 shares of restricted common stock to certain of
our employees at purchase prices of $1.50 and $2.30 per share and recorded
related recourse notes receivable from those stockholders of $4.2 million. The
notes accrue interest at a rate of 6% per year and are due in April and May
2009. Portions of those shares are subject to a right of repurchase that lapses
over a 36-month period.
From April through June 2000, we issued 13,953,012 shares of our Series C
preferred stock at a purchase price of $6.51 per share for aggregate net
proceeds to us of approximately $83.0 million. The terms of those shares of
preferred stock are substantially the same as our Series A and B preferred
stock, except for the liquidation preference and the conversion rate. Of those
Series C shares, we sold 225,000 shares to some of our officers and recorded
related recourse notes receivable from those stockholders of $1.5 million.
COMMITMENTS, CAPITAL EXPENDITURES AND FUTURE FINANCING REQUIREMENTS
As of June 1, 2000, our future minimum lease payments under noncancelable
operating leases, including lease commitments entered into subsequent to March
31, 2000, were $8.0 million. In March 2000, we entered into an office lease, for
which we provided an $800,000 letter of credit to secure our obligations that
expires in 2007.
We entered into a three-year agreement in 1999 with a company that provides
us with telesales, customer care, billing and reporting and technical support
services. We have minimum annual payments under that agreement of $1.65 million
in 2000 and $1.8 million for each of 2001 and 2002, excluding additional
subscriber-based charges of up to $0.50 per subscriber per month.
In July 1999, we entered into an agreement to purchase 100,000 wireless
modems through April 30, 2000. Through March 31, 2000, we had purchased 21,125
modems. The remaining purchase commitment under that agreement, as of March 31,
2000, was approximately $18.1 million. We have discussed and are continuing to
discuss modifications to the agreement regarding delivery timetables.
We formed a joint venture with News Corporation in April 2000 to pursue
international opportunities for our business outside of the United States. Under
the agreement, each party will contribute $5 million to initially fund the new
joint venture. The joint venture is 50% owned by News Corporation and 50% by us.
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In accordance with our joint venture agreement and the related equity
investment in us by News Corporation, we committed to spend $30 million over the
next five years for advertising with News Corporation's affiliates in the United
States.
Our future capital requirements will depend on a variety of factors,
including market acceptance of our wireless service, the resources we devote to
develop, market, sell and support our current and future service offerings,
whether handheld mobile devices on which our wireless service operates become
available through other sources or whether we need to develop and market them
ourselves and a myriad of other factors. We expect to devote substantial capital
resources:
- for our marketing and branding efforts;
- for customer support;
- to hire and expand our engineering, sales and marketing and finance and
accounting organizations;
- to further develop our wireless service offerings;
- to expand our wireless services to new handheld mobile devices,
platforms, networks and markets;
- to expand our operations internationally; and
- for general corporate purposes.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. SFAS 133, as amended,
will be effective for fiscal quarters or years beginning after June 15, 2000. We
do not currently hold derivative instruments or engage in hedging activities.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, or SAB
101, "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. We believe that we have complied with the guidance of SAB
101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25." FIN 44 clarifies
the application of Opinion No. 25 for the definition of employee for purposes of
applying Opinion No. 25, the criteria for determining whether a plan qualifies
as a noncompensatory plan, the accounting consequences of various modifications
to the terms of a previously fixed stock option or award and the accounting for
an exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions cover specific events that occur
after either December 15, 1998 or January 12, 2000. We believe that FIN 44 will
not have a material effect on our financial position or results of operations.
In various areas, including revenue recognition and other Internet-related
issues, accounting standards and practices continue to evolve. The SEC is
preparing to issue interpretive guidance relating to SAB 101, and the FASB's
Emerging Issues Task Force continues to address revenue and other
Internet-related accounting issues. We believe that we are in compliance with
all of the rules and related guidance as they currently exist. However, any
changes to generally accepted accounting principles in these areas could impact
our accounting for our operations.
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BUSINESS
We provide our subscribers with a comprehensive wireless service for their
handheld mobile devices by offering:
- access to a broad range of Internet content and data and the ability to
manage up to six of their existing e-mail accounts and securely conduct
e-commerce transactions;
- Internet data and content that has been modified for enhanced viewing and
performance on handheld mobile devices and the ability to browse
virtually any web site, whether or not its content has been so modified;
- an easy-to-use wireless Internet portal which serves as our subscribers'
gateway to the Internet;
- nationwide coverage for a fixed monthly subscriber fee; and
- full-time customer support.
THE MARKET OPPORTUNITY
Internet usage has become an integral part of daily life for many people,
for both personal and professional purposes. Today, the principal method for
accessing the Internet, sending e-mails and managing personal data remains the
desktop computer. With individuals becomingly increasingly mobile, we believe
that a wireless service offering users access to the Internet or a corporate
intranet throughout the day, regardless of location, satisfies a growing need
for many people. We believe that a simple-to-use, integrated service that offers
a comprehensive Internet experience on a mobile basis is the key to making the
wireless experience useful, rewarding and productive.
INTERNET USAGE HAS BECOME AN INCREASINGLY IMPORTANT PART OF EVERYDAY LIFE.
Internet and e-mail usage has grown significantly. In recent years, the
Internet has experienced a rapid increase in the number of individual users.
Technology and communications research firm IDC estimates there were
approximately 240 million Internet users worldwide at the end of 1999, and
projects that number to increase to more than 602 million users by the end of
2003. In addition, the Internet and corporate intranets have emerged as
important channels for exchanging data and information and for daily
communication, particularly through e-mail. According to IDC, there were
approximately 315 million e-mail boxes worldwide as of July 1999, with this
number expected to grow to over 750 million e-mail boxes by the end of 2005. As
an indication of the growing importance of e-mail and the increasing reliance
many people place on e-mails in their personal and professional lives, IDC
estimated that 1.4 trillion e-mails were sent in 1999 and forecasts this number
will grow to 4.8 trillion in 2003. With such significant growth in the number of
e-mail messages being sent, we believe that demand for real-time e-mail access
anywhere and at anytime will increase.
Internet content continues to increase and e-commerce has become
increasingly common. Publishing and distributing content and information on the
Internet is generally considered less costly than traditional publishing and
distribution methods. As a result, the growth of Internet-based content and
information, including online magazines, news feeds and computer games, as well
as product, educational, entertainment and political information, has been
extraordinary over the past several years. The Internet has also created new
opportunities for many companies to advertise and promote their products and
services in a more targeted and interactive manner than had previously been
possible. With the emergence of the Internet as a global, interactive medium,
many individuals and companies that had traditionally conducted commercial
transactions in person, through the mail or over the telephone, have
increasingly looked to conduct their business electronically over the Internet,
a type of commercial practice which is commonly referred to as e-commerce.
E-commerce includes many types of commercial transactions that are conducted
over the Internet, including trading securities, buying goods and services and
paying bills. We expect that e-commerce transactions will continue to
proliferate as more individuals gain access to the Internet, as the cost of
Internet access decreases and as security concerns associated with transacting
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business over the Internet are mitigated. According to IDC, Internet users
worldwide were expected to purchase more than $130 billion in goods and services
electronically in 1999, with that number increasing to $1.6 trillion in 2003.
WORLDWIDE DEMAND FOR MOBILE CONNECTIVITY CONTINUES TO GROW RAPIDLY.
Increasing usage of wireless communications. Individuals are increasingly
using wireless communications devices to provide them with convenient and
constant access to information whenever they are away from their home or office.
IDC estimates that in 1998 there were 303 million worldwide cellular and
personal communications systems subscribers, and IDC expects that number to
increase to approximately 1.1 billion in 2003. According to The Yankee Group, a
market research firm, the number of mobile users is expected to exceed 1 billion
by 2003 with approximately 60% capable of wireless Internet access.
Increasing usage of handheld mobile devices and demand for wireless
data. There has been, and we expect there will continue to be, a rapid adoption
by many individuals of handheld mobile devices, such as those produced by Palm,
Handspring and Hewlett-Packard, to remotely access and manage personal and
business information. According to IDC, worldwide sales of personal handheld
mobile devices are expected to increase from approximately 8.3 million units per
year in 1999 to approximately 35.5 million units per year in 2003. We believe
that this continuing growth will be fueled, among other things, by the
increasing dependence of many people on information stored or accessible through
their handheld mobile devices, their desire to conveniently and remotely access
personal and business information wherever they may be located, and by
continuing technological innovations, including improved wireless connectivity
and increased storage and performance characteristics.
In areas in which wireless services are widely available, individuals have
shown significant interest in receiving those services. In Japan, for instance,
NTT DoCoMo, the wireless affiliate of Nippon Telegraph and Telephone, Japan's
largest telecommunications company, offers a wireless data service through its
mobile telephone. NTT DoCoMo reported that it had more than 7.2 million users of
its wireless service as of June 4, 2000, having only launched the service a year
earlier in February 1999.
WE ANTICIPATE THE CONTINUING CONVERGENCE OF WIRELESS COMMUNICATIONS
SERVICES AND THE INTERNET.
Benefits of mobile connectivity. Wireless services will enable Internet
access, e-mail messaging, e-commerce transactions and information updates 24
hours a day, seven days a week without regard to the location of the mobile
user. It is also expected that service providers will eventually be able to
provide users of handheld mobile devices with location-specific information,
such as mapping, directions, movie and theater listings, restaurants, weather,
shopping and personal banking services. We believe that this ability to
customize information and deliver it when and where it is needed will provide
wireless data users with a highly-valued user experience.
Need for a service that helps navigate wireless content. When the Internet
was just starting, content was typically made available to users through
decentralized and independent providers, making it difficult for users to easily
locate information by context, subject matter or other easily searchable
characteristics. To address these problems, a number of search tools were
developed. Internet directories and search engines like Yahoo!, which organize
listings of web sites into predetermined subject areas and offer users the
ability to search Internet sites based upon the user's query, have proliferated
in an attempt to make the Internet experience more valuable and productive.
Similar navigational tools are needed to make the wireless data experience
one which users will find useful, rewarding and productive. We believe that
wireless Internet users will seek content directories and search methods that
are adapted specifically for use on handheld mobile devices, yet are similar to
the ones that they have grown familiar with from their personal computer
Internet experience.
Need for a wireless service that offers access to a broad range of content
for use on handheld mobile devices. The Internet has become an increasingly
important part of daily life because of the broad range of content and data
available to end-users. To be successful, we believe that a wireless service
must
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provide the mobile user with access to nearly the same broad range of Internet
data and content that is available on the personal computer.
Most of the content and data available on the Internet today was created
for use and viewing on large computer monitors and is not easily or effectively
used or viewed on the relatively small display screens of most handheld mobile
devices. Several companies and technologies have recently emerged that enable
content providers to modify their Internet content and data for enhanced use and
viewing on handheld mobile devices; this process has recently become known as
"optimizing" the Internet content and data for use on handheld mobile devices.
While we expect that the number of companies optimizing their content and data
for wireless services will continue to grow, the overwhelming majority of web
sites have not yet optimized their content and data for viewing or use on
handheld mobile devices. We believe, therefore, that people seeking a wireless
Internet experience will migrate towards a wireless service, which allows them
to navigate optimized content and data from popular web sites and to visit
virtually any web site whether or not that content has been optimized.
OBSTACLES TO OVERCOME IN THE WIRELESS DATA MARKET
We believe that the market for wireless services is significant, with
tremendous potential for continuing growth. There are several factors, however,
that we believe have adversely affected the evolution of this market so far,
including:
- limited choice and availability of Internet content and data optimized
for use and viewing on handheld mobile devices;
- complex user interfaces and system configurations;
- high and unpredictable costs associated with using wireless data
networks, including roaming charges that are typically assessed when
users are outside of their home area;
- limited coverage areas and disparate wireless networks that do not always
work well together, leading to disconnections and other service problems,
including security and privacy concerns; and
- the number of wireless service providers that offer various limited types
of service -- for example, certain services offer just e-mail messaging,
other services provide just Internet access without the benefit of
optimizing the content while others provide a service without the benefit
of a portal designed specifically for use with a handheld mobile device
that enhances a mobile user's ability to navigate the Internet
wirelessly.
THE OMNISKY SOLUTION
We provide a comprehensive wireless service that enables our subscribers to
access and navigate the Internet, send and receive e-mail messages and securely
conduct e-commerce transactions on handheld mobile devices. We integrate and, in
some cases develop by ourselves or with others, the technologies, user
interfaces and support systems that are necessary to offer a service that is
easy-to-use, cost-effective and reliable. We believe that we offer our
subscribers the following benefits:
ACCESS TO OPTIMIZED AND OTHER INTERNET CONTENT, E-MAIL MESSAGING AND
E-COMMERCE. Our subscribers have the ability over their handheld mobile devices
to access a broad range of Internet content and data, access and manage up to
six of their existing e-mail accounts and securely conduct e-commerce
transactions. Our subscribers have access to Internet data and content in a
format that is modified for viewing and performance on the small display screens
of handheld mobile devices. We receive that content from more than 1,000 links
to popular data sources and content providers, including CNBC, eBay, ESPN,
E*Trade, Ticketmaster, Fox Sports and Yahoo!. Beyond the Internet content that
we provide, we also offer our subscribers the ability to browse the web and
visit virtually any web site, whether or not the content has been optimized.
EASY-TO-USE WIRELESS PORTAL. We have designed an easy-to-use wireless
Internet portal for use on handheld mobile devices. Our wireless portal is
designed to emulate the web surfing experience found on
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the desktop computer, providing our subscribers with an environment with which
they are familiar and comfortable. Our subscribers have access to the Internet
and their e-mail messages through point-and-click icons and descriptive
graphics. Our easy-to-use Internet directory enables our users to search through
a wide variety of content and data within 11 principal interest-area categories,
including finance, travel, entertainment and sports. We also enable users to
search the Internet through text-based searching. To further enhance our
subscribers' experience, we enable them to customize their use of our portal to
access their favorite content more quickly and easily.
NATIONWIDE COVERAGE AT A FLAT MONTHLY RATE. We provide our subscribers with
a nationwide wireless service, 24 hours a day, seven days a week with unlimited
access, for a fixed monthly subscriber fee. We do not impose roaming charges in
the United States on our subscribers, which are charges that many cellular
telephone companies have typically imposed on their users if they travel outside
of their home region. We are able to offer a flat rate throughout the United
States through our arrangements with leading national wireless network carriers,
including AT&T Wireless Services and Verizon Wireless. We believe that our flat
rate pricing structure offers our subscribers a cost-effective pricing plan that
is similar to the simple, one-rate pricing plan that they are likely to be
familiar with from their land-line Internet access service and wireless
telephone service plans.
HIGH QUALITY CUSTOMER SERVICE. We believe that customer support is critical
to attracting and retaining our subscribers, especially in a business and
industry that is relatively new. Our customer service representatives are
available either through a toll free telephone number or by e-mail, which means
that our subscribers can also receive customer support through their handheld
mobile devices wherever they may be. We also post answers to frequently asked
questions and related information on our web site. We have outsourced portions
of our customer care to a leading customer service and billing company. We
believe that this enables us to manage our growth effectively, grow our business
quickly to meet increased demand and ensure that we do not sacrifice customer
service quality.
COMPATIBILITY WITH VARIOUS HANDHELD MOBILE DEVICES, WIRELESS NETWORKS AND
OPERATING SYSTEMS. While we currently provide service only for the Palm V
handheld mobile device, we are also working with other handheld mobile device
manufacturers to make our wireless service compatible with their devices. We
intend to offer a wireless service that is compatible with many different types
of handheld mobile devices, various wireless network systems and operating
systems. We believe that this approach will increase the market acceptance and
penetration of our wireless service. Some of these handheld mobile device
manufacturers include Handspring, which licenses the Palm operating system, and
Hewlett-Packard, which licenses the Microsoft Pocket PC operating system. We
also believe we have designed our wireless service to be easily adaptable to
evolving wireless networks. We currently support the wireless network technology
known as cellular digital packet data, or CDPD, which is used by AT&T Wireless
Services and Verizon Wireless, the two largest wireless carriers in the United
States. In the future, we intend to support other wireless network technologies,
such as code division multiple access, or CDMA, global system for mobile
communications, or GSM, general packet radio service, or GPRS and enhanced data
rates for global evolution, or EDGE. Our wireless service is also compatible
with the operating systems on which most content is located and on which most
computer applications run, including Microsoft Windows NT, UNIX and Linux.
SECURE E-COMMERCE PLATFORM. We designed our wireless service to provide a
secure environment for e-commerce. The network operations center through which
we manage and operate our wireless service provides a high-security physical
link between the data feeds sent and received by our subscribers, the wireless
carrier network over which our information is transmitted and the data feeds and
systems of our content providers.
