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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1999
REGISTRATION NO. 333-71967
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SECURITIES AND EXCHANGE COMMISSION
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CELLNET DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-2951096
(State of (I.R.S. Employer Identification
incorporation) No.)
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125 SHOREWAY ROAD
SAN CARLOS, CALIFORNIA 94070
(650) 508-6000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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JOHN M. SEIDL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CELLNET DATA SYSTEMS, INC.
125 SHOREWAY ROAD
SAN CARLOS, CALIFORNIA 94070
(650) 508-6000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
BARRY E. TAYLOR, ESQ.
TREVOR J. CHAPLICK, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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Approximate date of commencement of proposed sale to the public: FROM TIME
TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION
8(a), MAY DETERMINE.
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<PAGE>
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.
<PAGE>
PROSPECTUS
(Subject to completion, dated February 24, 1999)
8,942,517 SHARES
CELLNET DATA SYSTEMS, INC.
COMMON STOCK
------------------
All of the 8,942,517 shares of Common Stock (the "Warrant Shares") are being
offered for sale by CellNet Data Systems, Inc. ("CellNet") to holders electing
to exercise warrants (the "Warrants") issued in connection with the Warrant
Agreement dated as of September 29, 1997 (the "Warrant Agreement") between
CellNet and The Bank of New York as Warrant Agent. The Warrants were originally
issued on September 29, 1997 in connection with CellNet's issuance of 14% Senior
Discount Notes due 2007 (the "1997 Notes") to certain investors (the "Warrant
Holders") including prior holders of CellNet's Series B 13% Senior Discount
Notes which were exchanged in such offering for the 1997 Notes. The 1997 Notes
and Warrants were originally offered in units which became separately
transferrable on October 15, 1997. CellNet has registered under the Securities
Act of 1933, as amended (the "Securities Act") the Warrant Shares issuable upon
exercise of the Warrants. The Warrants became exercisable on September 29, 1998
and are exercisable at any time until expiration on October 1, 2007. If not
exercised prior to expiration, the Warrants terminate and may not be exercised
thereafter.
------------------------
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER CERTAIN "RISK FACTORS" IN DETERMINING WHETHER TO BUY
ANY COMMON STOCK. SEE PAGE 6.
---------------------
CellNet's Common Stock is listed on the Nasdaq National Market under the
symbol "CNDS." On February , 1999 the closing price of the Common Stock was
$ per share.
------------------------
This Prospectus is part of a registration statement that CellNet filed with
the Securities and Exchange Commission using the "shelf" registration process
and covers 8,942,517 shares of CellNet's Common Stock issuable upon exercise of
the Warrants for the exercise price of $14.30 per share. These shares may be
offered and sold from time to time by CellNet to the Warrant Holders pursuant to
this shelf registration statement. The offering is not being underwritten.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1999
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TABLE OF CONTENTS
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The Company................................................................................................ 3
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 24
Plan of Distribution....................................................................................... 24
Legal Matters.............................................................................................. 25
Experts.................................................................................................... 25
Where You Can Find More Information........................................................................ 25
Information Incorporated by Reference...................................................................... 26
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2
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THE COMPANY
CellNet Data Systems, Inc. ("CellNet") has designed, developed and is
commercially deploying in scale innovative wireless data communications networks
which provide high-volume, low-cost, real-time data collection services, capable
of monitoring millions of fixed endpoints. The primary application of CellNet's
network is the provision of commercial, industrial and residential network meter
reading services to electric, gas and water suppliers. The meter reading
services for electric suppliers position CellNet to benefit from the
deregulation of the electric utility industry. As of December 31, 1998, CellNet
had approximately 4,008,000 meters under long-term contracts, of which a total
of approximately 1,770,000 meters were generating revenues ("in revenue
service") for CellNet. The CellNet network uses radio devices fitted to utility
meters that are capable of reading and reporting data from each meter every few
minutes. Through extremely efficient use of radio frequency spectrum, the
CellNet network has substantial additional capacity to service non-utility
applications that require low-cost monitoring of fixed endpoints, such as home
security and remote status monitoring of vending machines and office equipment.
CellNet believes it has an early market opportunity to offer wireless data
communications services on a broad commercial scale for utility and selected
non-utility applications. CellNet's network is distinguished by the following
advantages:
- sufficiently low infrastructure and operating costs to permit
cost-effective utility meter reading and other fixed point monitoring
applications;
- highly efficient use of spectrum--the equivalent of approximately a single
voice channel is needed to operate a network;
- proprietary software specifically designed to manage real-time data
collection from millions of endpoints; and
- open systems architecture designed to allow new applications to be added
to the CellNet system.
The electric utility industry is undergoing a fundamental and broad-based
transition. The traditional utility structure, consisting of a vertically
integrated system operating as a natural monopoly with rates set in relation to
cost, has historically presented utilities with little incentive to improve
service quality or operating efficiency. Similar to the regulatory evolution
that has already taken place in the transportation and telecommunications
industries, customer demands and regulatory mandates by federal and state
governments are opening the electric utility market to competition, thus forcing
electric utilities to transform themselves from regulated monopolies into
competitive enterprises. While regulatory initiatives vary from state to state,
many involve a shift from rate-of-return rate making, in which a utility's rates
are determined by its return on assets, to performance-based rate making, in
which a utility's rates and profitability are based upon its cost, efficiency
and service quality.
With deregulation of the electric utility industry underway, established
utilities are under increasing regulatory, consumer and competitive pressures.
The changing regulatory environment means that other utility industry
participants, including energy service providers, power marketers, brokers and
aggregators, system operators, power exchanges, and scheduling coordinators,
will be seeking viable strategies to enter a market traditionally dominated by
established utilities. CellNet believes its network meter reading services offer
a state-of-the-art solution to the demands created by the increased regulatory
and competitive pressures within the energy service industry. CellNet's meter
reading service is a proven, efficient, low-cost, scaleable network, which
enables both established utilities and other utility industry participants to
implement time-of-use pricing plans, peak demand monitoring, load forecasting
activities, real-time responses to billing inquiries and power outage detection,
on-demand meter reads, customized billing functions, and customer access to
consumption, rate and billing information. CellNet's system allows utilities to
respond effectively to regulatory changes, reduce costs and enhance their
operating efficiencies, defer capital spending and implement customer retention
plans and facilitate market entrance by new power market participants.
3
<PAGE>
CellNet is actively targeting the largest Metropolitan Statistical Areas,
and consolidated Metropolitan Statistical Areas, which together represent a
majority of the approximately 230 million electric, gas and water meters in the
United States, and other areas of high population density, state-by-state, as
deregulation becomes effective. CellNet believes that utilities and other
utility industry participants operating in or entering these densely populated
areas will be most affected by increasing competitive and regulatory pressures.
These pressures will likely prompt established utilities to improve their
efficiency and service levels, and CellNet believes that its network and
services would facilitate this improvement. However, the utility industry has
generally been characterized by long purchasing cycles and cautious decision
making. Although the uncertainty surrounding proposed regulatory changes in some
states may have caused, and may continue to cause, additional delays in
purchasing decisions by established electric and gas utilities, CellNet believes
that actual implementation of utility deregulation will ultimately accelerate
purchasing decisions by established utilities. CellNet is evaluating new
opportunities arising from deregulation. CellNet's open systems architecture is
designed for deployment strategies focused either on established utilities or
other utility industry participants, or both, without requiring significant
modifications to CellNet's network system.