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OUR STRATEGY
Our mission is to become the leading global provider of wireless service to
users of handheld mobile devices. To achieve our objective, we intend to:
ESTABLISH AND MARKET THE OMNISKY BRAND. We believe that establishing brand
awareness is critical to attracting and retaining subscribers, content
providers, e-commerce companies and advertisers to our wireless service.
Maintaining and enhancing our brand name, both domestically and internationally,
will be increasingly important as greater numbers of consumers look to wireless
data as a key source of information and commercial activity. We believe our
television commercials, print ads, online advertising and direct mailings convey
an image that our wireless service is fun, dynamic and compelling. We believe
that our branding strategy will enhance the general awareness of our wireless
service, help distinguish us from our competitors and ultimately increase our
subscriber base.
CONTINUE TO ENHANCE OUR WIRELESS SERVICE OFFERINGS. We intend to continue
to enhance the features and functionality of our wireless service. Since we
began our beta test in December 1999, we have continually sought to enhance our
wireless portal, increase the customization options available to our
subscribers, add more optimized data and content to our wireless service and
continue to simplify the software installation and provisioning process. Over
time, we also plan to extend our wireless service to allow our subscribers to
access their corporate intranets and remotely synchronize information on their
handheld mobile devices with their desktop computers and web-based applications.
We will also continue to seek to incorporate new technologies and e-commerce
opportunities as they become available.
USE OUR PORTAL TO GENERATE ADDITIONAL REVENUES. While we initially expect
to generate the majority of our revenues from our fixed monthly subscription
fees, we believe that significant opportunities exist for us to derive
additional revenues from advertising in our portal and from fees generated by
e-commerce transactions that are conducted through our wireless service. By
placing their advertisements in certain interest-specific channels within our
portal, advertisers may target their messages to specific, self-selected
audiences. We also intend to leverage our subscriber base by selling advertising
positions in our wireless service to various content providers. With respect to
e-commerce transactions that are conducted through our wireless service, we
intend to collect a percentage of the revenues generated from those
transactions. Many of our advertisers have already agreed to pay for preferred
placement within our portal and to share revenue generated from online
transactions.
EXPAND OUR WIRELESS SERVICE INTERNATIONALLY. We generally expect to
accomplish our international objectives through joint ventures, partnerships and
other relationships with companies that already have an international presence.
Toward that end, we recently entered into a joint venture with News Corporation,
one of the world's leading media companies, to expand our wireless service
internationally. We expect our joint venture to enable us to benefit from the
extensive international reach of News Corporation and its significant content
and distribution channels. We believe that our joint venture will help
accelerate the international rollout of our wireless service.
We intend over time to allow our subscribers to use our wireless service
within the United States and internationally in a seamless fashion, much in the
same manner that users of wireless telephones are able to roam within the United
States from one wireless carrier's network to another carrier's network without
disrupting their service. In each international market that we enter, we also
intend to adapt our wireless service to meet the local needs of our subscribers.
This will require that we provide local language customer support, local content
and region-specific marketing and e-commerce opportunities that are of interest
to the local communities in which we operate.
FURTHER DEVELOP OUR SALES AND DISTRIBUTION CHANNELS. We currently sell our
wireless services through our web site, a toll-free telephone service center and
selected retailers. We intend to extend our sales reach by pursuing agreements
with additional retail outlets, including stores operated by wireless
telecommunications carriers and selected computer stores. As we begin to sell
our wireless services through additional retail outlets, we intend to provide
training and ongoing support to sales representatives in these stores so that
they are familiar with the features and functionality of our wireless service.
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PURSUE SELECTED ACQUISITIONS. We intend to supplement our internal growth
through selected acquisitions of businesses or technologies that will enable us
to increase our subscriber base and enhance our wireless service offerings.
Acquisition candidates may include information technology companies with
specific engineering knowledge, companies that will enable us to enter new
markets or companies that provide services that we do not currently offer. We do
not currently have any acquisitions pending.
OUR WIRELESS SERVICE
We offer a wireless service that enables our subscribers to access and
navigate the Internet, send and receive e-mail messages and securely conduct
e-commerce transactions over handheld mobile devices. We currently offer our
subscribers the following services:
ENHANCED WIRELESS INTERNET ACCESS THROUGH OUR PORTAL. Our subscribers have
the ability to access a substantial amount of the information and applications
available on the Internet, including selected e-commerce sites. Our subscribers
can:
- access and search Internet content from more than 1,000 links to popular
data sources and content providers, which has been optimized for use and
viewing on handheld mobile devices;
- access virtually any web site, whether or not it has been optimized for
use and viewing on handheld mobile devices, by entering its web address;
- customize their use of our portal to access their favorite content more
quickly and easily; and
- purchase products and services and engage in other e-commerce
transactions in a secure manner.
We have arranged information in our portal under the following subject
matters for the convenience of our subscribers:
<TABLE>
<S> <C> <C> <C>
----------------------------------------------------------------------------------------------------------
FINANCE TRAVEL SHOPPING REFERENCE
Stocks/Trading Flights Books Directories
Financial News Hotels & Car Rentals Music/Video Advice
Directions & Traffic Electronics Reviews
Weather Computers Travel Reference
NEWS Reference Toys
World News Gifts
U.S. News Auctions COMMUNICATIONS
Financial News SPORTS Travel Instant Messaging
Technology News Sports News Assistance Greeting Cards
Sports News Outdoor/Fitness Facsimile
Entertainment News Mobile Files
ENTERTAINMENT
PORTALS Dining
LOCAL Branded Portals Movies
Dining Events
Movies News
Events LIVING Fun
Directions/Traffic Advice
Weather Arts & Leisure
Shopping Culinary
Health
Parenting
Special Interest
----------------------------------------------------------------------------------------------------------
</TABLE>
OPTIMIZED WIRELESS CONTENT. Our content relationships generally fall into
two broad categories: relationships with companies that provide us with their
own proprietary content and relationships with companies that aggregate content
from a multitude of sources.
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Direct content relationships. We receive content, which we believe would be
of interest to our subscribers, directly from a wide variety of companies. Our
agreements with these content providers generally contain some of the following
terms:
- one-time slotting fee which the content provider pays us for positioning
its content in a certain location in our portal;
- revenue sharing between us and the content provider for all transactions
that are originated through our wireless service;
- payments to us for any new customers that one of our content providers
may generate, e.g. a paid subscription to a content provider's premium
services or an account opened with an online broker; and
- co-marketing arrangements and commitments to promote our wireless service
and that of the content provider.
We deliver content directly from the following providers:
<TABLE>
<S> <C> <C>
----------------------------------------------------------------------------------------
ABC News Excite Salon.com
American Airlines Fidelity Shadowpack
Ameritrade FitForAll SNAZ
Barnes & Noble.com Fodor's The Sporting News
BarPoint Forbes The Economist
Big Charts Fox Sports The Motley Fool
BizTravel Fox News The Industry Standard
Brittanica Frommers The Street.com
Business Thinkers Go.com Theatre.com
Buy.com Google.com TicketMaster
Camden's Homes.com TrailWorks
CBS Marketwatch Launch.com Travelocity
CitySearch MapBlast TV Guide.com
CNBC MapQuest United Airlines
CNET.com Mercata USA Today
Deja.com Merriam-Webster Vicinity
DLJ Direct Moviefone Vvault
DrinkBoy MSNBC Weather.com
Ebay MyDocs Women.com
Efax MySimon WSJ.com
ESPN NY Times.com Yahoo!
Etak Ontheroad.com Yodlee
Etrade RestaurantRow Zdnet
----------------------------------------------------------------------------------------
</TABLE>
Content aggregators. We also receive access to popular data and content
from several different content aggregators. These content aggregators generally
relieve us of some of the significant time and effort it would take for us to
coordinate and collect content feeds from many different sources and, therefore,
make it more efficient for us to distribute content to our subscribers. For
example, Screaming Media provides us with content from more than 40 different
sources, including Business Wire, Edgar Online and PR Newswire. As new content
and services become available from content aggregators, they are automatically
made available to our subscribers.
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E-MAIL. Our e-mail service lets our subscribers remotely manage their
e-mail accounts. With this service, our subscribers can:
- send, receive and remotely manage e-mail from up to six existing
accounts -- as an example, this allows our subscribers to access a
personal e-mail account used on a home computer and a business e-mail
account maintained at the office;
- download the sender's name, subject header and the first 500 characters
of the e-mail message for quick scanning -- this allows our subscribers
to quickly review and prioritize their e-mails when "on the go, "without
the need for downloading and reviewing the entire e-mail;
- reply to an e-mail or compose a new message either by using one of the
prepared messages included in our wireless service or by creating a new
message;
- receive an alert that new messages have arrived by an indicator light on
the wireless modem -- this allows our subscribers to avoid the constant
need to go online to see whether new e-mails have been received; and
- forward large e-mail attachments to fax machines or personal computers
with Internet access for easy reading and downloading.
PERSONAL DATA MANAGEMENT. Our subscribers can save information that they
have obtained from a search of the yellow or white pages directly into the
address book of their handheld mobile device and in the future will be able to
obtain directions to an address by clicking on an icon on the screen of their
handheld mobile device.
FUTURE SERVICE OFFERINGS. Over time, we plan to extend our wireless service
to include additional functions and features that we believe will be
particularly useful to our subscribers. These functions are expected to include:
Corporate intranets. We intend to enable our subscribers to access their
corporate intranets. This will allow our subscribers to access any information
that companies or organizations may want to offer their employees or associates
remotely, such as sales force automation, calendars and contact lists;
Enhanced abilities to customize our portal. We intend to further enhance
the ability of our subscribers to customize and use our portal in a manner that
best suits their personal needs;
Data synchronization. We intend to enable our subscribers to wirelessly
synchronize data that they may have downloaded or obtained on their handheld
mobile devices with their desktop computers, including such features as calendar
synchronization. We believe that this feature will allow for a more seamless
integration of the desktop computer and the handheld mobile device; and
Personal data management. We intend to enable our subscribers to use
Internet-enabled versions of the following applications on their handheld mobile
devices: Palm Address Book, DateBook, To Do List and Memo Pad. For example, we
intend to allow our subscribers to retrieve data from the Internet, such as a
travel itinerary, and download it into their calendar on their handheld mobile
device by clicking on an icon.
CUSTOMERS
We began preliminary, or beta, testing of our wireless service in December
1999 and stopped accepting new beta orders on March 31, 2000 with approximately
5,500 subscribers. During our beta test, our wireless service was selected as
the best software/service for wireless data in 2000 by Mobile Insights, Inc., a
leading information source for the mobile computing and data communications
market. We formally launched our wireless service nationally in May 2000. On
, 2000, we had subscribers.
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MARKETING AND SALES
We market and advertise our service to increase public awareness of the
availability of our wireless service, to establish brand recognition and to
generate sales opportunities.
MARKETING. Concurrent with the formal launch of our wireless service, we
initiated television, print, Internet and direct mail advertising campaigns. We
will continue seeking to expand our subscriber base, enhance product awareness
and build our OmniSky brand through mass media advertising, direct marketing and
online advertising. We intend to use a portion of the proceeds from this
offering to advance our marketing programs.
We are investing in programs and practices that we believe will help to
minimize subscriber turnover, or churn, and establish our reputation for
superior customer service. These programs and practices include:
- the development of customer databases to help us track the needs of our
subscribers;
- ongoing communications, through newsletters and other means, with our
subscribers; and
- reward programs for sales generated by customer referrals.
SALES. We sell our wireless services through our web site, a toll-free
telephone service center and selected retailers. We intend to extend our sales
reach by pursuing agreements with additional retail outlets, including stores
operated by wireless telecommunications carriers and selected computer stores.
We intend to provide outlets with ongoing training, merchandising and marketing
support designed to drive traffic and sales to these outlets. Through our web
site, new and potential subscribers can access sales, support and technical
materials about our wireless service.
SERVICE AND SUPPORT RELATIONSHIPS
We believe that strengthening our relationships with wireless network
providers, content providers and software developers is one of the keys to our
ability to provide our subscribers with a comprehensive wireless Internet
experience.
WIRELESS CARRIERS. AT&T Wireless Services is the primary wireless network
communications carrier for our service in the United States and also provides
support to us in the form of joint marketing arrangements. To ensure nationwide
coverage of our wireless service and for redundancy purposes, we also have
relationships with other wireless carriers, including Verizon Wireless and SBC
Communications. These carriers provide our subscribers with wireless access
across their networks and enable us to provide our subscribers with wireless
service in areas not covered by AT&T Wireless' network. During the second half
of 2000, we also intend to begin selling our service through domestic AT&T
Wireless and Verizon Wireless retail stores and are currently engaged in
discussions regarding both relationships. At March 31, 2000, we had $8.4 million
of co-marketing credits available to us from our principal wireless network
carrier, which we can use through December 2000 to offset marketing and modem
expenses.
SOFTWARE PROVIDERS. We use software from many sources, including customized
and non-customized software applications. Two of the more important software
providers for our wireless service are the following:
Palm. Palm, Inc., a subsidiary of 3Com Corporation, manufactures the
handheld mobile devices commonly referred to as Palm devices. We currently
provide wireless service for the Palm V device. We have a non-exclusive license
to use Palm's operating system and its web clipping technology.
Aether Systems. Aether develops software and services for corporations
seeking to make wireless data available to mobile workers and consumers. We have
a non-exclusive license to use Aether's wireless gateway middleware that
supports our content access and transactions. Together with Aether, we have
jointly developed and continue to enhance a technology that allows web sites
that are not optimized for use and viewing on handheld mobile devices to be
converted and viewed on the limited screen size of handheld mobile devices. We
have also entered into a reseller arrangement with Aether that allows Aether to
bundle our wireless services, for a fixed fee per subscriber, to Aether's
customers.
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BUSINESS OPERATIONS
CUSTOMER SERVICE. We believe that high quality customer service and support
are critical to attracting and retaining our subscribers. We have engaged a
nationally recognized customer service company to provide customer support for
our subscribers. This company provides us with over 70 dedicated customer
service representatives providing customer and technical support every day of
the week. We spend a significant amount of time training this customer service
team to respond quickly and efficiently to inquiries and repair requests. In
addition to seeking help through our toll-free call center, subscribers can
e-mail questions directly to our technical support staff or seek solutions
through information and tutorials available on our web site.
PRODUCT PROVISIONING. We currently take orders either through our call
center, our web site or selected retailers. Once received, a new subscriber's
order is forwarded to our wireless fulfillment partner. That entity assigns an
Internet protocol address to our subscriber's handheld mobile device from one of
our wireless network carriers, based on the location of our subscriber. Our
fulfillment partner then activates the address with the wireless network carrier
and ships the modem directly to our subscriber. Once our new subscriber receives
the modem and downloads the necessary software from a CD-ROM that we provide
onto their handheld mobile device, our wireless service is ready for use.
BILLING. We have outsourced our billing operations to a third party. We
believe that this arrangement will allow us to rapidly grow our business without
dedicating significant internal resources to the creation and maintenance of
complicated billing systems. We bill our subscribers monthly, in advance of
service, and charge our fees to our subscribers' credit cards. We also bill our
subscribers for the purchase of their modems in the same way. We believe that
advance billing for our wireless service reduces churn, lowers bad debt expense
and increases cash flow.
SYSTEMS AND TECHNOLOGY
NETWORK OPERATIONS CENTER. We currently outsource our network operations to
Aether Systems, which is located in Owings Mills, Maryland. From the Aether
network operations center, we maintain high speed data transmission lines, known
as T-1 connections, to the Internet, our content providers, third party vendors
and the wireless network carriers that we use. The operations center is equipped
with Cisco and Hewlett-Packard networking equipment, Sun Sparc UNIX servers and
high-end clustered Microsoft Windows NT servers. The center is staffed and
monitored 24 hours a day, seven days a week and is equipped with backup power
supplies, including diesel-powered generators that are tested and serviced
regularly.
To help ensure that we provide our subscribers with high availability of
service, we have a back-up operations center in Palo Alto, California. At our
back-up center, we are able to monitor, in real-time, as if we were physically
located at Aether's network center, the entire network system, including our
connections to the Internet, our content providers, third party vendors and our
wireless network carriers. As our subscriber base grows, we intend to acquire
additional data center capacity to ensure continued high quality service.
WIRELESS NETWORKS. Through our arrangements with wireless network carriers,
we are able to provide our subscribers with wireless service throughout the
United States. We purchase wireless network capacity for our service through a
number of wireless carriers, including AT&T Wireless Services and Verizon
Wireless.