CellNet has existing long-term contracts to provide NMR services to Kansas
City Power & Light Company ("Kansas City Power & Light") for approximately
437,000 meters, AmerenUE (formerly known as the Union Electric Company)
("AmerenUE") for approximately 1,264,000 meters, Northern States Power Company
("Northern Power") for approximately 1,087,000 meters, Puget Sound Energy, Inc.
("Puget Sound Energy") for approximately 800,000 meters and Indianapolis Power &
Light Company for approximately 420,000 meters. Of the 4,008,000 meters covered
under these contracts, approximately 1,770,000 meters were in revenue service as
of December 31, 1998. Each of these contracts results from CellNet's "saturation
deployment" strategy for providing commercial, industrial and residential
network meter reading ("network meter reading") services to existing utilities.
Under this strategy, CellNet builds out a network to cover every meter in a
utility's designated service area. To implement the strategy, CellNet builds out
its wide area network and local area network concurrently. The network begins
generating revenue shortly after individual meters come on-line, and new meters
can be added incrementally. CellNet has ongoing discussions concerning
additional contracts of a similar kind with other utilities in the United
States.
CellNet began actively targeting new power market participants in September
1997. To date, CellNet has entered into contracts with eleven energy service
providers and two energy aggregators, including contracts with nonregulated
power marketing arms of the nation's large utilities and energy providers for
the provision of network meter reading services in California, including Sempra
Energy Solutions, New West Energy, Duke Solutions, Commonwealth Energy, and
Dynergy, a division of NGC Corp. CellNet expects to enter into similar
arrangements with additional power market participants both in California and in
other states where deregulated markets open up further opportunities for the
deployment of CellNet's networks. Each of these contracts results from CellNet's
alternative "broad deployment" strategy, which is a slight variation of
CellNet's saturation deployment strategy outlined above. Under CellNet's broad
deployment strategy, CellNet first deploys its wide area network in service
areas where the largest consumers of energy are located and where energy
consumers and other power market participants are most likely to value CellNet's
services and/or to concentrate their marketing efforts. As contracts for the
provision of network meter reading services are obtained, CellNet builds out its
local area network on an incremental basis as necessary to service those
customers or for advanced coverage of certain areas. Broad deployment offers
energy service providers who lack the established utilities' designated
geographical customer bases the flexibility to build as they grow or to pursue
particular market niches. It also offers established utilities, which are not
yet prepared to commit resources to a long-term saturation deployment project,
the opportunity to cover a portion of their customers initially and to increase
coverage in their service areas over time, potentially to all of their meters.
4
<PAGE>
By using networks deployed under either the saturation or broad deployment
strategy, CellNet is also able to offer network meter reading information
metering services directly to energy consumers, to the extent that the
information provided by such services is not being made available to them by
their own utility or energy service provider. Use of these networks also allows
CellNet to offer sub-metering network meter reading services to industrial and
commercial customers who desire to itemize their overall energy usage by
monitoring the energy consumption of particular heating, ventilation and air
conditioning system components, individual manufacturing processes or pieces of
equipment, or individual departments.
CellNet believes its spectrum-efficient networks will have substantial
excess capacity to service non-utility applications requiring low-cost
monitoring of fixed endpoints. Potential non-utility applications of CellNet's
systems include remote status monitoring of home security systems, vending
machines, office equipment, parking meters and other equipment as well as remote
control of traffic lights. CellNet has worked with industry leaders such as
Honeywell, Inc., Real Time Data, Inc., and Interactive Technologies, Inc. to
develop such applications. CellNet believes that its utility networks will
provide an excellent platform to position CellNet as a leading wholesale
provider of wireless data communications services for such non-utility
applications.
CellNet believes that a significant international market also exists for its
services with several hundred million electric, gas and water meters outside of
the United States and comparable opportunities for non-utility applications.
CellNet is pursuing international markets through an existing joint venture with
Bechtel Enterprises, Inc. The joint venture, BCN Data Systems L.L.C. ("BCN"),
has concentrated its initial efforts on entering the market in the United
Kingdom and is also considering opportunities in Australia and elsewhere.
CellNet's principal executive offices are located at 125 Shoreway Road, San
Carlos, California 94070, (650) 508-6000.
5
<PAGE>
RISK FACTORS
INVESTING IN THIS COMPANY ENTAILS SUBSTANTIAL RISK. YOU SHOULD PURCHASE
SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS. YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN SHARES OF OUR COMMON STOCK.
THIS PROSPECTUS AND THE DOCUMENTS REFERRED TO HEREIN CONTAIN FORWARD-LOOKING
STATEMENTS THAT ARE BASED ON CURRENT EXPECTATIONS AND ARE SUBJECT TO SUBSTANTIAL
RISKS AND UNCERTAINTIES. YOU CAN IDENTIFY THESE FORWARD-LOOKING STATEMENTS BY
WORDS SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES" AND SIMILAR WORDS. YOU SHOULD READ STATEMENTS THAT CONTAIN THESE
WORDS CAREFULLY BECAUSE THEY: (1) DESCRIBE OUR FUTURE EXPECTATIONS; (2) CONTAIN
PROJECTIONS OF OUR FUTURE RESULTS OF OPERATIONS OR FINANCIAL CONDITION; OR (3)
STATE OTHER "FORWARD-LOOKING" INFORMATION. THESE STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE. THERE MAY BE EVENTS IN THE FUTURE THAT WE ARE NOT ABLE TO
PREDICT ACCURATELY OR OVER WHICH WE HAVE NO CONTROL. THE RISK FACTORS LISTED IN
THIS SECTION, AS WELL AS ANY CAUTIONARY LANGUAGE IN THIS PROSPECTUS, PROVIDE
EXAMPLES OF RISKS, UNCERTAINTIES AND EVENTS THAT MAY CAUSE OUR ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE FORWARD LOOKING STATEMENTS MADE AND MAY CAUSE OUR
STOCK PRICE TO FALL.
YOU SHOULD CAREFULLY CONSIDER THE RISKS OF YOUR INVESTMENT IN THE "RISK
FACTORS" SECTION BELOW, AS WELL AS OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS, INFORMATION INCORPORATED BY REFERENCE, AND INFORMATION WHICH WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. THE INFORMATION
IN THIS PROSPECTUS IS COMPLETE AND ACCURATE AS OF THIS DATE, BUT THE INFORMATION
MAY CHANGE AFTER THE DATE OF THIS PROSPECTUS.
DEPENDENCE ON THE UTILITY INDUSTRY.
CellNet offers automated meter reading services and data generated from such
services to utilities, other utility industry participants and utility
customers. CellNet contracts with these parties to establish wireless data
networks for automated meter reading and the automated distribution of data.
CellNet's success will be almost entirely dependent upon whether or not these
parties (a) sign additional contracts with CellNet for network meter reading and
other services or (b) otherwise allow CellNet to install wireless data networks
for servicing a substantial number of endpoint monitoring devices, including
utility meters.
The automation of utility meter reading and data distribution is a
relatively new and rapidly changing market. CellNet believes that, as the
utility industry becomes more competitive through various deregulation and
privatization initiatives, there will be an increased need for more accurate,
timely and efficient collection of consumption and other operating data. This
will ultimately accelerate the adoption of automated meter reading, data
collection and data distribution systems and techniques. However, this is
entirely dependent upon decisions made by utilities, other utility industry
participants and utility customers, over whom CellNet has no control. CellNet
cannot accurately predict the size of this market or its potential growth.
The CellNet system is one possible solution for automated meter reading and
data distribution. It has not been adopted as an industry standard and may not
be adopted on a broad scale. Competing systems have been and likely will
continue to be selected by utilities and other potential clients. In the event
utilities, other utility industry participants and utility customers do not
adopt CellNet's technology or do so less rapidly than expected by CellNet,
CellNet's future financial results, including its ability to service its
indebtedness and achieve positive cash flow or profitability, will be adversely
affected.
6
<PAGE>
Participants in the utility industry have historically been cautious and
deliberate in making decisions concerning the adoption of new technology. This
process, which can take up to several years to complete, may include the
formation of evaluation committees, a review of different technical options,
technology trials, equipment testing and certification, performance and cost
justifications, regulatory review, one or more requests for vendor quotes and
proposals, budgetary approvals and other steps. Although deregulation and
privatization initiatives may ultimately accelerate the adoption of CellNet's
technology, the timing and extent of such adoption cannot be predicted. Only a
limited number of utilities have made a commitment to purchase CellNet's
services to date. If CellNet does not enter into additional services contracts
or enter into contracts on terms favorable to CellNet, CellNet's business,
operating results, financial condition, cash flow and its ability to service its
indebtedness will be adversely affected.
CellNet expects to install networks to support a "saturation deployment"
strategy (where the network is intended to cover all or a substantial portion of
the meters in a utility's designated service area pursuant to a contractual
arrangement with that utility). CellNet also expects to install networks to
support a "broad deployment" strategy (where the network is installed
incrementally to cover service areas where the largest consumers of energy or
other utility services are located and where CellNet expects to be able, over
time, to secure an adequate number of service contracts with non-utility
clients, such as independent marketers and utility customers, to justify network
installation and operation). Although broad deployment networks are deployed
incrementally to meet anticipated service requirements and to mitigate financial
risks, CellNet expects that such networks will be installed before a sufficient
number of service contracts are in hand to generate revenues adequate enough to
cover the costs of network construction and associated operating costs.
CellNet's business, operating results, financial condition, cash flow and
its ability to service its indebtedness will be adversely affected if any of the
following occur:
- such non-utility clients do not capture a significant portion of the
utility market;
- CellNet cannot successfully market its services to such non-utility
clients;
- CellNet is unable to enter into contracts covering a sufficient number of
meters to recoup its costs of deployment and operation or to enter into
contracts on terms favorable to CellNet; or
- CellNet is unable to obtain financing for the construction and operation
of such networks.
UNCERTAINTY OF FUTURE REVENUES; NEED FOR ADDITIONAL SERVICES CONTRACTS AND
FLUCTUATING OPERATING RESULTS.
The timing and amount of future revenues will depend almost entirely upon
(a) CellNet's ability to obtain new services agreements with established
utilities and other utility industry participants and (b) the successful
deployment and operation of CellNet's wireless data networks. CellNet expects
that utilities and other parties will sign new services contracts for saturation
or broad deployments on an irregular basis. CellNet expects that the
installation of each saturation deployment network will require two to four
years after a services contract has been signed. Service revenues from both
types of such networks are not expected to exceed CellNet's capital investments
and expenses incurred to deploy and operate such networks for several years.
CellNet will not begin to receive recurring revenues under a services contract
until portions of the network become operational, which, for saturation
deployments, is expected to occur at least six months after the execution of the
applicable services contract. Although CellNet begins to incur capital
expenditures for the construction of networks used in broad deployments, it does
not begin to receive recurring revenues until portions of the network are
operating. Delays or difficulties in the network installation process may
adversely affect CellNet's results of operations. The cost of network
deployments will vary based upon a wide variety of factors, including radio
frequency characteristics, the size of a service territory and density of
endpoints within such territory, cost of site leases, the nature and
sophistication of services being provided, the cost of spectrum acquisition,
local labor rates and other economic factors.
7
<PAGE>
CellNet currently derives almost all of its revenues from long-term services
contracts with a limited number of established utilities. During 1997,
approximately 88% of CellNet's revenues were derived from its contracts with
Kansas City Power & Light and AmerenUE and, during the first nine months of
1998, 92% of CellNet's revenues were derived from its contracts with Kansas City
Power & Light, AmerenUE and Northern Power. CellNet will not generate sufficient
cash flow to service its indebtedness or achieve profitability unless it enters
into additional services contracts covering a significant number of additional
meters. If CellNet does not complete successfully commercial deployments of the
CellNet system under current services contracts or obtain enough additional
services contracts on satisfactory terms for network deployments in a sufficient
number of locations, CellNet will not achieve adequate cash flow to service its
indebtedness or achieve positive cash flow or profitability.
CellNet's operating results will fluctuate significantly in the future due
to a variety of factors, some of which are outside of CellNet's control,
including the following factors:
- the rate at which established utilities, other utility industry
participants and utility customers enter into new services contracts;
- general economic conditions and economic conditions in the utility
industry;
- the effects of governmental regulations and regulatory changes;
- capital expenditures and other costs relating to the expansion of
operations;
- the introduction of new services by CellNet or its competitors and the mix
of services sold; and
- pricing changes and new service introductions by CellNet and its
competitors and prices charged by suppliers.
In response to a changing competitive environment, CellNet may elect from time
to time to make certain pricing, service or marketing decisions or enter into
strategic relationships or investments that could result in a material adverse
effect on CellNet's business, operating results, financial condition, cash flow
and its ability to service its indebtedness.
DEPENDENCE ON NON-UTILITY APPLICATIONS.
CellNet is planning to generate a significant percentage of future revenues
from non-utility services as part of its long-term business plan. Potential
non-utility applications of CellNet's systems include home security, remote
status monitoring of vending machines, office equipment, parking meters and
other equipment as well as remote control of traffic lights. If CellNet is
unable to generate significant revenue from such additional non-utility
services, CellNet's ability to service its indebtedness and to achieve
profitability will be adversely affected. While CellNet is working with industry
leaders to develop such non-utility applications, there is no guarantee that
CellNet will successfully develop or commercial introduce of any such services.
CellNet does not currently have any contracts to deploy non-utility services on
a commercial scale. In addition, unless CellNet is successful in deploying its
wireless networks in targeted service areas, CellNet may not be able to offer
any such services in these areas or may be able to offer these services only on
a limited basis.
DEPENDENCE ON BUSINESS RELATIONSHIPS TO ACHIEVE MARKET PENETRATION.
CellNet must form relationships with leading companies in order to expand
existing markets and enter new markets. CellNet is currently investing, and
plans to continue to invest, significant resources to develop these
relationships. CellNet believes that its success in penetrating markets for
utility and non-utility applications of its network will depend in large part on
its ability to maintain these relationships and to cultivate additional or
alternative relationships. If CellNet cannot develop additional relationships
with
8
<PAGE>
such companies, maintain existing relationships or achieve the purpose
underlying such existing relationships or successfully discourage such companies
from forming competing arrangements, CellNet's business, operating results,
financial condition, cash flow and its ability to service its indebtedness could
be adversely affected.
RISKS ASSOCIATED WITH SUBSTANTIAL DEBT AND ABILITY TO SERVICE DEBT; SUBSTANTIAL
FUTURE CAPITAL NEEDS.
CellNet has substantial outstanding indebtedness, including $654.1 million
in aggregate principal amount at maturity of its 14% Senior Discount Notes due
2007 (the "1997 Notes"). CellNet will be required to pay cash interest on the
1997 Notes commencing April 1, 2003 and repay the 1997 Notes on October 1, 2007.
In May 1998, CellNet Funding, LLC ("Funding"), a wholly-owned finance subsidiary
of CellNet, completed an offering of 7% Exchangeable Limited Liability Company
Preferred Securities Mandatorily Redeemable 2010 (the "Preferred Securities")
which will fully accrete to a face value of $110.0 million on June 1, 2010. The
Preferred Securities bear a cumulative dividend at the rate of 7% per annum.