WIRELESS MODEM MANUFACTURER. We have an agreement with Novatel Corporation
to provide a wireless modem for our service. Novatel's Minstrel wireless modem
was specifically designed for use with the Palm V handheld mobile device and our
wireless service. Under our agreement with Novatel, we have a right to acquire
the first 100,000 wireless modems built by Novatel for the Palm V device. After
we acquire those 100,000 modems, the wireless modems may be marketed and sold
directly by Novatel to third parties. We are also in discussions with Novatel to
build wireless modems for other handheld mobile devices.
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OUR PROPRIETARY E-COMMERCE SYSTEM. By combining third-party and internally
developed software, we have developed a proprietary e-commerce system for
providing information to, and taking Internet-based orders from, our subscribers
in a secure manner. Our system runs on scalable, redundant servers that we own
and have located in a third-party co-location facility.
INTELLECTUAL PROPERTY. We use intellectual property from many sources,
including software vendors, wireless network carriers and others with whom we
work in providing our wireless service. Much of the intellectual property that
we use in the day-to-day operation of our business, however, consists of trade
secrets and know-how that our management and employees have developed over the
years. We believe that our knowledge base of the Internet, wireless and handheld
mobile device industries is one of our principal competitive advantages.
We have also developed certain proprietary technology that we believe
enhances the nature of the wireless service that we provide to our subscribers.
OUR WIRELESS INTERNET PORTAL
Navigation tools. Our wireless Internet portal uses a proprietary
tree-based navigational system, which resides on each subscriber's handheld
mobile device. With our navigational system, our subscribers simply tap on one
of our easily understood icons, or descriptive graphics, to immediately access
Internet content, e-mail messages or visit virtually any web site.
Content updates. We maintain our content categories and information
listings in our data center, which allows for constant and centralized updating
of information for our subscribers. Our subscribers can update the content on
their handheld mobile devices when they synchronize their devices with their
desktop computer. Our system enables our subscribers to maintain constant access
to the latest list of content channels without having to incur long download
times.
SERVER ENHANCEMENTS
Optimizing data. Handheld mobile devices that use the Palm operating system
employ a special software that is called a "web clipping" system. With the web
clipping system, Internet content is compressed at a server for display on a
handheld mobile device. We have enhanced this system with a third-party
data-optimization package that enables us to reduce the system's bandwidth usage
and, by doing that, make response times faster on our subscribers' handheld
mobile devices.
Bookmarking content. We have developed a technology, which allows any
Internet content retrieved from our data centers to be dynamically bookmarked
for easy access at a later time. This allows our subscribers to customize our
portal for their individual use so that they can more quickly and easily access
Internet content that is most important to them.
E-mail gateway. We have also developed a highly efficient e-mail gateway
for use on our subscribers' handheld mobile devices. Our e-mail gateway allows
our subscribers to retrieve the critical elements of their e-mail, such as the
sender's name, a subject header and the first 500 characters of the e-mail
message, without the long download times commonly associated with large
messages. Our gateway also allows our subscribers to forward attachments to a
fax machine or to another e-mail account.
INTERNATIONAL JOINT VENTURE
We formed a joint venture with News Corporation in April 2000 to pursue
international opportunities for our business outside of the United States. We
and News Corporation each have a 50% ownership interest in the joint venture and
equal representation on its board of directors. Under the terms of the joint
venture agreement, the initial funding of the joint venture will consist of cash
contributions of $5 million from each of News Corporation and us. In addition,
we have agreed to provide the joint venture with use of our technology and
know-how without charge to allow the joint venture to develop its business, and
News Corporation has agreed to provide the joint venture with content at
preferred rates. We are entitled to appoint the chief executive officer, while
News Corporation is entitled to appoint the chief financial
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officer of the joint venture. Neither party to the joint venture is obligated to
provide any further funding to the joint venture nor is either party permitted
to dispose of its interest in the joint venture without the consent of the other
party. The terms of the joint venture do not impose any exclusivity obligations
on either us or News Corporation, so that if we or News Corporation determine in
good faith that it would be inappropriate to conduct business in any particular
market through the joint venture, then either party is permitted to conduct
business in that market independent of the joint venture. We committed to spend
$30 million over the next five years for advertising with News Corporation's
affiliates in the United States.
COMPETITION
The market for wireless Internet and data services is becoming increasingly
competitive. The adoption of open industry standards in the wireless data
communications market may make it easier for new market entrants and existing
competitors to introduce services that compete against ours. We developed our
wireless service using mostly standard industry development tools. Many of our
agreements with wireless network carriers, handheld mobile device manufacturers
and content providers are non-exclusive. Our competitors, therefore, may use
many of the same products and services in competition with us. Given time and
capital, competitors could provide services which are similar in nature to our
wireless service.
We expect that we will compete primarily on the basis of the functionality,
breadth, quality and price of our wireless service. Many of our existing and
potential competitors have substantially greater financial, technical, marketing
and distribution resources than we do. Many of these companies may also have
greater name recognition and more established relationships with our target
subscribers. Furthermore, these competitors may be able to adopt more aggressive
pricing policies and offer customers more attractive terms than we can.
Some of our competitors could include companies with whom we work today in
providing our wireless service. At some point in the future, some of these
companies could decide to provide a wireless service similar, and in competition
with, ours.
Some of these competitors are, or could in the future include:
- wireless Internet service providers, such as Palm.net, a service provided
by Palm, Inc. and GoAmerica;
- mobile portals like NTT DoCoMo's iMode;
- wireless application service providers like 724 Solutions, Dynamic Mobile
Data, Saraide (recently acquired by InfoSpace), and Wireless Knowledge, a
joint venture of Microsoft and Qualcomm;
- mobile data management and communications software providers like
AvantGo! and Phone.com;
- handheld mobile device manufacturers, such as Research in Motion;
- wireless network carriers like AT&T Wireless Services and Verizon
Wireless;
- traditional Internet service providers like America Online (which has
signed an agreement to merge with Time Warner Inc.), EarthLink and
Prodigy; and
- web portals such as Yahoo!, Excite and Lycos.
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, or FCC. To the extent that
the FCC introduces new regulations that affect any of our wireless carriers in
any way, or if new interpretations of existing FCC regulations occur through
administrative or court proceedings that affect any of our wireless carriers, we
could also be derivatively affected by those changes. We could also be adversely
affected by developments in regulations that govern or may in the future govern
the Internet, the
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allocation of radio frequencies or the placement of cellular towers that
transmit our wireless service. Changes in these regulations could also create
uncertainty in the marketplace that could reduce demand for our wireless
services or increase the cost of doing business.
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. We continually monitor the laws
and regulations of the jurisdictions in which we conduct business to assess
whether we are required to collect sales or other taxes. It is not, however,
always clear as to how certain statutes and regulations apply to Internet-based
services, and we cannot be certain that interpretations of existing statutes and
regulations may not change in the future or that we and our advisors have
correctly interpreted these statutes and regulations. One or more jurisdictions
have sought to impose sales or other tax obligations on companies that engage in
online commerce within their jurisdictions. A successful assertion by one or
more jurisdictions that we should collect sales or other taxes on our products
and services, or remit payment of sales or other taxes for prior periods, could
have a material adverse effect on our business, financial condition or results
of operations. Any new legislation or regulation, or the application of laws or
regulations from jurisdictions whose laws do not currently apply to our
business, could also have an adverse effect on our business.
FACILITIES
Our principal offices are currently located at 1001 Elwell Court in Palo
Alto, California in a 16,000 square foot facility under a lease expiring in
March 2007. We also have office space located at 299 California Street in Palo
Alto, California, where we maintain our network monitoring center. This facility
has 7,000 square feet under a lease that expires in June 2002.
EMPLOYEES
As of June 15, 2000, we had a total of 86 employees. 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. We may from
time to time, however, become a party to various legal proceedings arising in
the ordinary course of our business. We also may be indirectly affected, as we
discussed above under the subsection entitled "Government regulation" by
administrative or court proceedings or actions in which we are not involved but
which have general applicability to the Internet or wireless industries.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information regarding our executive officers,
directors and other key employees as of June 15, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Patrick S. McVeigh....................... 48 Chairman, Chief Executive Officer and Director
Barak A. Berkowitz....................... 47 President
Lawrence S. Winkler...................... 33 Senior Vice President and Chief Financial Officer
Michael D. Dolbec........................ 41 Senior Vice President, Business Development
James J. Obot............................ 45 Senior Vice President, Operations
Neville J. Street........................ 39 Senior Vice President, International
Raymond Cleeman.......................... 35 Vice President, Treasurer
Ronald A. Gould.......................... 40 Vice President, Systems and Technology
Michael J. Malesardi..................... 39 Vice President, Controller
Andy R. Simms............................ 40 Vice President, Sales for the Americas
Scott M. Wornow.......................... 38 Vice President, General Counsel and Secretary
Stephen M. Diamond....................... 43 Director
Lachlan K. Murdoch....................... 28 Director
David S. Oros............................ 40 Director
Janice M. Roberts........................ 44 Director
Thomas E. Wheeler........................ 53 Director
</TABLE>
Patrick S. McVeigh is a co-founder, our Chairman of the Board of Directors
and our Chief Executive Officer. From January 1996 to June 1999, Mr. McVeigh
served as Vice President of Worldwide Sales and Business Development at Palm
Computing, Inc., a manufacturer of handheld mobile devices and at that time a
wholly owned subsidiary of 3Com Corporation, a provider of broad-based
networking systems and services. Prior to this, Mr. McVeigh was Vice President
of Sales and Marketing for Knowledge Adventure, an educational software company,
from October 1993 to January 1996. From August 1982 to October 1993, Mr. McVeigh
held a variety of sales and marketing management positions at Apple Computer
Inc., a manufacturer of personal computers. Most recently, he was responsible
for the development and launch of Apple's consumer personal computer business,
the Performa. Mr. McVeigh holds a Bachelor of Arts in psychology and philosophy
from Clark University.
Barak A. Berkowitz is a co-founder and our President. From June 1998 to
April 1999, Mr. Berkowitz served as Senior Vice President and General Manager at
the Go Network, an Internet portal and a division of Go.com, with responsibility
for production and marketing. Prior to this, Mr. Berkowitz was Vice President of
Marketing at Infoseek Corporation, an Internet portal, from October 1997 to June
1998. From September 1994 to October 1996, Mr. Berkowitz was Vice President and
General Manager of the American region at Logitech International S.A., a
manufacturer of computer interface devices, with responsibility for production
and marketing. From August 1990 to July 1994, Mr. Berkowitz was a marketing
consultant to several high-tech companies. From June 1985 to August 1990, Mr.
Berkowitz held a variety of positions at Apple Computer Inc., including most
recently as product marketing manager in the advanced technology areas.
Lawrence S. Winkler has served as our Senior Vice President and Chief
Financial Officer since joining OmniSky in April 2000. From December 1997 to
April 2000, Mr. Winkler served as Senior Vice President and Treasurer at PSINet
Inc., a provider of Internet access services and related products. Prior to
this, Mr. Winkler served as Director, Finance and Investor Relations at The
Mills Corp., a real estate investment trust, from December 1996 to December
1997. Prior to December 1996, Mr. Winkler served in senior financial management
roles at Black and Decker and CRI, Inc. and was a consultant for Arthur Andersen
& Co. Mr. Winkler holds a Bachelor of Science in economics, accounting and
finance from the
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University of Maryland and a Master of Business Administration from Loyola
College in Baltimore, Maryland.
Michael D. Dolbec is a co-founder and our Senior Vice President, Business
Development. From inception to April 2000, Mr. Dolbec served as our Chief
Financial Officer and Secretary. From February 1996 to August 1999, Mr. Dolbec
was Vice President of Business Development for 3Com Corporation, a provider of
broad-based networking systems and services. Prior to this, Mr. Dolbec was a
Vice President at Telematica, a strategy-consulting firm, from June 1995 to
February 1996. From March 1993 to June 1995, Mr. Dolbec was a Vice President and
Managing Director of IBM. Prior to March 1993, Mr. Dolbec held positions at
Greylock Management Corporation, a Boston-based venture capital firm and Kleiner
Perkins Caufield & Byers, a Menlo Park-based venture capital firm. Mr. Dolbec
holds a Bachelor of Science in biology and a Master of Science in computer
science from Stanford University and a Master of Business Administration from
the Wharton School of the University of Pennsylvania.
James J. Obot has served as our Senior Vice President, Operations since
joining OmniSky in November 1999. From March 1999 to October 1999, Mr. Obot was
Vice President and General Manager at Palm.net, a wireless Internet access
service which is a division of Palm, Inc., a manufacturer of handheld mobile
devices. Prior to this, Mr. Obot was the Vice President of Worldwide Operations
at Palm Computing, Inc., the predecessor to Palm, Inc., from May 1996 to March
1999. From January 1995 to September 1995, Mr. Obot was President of Navigation
Technologies, a producer of navigable map databases. From February 1981 to
October 1994, Mr. Obot served in various positions at Apple Computer, Inc., a
personal computer manufacturer, including most recently as Senior Director of
field operations. Mr. Obot holds a Bachelor of Science in finance from Santa
Clara University.
Neville J. Street has served as our Senior Vice President, International
since joining OmniSky in March 2000, and also serves as the Chief Executive
Officer of our international joint venture with News Corporation. From December
1996 to March 2000, Mr. Street served as Vice President, International at Palm
Computing, Inc. From April 1994 to December 1996, Mr. Street was Managing
Director, Europe and Senior Vice President at Perle Systems Inc., a manufacturer
of communications controllers and access products. Mr. Street holds a Bachelor
of Arts in business studies from Sheffield Hallem University and a Master of
Business Administration from Thames Valley University.
Raymond Cleeman has served as a Vice President since joining OmniSky in
March 2000 and our Treasurer since June 2000. From May 1996 to February 2000,
Mr. Cleeman was a Vice President in the Corporate Finance Group at Donaldson,
Lufkin & Jenrette Securities Corporation, an investment bank. Prior to that, Mr.
Cleeman served as an Associate at RLR Partners, a private equity fund, from May
1994 to April 1996. Mr. Cleeman holds a Bachelor of Arts in economics from
Queens College of the City University of New York and a Juris Doctor from
Brooklyn Law School.
Ronald A. Gould has served as our Vice President, Systems and Technology
since March 2000. Mr. Gould was initially hired by us as a consultant in January
2000. Prior to OmniSky, Mr. Gould was Chief Executive Officer of Stand Sure
Systems, a consulting company, from August 1997 to February 2000. From December
1989 to July 1997, Mr. Gould was Director of Information Technology Management
at Apple Computer, Inc. Mr. Gould holds a Bachelor of Science in information
systems management and a Master of Business Administration from the University
of San Francisco.
Michael J. Malesardi has served as our Vice President, Controller since
joining OmniSky in March 2000. From July 1997 to February 2000, Mr. Malesardi
served as Vice President and Controller and more recently as Senior Vice
President and Controller at PSINet Inc. From February 1992 to July 1997, Mr.
Malesardi served initially as Vice President and Controller and then as Director
of Financial Administration at Watson Wyatt Worldwide, a consulting firm. Mr.
Malesardi holds a Bachelor of Science in accounting and business administration
from Washington and Lee University and is a Certified Public Accountant.
Andy R. Simms is a co-founder and our Vice President, Sales for the
Americas. From February 1996 to June 1999, Mr. Simms was the Channel Sales
Director for the Americas at Palm Computing, Inc. Prior
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to Palm Computing, Mr. Simms was Regional Sales Manager in the consumer division
of Apple Computer, Inc. from March 1994 to January 1996. Mr. Simms holds a
Bachelor of Arts in business administration from the University of Kentucky.
Scott M. Wornow has served as our Vice President, General Counsel and
Secretary since joining OmniSky in May 2000. From February 1998 through May
2000, Mr. Wornow was a partner in the New York office of the international law
firm of Paul, Hastings, Janofsky & Walker LLP. Mr. Wornow was an associate with
Paul, Hastings from October 1994 through February 1998. Mr. Wornow holds a
Bachelor of Arts in economics from the University of Virginia, a Bachelor of
Arts and Master of Arts in law from Cambridge University in England and a Juris
Doctor from the Harvard Law School.
Stephen M. Diamond has served as a member of our board of directors since
January 2000. Mr. Diamond has been a General Partner of Sprout Group, the
venture capital affiliate of Donaldson, Lufkin & Jenrette, since May 1998. Prior
to that, Mr. Diamond was with Dataquest, an information technology market
research and consulting firm, where he was Group Vice President and Worldwide
Director of Telecommunications and Networking Research from January 1996 to
February 1998. Prior to Dataquest, Mr. Diamond was Vice President of Marketing
at Electronic Retailing Systems International, Inc. from December 1995 to
December 1996. He holds a Bachelor of Arts in Environmental Science and
Political Science from Boston College, a Master of Science in Environmental
Engineering from Tufts University and a Master of Public Administration degree
from Northeastern University.