Funding has purchased Treasury Strips sufficient in amount to pay cash dividends
on the Preferred Securities through June 1, 2001 and has deposited the Treasury
Strips in escrow with the Escrow Agent for the benefit of the holders of the
Preferred Securities. Funding is required to pay quarterly dividends in cash on
the Preferred Securities through June 1, 2001, and thereafter, in cash or shares
of CellNet common stock, at the option of Funding. The Preferred Securities are
subject to mandatory redemption on June 1, 2010 at a redemption price of 100% of
the liquidation preference of the Preferred Securities, plus accrued and unpaid
dividends, if any. CellNet has issued preferred stock to Funding (the "CellNet
Preferred Stock") and provided the holders of the Preferred Securities certain
guarantees of payment of dividends, distributions, and redemptions.
CellNet intends to incur substantial additional indebtedness to finance
operations and to install networks. As a result, CellNet will have a substantial
debt balance and related debt service obligations. CellNet's capital
expenditures will increase significantly if new services contracts are signed,
and CellNet expects that its cash flow, in part due to increased capital
expenditures, will be negative until such time as revenues exceed increased
capital and operating costs. The ability of CellNet to meet its debt service
requirements will depend upon achieving significant and sustained growth in
CellNet's cash flow, which will be affected by a number of factors, including
CellNet's success in implementing its business strategy, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond CellNet's control. CellNet's ability to generate such cash flow is
subject to a number of risks and contingencies, including the following:
- CellNet may not obtain a sufficient number of new services contracts on
terms favorable to CellNet;
- network installations may not be completed on a timely basis;
- revenues may not be generated quickly enough to meet CellNet's operating
costs and debt service obligations;
- the operating and/or capital costs associated with the installation and
maintenance of CellNet's networks could be higher than projected;
- CellNet's wireless systems could experience performance problems; and
- the adoption of CellNet's services could be less widespread than
anticipated.
Accordingly, CellNet's operations may not generate positive cash flow or become
profitable on a timely basis, or at all. CellNet or its subsidiaries may not
have sufficient resources to meet their debt service obligations. If CellNet is
unable to generate sufficient cash flow or obtain sufficient liquidity to
service its indebtedness, CellNet will have to take actions which could
adversely affect CellNet's business such as to reduce or delay planned capital
expenditures, sell assets, restructure or refinance its indebtedness or seek
9
<PAGE>
additional equity capital. CellNet may not be able to effect these strategies on
satisfactory terms, if at all, and these strategies may yield insufficient
proceeds to make the required payments on any of CellNet's indebtedness. In
particular, there is a risk that CellNet would be unable, if needed, to
refinance the 1997 Notes prior to the date cash interest payments become due and
payable on the 1997 Notes or at their maturity date, given uncertainty about
prevailing capital market conditions, CellNet's then performance and financial
position and CellNet's projected high levels of indebtedness. Such inability to
refinance the 1997 Notes could result in cross-defaults under other indebtedness
and may limit CellNet's ability to meet its obligations in respect of the
CellNet Preferred Stock and Funding's ability to meet its obligations in respect
of the Preferred Securities.
In addition, the level of CellNet's indebtedness could adversely affect,
among other things:
- CellNet's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, and other general corporate
purposes;
- CellNet's cash flow, if any, to the extent that it cannot be used in
CellNet's business and must be dedicated to the payment of principal and
interest on its indebtedness; and
- CellNet's ability to withstand economic downturns and competitive
pressures and to respond flexibly to changing business and economic
conditions.
CellNet will require substantial additional funds for the development,
commercial deployment and expansion of its networks, and for funding operating
losses. As of September 30, 1998, CellNet had $126.3 million in cash, cash
equivalents, short-term investments and restricted cash. CellNet intends to
raise a substantial amount of additional capital in 1999 and expects that it
will continue to require substantial amounts of additional capital in the
future. Depending upon the number and timing of any new services agreements and
upon the associated network deployment costs and schedules, CellNet may require
additional equity or debt financing earlier than estimated in order to fund its
working capital and other requirements. Additional financing may not be
available when required or, if available, it may not be on terms satisfactory to
CellNet.
In the event that CellNet is unable to generate sufficient cash flow and is
otherwise unable to obtain funds necessary to meet required payments on its
indebtedness, CellNet could be in default under the terms of the agreements
governing its indebtedness. In the event of such default, the holders of such
indebtedness would have certain enforcement rights, including the right to
accelerate such debt and the right to commence an involuntary bankruptcy
proceeding against CellNet.
HISTORY AND CONTINUATION OF OPERATING LOSSES.
CellNet has incurred substantial and increasing operating losses since
inception. As of September 30, 1998, CellNet had an accumulated deficit of
$382.2 million, primarily resulting from expenses incurred in the development of
CellNet's wireless data communications system, marketing of CellNet's wireless
network, distribution automation and other services, the installation of its
wireless data communications networks and the payment of other normal operating
costs.
CellNet does not expect to generate significant revenues relative to its
anticipated operating costs during 1999 and expects to incur substantial and
increasing operating losses and negative net cash flow after capital
expenditures for the foreseeable future. CellNet expects that its receipt of
network service revenues will lag the signing of the related services agreements
by a minimum of six months and that it will generally take two to four years to
complete installation of a network after each services agreement has been
signed. CellNet's network service revenues from a particular network are
expected to lag significantly behind network installation expenses until such
network is substantially complete. If CellNet is able to deploy additional
networks, the losses created by this lag in revenues are expected to increase
until the revenues from the installed networks overtake the costs associated
with the deployment and operation of such additional networks. Accordingly,
CellNet does not expect positive cash flow after capital expenditures from its
network meter reading services operations for several years.
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SUBSTANTIAL AND INCREASING COMPETITION.
Electronics, communications and utility product companies are beginning to
develop various wireless network meter reading systems as a result of the
deregulation of the electric utility industry and the potential market for other
applications once a common infrastructure is in place. A number of these systems
currently compete, and others may in the future compete, with the CellNet
system. Deregulation will likely cause competition to increase. CellNet believes
that at this time its most significant direct competitor in the marketplace is
Itron, Inc. ("Itron"), an established manufacturer and seller of hand-held and
drive-by automated meter reading equipment for utilities. Itron also offers its
Genesis-TM- system, a radio network system similar to CellNet's system, for
meter reading purposes.
There may be many potential alternative solutions to CellNet's network meter
reading services including traditional wireless solutions. Mtel has announced
that it intends to adapt its technology to offer residential services similar to
network meter reading some time in 1999 over its existing paging network, with
the development of endpoint radios and network management capabilities being
left to other independent companies. Whisper Communications (formerly, a part of
Diablo Research) now offers its True 2 Way-TM- fixed-based radio frequency
architecture communications technology for automated meter reading and other
services and has several trials underway. Metricom, a provider primarily of
subscriber-based, wireless data communications for users of portable and desktop
computers, is currently involved in the automated meter reading market through
trials with Whisper Communications. Other wireless communications providers who
have entered the market for utility and commercial data services include
cellular control channel companies such as Cellemetry and Aeris Communications.
These companies offer low bandwidth services that compete with some of CellNet's
metering applications. Bell South Wireless (formerly Ram Mobile Data) offers
data services that may compete with a variety of CellNet data services.
Schlumberger Industries, Inc. ("Schlumberger") and Greenland are among the
companies that have conducted, or are in the process of conducting, pilot trials
of utility network automation systems. Several companies are offering
telephone-based network automated meter reading services or equipment. Among
these are Teldata, Inc. and American Innovations. Established suppliers of
equipment, services and technology to the utility industry, such as Asea Brown
Boveri and General Electric, could expand their current product and service
offerings so as to compete directly with CellNet, although they have not yet
done so. Communications or technology companies may also seek to adapt new or
existing technology to serve this market.
Many of CellNet's present and potential future competitors have
substantially greater financial, marketing, technical and manufacturing
resources, name recognition and experience than CellNet. CellNet's competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products and services than CellNet. While CellNet
believes its technology, including its software, is widely regarded as
competitive at the present time, CellNet's competitors may successfully develop
products, technologies or software that are better or more cost effective. In
addition, current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties that
increase their ability to address the needs of CellNet's prospective customers.
Accordingly, it is possible that new competitors or alliances among current and
new competitors may emerge and rapidly gain significant market share. In
addition, if CellNet achieves significant success it could draw additional
competitors into the market. Providers of wireless services may in the future
choose to enter CellNet's markets. Such existing and future competition could
materially adversely affect the pricing for CellNet's services and CellNet's
ability to sign new services contracts and maintain existing agreements.
Competition for services relating to non-utility applications may be more
intense than competition for network meter reading services, and additional
competitors may emerge as CellNet continues to develop non-utility applications.
CellNet may be unable to compete successfully against current and future
competitors, and any failure to do so would have a material adverse effect on
CellNet's business, operating results, financial condition, cash flow and its
ability to service its indebtedness.
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TECHNOLOGICAL PERFORMANCE AND BUILD-OUT OF THE SYSTEM; RAPID TECHNOLOGICAL
CHANGE AND UNCERTAINTY.
CellNet's initial target market is the monitoring, control and automation of
utilities' electric, gas and water meters and utility distribution networks.
Unforeseen problems may occur with respect to CellNet's technology, products or
services, and CellNet may not successfully complete the development and
commercial implementation of its technology on a wide scale. CellNet must
continue to expand and upgrade its ability to implement successfully its
wireless networks. CellNet may not be able to develop successfully a full range
of endpoint devices.
CellNet's future success will also depend, in part, on its ability to
enhance its existing hardware, software and wireless communications technology.
Significant technological advances occur rapidly and frequently in the
telecommunications industry. The advent of computer-linked electronic networks,
fiber optic transmission, advanced data digitization technology, cellular and
satellite communications capabilities, specialized mobile radio services and PCS
and other commercial mobile radio services have radically expanded
communications capabilities and market opportunities. Future advances may render
CellNet's technology obsolete or less cost effective than competitive systems or
erode CellNet's market position. Many companies from diverse industries are
seeking solutions for the transmission of data over traditional communications
media, including radio and paging, as well as more recently developed media such
as cellular and PCS-based networks. Competitors may be capable of offering
significant cost savings or other benefits to CellNet's customers. Consequently,
CellNet may be unable to offer competitive services or obtain appropriate new
technologies on a timely basis or on satisfactory terms. CellNet's future
performance will also depend significantly on its ability to respond to future
regulatory changes.
CellNet must make continued substantial investments to develop its
technology. CellNet has encountered product development delays in the past
affecting both software and hardware components of its system.
ACCESS TO RADIO FREQUENCY SPECTRUM; REGULATION BY THE FCC.
CellNet attempts to obtain exclusive usage of licensed bandwidth and/or
secure its own licenses in compliance with FCC regulations in order to ensure
the ability to deliver wireless data services on a wide scale. These licenses,
referred to as spectrum licenses, are required by the FCC for the wireless
transmission of data over a specific radio frequency. CellNet has obtained
spectrum licenses in many of the largest Metropolitan Statistical Areas and
Consolidated Metropolitan Statistical Areas in the United States. As of December
31, 1998, CellNet had obtained a total of 154 spectrum licenses in 54 of the top
60 Metropolitan Statistical Areas and Consolidated Metropolitan Statistical
Areas. However, sufficient frequency spectrum may not be available to fully
enable the delivery of all or a part of CellNet's wireless based data services
or CellNet may be required to find alternative frequencies. The cost of
obtaining such spectrum is currently difficult to estimate and may involve time
delays and/or increased cost to CellNet. CellNet could also be unable to obtain
frequency in certain areas. Any of these circumstances could have a material
adverse impact on CellNet's future ability to provide its network services and
on CellNet's business, operating results, financial condition, cash flow and its
ability to service its indebtedness.
CellNet's network equipment uses radio spectrum and, as such, is subject to
regulation by the FCC. CellNet's network equipment uses both licensed spectrum
allocated for multiple address system operations in the 928/952 MHz band and
unlicensed spectrum in the 902-928 MHz band. As the amount of spectrum in the
928/952 MHz band is limited, issuance of these licenses is contingent upon the
availability of spectrum in the area(s) for which the licenses are requested.
CellNet might not be able to obtain licenses to the spectrum it needs in every
area in which it has prospective customers. The FCC's current rules, subject to
a number of limited exceptions, permit third parties such as CellNet to operate
on spectrum licensed to utilities to provide other services. CellNet plans to
use these provisions of the FCC's rules to expand its network system.
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The FCC requires that a minimum configuration of a multiple address system
be in operation within eighteen months from the initial date of the grant of the
system authorization or risk forfeiture of the license for the multiple address
system frequencies. The eighteen-month deadline may be extended upon a showing
of good cause, but the FCC may not grant any such extension. CellNet is
responding to this requirement by selectively building out transmission capacity
in some areas where it does not yet have utility telecommunications services
contracts and may return licenses to the FCC in certain areas.
No license is needed to operate CellNet's equipment utilizing the 902-928
MHz band, although the equipment must be certified by CellNet and the FCC as
being compliant with certain FCC restrictions on radio frequency emissions
designed to protect licensed services from objectionable interference. While
CellNet believes it has obtained all required certifications for its products,
the FCC could modify the limits imposed on such products or otherwise impose new
authorization requirements, and in either case, such changes could have a
material adverse impact on CellNet's business, operating results, financial
condition, cash flow and its ability to service its indebtedness. The FCC
recently completed a rulemaking proceeding designed to better accommodate the
cohabitation in the 902-928 MHz band of existing licensed services with newly
authorized and expanded uses of licensed systems, and existing and newly
designed unlicensed devices like those used by CellNet. In this proceeding, the
FCC expressly recognized the rights of such unlicensed services to operate under
certain delineated operating parameters even if the potential for interference
to the licensed operations exists. CellNet's systems will operate within those
specified parameters. As an outgrowth of this proceeding, the Commission will be
conducting an auction of the 902-928 MHz band for the Location and Monitoring
Service, which will auction off licenses covering the entire nation where
incumbent licensees have not been authorized. While CellNet believes that the
rules adopted in the Location and Monitoring Service proceeding are adequate to
provide interference protection for its systems, the authorization of additional
Location and Monitoring Service licensees may adversely impact CellNet's
operations in any given location.
While CellNet intends to offer alternate market services over its private,
internal network, some of those services may include the use of CellNet's
network for private carrier service offerings. CellNet's offerings would be
structured to comply with FCC rules governing the offering of private carrier
services, and each such service offering would need to be reviewed relative to
these rules. The FCC's rules currently prohibit the use of the multiple address
system frequencies on which CellNet is operating its systems for the provision
of common carrier service offerings. In the event that it is determined that a
particular service offering does not comply with the rules, CellNet may be
required to restructure such offering or to utilize other frequencies for the
purpose of providing such service. CellNet may not be able to gain access to
such other frequencies. Future interpretation of regulations by the FCC or
changes in the regulation of CellNet's industry by the FCC or other regulatory
bodies or legislation by Congress could have a material adverse effect on
CellNet's business, operating results, financial condition, cash flow and its
ability to service its indebtedness.