Lachlan K. Murdoch has served as a member of our board of directors since
May 2000. Mr. Murdoch has served as Executive Director of News Corporation since
October 1996 and Senior Executive Vice President since February 1999. Mr.
Murdoch has also served as Director of News Limited, News Corporation's
principal Australian subsidiary, since September 1995, Chairman and Chief
Executive since July 1997, Managing Director from September 1996 until June 1997
and Deputy Chief Executive from December 1995 until September 1996. Mr. Murdoch
has also served as Chairman of Queensland Press Limited since October 1996 and a
Director since October 1994. Mr. Murdoch has served as Director of Beijing PDN
Xiren Information Technology Co. Ltd since June 1996 and One.Tel Limited since
April 1999. He holds a Bachelor of Arts in philosophy from Princeton University.
David S. Oros has served as a member of our board of directors since August
1999. Mr. Oros founded Aether Systems, Inc., a provider of wireless data
services and systems, in 1996 and has been its Chairman, Chief Executive Officer
and President since that time. From 1994 to 1996, Mr. Oros was President of
NexGen Technologies, L.L.C., a wireless software development company that
contributed all of its assets to Aether Systems. Mr. Oros serves on the board of
Aether Systems, Inc. Mr. Oros holds a Bachelor of Science in mathematics from
the University of Maryland.
Janice M. Roberts has served as a member of our board of directors since
August 1999. Ms. Roberts has been a general partner of The Mayfield Fund, a
venture capital fund, since June 2000. From February 1992 until June 2000, Ms.
Roberts was Senior Vice President of Business Development of 3Com Corporation.
She was also President of 3Com Ventures, a corporate investment fund, from
October 1997 to May 2000. Ms. Roberts serves on the board of Aether Systems,
Inc. She holds an Honors degree in Economics and Business from the University of
Birmingham in the United Kingdom.
Thomas E. Wheeler has served as a member of our board of directors since
January 2000. Since 1992, Mr. Wheeler has served as President and Chief
Executive Officer of the Cellular Telecommunications Industry Association. Since
1994, Mr. Wheeler has served 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 board
of Aether Systems, Inc. He holds a Bachelor of Science in business
administration from Ohio State University.
EXECUTIVE OFFICERS
Our executive officers are elected by, and serve at the discretion of, our
board of directors. There are no family relationships among our directors and
officers.
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BOARD OF DIRECTORS
Upon completion of this offering, our board of directors will consist of
directors, divided into three classes serving staggered three-year terms,
as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION MEMBERS
----- ---------- -------
<S> <C> <C>
Class I................................................. 2001
Class II................................................ 2002
Class III............................................... 2003
</TABLE>
As a result of our staggered board, only one class of directors will be
elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their respective three-year terms.
Our bylaws provide that the authorized number of directors may be changed
only by resolution of the board of directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the total number of directors.
This classification of the board of directors may have the effect of
delaying or preventing a change in control. See "Description of Capital
Stock -- Delaware Anti-Takeover Law and Charter and Bylaw Provisions."
At the time we complete our offering, each of our directors will have been
selected pursuant to a voting agreement among us and the holders of our Series
A, Series B and Series C preferred stock and several holders of our common
stock. The voting agreement will terminate upon the closing of this offering.
BOARD COMMITTEES
Our board of directors has an audit committee and a compensation committee.
Audit Committee. The audit committee was formed in June 2000 and currently
consists of Ms. Roberts and Mr. Diamond. We intend to add a third member to our
audit committee prior to the closing of this offering. Among other things, the
audit committee:
- reviews and monitors our financial statements and accounting practices;
- makes recommendations to our board of directors regarding the selection
of independent auditors; and
- reviews the results and scope of the audit and other services provided by
our independent auditors.
Compensation Committee. The compensation committee was formed in January
2000 and currently consists of Ms. Roberts, Mr. Wheeler and Mr. Diamond. The
compensation committee reviews and makes recommendations to our board of
directors concerning salaries and incentive compensation for our officers and
employees. The compensation committee also administers our stock plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 2000, our board of directors did not maintain a standing
compensation committee, and the entire board participated in all decisions
regarding compensation of our executive officers. During that time, Patrick S.
McVeigh, our Chief Executive Officer, participated as a member of our board of
directors in deliberations concerning executive officer compensation. In January
2000, our board formed the compensation committee. None of the members of the
compensation committee is currently or has ever been at any time since our
formation, one of our officers or employees. No member of the compensation
committee, other than Mr. Wheeler, serves as a member of the board of directors
or compensation committee of any entity that has one or more officers serving as
a member of our board of directors or compensation committee. Mr. Wheeler serves
as a member of the board of directors and
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<PAGE> 51
compensation committee of Aether Systems, Inc. One of our directors, Mr. Oros,
is chairman, chief executive officer and president of Aether Systems, Inc.
DIRECTOR COMPENSATION
We do not currently compensate our directors in cash for their service as
members of the board of directors, although they are reimbursed for expenses in
connection with attendance at board of director and audit and compensation
committee meetings. Under our stock option plan, directors are eligible to
receive stock option grants at the discretion of the board of directors or other
administrator of the plan. We did not grant any options to our directors in
1999.
EXECUTIVE COMPENSATION
The following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal year ended December 31, 1999 by our Chief
Executive Officer and each other executive officer whose total compensation
exceeded or would have exceeded $100,000 during 1999 had those officers provided
services to us for the entire fiscal year. These executives are referred to as
the named executive officers elsewhere in this prospectus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ------------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION UNDERLYING OPTIONS
--------------------------- -------- ----- ------------ ------------------
<S> <C> <C> <C> <C>
Patrick S. McVeigh............................... $120,192 -- -- --
Chief Executive Officer
James J. Obot.................................... 43,269 -- -- 1,200,000
Senior Vice President, Operations(1)
Michael D. Dolbec................................ 89,135 -- -- --
Senior Vice President, Business Development(2)
Andy R. Simms.................................... 80,769 -- -- --
Vice President, Sales for the Americas
</TABLE>
---------------
(1) Mr. Obot joined us in November 1999.
(2) Mr. Dolbec served as our Chief Financial Officer and Secretary from May 1999
until April 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted to each of the named executive officers in the fiscal year ended
December 31, 1999. The exercise price per share of each option was equal to the
fair market value of the common stock as determined by the board of directors on
the date of grant. The potential realizable value assumes that the exercise
price was the fair market value of the common stock on the date of grant and
that the price of the applicable stock increases from the date of grant until
the end of the ten-year option term at the annual rates specified. There is no
assurance provided to any executive officer or any other holder of our
securities that the actual stock price appreciation over the ten-year term will
be at the assumed 5% and 10% levels or at any other defined level. These assumed
rates of appreciation comply with the rules of the Securities and Exchange
Commission and do not represent our estimate of future stock price. Actual
gains, if any, on stock option exercises will be dependent on the future
performance of our common stock.
From our inception on May 7, 1999 to December 31, 1999, we granted options
to purchase up to an aggregate of 3,258,000 shares to employees, directors and
consultants. Options were granted under our 1999 Stock Plan at exercise prices
at the fair market value of our common stock on the date of grant, as
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<PAGE> 52
determined in good faith by the board of directors. Options to employees and
directors have a term of ten years. Options to consultants have a one-year term.
Optionees may pay the exercise price by cash, certified check, or delivery of
already-owned shares of our common stock. Options to the named executive
officers are immediately exercisable upon grant; however, we may repurchase any
unvested shares at their cost if the optionee's service terminates. Options to
employees and directors generally vest over four years. Options to consultants
vest immediately upon grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN LAST PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ---------- ------------------ --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick S. McVeigh................. -- -- -- -- -- --
James J. Obot...................... 1,200,000 36.8% $0.25 12/10/09 $188,669 $478,123
Michael D. Dolbec.................. -- -- -- -- -- --
Andy R. Simms...................... -- -- -- -- -- --
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table describes for our named executive officers their option
exercises for the fiscal year ended December 31, 1999, and exercisable and
unexercisable options held by them as of December 31, 1999.
The "Value of Unexercised In-the-Money Options at December 31, 1999" is
based on a value of $0.25 per share, the fair market value of our common stock
as of December 31, 1999, as determined by our board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise of
the option. All options were granted under our 1999 Stock Plan. The shares vest
over four years.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1999 DECEMBER 31, 1999
ACQUIRED ON VALUE --------------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE(1) UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
---- ----------- -------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Patrick S. McVeigh............ -- -- -- -- -- --
James J. Obot................. -- -- -- 1,200,000 -- --
Michael D. Dolbec............. -- -- -- -- -- --
Andy R. Simms................. -- -- -- -- -- --
</TABLE>
---------------
(1) Options granted under our stock option plans are generally exercisable
immediately but the shares acquired upon exercise are subject to lapsing
rights of repurchase at the exercise price. The heading "exercisable" refers
to shares as to which our right of repurchase has lapsed. The heading
"unexercisable" refers to shares that we still have the right to repurchase
upon termination of the optionee's employment.
50
<PAGE> 53
STOCK PLANS
1999 STOCK PLAN
Our board of directors adopted our 1999 stock plan in July 1999, and our
stockholders approved the plan in July 1999. Our 1999 stock plan provides for
the grant to employees of incentive stock options within the meaning of federal
income tax laws, and for the grant to employees, directors and consultants of
nonstatutory stock options and stock purchase rights. Unless terminated sooner,
the 1999 stock plan will terminate automatically in 2009.
The board of directors has determined that no future options will be
granted under our 1999 stock plan following the effective date of this offering.
However, our board of directors or a committee of our board of directors will
administer the options granted under the 1999 stock plan that are outstanding on
the effective date of this offering. As of June 15, 2000, a total of 13,350,000
shares of common stock were authorized for issuance under the 1999 stock plan.
As of June 15, 2000, options to purchase an aggregate of 8,912,500 shares of our
common stock were outstanding under the 1999 stock plan, and no shares have been
issued pursuant to the exercise of options granted under the 1999 stock plan.
The options outstanding at the time of this offering will remain subject to the
terms of the agreements evidencing such options and the terms of the 1999 stock
plan.
The 1999 stock plan provides that in the event of our merger with or into
another corporation, the successor corporation may assume or substitute each
option or stock purchase right. If the outstanding options or stock purchase
rights are not assumed or substituted, each outstanding option and stock
purchase right will fully vest and become exercisable, even as to shares that
would not otherwise be vested or exercisable. Our board or its committee will
notify each optionee that the option or stock purchase right will be fully
exercisable for a period of fifteen days from the day of notice and the option
or right will terminate upon the expiration of this period.
2000 STOCK PLAN
The 2000 stock plan will be adopted by our board of directors and approved
by our stockholders prior to the closing of this offering. Our 2000 stock plan
will provide for the grant to employees of incentive stock options within the
meaning of federal income tax laws, and for the grant to employees, directors
and consultants of nonstatutory stock options and stock purchase rights. Unless
terminated sooner, the 2000 stock plan will terminate automatically in 2010.
A total of shares of common stock will be reserved for
issuance under the 2000 stock plan, plus annual increases equal to the lesser
of:
- shares;
- % of the outstanding shares on such date; or
- a lesser amount determined by the board.
Our board of directors or a committee of our board will administer the 2000
stock plan. The committee may consist of two or more "outside directors" to
satisfy certain tax and securities law requirements. The administrator will have
the power to determine the terms of the options or stock purchase rights
granted, including the exercise price, the number of shares subject to each
option or stock purchase right, the exercisability of the options and the form
of consideration payable upon exercise. The administrator will determine the
exercise price of options granted under our stock option plan, but with respect
to incentive stock options, the exercise price must at least be equal to the
fair market value of our common stock on the date of grant. Additionally, the
term of an incentive stock option may not exceed ten years. The administrator
will determine the term of all other options. No optionee may be granted an
option to purchase more than shares in any fiscal year. In
connection with his or her initial service, an optionee may be granted an
additional option to purchase up to shares of our common stock.
After termination of one of our employees, directors or consultants, he or she
may exercise
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<PAGE> 54
his or her option for the period of time stated in the option agreement. If
termination is due to death or disability, the option will generally remain
exercisable for 12 months following such termination. In all other cases, the
option will generally remain exercisable for 3 months. However, an option may
never be exercised later than the expiration of its term. The administrator will
determine the exercise price of stock purchase rights granted under our 2000
stock plan. Unless the administrator determines otherwise, the restricted stock
purchase agreement will grant us a repurchase option that we may exercise upon
the voluntary or involuntary termination of the purchaser's service with us for
any reason (including death or disability). The purchase price for shares we
repurchase will generally be the original price paid by the purchaser. The
administrator will determine the rate at which our repurchase option will lapse.
Our stock option plan generally will not allow for the transfer of options or
stock purchase rights and only the optionee will be allowed to exercise an
option and stock purchase right during his or her lifetime. Our stock option
plan will include change in control provisions that may result in the
accelerated vesting of outstanding option grants and stock issuances. In the
event that we are acquired by merger or asset sale or a board-approved sale of
more than 50% of our capital stock, each outstanding option that is not assumed
or continued by the successor corporation will immediately become exercisable
for all the option shares and all unvested shares will immediately vest, except
to the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation. The compensation committee may grant
options and issue shares which will accelerate (i) upon an acquisition even if
the options are assumed and repurchase rights assigned, (ii) in connection with
a hostile change of control (effected through a successful tender offer for more
than 50% of our outstanding voting stock or by proxy contest for the election of
board members) or (iii) upon a termination of the individual's service following
a change in control or hostile take-over. The board will be able to amend the
2000 stock plan at any time, subject to any required stockholder approval, and,
except that no such action may adversely affect any outstanding options.
2000 EMPLOYEE STOCK PURCHASE PLAN
The 2000 employee stock purchase plan will be adopted by our board of
directors and approved by our stockholders prior to the closing of this
offering. A total of shares of common stock will be reserved for
issuance under the purchase plan, plus annual increases equal to the lesser of:
- shares;
- % of the outstanding shares on such date; or
- a lesser amount determined by the board.
The board of directors or a committee appointed by the board will
administer the purchase plan. The board or its committee will have full and
exclusive authority to interpret the terms of the purchase plan and determine
eligibility.
The purchase plan will contain consecutive, overlapping 24 month offering
periods. Each offering period will include four six-month purchase periods. The
offering periods will generally start on the first trading day on or after
and of each year, except for the first such offering
period which will commence on the first trading day on or after the effective
date of this offering and will end on the last trading day on or before
.
Employees will be eligible to participate if we or any participating
subsidiary employs them for at least 20 hours per week and more than five months
in any calendar year. However, the following employees will not be able to
purchase stock under the purchase plan:
- any employee who immediately after grant owns stock possessing % or
more of the total combined voting power or value of all classes of our
capital stock; or
- any employee whose rights to purchase stock under all our employee stock
purchase plans accrues at a rate which exceeds $25,000 worth of stock for
each calendar year.
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<PAGE> 55
Participants will be able to purchase common stock through payroll
deductions of up to 15% of the participant's eligible compensation.
"Compensation" is defined to include a participant's gross earnings and
commissions only. The maximum number of shares a participant may purchase during
a single purchase period will be shares.
Amounts deducted and accumulated by the participant will be used to
purchase shares of common stock at the end of each purchase period. The price of
stock purchased under the purchase plan will be 85% of the lower of the fair
market value of the common stock at the beginning of the offering period or at
the end of each purchase period.
The purchase plan will provide that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding purchase
right may be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the purchase rights,
the offering period then in progress will be shortened and a new exercise date
will be set, which will occur before the proposed sale or merger.
The purchase plan will terminate in 2010. The board of the directors has
the authority to amend or terminate the purchase plan, except that no such
action may adversely affect any outstanding rights to purchase stock.
401(k) PLAN
We have a 401(k) plan covering our full-time employees located in the
United States. The 401(k) plan is intended to qualify under Section 401(k) of
the Internal Revenue Code of 1986, as amended. Contributions to the 401(k) plan
by employees or by us, and the investment earnings thereon, are not taxable to
employees until withdrawn from the 401(k) plan. Consequently, contributions by
us, if any, will be deductible by us when made. Employees may elect to defer 20%
of their current compensation up to the statutorily prescribed annual limit,
which was $10,000 in 1999 and $10,500 in 2000, and to have the amount of such
deferral contributed to the 401(k) plan. The 401(k) plan permits, but does not
require, additional matching contributions to the 401(k) plan by us on behalf of
all participants in the 401(k) plan. To date, we have not made any contributions
to the 401(k) plan.
EMPLOYMENT AGREEMENTS
We do not currently have employment agreements with any of our employees.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we shall indemnify
our directors and executive officers and may indemnify our other officers and
employees and other agents to the fullest extent permitted by law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on
53
<PAGE> 56
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether our
bylaws would permit indemnification.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, will provide for indemnification of our
directors and executive officers for expenses, judgments, fines and settlement
amounts incurred by any such person in any action or proceeding arising out of
such person's services as a director or executive officer or at our request. We
believe that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
The limited liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against our directors for breach of their fiduciary duty and may reduce the
likelihood of derivative litigation against our directors and officers, even
though a derivative litigation, if successful, might otherwise benefit us and
our stockholders. A stockholder's investment in us may be adversely affected to
the extent we pay the costs of settlement or damage awards against our directors
or officers under these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
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<PAGE> 57
RELATED PARTY TRANSACTIONS
There has not been, nor is there currently proposed, any transaction or
series of similar transactions to which we were or are to be a party in which
the amount involved exceeds $60,000 and in which any director, executive officer
or holder of more than 5% of our common stock had or will have a direct or
indirect interest other than compensation arrangements, which are described
where required under "Management," and the transactions described below.
EQUITY INVESTMENT TRANSACTIONS
In August 1999, we sold 20,219,335 shares of Series A preferred stock for
$0.75 per share (which converts into 40,438,670 shares of common stock after our
2-for-1 stock split on April 4, 2000). In January 2000, we sold an aggregate of
4,319,427 shares of Series B preferred stock for $4.63 per share (which converts
into 8,638,854 shares of common stock after our 2-for-1 stock split on April 4,
2000). From April 2000 to June 2000, we sold an aggregate of 13,953,012 shares
of Series C preferred stock for $6.51 per share. Listed below are the directors,
executive officers and stockholders who beneficially own more than 5% of our
securities who participated in these financings.
<TABLE>
<CAPTION>
SHARES OF SERIES SHARES OF SERIES SHARES OF SERIES AGGREGATE
STOCKHOLDER A PREFERRED B PREFERRED C PREFERRED PURCHASE PRICE
----------- ---------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Aether Opensky Investments LLC...... 10,000,000(1) 1,439,809 -- $14,416,315.62
3Com Ventures, Inc.................. 10,000,000 -- -- 7,500,000.00
Entities affiliated with The Sprout
Group(2).......................... -- 2,850,970 24,592 13,360,085.02
Omni Holdings, Inc.(3).............. -- -- 9,210,337 59,959,293.87
</TABLE>
-------------------------
(1) Includes exercise of warrant to purchase 3,000,000 shares of Series A
preferred stock.
(2) The aggregated shares listed for entities affiliated with The Sprout Group
are owned as follows: DLJ Capital Corp. owns 8,143 shares of Series B
preferred stock, DLJ ESC II, L.P. owns 212,394 shares of Series B preferred
stock, Sprout Capital VIII, L.P. owns 2,440,792 shares of Series B preferred
stock, Sprout Venture Capital, L.P. owns 146,447 shares of Series B
preferred stock and certain individuals affiliated with the Sprout Group own
43,194 shares of Series B preferred stock.
(3) Omni Holdings, Inc. is an indirect wholly-owned subsidiary of News
Corporation.
SALES OF EQUITY SECURITIES TO EXECUTIVE OFFICERS
On April 5, 2000, we sold an aggregate of 1,000,000 shares of common stock
at a price of $1.50 per share to Larry Winkler, our Senior Vice President and
Chief Financial Officer. We have the right to repurchase 600,000 of such shares
in the event Mr. Winkler's services to us terminate, which right lapses over
three years after the date of grant. Mr. Winkler paid for such shares with a
full recourse, ten-year $1,500,000 promissory note, secured by the purchased
shares. The note bears interest at a rate of 6% per annum. On May 12, 2000, we
also sold to Mr. Winkler 100,000 shares of our Series C preferred stock at a
price of $6.51 per share. Mr. Winkler paid for such shares with a full recourse,
ten-year $651,000 promissory note, secured by the purchased shares. The note
bears interest at a rate of 6.5% per annum.
OTHER TRANSACTIONS
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to some of our executive officers and some of our
directors.
Holders of preferred stock are entitled to registration rights with respect
to the common stock issued or issuable upon conversion of the preferred stock.
We believe that all related party transactions described above were on
terms no less favorable than could have been obtained from unrelated third
parties.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The table on the following page sets forth information regarding the
beneficial ownership of our common stock as of June 15, 2000, by the following
individuals or groups:
- each person or entity who we know beneficially owns more than 5% of our
outstanding stock;
- each of our named executive officers;
- each of our directors; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed in the
following table is c/o OmniSky Corporation, 1001 Elwell Court, Palo Alto,
California 94303. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as otherwise indicated, to
our knowledge, the persons named in the table have sole voting and investment
power with respect to all shares beneficially owned, subject to community
property laws where applicable, of common stock held by them. In computing the
number of shares beneficially owned by a person and the percentage ownership of
that person, shares of common stock subject to options or warrants held by that
person that are currently exercisable or will become exercisable within 60 days
after June 15, 2000, are deemed outstanding, but the shares are not deemed
outstanding for purposes of computing percentage ownership of any other person.
Applicable percentage ownership in the following table is based on
73,980,536 shares of common stock outstanding as of June 15, 2000, as adjusted
to reflect the conversion of all outstanding shares of preferred stock upon the
closing of this offering. The number of shares of common stock outstanding after
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<PAGE> 59
this offering includes shares of common stock being offered, but does not
include the shares that are subject to the underwriters' over-allotment option.
PRINCIPAL STOCKHOLDERS TABLE
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
NUMBER OF --------------------
SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS:
Aether OpenSky Investments LLC(1)......................... 22,879,618 30.9
3Com Ventures, Inc.(2).................................... 20,000,000 27.0
Entities affiliated with The Sprout Group(3).............. 5,726,532 7.7
Omni Holdings, Inc.(4).................................... 9,210,337 12.4
DIRECTORS AND EXECUTIVE OFFICERS:
Patrick S. McVeigh(5)..................................... 3,600,000 4.9
Barak A. Berkowitz(6)..................................... 2,400,000 3.2
Lawrence S. Winkler(7).................................... 1,100,000 1.5
Michael D. Dolbec(8)...................................... 1,800,000 2.4
James J. Obot(9).......................................... 0 *
Neville J. Street(10)..................................... 0 *
David S. Oros(11)......................................... 22,914,618 31.0
Janice M. Roberts(12)..................................... 20,035,000 27.1
Stephen M. Diamond(13).................................... 5,756,532 7.8
Thomas E. Wheeler(14)..................................... 48,041 *
Lachlan K. Murdoch(15).................................... 9,210,337 12.4
---------- ----
All directors and executive officers as a group (11
persons)................................................ 66,864,528 90.4
========== ==== ==
</TABLE>
-------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Aether OpenSky Investments LLC is an entity managed by Aether Systems, Inc.
David Oros is the Chairman, President and Chief Executive Officer of Aether
Systems, Inc. The address of Aether Opensky Investments LLC is 11460
Cronridge Drive, Owings Mills, MD 21117.
(2) 3Com Ventures, Inc. is a wholly-owned subsidiary of 3Com Corporation. 3Com
Ventures has the right to appoint one director to our board of directors
and has designated Janice Roberts as that representative. The address of
3Com Ventures, Inc. is 5400 Bayfront Plaza, Santa Clara, CA 95052-8145.
(3) The aggregated shares listed for entities affiliated with The Sprout Group
are owned as follows: DLJ Capital Corp. owns 8,143 shares of Series B
preferred stock, DLJ ESC II, L.P. owns 212,394 shares of Series B preferred
stock, Sprout Capital VIII, L.P. owns 2,440,792 shares of Series B
preferred stock, Sprout Venture Capital, L.P. owns 146,447 shares of Series
B preferred stock and certain individuals affiliated with the Sprout Group
own 43,194 shares of Series B preferred stock. The address of The Sprout
Group is 3000 Sand Hill Road #3-170, Menlo Park, CA 94025.
(4) Omni Holdings, Inc. is an indirect wholly-owned subsidiary of News
Corporation. Mr. Murdoch is a director of News Corporation. The address of
Omni Holdings, Inc. is 1211 Avenue of the Americas, New York, NY 10036.
(5) 2,850,000 shares held by Mr. McVeigh were unvested and subject to a right
of repurchase in our favor, which right lapses over time.
(6) 1,900,000 shares held by Mr. Berkowitz were unvested and subject to a right
of repurchase in our favor, which right lapses over time.
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<PAGE> 60
(7) 566,667 shares held by Mr. Winkler were unvested and subject to a right of
repurchase in our favor, which right lapses over time.
(8) 1,425,000 shares held by Mr. Dolbec were unvested and subject to a right of
repurchase in our favor, which right lapses over time.
(9) Mr. Obot held options for 1,200,000 shares, none of which were vested
within 60 days of June 15, 2000.
(10) Mr. Street held options for 400,000 shares, none of which were vested
within 60 days of June 15, 2000.
(11) Includes 22,879,618 shares held by Aether OpenSky Investments LLC. Mr. Oros
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
(12) Includes 20,000,000 shares held by 3Com Ventures, Inc. Ms. Roberts
disclaims beneficial ownership of these shares except to the extent of her
pecuniary interest therein.
(13) Includes 5,726,532 shares held by entities affiliated with The Sprout
Group. Mr. Diamond disclaims beneficial ownership of these shares except to
the extent of his pecuniary interest herein.
(14) Mr. Wheeler holds options for 60,000 shares which vest ratably during a
one-year period, of which 25,000 shares will vest within 60 days of June
15, 2000. Mr. Wheeler also owns 23,041 shares of series C preferred stock
(15) Represents 9,210,337 shares held by Omni Holdings, Inc. Mr. Murdoch
disclaims beneficial ownership of these shares except to the extent of his
pecuniary interest therein.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon the completion of this offering, we will be authorized to issue
200,000,000 shares of common stock, $0.001 par value, and 10,000,000 shares of
undesignated preferred stock, $0.001 par value. The following description of our
capital stock does not purport to be complete and is subject to and qualified in
its entirety by our certificate of incorporation and bylaws, which are included
as exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Delaware law.
COMMON STOCK
As of June 15, 2000, there were 73,980,536 shares of common stock
outstanding which were held of record by approximately 46 stockholders, as
adjusted for the conversion of all outstanding shares of convertible preferred
stock into an aggregate of 63,030,536 shares of common stock, which will occur
upon the closing of this offering.
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 such dividends, if any, as may be declared from time
to time by the board of directors out of funds legally available for that
purpose. In the event of our liquidation, dissolution or winding up, the holders
of common stock are entitled to share ratably in all assets remaining after
payment of liabilities, subject to prior distribution rights of preferred stock,
if any, then outstanding. The holders of common stock have no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are fully paid and nonassessable. The shares of common stock to
be issued upon the closing of this offering will be fully paid and
nonassessable.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of us without further action
by the stockholders.
Upon the closing no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
We have granted registration rights to the holders of 63,030,536 shares of
common stock. Beginning 180 days after the date of this prospectus, holders of
these registrable securities may require that we register their shares for
public resale. Furthermore, in the event we elect to register any of our shares
of common stock for purposes of effecting any public offering, the holders of
the registrable securities are entitled to include their shares of common stock
in the registration, but we may reduce the number of shares proposed to be
registered in view of market conditions, including the right of the underwriters
in any underwritten offering to limit the number of shares to be included in the
offering. These registration rights are not applicable in connection with this
offering. We will pay all expenses, other than underwriting
59
<PAGE> 62
discounts and commissions, in connection with any registration. These
registration rights will terminate seven years following the consummation of
this offering, or, for each holder of registrable securities, at the time the
holder is entitled to sell all of its shares in any 90 day period under Rule 144
of the Securities Act.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- the acquisition of us by means of a tender offer;
- acquisition of us by means of a proxy contest or otherwise; or
- the removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board. We believe that the benefits of increased protection
of our potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Upon the closing of our offering, our certificate of incorporation will
provide for the following:
Election and Removal of Directors. Our board of directors will be divided
into three classes. The directors in each class will serve for a three-year
term, one class being elected each year by our stockholders. This system of
electing and removing directors may tend to discourage a third party from making
a tender offer or otherwise attempting to obtain control of us because it
generally makes it more difficult for stockholders to replace a majority of the
directors.
Stockholder Meetings. Only the board of directors, the chairman of the
board and the chief executive officer will be able to call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
Elimination of Stockholder Action By Written Consent. Stockholders will not
have the right to act by written consent without a meeting.
Undesignated Preferred Stock. Our board of directors will be able to issue
preferred stock with voting or other rights or preferences that could impede the
success of any attempt to change control of us. These and other provisions may
have the effect of deterring hostile takeovers or delaying changes in control or
management of us.
Amendment of Charter Provisions. The amendment of any of the above
provisions will require approval by holders of at least 66 2/3% of the
outstanding common stock.
DELAWARE ANTI-TAKEOVER LAW.
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless 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 interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates
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<PAGE> 63
and associates, owns or within three years prior to the determination of
interested stockholder status, did own, 15% or more of a corporation's voting
stock. The existence of this provision may have an anti-takeover effect with
respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock
is .
NASDAQ NATIONAL MARKET LISTING
We have applied for the listing of our shares on The Nasdaq Stock Market's
National Market under the symbol "SKYY".
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<PAGE> 64
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common stock
will develop or be sustained after this offering. Sales of substantial amounts
of our common stock, including shares issued upon exercise of outstanding
warrants or options, in the public market following this offering could
adversely affect the market price of our common stock and our ability to raise
equity capital in the future on terms favorable to us. As described below, no
shares currently outstanding will be available for sale immediately after this
offering because of contractual restrictions on resale and resale restrictions
under the federal securities laws.
After this offering, shares of common stock will be outstanding
based upon shares outstanding as of June 15, 2000, assuming that the
underwriters do not exercise their over-allotment option and that no outstanding
options or warrants are exercised prior to completion of this offering. Of these
shares, the shares sold in this offering will be freely tradable without
restriction under the Securities Act except for any shares purchased by our
affiliates as that term is defined in Rule 144 under the Securities Act.
The remaining 73,980,536 shares of common stock held by existing
stockholders are restricted securities as that term is defined in Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144 or 701 under the Securities Act, which rules are summarized below. As a
result of the lock-up agreements described below and the provisions of Rule 144
and 144(k), the restricted shares will become eligible for sale in the public
market as follows:
- no shares will become eligible for sale on the date of this prospectus;
- no shares will become eligible for sale 90 days after the date of this
prospectus;
- 57,477,524 shares will become eligible for sale 180 days after the date
of this prospectus; and
- the remaining 16,503,012 shares will become eligible for sale from time
to time more than 180 days after the date of this prospectus.
Resale of of the shares that will become eligible for sale in the
public market starting 180 days after the date of this prospectus will be
limited by volume and other resale restrictions under Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1% of the number of shares of common stock then outstanding which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
us at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
including the holding period of any prior owner except an affiliate, is entitled
to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
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<PAGE> 65
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchased shares from us under
a stock option plan or other written agreement can resell those shares 90 days
after the date of this prospectus in reliance on Rule 144, but without complying
with some of the restrictions, including the holding period, contained in Rule
144. As of June 15, 2000, no shares had been issued as a result of exercise of
stock options.
LOCK-UP AGREEMENTS
Each of our officers and directors and substantially all of our
stockholders and optionees have agreed not to offer to sell, contract to sell or
otherwise dispose of any shares of common stock or any securities convertible
into or exercisable or exchangeable for shares of common stock, for a period of
180 days after the date of this prospectus. Sales or other dispositions can be
made sooner with the prior written consent of Credit Suisse First Boston. Credit
Suisse First Boston, in its sole discretion and at any time without notice, may
release all or any portion of the securities subject to lock-up agreements.
REGISTRATION RIGHTS
Upon completion of this offering, the holders of 63,030,536 shares of our
common stock will be entitled to rights to registration of their shares under
the Securities Act. Registration of those shares under the Securities Act would
result in those shares becoming freely tradable without restriction under the
Securities Act, except for shares purchased by affiliates, immediately upon the
effectiveness of such registration.
STOCK OPTIONS
Immediately after this offering we intend to file a registration statement
under the Securities Act covering shares of common stock subject to outstanding
options or reserved for issuance under our stock option plans. Each year as the
number of shares reserved for issuance under our 2000 incentive stock option
plan and 2000 employee stock purchase plan increases, we will file an amendment
to the registration statement covering the additional shares. As of June 15,
2000, options to purchase 8,912,500 shares of common stock were issued and
outstanding and 4,437,500 shares were reserved for issuance under our stock
plans and employee stock purchase plan. Shares registered under that
registration statement will, upon the optionee's exercise and depending on
vesting provisions and Rule 144 volume limitations applicable to our affiliates,
be available for sale in the open market immediately after the 180 day lock-up
period expires.