In February 1997, the FCC published for public comment a Notice of Proposed
Rule Making in WT Docket No. 97-81 regarding the future licensing of frequencies
for use by Multiple Address Systems. The FCC has reached certain tentative
conclusions which, if adopted without any change, would result in the following:
- the restriction on future licenses in the 928/952/956 MHz band (in which
CellNet now operates its wide area network) to systems exclusively used
for private internal purposes;
- the prohibition on future licensing in this band for systems which provide
"subscriber-based" services;
- the designation of the 932/941 and 928/959 MHz bands for licensees
offering subscriber-based services;
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- the use of geographic licensing (using very large licensed service areas)
in lieu of site-by-site licensing for the bands designated for
subscriber-based services;
- the use of competitive bidding to award licenses for subscriber-based
services;
- the grandfathering and protection from interference of existing licensees,
but only to the extent of their current service areas;
- with respect to new geographic service area licensees, liberalizing the
time periods by which construction must be completed, but imposing more
burdensome construction requirements over the term of the license; and
- for incumbent and new licensees, liberalizing some of the technical and
operational restrictions on the use of the licensed channels.
These proposals have received substantial public comment from a wide range
of industry sectors currently utilizing the multiple address system channels,
including extensive comments from CellNet. CellNet has urged, in particular,
that there should not be any restrictions imposed on the use of the 928/952 MHz
bands in which CellNet has developed its network facilities that would
unreasonably limit CellNet's ability to provide its current and anticipated
utility and non-utility service offerings. CellNet has also urged that
competitive bidding and geographic licensing should not be the primary basis for
awarding licenses in this highly encumbered, heavily utilized band. CellNet has
also supported many of the proposed changes that will make the use of the band
more technically efficient, although CellNet has also opposed any use of the
band that would change its fundamental use for point-to-multipoint fixed
operations, and in particular, the use of the band for mobile operations.
CellNet's positions have substantial support in the record, although the effort
to retain the status quo eligibility for the 928/952 MHz band has been opposed
by representatives of the utility and transportation industries who would prefer
to limit the use of this band solely to private internal networks and to
prohibit any private carrier or subscriber-based service offerings.
In August 1997, the FCC's authority to utilize competitive bidding as a
licensing mechanism was amended and expanded by Congress in the Budget Act of
1997. Under this recent enactment, the FCC must use competitive bidding
procedures to choose between any mutually exclusive applications, except where
the radio frequency spectrum is being used for public radio safety services.
Congress included a very broad definition of "public radio safety services," to
include private internal radio services used by state and local governments and
non-governmental entities, including emergency road services provided by not-
for-profit organizations that are used to protect the safety of life, health, or
property and that are not made commercially available to the public. As a
result, licensed systems that protect the safety of life, health, or property
and are not made commercially available to the public are not subject to
licensing by FCC auctions.
The new auction legislation occurred after the Notice of Proposed Rulemaking
in WT Docket 97-81 and will, in CellNet's view, require the FCC to review and
revise its proposals in that proceeding relating to the breadth of the auction
authority granted to the FCC, which no longer distinguishes between private
internal systems, and proposals relating to the grant of "subscriber-based"
services. CellNet is unable to determine how the new auction legislation will
affect the proposals in that proceeding, whether CellNet's use of multiple
address system spectrum will subject its applications to the possibility of
auctions or will, instead, be considered a "public safety" use, or whether the
Commission will otherwise exempt the 928/952 MHz band in which CellNet currently
operates from circumstances in which mutual exclusivity between applicants for
the same license, requiring the use of auctions, is likely to exist. Nor is
CellNet able to determine when the FCC will act in WT Docket 97-81, either to
issue new proposals consistent with the new auction legislation or adopt new
rules consistent with the positions already established in the proceeding or a
combination thereof. CellNet is also working with a coalition of interested
parties, including representatives of the utility and transportation industries,
to attempt to develop a compromise consensus proposal that would satisfy most of
the interested parties' concerns for presentation to the FCC
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in this proceeding. However, CellNet is unable to predict whether such a
compromise can be developed, or if it is developed, whether the FCC will view it
favorably, and if not, what form the final rules adopted in this proceeding will
take. Given the current proposal and the variety of comments submitted, it is
possible that some or all of CellNet's uses of the multiple address system
channels could be determined to be the offering of private carrier or
subscriber-based services, and that future licenses for such offerings would be
prohibited in the 928/952 MHz band in which CellNet currently operates,
requiring CellNet to develop equipment capable of operating in one of the other
multiple address system bands, and further requiring CellNet to obtain future
licenses in a competitive bidding process. Although CellNet believes that
additional licensed frequency will be generally available to it as required, the
cost associated with acquiring such licensed frequency as well as CellNet's
operating costs could increase, perhaps substantially, and CellNet could
experience substantial delays in adapting its networks if the proposed rules
were adopted. The adoption of new rules, depending upon the form in which such
rules are adopted, could have a material adverse effect upon CellNet's business,
operating results, financial condition and cash flow.
In connection with the foregoing, the FCC has temporarily suspended
acceptance of multiple address system applications for new licenses, major
amendments, or major modifications for the 928/959 MHz bands and applications to
provide subscriber-based services in the 928/952/956 MHz bands. This temporary
suspension does not affect applications for multiple address system licenses for
private internal purposes in the 928/952/956 MHz bands or applications for
assignment of licenses or transfer of control. Subject to certain limitations,
pending applications at the time of the suspension will continue to be
processed. All of CellNet's pending applications for licenses in the 928/952 MHz
band have been or are being processed in due course. In addition, CellNet's
applications for the assignment of licenses held by others have been processed
during the processing suspension. At the request of CellNet, the FCC has
determined that CellNet's current use of the multiple address system spectrum
constitutes the use as a private, internal network, and so CellNet's
applications for new licenses, and for major modifications to existing licenses,
are being processed in due course. CellNet's future uses of the multiple address
system spectrum may not similarly qualify as a use in a private, internal
network. The FCC may change or expand its freeze on the processing of
applications to recognize the impact of the new auction legislation described
above. In either case, CellNet's ability to obtain new licenses could be
materially adversely affected, with similar consequences on CellNet's ability to
service areas where it has not yet acquired adequate frequencies.
Finally, when CellNet acquires licenses assigned to other applicants, or
utilizes licenses issued in the past, CellNet is required to modify its licenses
to reflect more advanced technological parameters now utilized by CellNet and
its systems. CellNet has developed such amendments with the approval of the
FCC's staff and has received and anticipates continuing to receive timely grant
of all required modifications. However, a particular modification may not be
granted timely to CellNet's introduction of service on a particular license, and
the failure to obtain the required license modifications could have a material
adverse effect on CellNet's ability to serve areas covered by such unmodified
licenses.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
CellNet is offering its network meter reading services in international
markets through BCN, its international joint venture with Bechtel Enterprises,
Inc. CellNet does not expect to generate material revenues from its
international operations during 1999. CellNet has incurred, and anticipates that
it will continue to incur, significant and increasing expenses in connection
with the establishment of international operations. If revenues generated by
international activities, including the proceeds from necessary financings, are
not adequate to offset the expense of establishing and maintaining these
international activities, CellNet's business, operating results, financial
condition, cash flow and its ability to service its indebtedness could be
materially adversely affected. International demand for CellNet's services and
systems may not materialize, and where present, is likely to vary by country,
based on many factors including:
- the degree of regulation in a given country;
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- competitive factors;
- demand for services;
- labor costs;
- the availability of spectrum and the costs of spectrum acquisition; and
- political and economic conditions.