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<PAGE> 66
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Chase Securities
Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Smith Barney,
Inc. and DLJdirect Inc., are acting as representatives, the following respective
number of shares of common stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Chase Securities, Inc.......................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Salomon Smith Barney, Inc...................................
DLJdirect Inc...............................................
--------
Total.....................................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us.................. $ $ $ $
Expenses payable by us.................... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
Credit Suisse First Boston Corporation acted as the placement agent in
connection with a private placement of our Series C preferred stock in April
2000. Credit Suisse First Boston Corporation received a customary fee for its
services as placement agent. Several entities and individuals affiliated with
Donaldson, Lufkin & Jenrette Securities Corporation invested in our Series B
preferred stock in January 2000 and our Series C preferred stock in April 2000,
purchasing an aggregate of 2,850,970 shares of Series B preferred stock and
24,592 shares of Series C preferred stock on the same terms and conditions as
the other investors in the respective private placements, including price per
share. In addition, two individuals affiliated with Salomon Smith Barney, Inc.
invested in our Series C preferred stock in April 2000, purchasing an aggregate
of 15,360 shares of Series C preferred stock on the same terms and conditions as
the other investors in the private placements, including price per share.
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<PAGE> 67
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933,
as amended, relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, or publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus,
except for issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
Our officers, directors and substantially all our stockholders have agreed
that they will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any shares of our common
stock, enter into a transaction which would have the same effect, or enter into
any swap, hedge or other arrangement that transfers, in whole or in part, any of
the economic consequences of ownership of our common stock, whether any such
aforementioned transaction is to be settled by delivery of our common stock or
such other securities, in cash or otherwise, or publicly disclose the intention
to make any such offer, sale, pledge or disposition, or to enter into any such
transaction, swap, hedge or other arrangement, without, in each case, the prior
written consent of Credit Suisse First Boston Corporation for a period of 180
days after the date of this prospectus.
At our request, the underwriters have reserved for sale, at the initial
offering price, up to shares of common stock for our employees,
customers, business partners and other parties, including friends and family of
key employees of OmniSky. The number of shares available for sale to the general
public will be reduced to the extent that these persons purchase the reserved
shares. Any reserved shares not so purchased will be offered by the underwriters
to the general public on the same terms as other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "SKYY".
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives, on behalf of the underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
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<PAGE> 68
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating of this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations.
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<PAGE> 69
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario Securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgement obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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<PAGE> 70
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Shearman & Sterling, Menlo Park, California.
As of the date of this prospectus, investment partnerships composed of members
of and persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, as well as some individual attorneys of that firm, beneficially own
an aggregate of 474,368 shares of our common stock.
EXPERTS
Our consolidated financial statements as of December 31, 1999 and March 31,
2000, and for the period from May 7, 1999 (inception) to December 31, 1999 and
for the three months ended March 31, 2000, included in this prospectus are
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on their authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered by this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement or the exhibits and schedules to the registration
statement. For further information with respect to us and our common stock, we
refer you to the registration statement and exhibits and schedules filed as part
of the registration statement. Statements contained in this prospectus
concerning the contents of any contract or any other documents are not
necessarily complete. If a contract or document has been filed as an exhibit to
the registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the filed exhibit.
Any document we file may be read and copied at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information about the public
reference rooms. Our filings with the Commission are also available to the
public from the Commission's web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act and,
accordingly, will file periodic reports, proxy statements and other information
with the Commission. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the Commission's
public reference rooms, and the web site of the Commission referred to above.
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<PAGE> 71
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Convertible Preferred Stock and
Stockholders' (Deficit) Equity............................ F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of OmniSky Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of convertible preferred stock
and stockholders' (deficit) equity and of cash flows present fairly, in all
material respects, the financial position of OmniSky Corporation (a company in
the development stage) at December 31, 1999 and March 31, 2000 and the results
of their operations and their cash flows for the period from May 7, 1999
(inception) to December 31, 1999, for the three months ended March 31, 2000, and
for the period from May 7, 1999 (inception) to March 31, 2000, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
June 12, 2000
F-2
<PAGE> 73
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, MARCH 31, MARCH 31, 2000
1999 2000 (SEE NOTE 10)
------------ --------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 6,767 $ 14,090
Accounts receivable, net................................ 471 213
Inventories............................................. 2,906 2,892
Prepaid expenses and other current assets............... 5,364 17,211
------- --------
Total current assets................................. 15,508 34,406
------- --------
Restricted cash........................................... -- 800
Property and equipment, net............................... 468 1,550
Intangibles, net.......................................... 5,469 5,090
------- --------
Total assets......................................... $21,445 $ 41,846
======= ========
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable........................................ $ 2,194 $ 10,143
Accrued and other current liabilities................... 4,259 3,764
Due to and advances from stockholder.................... 5,097 4,807
Deferred revenue........................................ 457 934
------- --------
Total current liabilities............................ 12,007 19,648
------- --------
Convertible preferred stock:
Series A; $0.001 par value, 25,000,000 authorized
shares; issued and outstanding: 20,219,335 in 1999,
20,219,335 in 2000 and zero pro forma (unaudited)
(Liquidation value: $15,165)......................... 15,393 15,393 $ --
Series A warrants....................................... 314 314 --
Series B; $0.001 par value, 5,000,000 authorized shares;
issued and outstanding: zero in 1999, 4,319,427 in
2000, and zero pro forma (unaudited) (Liquidation
value: $19,999)...................................... -- 19,973 --
------- -------- --------
Total convertible preferred stock.................... 15,707 35,680 --
------- -------- --------
Commitments (Notes 4, 5 and 11)
Stockholders' (deficit) equity:
Common stock: $0.001 par value, 100,000,000 shares
authorized; issued and outstanding: 8,400,000 in
1999, 8,400,000 in 2000, and 57,477,524 pro forma
(unaudited).......................................... 8 8 57
Additional paid-in capital.............................. 6,281 11,095 46,726
Receivable from stockholders............................ (315) (315) (315)
Deferred stock compensation............................. (5,314) (8,755) (8,755)
Deficit accumulated during the development stage........ (6,929) (15,515) (15,515)
------- -------- --------
Total stockholders' (deficit) equity................. (6,269) (13,482) $ 22,198
------- -------- --------
Total liabilities, convertible preferred stock and
stockholders' (deficit) equity..................... $21,445 $ 41,846
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 74
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1999 MAY 7, 1999
(INCEPTION) TO THREE MONTHS (INCEPTION) TO
DECEMBER 31, ENDED MARCH 31, MARCH 31,
1999 2000 2000
-------------- --------------- --------------
<S> <C> <C> <C>
Revenue........................................... $ -- $ 1,315 $ 1,315
----------- ----------- --------
Operating costs and expenses:
Cost of revenue................................. -- 2,853 2,853
Engineering and development..................... 2,352 1,334 3,686
Sales and marketing............................. 1,978 2,261 4,239
General and administrative...................... 1,342 1,936 3,278
Amortization of deferred stock
compensation(*).............................. 660 1,237 1,897
Depreciation and amortization................... 619 455 1,074
----------- ----------- --------
Total operating expenses..................... 6,951 10,076 17,027
----------- ----------- --------
Loss from operations.............................. (6,951) (8,761) (15,712)
----------- ----------- --------
Interest income................................... 22 175 197
----------- ----------- --------
Net loss.......................................... $ (6,929) $ (8,586) $(15,515)
=========== =========== ========
Net loss per share -- basic and diluted........... $ -- $ (10.61)
=========== ===========
Shares used in computing basic and diluted net
loss per share.................................. -- 809,615
=========== ===========
Pro forma net loss per share -- basic and diluted
(unaudited)..................................... $ (0.31) $ (0.18)
=========== ===========
Shares used in computing pro forma net loss per
share basic and diluted (unaudited)............. 22,147,767 48,178,355
=========== ===========
(*) Amortization of deferred stock compensation:
Engineering and development.................. $ 236 $ 579 $ 815
Sales and marketing.......................... 357 451 808
General and administrative................... 67 207 274
----------- ----------- --------
$ 660 $ 1,237 $ 1,897
=========== =========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 75
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
(DEFICIT) EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ------------------ PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
---------- ------- --------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 7, 1999 (inception).......... -- $ -- -- $-- $ -- $ --
---------- ------- --------- --- ------- -----
Issuance of common stock at $0.001 per share
in July 1999.............................. 8,400,000 8 307 (315)
Issuance of Series A preferred stock at
$0.75 per share in August 1999, less
issuance costs of $21..................... 17,219,335 12,893
Issuance of Series A warrants............... 314
Issuance of Series A preferred stock at
$0.8333 per share in November 1999 upon
exercise of warrant....................... 3,000,000 2,500
Deferred stock compensation................. 5,974
Amortization of stock-based compensation....
Net loss....................................
---------- ------- --------- --- ------- -----
Balance at December 31, 1999................ 20,219,335 15,707 8,400,000 8 6,281 (315)
---------- ------- --------- --- ------- -----
Issuance of Series B preferred stock at
$4.63 per share in January 2000, less
issuance costs of $26..................... 4,319,427 19,973
Issuance of common stock options to
consultants at $0.375 per share in January
2000...................................... 136
Deferred stock compensation................. 4,678
Amortization of stock-based compensation....
Net loss....................................
---------- ------- --------- --- ------- -----
Balance at March 31, 2000................... 24,538,762 $35,680 8,400,000 $ 8 $11,095 $(315)
========== ======= ========= === ======= =====
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
DURING THE STOCKHOLDERS'
DEFERRED STOCK DEVELOPMENT (DEFICIT)
COMPENSATION STAGE EQUITY
-------------- ----------- -------------
<S> <C> <C> <C>
Balance at May 7, 1999 (inception).......... $ -- $ -- $ --
------- -------- --------
Issuance of common stock at $0.001 per share
in July 1999..............................
Issuance of Series A preferred stock at
$0.75 per share in August 1999, less
issuance costs of $21.....................
Issuance of Series A warrants...............
Issuance of Series A preferred stock at
$0.8333 per share in November 1999 upon
exercise of warrant.......................
Deferred stock compensation................. (5,974)
Amortization of stock-based compensation.... 660 660
Net loss.................................... (6,929) (6,929)
------- -------- --------
Balance at December 31, 1999................ (5,314) (6,929) (6,269)
------- -------- --------
Issuance of Series B preferred stock at
$4.63 per share in January 2000, less
issuance costs of $26.....................
Issuance of common stock options to
consultants at $0.375 per share in January
2000...................................... 136
Deferred stock compensation................. (4,678)
Amortization of stock-based compensation.... 1,237 1,237
Net loss.................................... (8,586) (8,586)
------- -------- --------
Balance at March 31, 2000................... $(8,755) $(15,515) $(13,482)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 76
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
MAY 7, 1999 THREE MONTHS MAY 7, 1999
(INCEPTION) TO ENDED (INCEPTION) TO
DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 2000
-------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,929) $ (8,586) $(15,515)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 619 455 1,074
Amortization of stock-based compensation................ 660 1,237 1,897
Provision for obsolete inventory........................ -- 136 136
Provision for doubtful accounts receivable.............. -- 25 25
Issuance of common stock options to consultants in
exchange for services................................. -- 136 136
Change in operating assets and liabilities:
Accounts receivable..................................... (471) 233 (238)
Inventories............................................. (2,906) (122) (3,028)
Prepaid expenses and other current assets............... (5,364) (11,847) (17,211)
Accounts payable........................................ 2,194 7,949 10,143
Accrued and other current liabilities................... 4,259 (495) 3,764
Due to and advances from stockholder.................... 5,097 (290) 4,807
Deferred revenue........................................ 457 477 934
------- -------- --------
Net cash used in operating activities................. (2,384) (10,692) (13,076)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash deposit................................... -- (800) (800)
Purchase of property and equipment........................ (492) (1,158) (1,650)
------- -------- --------
Net cash used in investing activities................. (492) (1,958) (2,450)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Series A preferred stock, net of
issuance costs.......................................... 7,143 -- 7,143
Proceeds from issuance of Series B preferred stock, net of
issuance costs.......................................... -- 19,973 19,973
Proceeds from exercise of warrants for preferred stock.... 2,500 -- 2,500
------- -------- --------
Net cash provided by financing activities............. 9,643 19,973 29,616
------- -------- --------
Net increase in cash and cash equivalents................... 6,767 7,323 14,090
Cash and cash equivalents, beginning of period.............. -- 6,767 --
------- -------- --------
Cash and cash equivalents, end of period.................... $ 6,767 $ 14,090 $ 14,090
======= ======== ========
SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:
Issuance of preferred stock in connection with purchased
technology licenses....................................... $ 5,750 $ -- $ 5,750
======= ======== ========
Issuance of warrants in connection with purchased technology
license................................................... $ 314 $ -- $ 314
======= ======== ========
Issuance of common stock for notes.......................... $ 315 $ -- $ 315
======= ======== ========
Deferred stock compensation related to common stock option
grants to employees....................................... $ 5,974 $ 4,678 $ 10,652
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 77
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
Formation of company and description of business
OmniSky Corporation (the "Company"), formerly AirWeb Corporation, was
incorporated on May 7, 1999 and initially did business under the name "OpenSky".
The Company provides a wireless service under the OmniSky brand that enables
subscribers to access and navigate the Internet, send and receive e-mail
messages and securely conduct e-commerce transactions over handheld mobile
devices. From its inception, the Company has been in the development stage and
has devoted substantially all of its efforts to developing its products and
services and raising capital. The Company initiated its beta test in December
1999, and launched its commercial service in May 2000. The Company has a single
operating segment and has no organizational structure dictated by product or
service lines, geography or customer type.
Stock split
On April 4, 2000 the Company effected a two-for-one common stock split and
a simultaneous doubling of the par value per share. The consolidated financial
statements and all references to common stock contained in these consolidated
financial statements and notes give retroactive effect to the stock split.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The consolidated financial statements of OmniSky Corporation include the
accounts of a wholly-owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
Use of estimates
Preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents.
Certain risks and concentrations
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash, cash equivalents, restricted cash
deposits and accounts receivable. The Company's cash, cash equivalents and
restricted cash is deposited with major financial institutions in the United
States. At times, such deposits may be in excess of the amount of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of cash, cash equivalents and restricted cash.
Almost all of the Company's sales are made by credit card. No one customer
accounted for more than 10% of total trade accounts receivable in 1999 or 2000.
F-7
<PAGE> 78
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is highly dependent on third-party providers for wireless
communication services and wireless modem devices that are used in providing
services to customers. In addition, the Company relies on a third party for
subscriber billing and customer support.
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's inventory is currently provided by one supplier.
Fair value of financial instruments
The fair value of the Company's cash and cash equivalents, accounts
receivable and accounts payable approximate their carrying value due to the
short maturity or market rate structure of those instruments.
Inventories
Inventories, principally wireless modem devices and accessories, are stated
at the lower of cost (first-in, first-out basis) or market. The inventory of the
Company is subject to rapid technological changes that could have an adverse
impact on its realization in future periods.
Property and equipment
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated useful lives of the related assets,
generally two to four years. Expenditures for maintenance and repairs are
charged to expense as incurred.
The Company has adopted Statement of Position 98-1, which requires software
development costs associated with internal use software to be charged to
operations until certain capitalization criteria are met. Once capitalization
criteria are met, any such project costs are amortized over their estimated
useful lives. Amortization on the projects begins when the software is ready for
its intended use. During the period ended December 31, 1999 no such project
costs were capitalized. For the period ended March 31, 2000, $71,000 was
capitalized.
Intangibles
Intangible assets consist of technology licenses acquired from third
parties. These assets are being amortized using the straight-line method over
their estimated useful life of four years.
Accounting for long-lived assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Revenue and deferred revenue
The Company derives revenues from the provision of wireless services for
handheld devices, the sale of related equipment and accessories, and from
content.
F-8
<PAGE> 79
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the Company's beta test period (December 1999 through April 2000),
subscribers were charged a flat rate that combined equipment and service over
the beta test period. Revenue and the related cost of revenue has been
recognized ratably over the beta test period from the customer acceptance date.
We recognized no revenue from the beta test in the period ended December 31,
1999, and $1.3 million in the three months ended March 31, 2000.
Wireless service revenue consists of a flat monthly rate for usage and is
recognized ratably over the service period and begins upon expiration of the
customer acceptance period. Amounts billed or received in advance of revenue are
recorded as deferred revenue. No service revenue has been recognized through
March 31, 2000.
Equipment revenue is recognized upon shipment or customer acceptance,
whichever is later. No equipment revenue has been recognized through March 31,
2000.
Content revenue, which can consist of advertising, sponsorship, slotting
fees from content providers, and revenue from mobile e-commerce, is recorded
ratably over the service period. No content revenue has been recognized through
March 31, 2000.