In addition, CellNet may not be able to develop and implement localized
versions of its network meter reading system without significant effort and cost
due to many factors, including the differing standards among utilities on a
country-by-country basis. To date, CellNet has extremely limited experience in
developing a localized version of its wireless data communications system for
international markets. CellNet believes its ability to establish business
alliances in each international market will be critical to its success. If
CellNet is unsuccessful in developing, marketing and implementing its system in
international markets or in establishing successful business alliances for these
markets, CellNet's future international operations could be adversely affected
and, consequently, CellNet's business, operating results, financial condition,
cash flow and its ability to pay its debts could be adversely affected. In
addition, there are certain risks inherent in doing business internationally,
any of which could adversely affect CellNet's potential international
operations, including:
- changes in regulatory requirements, import/export restrictions, tariffs
and non-tariff trade barriers;
- the ability to obtain financing for the construction and operation of
networks;
- difficulties in staffing and managing international operations;
- longer payment cycles and problems in collecting accounts receivable;
- political instability;
- fluctuations in currency exchange rates;
- potentially adverse tax consequences;
- legal and economic factors; and
- the ability to protect CellNet's intellectual property.
One or more of such factors could have a material adverse effect on CellNet's
future international operations and, consequently, on CellNet's business,
operating results, financial condition, cash flow and its ability to pay its
debts.
CellNet's strategy of pursuing international markets through BCN may involve
additional partners in particular countries. CellNet or BCN may not have a
majority interest or control of the board of directors of entities through which
business is carried out. In any business venture in which CellNet or BCN may
determine to participate, there is a risk that the other venture partner may at
any time have economic, business or legal interests or goals that are
inconsistent with those of CellNet or BCN or that such partner will not impose
the same or similar accounting and financial controls as CellNet or BCN. The
risk is also present that a partner may be unable to meet its economic or other
obligations and that CellNet or BCN may be required to fulfill those
obligations. In addition, in any entity in which CellNet or BCN does not have a
majority interest, CellNet or BCN may not have control over the operations or
assets of such entity. Furthermore, the entity's structure or the laws of
another country may limit or substantially tax the amount of funds that can be
transferred to CellNet or BCN.
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MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL.
CellNet's recent growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources.
CellNet's ability to manage growth effectively will require it to continue to
implement and improve its operational and financial systems and to expand or
manage its employee base. CellNet's growth may require the addition of new
management personnel and the development of additional expertise by existing
management personnel. CellNet may be unable to effectively manage the expansion
of its operations. In addition, CellNet's systems, procedures or controls may be
inadequate to support CellNet's operations or Company management may be unable
to exploit opportunities for CellNet's services. An inability to manage growth,
if any, could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flow and its ability to service its
indebtedness.
The success of CellNet is substantially dependent on its key management and
technical personnel, the loss of one or more of whom could adversely affect
CellNet's business. Substantially all of CellNet's employees and officers are
employed on an at-will basis. Presently, CellNet does not maintain a "key man"
life insurance policy on any of its executives or employees. CellNet's future
success also depends on its continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, and CellNet may be unable to attract or retain
highly qualified technical and managerial personnel in the future. If CellNet is
unable to attract and retain the necessary technical and managerial personnel,
CellNet's business, operating results, financial condition, cash flow and its
ability to service its indebtedness could be adversely affected.
UNCERTAINTY OF PROTECTION OF COPYRIGHTS, PATENTS AND PROPRIETARY RIGHTS.
CellNet relies on a combination of trade secret protection, copyright,
patent, trademark and confidentiality agreements and licensing arrangements to
establish and protect its proprietary rights. CellNet's success will depend in
part on its ability to maintain copyright and patent protection for its
products, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. While CellNet has obtained and applied for
patents, and intends to file other applications for patents covering its
products and processes, additional patents may not be issued or, if issued, may
not provide adequate protection for CellNet's proprietary rights. In addition,
any patents issued to CellNet or licensed by CellNet may be challenged,
invalidated or circumvented, and the patent rights may not adequately protect
CellNet's intellectual property rights.
Since United States patent applications are maintained in secrecy until
patents are issued, and since publication of inventions in the technical or
patent literature tend to lag behind such inventions by several months, CellNet
cannot be certain that it was the first creator of inventions covered by its
issued patents or pending patent applications, that it was the first to file
patent applications for such inventions or that no patent conflict will exist
with other products or processes which could compete with CellNet's products or
approach. Despite its efforts, CellNet may not be able to safeguard and maintain
these proprietary rights, and CellNet's competitors may independently develop
and patent technologies that are substantially equivalent or superior to
CellNet's technologies. Participants in the wireless industry, including
competitors of CellNet, typically seek to obtain patents which will provide as
broad a protection as possible for their products and processes. There is a
substantial backlog of patents pending at the United States Patent and Trademark
Office. The issuance of third-party patents could require CellNet to alter its
products or processes, obtain licenses or cease certain activities. An adverse
outcome with regard to a third-party patent infringement claim could subject
CellNet to significant liabilities, require disputed rights to be licensed or
restrict CellNet's ability to use such technology. CellNet also relies to a
substantial degree upon unpatented trade secrets. Others, including CellNet's
competitors, may independently develop or otherwise acquire substantially
equivalent trade secrets. In addition, whether or not additional patents are
issued to CellNet, others may receive patents which contain claims applicable to
products or processes developed by CellNet. If any such claims were to be
upheld, CellNet would require licenses. Such licenses
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may not be available on acceptable terms, if at all. In addition, CellNet could
incur substantial costs in defending against suits brought against it by others
for infringement of intellectual property rights or in prosecuting suits which
CellNet might bring against other parties to protect its intellectual property
rights. From time to time CellNet receives inquiries with respect to the
coverage of its intellectual property rights, and inquiries could develop into
litigation.
In October 1996, Itron, one of CellNet's competitors, filed a complaint
against CellNet in the Federal District Court in Minnesota, alleging that
CellNet infringes an Itron patent which was issued in September 1996. Itron is
seeking a judgment for damages, attorneys' fees and injunctive relief. On
January 28, 1999, the Court ruled in favor of CellNet that, as a matter of law,
CellNet's system did not infringe the Itron patent. The Court also ruled in
favor of Itron that the Itron patent was valid against certain prior art. These
rulings are subject to possible appeal by either or both of the parties. CellNet
has not yet determined its course of action in this regard. In CellNet's
opinion, the ultimate outcome of the lawsuit is not expected to have a material
adverse effect on CellNet's business, operating results, financial condition,
cash flow and its ability to service its indebtedness.
DEPENDENCE ON THIRD-PARTY MANUFACTURERS; EXPOSURE TO COMPONENT SHORTAGES.
CellNet relies and will continue to rely on outside parties to manufacture
most of its network equipment such as radio devices and printed circuit boards.