Cost of revenue
Cost of wireless service revenue consists principally of activation fees,
airtime and other network costs and is recognized as the costs are incurred.
Cost of equipment revenue consists of the cost of equipment sold, shipping,
and direct provisioning costs.
Engineering and development
Engineering and development costs are expensed as incurred.
Advertising and cooperative marketing costs
The Company expenses the production costs of advertising the first time the
advertising takes place. At March 31, 2000, prepaid advertising consists of
deposits and production costs for future advertising campaigns. Sales and
marketing expense is reflected net of amounts reimbursed under a cooperative
marketing arrangement with AT&T Wireless. Cooperative advertising funds received
in advance of the Company incurring the related marketing costs are recorded as
advance marketing costs in accrued and other current liabilities. Advertising
expense was $1,863,000 and $1,398,000 in the periods ended December 31, 1999 and
March 31, 2000, respectively. Reimbursements recognized under the cooperative
marketing agreement during those same periods were $933,000 and $703,000.
Stock-based compensation
The Company accounts for stock-based compensation issued to employees using
the intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, presents
disclosure of pro forma information required under Financial Accounting
Standards Board Statement No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation." Stock and other equity instruments issued to non-employees are
accounted for in accordance with SFAS 123 and Emerging Issues Task Force Issue
No. 96-18 and valued using the Black-Scholes model.
F-9
<PAGE> 80
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income taxes
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting and tax basis of
assets and liabilities, measured at tax rates that will be in effect for the
year in which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Comprehensive income (loss)
The Company has adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
comprehensive income (loss) and its components in financial statements.
Comprehensive income (loss), as defined, includes all changes in equity during a
period from non-owner sources. There has been no difference between the
Company's net loss and its total comprehensive loss through March 31, 2000.
Net loss per common share
Basic net loss per common share is computed by dividing the net loss
available to common stockholders for the period by the weighted average number
of common shares outstanding for the period net of common shares subject to
repurchase. Diluted net loss per common share is computed by dividing the net
loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period net of common shares subject to
repurchase. Common equivalent shares, composed of common shares issuable upon
exercise of stock options and upon conversion of preferred stock are included in
the diluted net loss per share computation to the extent such shares are
dilutive.
A reconciliation of the numerator and denominator used in the calculation
of basic and diluted net loss per common share is as follows:
<TABLE>
<CAPTION>
PERIOD FROM THREE
MAY 7, 1999 MONTHS
(INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1999 2000
--------------- -----------
<S> <C> <C>
Numerator:
Net loss.............................................. $(6,929,000) $(8,586,000)
=========== ===========
Denominator:
Weighted average common shares -- basic............... 8,400,000 8,400,000
Weighted average shares subject to repurchase......... (8,400,000) (7,590,385)
----------- -----------
Denominator for basic and diluted calculation......... -- 809,615
=========== ===========
Net loss per common share -- basic and diluted.......... $ -- $ (10.61)
=========== ===========
</TABLE>
Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ----------
<S> <C> <C>
Common stock options............................... 3,258,000 5,356,000
Convertible preferred stock........................ 40,438,670 49,077,524
---------- ----------
43,696,670 54,433,524
========== ==========
</TABLE>
F-10
<PAGE> 81
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Recently issued accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income
(loss), depending on the type of hedging relationship that exists. SFAS 133, as
amended, will be effective for fiscal quarters or years beginning after June 15,
2000. The Company does not currently hold derivative instruments or engage in
hedging activities.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the Company has complied with the guidance of SAB 101.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN 44") "Accounting for Certain Transactions Involving
Stock Compensation, an Interpretation of APB Opinion No. 25". FIN 44 clarifies
the application of Opinion No. 25 for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January 12,
2000. Management believes that the impact of FIN 44 will not have a material
effect on the financial position or results of operations of the Company.
In various areas, including revenue recognition and other Internet-related
issues, accounting standards and practices continue to evolve. The SEC is
preparing to issue interpretative guidance relating to SAB 101, and the FASB's
Emerging Issues Task Force continues to address revenue and other Internet-
related accounting issues. The management of the Company believes it is in
compliance with all of the rules and related guidance as they currently exist.
However, any changes to generally accepted accounting principles in these areas
could impact the Company's accounting for its operations.
NOTE 3 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable................................ $471 $238
Less: Allowance for doubtful accounts.............. (--) (25)
---- ----
$471 $213
==== ====
</TABLE>
F-11
<PAGE> 82
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Prepaid expenses and other current assets:
Prepaid advertising................................ $ -- $12,891
Advances on inventory purchases.................... 4,832 3,017
Deposits........................................... 2 102
Deferred cost of revenue........................... 457 881
Other.............................................. 73 320
------ -------
$5,364 $17,211
====== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Property and equipment, net:
Computer software and equipment.................... $378 $1,484
Furniture, fixtures and equipment.................. 114 141
Leasehold improvements............................. -- 25
---- ------
492 1,650
Less: accumulated depreciation and amortization.... (24) (100)
---- ------
$468 $1,550
==== ======
</TABLE>
Depreciation and amortization expense was $24,000 and $76,000 for the
periods from May 7, 1999 (inception) to December 31, 1999 and for the three
months ended March 31, 2000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Intangibles, net:
Purchased technology licenses...................... $6,064 $6,064
Less: accumulated amortization..................... (595) (974)
------ ------
$5,469 $5,090
====== ======
</TABLE>
Amortization expense was $595,000 and $379,000 for the periods from May 7,
1999 (inception) to December 31, 1999 and for the three months ended March 31,
2000, respectively.
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Accrued and other current liabilities:
Advance under cooperative marketing arrangement.... $4,067 $3,364
Accrued employee compensation...................... 158 211
Other.............................................. 34 189
------ ------
$4,259 $3,764
====== ======
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS:
At December 31, 1999 and March 31, 2000, certain executive officers had
recourse notes payable to the Company of $315,000 for the purchase of the
Company's common stock. The notes accrue interest at a rate of 6% per year and
are due July 2003.
In August 1999, the Company issued 10,000,000 shares of Series A preferred
stock to 3Com in exchange for $7 million and a perpetual, non-exclusive,
non-assignable, worldwide license to certain
F-12
<PAGE> 83
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
proprietary software of 3Com's Palm Computing business, which has been valued at
$500,000 based on the cash received in connection with the Series A issuance. In
December 1999, we purchased inventory totaling $230,000 from 3Com; at December
31, 1999, this amount due to 3Com is included in accounts payable. A
representative of 3Com serves on the Company's board of directors. At March 31,
2000, 3Com's ownership in the Company was approximately 28.9% on a fully-diluted
basis.
In connection with the August 1999 preferred stock financing, the Company
issued to Aether Systems Inc. ("Aether") 7,000,000 shares of Series A preferred
stock and warrants to purchase an additional 3,000,000 shares of Series A
preferred stock for $2.5 million. In exchange, the Company received from Aether
a perpetual, non-exclusive, non-assignable, worldwide license to certain
proprietary Aether software, which has been valued at $5.25 million based on the
cash received in conjunction with the Series A issuance. Aether exercised its
warrants in November 1999 and acquired the additional shares for cash. In
connection with the January 2000 preferred stock financing, Aether acquired an
additional 1,439,809 shares of Series B preferred stock for $6.7 million. At
March 31, 2000, Aether's ownership in the Company was approximately 33.1% on a
fully-diluted basis.
Aether's chief executive officer serves on the Company's board of
directors. Aether has provided engineering and network services to the Company
and the Company has recognized approximately $2.1 million and $1.0 million in
engineering and network costs to Aether in the periods ended December 31, 1999
and March 31, 2000, respectively. The Company also pays Aether $1.50 per month
per subscriber for the use of Aether's network operating center.
Aether also agreed in November 1999 to purchase 25,000 modems from the
Company for $5.75 million. Under the agreement, Aether advanced the Company $4.6
million, of which the Company received approximately $3.5 million after applying
amounts due to Aether for services. In May 2000, the agreement with Aether was
revised to lower by 8,000 units the purchase commitment; accordingly, in June
2000, the Company will repay Aether $1.84 million for the modems it will not be
purchasing. As the modems sold to Aether are at the Company's cost per unit, and
given Aether's investment and business relationships with the Company, no
revenue is recognized upon sale of modems to Aether. In the periods ended
December 31, 1999 and March 31, 2000, respectively, 500 and 250 modems were sold
to Aether.
The net advances from and amounts due to Aether are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Advances from Aether................................. $4,485 $4,428
Amounts due to Aether................................ 612 379
------ ------
$5,097 $4,807
====== ======
</TABLE>
NOTE 5 -- COMMITMENTS:
During 2000, the Company entered into an office lease that expires in 2007.
In conjunction with this lease, the Company provided an $800,000 letter of
credit to the landlord, which was collateralized by an $800,000 restricted cash
deposit at March 31, 2000 that is reflected in long-term assets.
F-13
<PAGE> 84
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating leases,
including lease commitments entered into subsequent to March 31, 2000, are as
follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
<S> <C>
2000..................................................... $1,079
2001..................................................... 1,234
2002..................................................... 1,117
2003..................................................... 1,002
2004..................................................... 1,052
Thereafter............................................... 2,558
------
Total minimum lease payments.......................... $8,042
======
</TABLE>
Rental expense under noncancelable operating leases was $179,000 and
$213,000 for the periods ended December 31, 1999 and March 31, 2000,
respectively.
The Company entered into a three-year agreement in 1999 with a company that
will provide telesales, customer care, billing and reporting, and technical
support services for Company customers. Minimum annual payments under this
service agreement are $1.65 million for 2000, and $1.8 million for each of 2001
and 2002, excluding subscriber-based charges. Under this and other service
agreements, the Company expensed $529,000 during the period from May 7, 1999
(inception) to December 31, 1999 and $1,262,000 in the three months ended March
31, 2000.
During 1999, the Company entered into a supply agreement with a company to
purchase 100,000 wireless modems through April 30, 2000. The purchase commitment
totals approximately $23.0 million. Through March 31, 2000, the Company has
purchased 21,125 modems for approximately $4.9 million. Amounts prepaid under
this supply agreement totaled $4.8 million at December 31, 1999 and $3.0 million
at March 31, 2000 and are included in prepaid expenses and other current assets
in the Company's balance sheet. The Company and its supplier have discussed and
are continuing to discuss modifications to the agreement regarding delivery
timetables.
During 1999, the Company entered into a software license agreement related
to certain wireless software computing systems. Under this agreement, the
Company is committed to maintenance and support fees through June 1, 2004
totaling $450,000. Under this agreement the Company expensed $73,000 during the
period from May 7, 1999 (inception) to December 31, 1999 and $31,000 in the
three months ended March 31, 2000.
See Note 11 for additional commitments.
NOTE 6 -- CONVERTIBLE PREFERRED STOCK:
Under the Company's Certificate of Incorporation, the Company's preferred
stock is issuable in series. The rights, preferences and privileges of the
preferred stockholders are as follows:
Dividends
The holders of Series A and Series B preferred stock are entitled to
receive noncumulative dividends at an annual rate of 8% per share when, as and
if declared by the Board of Directors. No dividends have been declared through
March 31, 2000.
F-14
<PAGE> 85
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Liquidation
The holders of the Series A and Series B preferred stock are entitled to a
distribution in preference to common shareholders of $0.75 and $4.63 per share,
respectively, plus any declared but unpaid dividends. A consolidation or merger
of the Company into another company or certain other events, each such event
being a change of control, as defined, shall be deemed to be a liquidation,
dissolution or winding up of the Company.
Conversion
The Series A and Series B preferred stock is convertible, at the option of
the holder, into common stock on a two-for-one basis, subject to adjustment for
dilution. Conversion is automatic upon the closing of a firm commitment
underwritten public offering of the Company's common stock at an aggregate
offering price of not less than $25,000,000 and at a price per share of not less
than $9.26. In addition, preferred stockholders have certain registration rights
and the right to participate in future issuances of the Company's stock. A total
of 49,077,524 shares of common stock have been reserved for issuance upon the
conversion of preferred stock at March 31, 2000.
Redemption
For a three year period beginning any time after April 24, 2005, upon the
written request of a majority of the holders of then outstanding Series B
preferred stock, the Company is required to redeem any outstanding shares of
Series B preferred stock as requested by such holders. At the option of the
Company, this redemption can be made in installments on an annual basis over a
period not to exceed three consecutive calendar years. The shares of Series B
preferred stock are required to be redeemed in cash in an amount equal to the
Series B original issue price, plus, in the case of each share, an amount equal
to all unpaid dividends whether or not declared.
Voting
Each share of Series A and Series B preferred stock has voting rights equal
to the two shares of Common Stock into which it is convertible and votes
together as one class with the Common Stock. The Company must obtain approval
from two-thirds of the outstanding shares of preferred stock to alter the
certificate of incorporation as related to preferred stock, authorize or issue
any other equity security senior to or on parity with that preferred stock,
redeem or purchase any shares of preferred stock other than by redemption in
accordance with the certificate of incorporation, increase or decrease the
number of authorized shares of preferred stock, authorize a dividend for any
class or series other than preferred stock, increase the size of the Board of
Directors, or acquire any other company or business.
Warrants for convertible preferred stock
In connection with the Series A preferred stock issuance in August 1999,
the Company issued warrants to purchase 3 million shares of Series A preferred
stock at $0.8333 per share. The fair value of these warrants has been estimated
using the Black-Scholes pricing model at the date of the grant using a term of
six months, a weighted-average risk free rate of 5.12%, an expected dividend
yield of zero percent and a volatility of 60%, resulting in a fair value of
$314,000. The fair value of these warrants is being amortized over the life of
the related purchased technology license. The Company recognized $31,000 and
$19,600 as amortization expense associated with these warrants for the periods
ended December 31, 1999 and March 31, 2000, respectively. The warrants were
exercised in November 1999, and no warrants were outstanding at December 31,
1999 or March 31, 2000.
F-15
<PAGE> 86
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- COMMON STOCK:
Authorized shares
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 100,000,000 shares of common stock.
Right of repurchase
A portion of the shares sold to employees, directors or consultants are
subject to a right of repurchase by the Company subject to vesting, which is
generally over a three to four year period from the earlier of grant date or
employee hire date, as applicable, until vesting is complete. At December 31,
1999 all common shares outstanding were subject to repurchase as the initial
vesting for 6/48 of these shares did not lapse until January 2000; the remaining
shares vest 1/48 per month thereafter. At March 31, 2000, 7,590,385 shares were
subject to a right of repurchase.
Stock option plan
In 1999 the Company adopted the 1999 Stock Plan (the "Plan"). The Plan
provides for the granting of stock options to employees, directors and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees, non-employee directors and consultants. At March
31, 2000, the Company has reserved 11,600,000 shares of common stock for
issuance under the Plan.
Options under the Plan may be granted for a period of up to ten years,
provided, however, that (i) the exercise price of an ISO and NSO shall not be
less than 100% and 85% of the estimated fair value of the shares on the date of
grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a
10% stockholder shall not be less than 110% of the estimated fair value of the
shares on the date of grant, respectively. To date, options granted generally
vest over four years.
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVAILABLE OPTIONS AVERAGE EXERCISE
FOR GRANT OUTSTANDING PRICE
---------------- ----------- ----------------
<S> <C> <C> <C>
Shares reserved at plan inception......... 11,600,000 -- --
Options granted......................... (3,258,000) 3,258,000 $0.25
---------- ---------
Balance at December 31, 1999.............. 8,342,000 3,258,000 $0.25
---------- ---------
Options granted......................... (2,098,000) 2,098,000 $1.09
---------- ---------
Balance at March 31, 2000................. 6,244,000 5,356,000
========== =========
</TABLE>
F-16
<PAGE> 87
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The options outstanding, and currently exercisable by exercise price at
March 31, 2000, are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
REMAINING WEIGHTED
NUMBER NUMBER CONTRACTUAL LIFE AVERAGE EXERCISE
EXERCISE PRICE OUTSTANDING VESTED (YEARS) PRICE
--------------- ----------- ------ ---------------- ----------------
<S> <C> <C> <C> <C>
$0.25 3,258,000 -- 3.55 $0.25
$0.375 770,000 -- 3.72 $0.375
$1.50 1,328,000 -- 3.85 $1.50
---------
5,356,000
=========
</TABLE>
In connection with certain stock option grants to employees during the
periods ended December 31, 1999 and March 31, 2000, the Company recorded
deferred stock compensation totaling $6.0 million and $4.7 million,
respectively, which is being amortized over the vesting periods of the related
options which is generally four years using the method set out in FASB
Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each vested tranche
of options is accounted for as a separate option grant awarded for past
services. Accordingly, the compensation expense is recognized over the period
during which the services have been provided. This method results in higher
compensation expense in the earlier vesting periods of the related options.
Amortization of this stock-based compensation was $660,000 and $1,237,000 for
the periods ended December 31, 1999 and March 31, 2000, respectively.
Options granted include options issued to consultants in January 2000 to
acquire 70,000 shares of common stock at an exercise price of $0.375 in exchange
for the provision of services. The shares vested immediately upon issuance. The
fair value of these options has been estimated using the Black-Scholes pricing
model at the date of the grant using a weighted-average risk free rate of 5.69%,
an expected dividend yield of zero percent and a volatility of 60%, resulting in
a fair value of $136,000. Stock-based compensation related to stock options
granted to consultants is recognized as earned. The Company recorded stock-based
compensation of $136,000 in the three months ended March 31, 2000.
Pro forma stock-based compensation
The Company has adopted the disclosure-only provisions of SFAS 123 for
option grants to employees. Had compensation cost been determined based on the
fair value at the grant date for the awards in 1999 and 2000 consistent with the
provisions of SFAS 123, the Company's net loss for 1999 would have been as
follows (in thousands):
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, THREE MONTHS
1999 (INCEPTION) ENDED
TO DECEMBER 31, MARCH 31,
1999 2000
------------------ ------------
<S> <C> <C>
Net loss -- as reported............................... $(6,929) $(8,586)
Net loss -- pro forma................................. $(6,982) $(8,908)
Net loss per common share -- basic and diluted, as
reported............................................ $ -- $(10.61)
Net loss per common share -- basic and diluted, pro
forma............................................... $ -- $(11.00)
</TABLE>
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made each
year.
F-17
<PAGE> 88
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The weighted average fair value of options issued during the periods ended
December 31, 1999 and March 31, 2000 was $1.00 and $1.77, respectively. The fair
value of each option grant is estimated on the date of grant using the minimum
value method with the following assumptions used for grants:
<TABLE>
<CAPTION>
PERIOD FROM MAY 7, THREE MONTHS
1999 (INCEPTION) TO ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------------- ------------
<S> <C> <C>
Risk-free interest rate....................... 6.03% 6.65%
Expected life of option....................... 4 years 4 years
Expected dividends............................ 0% 0%
</TABLE>
NOTE 8 -- 401(k):
The Company sponsors an employee savings and retirement plan intended to
qualify under section 401(k) of the Internal Revenue Code. All eligible
employees may contribute up to 20% of compensation, subject to annual
limitations, which are fully vested at all times. The Company retains the option
of matching employees' contributions with a discretionary employer contribution.
To date, no employer contributions have been made.
NOTE 9 -- INCOME TAXES:
No provisions for income taxes have been recorded as the Company has
incurred net losses since inception.
The Company's effective tax rate varies from the statutory rate as follows:
<TABLE>
<CAPTION>
PERIOD FROM MAY 7,
1999 (INCEPTION) TO THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------------- ------------------
<S> <C> <C>
U.S. Federal income tax rate............. (34.0)% (34.0)%
State taxes, net of federal tax
benefit................................ (5.8) (5.8)
Stock-based compensation................. 3.2 4.9
Other.................................... 3.0 1.6
Valuation allowance...................... 33.6 33.3
----- -----
Effective tax rate..................... -- --
===== =====
</TABLE>
The components of the net deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................... $ 2,253 $ 2,770
Various accruals and allowances.................... 12 80
------- -------
2,265 2,850
------- -------
Valuation allowance.................................. (2,238) (2,771)
------- -------
Net deferred tax assets.............................. 27 79
Deferred tax liabilities:
Depreciation and amortization...................... (27) (79)
------- -------
Net deferred tax assets.............................. $ -- $ --
======= =======
</TABLE>
F-18
<PAGE> 89
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At March 31, 2000, the Company had approximately $12.6 million of federal
and state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2019 and 2007, respectively.
Under the Tax Reform Act of 1986, the amounts of and benefits from net operating
loss carryforwards may be impaired or limited in certain circumstances. Such
amount, if any, has not been determined. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period.
Management believes that, based on a number of factors, the available
objective evidence creates sufficient uncertainty regarding the realizability of
the deferred tax assets such that a full valuation allowance has been recorded.
NOTE 10 -- UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA BALANCE
SHEET:
Upon the closing of the Company's initial public offering, all outstanding
preferred stock will be converted automatically into common stock. The pro forma
effect of this conversion has been presented as a separate column in the
Company's balance sheet, assuming the conversion had occurred as of March 31,
2000. Pro forma basic and diluted net loss per common share have been computed
as described in Note 2 and also give effect to common equivalent shares from
preferred stock that will automatically convert upon the closing of the
Company's initial public offering (using the "as-if-converted method") for the
periods ended December 31, 1999 and March 31, 2000.
A reconciliation of the numerator and denominator used in the calculation
of pro forma basic and fully diluted net loss per common share follows (in
thousands, except share and per share data):
<TABLE>
<CAPTION>
PERIOD FROM
MAY 7, 1999
(INCEPTION) TO THREE MONTHS
DECEMBER 31, ENDED
1999 MARCH 31, 2000
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Net loss................................................. $ (6,929) $ (8,586)
=========== ===========
Shares used in computing basic and diluted net loss per
share.................................................. -- 809,615
Assumed conversion of all convertible preferred stock
from date of issuance.................................. 22,147,767 47,368,740
----------- -----------
Weighted average shares used in computing pro forma basic
and diluted net loss per share......................... 22,147,767 48,178,355
=========== ===========
Pro forma basic and diluted net loss per share........... $ (0.31) $ (0.18)
=========== ===========
</TABLE>
NOTE 11 -- SUBSEQUENT EVENTS (UNAUDITED):
Common stock
During April and May 2000, the Company issued 2,550,000 shares of
restricted common stock to employees at purchase prices of $1.50 and $2.30 per
share and recorded related recourse notes receivable from stockholders totaling
$4.2 million. The notes accrue interest at a rate of 6% per year and are due
April 2009. The shares are subject to a right of repurchase and vest over a
36-month period.
Preferred stock
From April through June 2000, the Company issued 13,953,012 shares of
Series C convertible preferred stock at a purchase price of $6.51 per share for
aggregate proceeds of approximately
F-19
<PAGE> 90
OMNISKY CORPORATION
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$90.8 million. Included in this are 225,000 shares sold to employees, for which
the Company recorded a related recourse note receivable from stockholders
totaling approximately $1.5 million. The relative rights, preferences and
privileges granted the Series C preferred stockholders are similar to the Series
B stockholders except that the liquidation price is $6.51 per share and the
conversion rate into common stock is one-for-one.
Stock options
In April 2000, the Company issued options to purchase 1,824,500 shares of
common stock to employees with an exercise price of $2.30 per share.
In June 2000, the Company issued options to purchase 1,732,000 shares of
common stock to employees with an exercise price of $3.50 per share.
Joint Venture with News Corporation
We formed an international joint venture with News Corporation in April
2000 to pursue business opportunities outside of the United States. Under the
joint venture agreement, each party will contribute $5 million to initially fund
the new joint venture. The joint venture is 50% owned by News Corporation and
50% by the Company. The Company will record its interest in the joint venture
under the equity method of accounting. A representative of News Corporation
serves on the Company's board of directors.
In accordance with the joint venture agreement and a related equity
investment in the Company by News Corporation (9,210,337 shares of Series C
preferred stock at $6.51 per share totaling approximately $60 million), the
Company committed to spend $30 million over the next five years for advertising
with News Corporation's affiliates in the United States.
F-20
<PAGE> 91
[INSIDE BACK COVER]
The upper right quarter of the inside back cover of the prospectus contains the
following text:
OmniSky Ad Campaign
1. Big Inflatable Bag
Made for print, this ad illustrates the ability to solve problems and
buy products and services online without being tied to a computer.
2. Baby Sitter
This print ad demonstrates how the OmniSky service can be used to
keep in touch, even at times when other means of communication may be
inappropriate or impossible.
3. Zoo
As part of our TV campaign, this ad shows the ease of making things
happen, even in an unusual environment.
4. Game Show
In this TV ad, a game show contestant gains an advantage with
Internet information provided by the OmniSky service.
In the upper left hand corner of the page is a picture with two frames. The
first frame contains a picture of a man using the OmniSky service as he falls
through the sky. The OmniSky logo appears below this frame. The second frame
contains a picture of a large inflatable mattress. A picture of a Palm V device
connected to a wireless modem, the OmniSky logo and the words "Think it. Do it."
appear below this frame. The number "1" appears to the right of this picture.
Below the above picture is another picture with two frames. The first frame
contains a picture of a man at a restaurant being shown by a woman a Palm V
attached to a wireless modem. The OmniSky logo appears below this frame. The
second frame contains a picture of a baby sitter, who has been tied up by
several children, using the OmniSky service. A picture of a Palm V device
connected to a wireless modem, the OmniSky logo and the words "Think it. Do it."
appear below this frame. The number "2" appears to the right of this picture.
Below the above picture is a picture with five frames. The first frame contains
a picture of an orangutan sleeping on a rock at a zoo. The second frame contains
a picture of the orangutan taking from a zoo keeper's pocket a Palm V attached
to a wireless modem. The third frame shows the orangutan using the OmniSky
service. The fourth frame shows several orangutans playing on a heart-shaped
bed. In the fifth frame, the OmniSky logo appears above the words "The Complete
Internet Entirely Wireless". The number "3" appears above the upper left hand
corner of this picture.
<PAGE> 92
Below the above picture is another picture with five frames. The first frame
contains a picture of the stage of a game show. The second frame contains a
picture of a woman speaking into a microphone. The third frame shows a Palm V
attached to a wireless modem with the OmniSky logo strapped to an arm. The
fourth frame contains a picture of a man and woman. In the fifth frame, the
OmniSky logo appears above the words "The Complete Internet Entirely Wireless".
The number "4" appears above the upper left hand corner of this picture.
The OmniSky logo appears on the bottom of the page against a dark background,
together with the words "Think it. Do it."
<PAGE> 93
OMNISKY LOGO
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by OmniSky in connection with
the sale of common stock being registered hereby. All amounts are estimates
except the SEC registration fee, the NASD filing fee and The Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 30,360
NASD filing fee............................................. 12,000
Nasdaq National Market listing fee.......................... *
Printing and engraving costs................................ 250,000
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. 5,000
Transfer Agent and Registrar fees........................... *
Miscellaneous expenses...................................... *
--------
Total..................................................... $ *
========
</TABLE>
---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.
Article IX of the Registrant's Restated Certificate of Incorporation
provides for the indemnification of directors to the fullest extent permissible
under Delaware law.
Article VI of the Registrant's Bylaws provides for the indemnification of
officers, directors and third parties acting on behalf of the Registrant if such
person acted in good faith and in a manner reasonably believed to be in and not
opposed to the best interest of the Registrant, and, with respect to any
criminal action or proceeding, the indemnified party had no reason to believe
his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Bylaws, and intends to enter into indemnification agreements
with any new directors and executive officers in the future.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the registrant and its executive officers
and directors, and by the registrant of the underwriters for some liabilities,
including liabilities arising under the Securities Act, in connection with
matters specifically provided in writing by the Underwriters for inclusion in
the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past year, the registrant has issued unregistered securities to
a limited number of persons as described below:
(a) On August 9, 1999, the registrant issued and sold an aggregate of
17,219,335 shares of Series A preferred stock to a total of 11 investors
for $0.75 per share, prior to giving effect to the registrant's two-for-one
stock split in April 2000, or an aggregate of $12,914,501.25.
(b) On August 9, 1999, the registrant granted a warrant to an investor
to purchase up to 3,000,000 shares of Series A preferred stock at $0.83 1/3
per share, prior to giving effect to the
II-1
<PAGE> 95
registrant's two-for-one stock split in April 2000, or an aggregate
exercise price of $2,500,000. This warrant was exercised in November 1999.
(c) On January 18, 2000, the registrant issued and sold an aggregate
of 4,319,427 shares of Series B preferred stock to a total of 20 investors
for $4.63 per share, prior to giving effect to the registrant's two-for-one
stock split in April 2000, or an aggregate of $19,998,947.01.
(d) On April 5, 2000, the registrant issued and sold an aggregate of
2,100,000 shares of common stock to Lawrence Winkler, our Senior Vice
President and Chief Financial Officer, Raymond Cleeman, our Vice President,
Treasurer, and Michael Malesardi, our Vice President, Controller, for $1.50
per share or an aggregate of $3,150,000.
(e) On April 24, 2000, the registrant issued and sold an aggregate of
4,377,879 shares of Series C preferred stock to a total of 3 investors for
$6.51 per share or an aggregate of $28,499,992.29.
(f) On April 27, 2000, the registrant agreed to issue and sell 450,000
shares of common stock to Scott Wornow, our Vice President, General Counsel
and Secretary, for $2.30 per share or an aggregate of $1,035,000.
(g) On May 12, 2000, the registrant issued and sold an aggregate of
685,421 shares of Series C preferred stock to a total of 10 investors for
$6.51 per share or an aggregate of $4,462,090.71.
(h) On May 19, 2000, the registrant issued and sold an aggregate of
1,906,717 shares of Series C preferred stock to a total of 7 investors for
$6.51 per share or an aggregate of $12,412,727.67.
(i) On June 9, 2000, the registrant issued and sold 6,982,995 shares
of Series C preferred stock to one investor for $6.51 per share or
$45,459,297.45.
None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and the Registrant believes
that each transaction was exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof and Regulation D promulgated
thereunder. The recipients in such transactions represented their intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof, and appropriate legends were affixed
to the share certificates and instruments issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 1999 Stock Plan and form of agreement thereunder.
10.3* 2000 Stock Plan and form of agreement thereunder.
10.4* 2000 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5 Second Amended and Restated Investors Rights Agreement dated
April 24, 2000.
10.6* Lease.
10.7* Palm Computing Software License dated January 6, 2000.
</TABLE>
II-2
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10.8* AT&T Wireless Services Value Added Reseller Agreement dated
December 2, 1999.
10.9 The News Corporation Limited Joint Venture Agreement dated
April 18, 2000.
10.10* Novatel Wireless, Inc. Supply Agreement dated July 15, 1999,
as amended in October 1999.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedules.
</TABLE>
---------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered
hereunder, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 97
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto,
State of California, on the 16th day of June, 2000.
OMNISKY CORPORATION
By: /s/ PATRICK S. MCVEIGH
------------------------------------
Patrick S. McVeigh
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Patrick S. McVeigh and Lawrence S.
Winkler and each of them singly, as true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign the Registration Statement
filed herewith and any or all amendments to said Registration Statement
(including post-effective amendments and registration statements filed pursuant
to Rule 462 and otherwise), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission granting unto said attorneys-in-fact and agents the full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ PATRICK S. MCVEIGH Chief Executive Officer and June 16, 2000
------------------------------------------------ Chairman of the Board (Principal
Patrick S. McVeigh Executive Officer)
/s/ LAWRENCE S. WINKLER Senior Vice President and Chief June 16, 2000
------------------------------------------------ Financial Officer
Lawrence S. Winkler (Principal Financial Officer)
/s/ MICHAEL J. MALESARDI Vice President, Controller June 16, 2000
------------------------------------------------ (Principal Accounting Officer)
Michael J. Malesardi
/s/ DAVID S. OROS Director June 16, 2000
------------------------------------------------
David S. Oros
/s/ JANICE M. ROBERTS Director June 16, 2000
------------------------------------------------
Janice M. Roberts
/s/ STEPHEN M. DIAMOND Director June 16, 2000
------------------------------------------------
Stephen M. Diamond
/s/ THOMAS E. WHEELER Director June 16, 2000
------------------------------------------------
Thomas E. Wheeler
/s/ LACHLAN K. MURDOCH Director June 16, 2000
------------------------------------------------
Lachlan K. Murdoch
</TABLE>
II-4
<PAGE> 98
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- ------------------------------------------------------------ ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and
each of its directors and officers.
10.2 1999 Stock Plan and form of agreement thereunder.
10.3* 2000 Stock Plan and form of agreement thereunder.
10.4* 2000 Employee Stock Purchase Plan and form of agreement
thereunder.
10.5 Second Amended and Restated Investors Rights Agreement dated
April 24, 2000.
10.6* Lease.
10.7* Palm Computing Software License dated January 6, 2000.
10.8* AT&T Wireless Services Value Added Reseller Agreement dated
December 2, 1999.
10.9 The News Corporation Limited Joint Venture Agreement dated
April 18, 2000.
10.10* Novatel Wireless, Inc. Supply Agreement dated July 15, 1999,
as amended in October 1999.
23.1 Consent of Independent Accountants.
23.2 Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see page II-4).
27.1 Financial Data Schedules.
</TABLE>
---------------
* To be filed by amendment.