As CellNet signs additional services contracts, third party manufacturers must
significantly increase the amount of manufacturing to be undertaken for CellNet
in order to enable CellNet to meet its contractual commitments. These
manufacturers may not be able to meet CellNet's manufacturing needs in a
satisfactory and timely manner. Although CellNet believes alternative
manufacturers are available, CellNet may be unable to obtain additional
manufacturers when and if needed. If CellNet is unable to develop alternative
suppliers quickly or cost-effectively, CellNet's ability to manufacture and
install systems could be impaired, which would adversely affect CellNet's
business, operating results, financial condition, cash flow and its ability to
service its indebtedness. CellNet's reliance on third-party manufacturers
involves a number of additional risks, including the absence of guaranteed
capacity and reduced control over delivery schedules, quality assurance,
production yields and costs. Although CellNet believes that these manufacturers
would have an economic incentive to perform such manufacturing for CellNet, the
quality, amount and timing of resources to be devoted to these activities are
not within the control of CellNet, and manufacturing problems may occur in the
future. A significant price increase, a quality control problem, an interruption
in supply from one or more of such manufacturers or the inability to obtain
additional manufacturers when and if needed could have a material adverse effect
on CellNet's business, operating results, financial condition, cash flow and its
ability to service its indebtedness.
CellNet purchases certain subassemblies, components and network equipment
from single sources or from a limited number of sources. CellNet may be affected
by general shortages of certain components, such as surface mounted integrated
circuits and memory chips. There have been shortages of such materials generally
in the marketplace from time to time in the past. CellNet's reliance on such
components and on a limited number of vendors and subcontractors involves
certain risks, including the possibility of shortages and reduced control over
delivery schedules, manufacturing capability, quality and cost. Some components
relied upon may have an excessive failure rate or inferior capabilities. A
significant price increase or interruption in supply from one or more of such
suppliers could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flow and its ability to service its
indebtedness. Although CellNet believes alternative suppliers of subassemblies,
components and network equipment are available, the inability of CellNet to
develop alternative sources quickly or cost-effectively could materially impair
its ability to manufacture and install systems. Lead times can be as long as a
year for certain components, which may require CellNet to use working capital to
purchase increased levels of inventory.
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A significant number of new electric meters are required to initiate meter
retrofit and replacement in connection with each network deployment and to
replace existing meters in the field which are found to be obsolete, worn out or
otherwise unsuitable for retrofit and redeployment. Any sudden or material
increase in the number of deployments would result in an increase in the number
of new electric meters ordered by electric utilities and other utility industry
participants over and above those ordered on account of normal growth and
replacement within their service areas. To the extent that electric meter
manufacturers are unable or unwilling to increase production in line with such
increase in demand, temporarily or over a longer term, deployments may be
delayed or postponed, with the result that revenues from such deployments will
be likewise delayed or postponed. Similar situations could also arise in
connection with network deployments for gas and water meters.
RISK OF SYSTEM FAILURES, DELAYS AND INADEQUACIES.
The performance, reliability and availability of CellNet's wireless data
networks are critical to CellNet's reputation and ability to attract and retain
customers and earn revenues from network meter reading services and other
non-utility applications. These wireless data networks are vulnerable to damage
or interruption from fire, flood, earthquakes, storms and other similar events.
Any system failure that causes interruption in the availability of network
services whether caused by an act of God or not could result in a loss of
revenue and, if sustained or repeated, could reduce the attractiveness of
CellNet's services for future utilities or other customers. The occurrence of
any of the foregoing could have a material adverse effect on CellNet's business,
operating results, financial condition and cash flow and its ability to service
its indebtedness.
POSSIBLE TERMINATION OF CONTRACTS.
CellNet expects that a substantial portion of its future revenues will be
provided pursuant to services contracts of various kinds. These contracts will
generally be subject to cancellation or termination in certain circumstances in
the event CellNet fails to meet in material respects the agreed network meter
reading and other performance standards on a consistent basis over agreed time
periods, subject to certain rights to cure any such failure. Each of CellNet's
existing utility services contracts provides for termination of such contracts
by the respective utility without cause in less than ten years, subject to
certain reimbursement provisions. Such contracts also provide that CellNet will
be required to compensate such utilities for the use of its system for
non-utility applications. Future services contracts with utilities may contain
similar provisions. Contracts with other utility market participants generally
allow for termination without cause on thirty days prior written notice except
to the extent they have already ordered services under the contract. In the
event that such a services contract is terminated, CellNet may incur substantial
losses. In addition, CellNet's contracts with other utility market participants
will generally have shorter terms than CellNet's existing utility contracts.
CellNet's current contracts with other utility market participants generally
have terms of one to five years, compared to terms of ten to twenty years
generally with utilities. Since a network's service revenues are not expected to
exceed CellNet's capital investments to deploy such network for several years,
the termination or cancellation of one or more significant services contracts
would have a material adverse effect on CellNet's business, operating results,
financial condition, cash flow and its ability to service its indebtedness.
YEAR 2000 COMPLIANCE.
Many currently installed computer systems, software products and electronic
products are coded to accept only two-digit entries in the date code field.
These date code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, during 1999, computer
systems and software ("Information Technology Systems") and other property and
equipment not directly associated with information systems ("Non-Information
Technology Systems"), such as elevators, phones,
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other office equipment used by many companies, including CellNet, its suppliers
and customers and its potential suppliers and customers, may need to be
upgraded, repaired or replaced to comply with such "Year 2000" requirements.
CellNet is in the process of conducting an internal review of all of its
Information Technology Systems and contacting all material software and other
suppliers to determine any major areas of exposure of its Information Technology
Systems to Year 2000 issues. As a result of the internal review to date, CellNet
believes that its wireless data networks, through which it provides network
meter reading and other services to its customers, are Year 2000 compliant. In
1998, CellNet decided to replace certain of CellNet's internal legacy corporate
information systems that required modification, upgrade or replacement in order
to be Year 2000 compliant. Replacement of these systems began during the second
quarter of 1998. A majority of CellNet's core financial and reporting systems
have already been replaced and CellNet expects to complete the installation of
the remainder of these systems in advance of the year 2000. Each of the new
systems installed or to be installed has been identified by its supplier as
being Year 2000 compliant.
CellNet is also in the process of conducting an internal review of its
Non-Information Technology Systems and contacting all material software and
other suppliers to determine whether there are or are likely to be any Year 2000
compliance problems.
To date, CellNet has spent an immaterial amount to review and remedy Year
2000 compliance problems in as much as its internal legacy corporate information
systems would have been replaced in any case. CellNet estimates that it will
spend approximately $762,000 in 1999 to complete the replacement of its internal
legacy corporate information systems and does not expect to spend any material
amounts in completing its Year 2000 review or to remedy any problems that may be
found.
CellNet has been informed by most of the suppliers responding to CellNet's
inquiries to date that such suppliers will be Year 2000 compliant by the year
2000. Any failure of these third parties' systems to timely achieve Year 2000
compliance could have a material adverse effect on CellNet's business, operating
results, financial condition, cash flow and its ability to service its
indebtedness. CellNet has not determined the state of compliance of certain
third party suppliers of services such as phone companies, long distance
carriers and electric companies, the failure of any one of which could severely
disrupt CellNet's ability to carry on its business as well as disrupt the
business of CellNet's suppliers and customers.
Although CellNet believes that its wireless data networks, through which it
provides network meter reading and other services to its customers, are Year
2000 compliant, failure to provide Year 2000 compliant business solutions to its
customers or to receive such business solutions from its suppliers could result
in liability to CellNet or otherwise have a material adverse effect on CellNet's
business, operating results, financial condition, cash flow and its ability to
service its indebtedness. Furthermore, CellNet believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase products and services such as those
offered by CellNet, which could result in a material adverse effect on CellNet's
business, operating results, financial condition, cash flow and its ability to
services its indebtedness.
SHAREHOLDERS' AGREEMENT.
Under the terms of a Shareholders' Agreement among CellNet and certain
stockholders of CellNet (the "Shareholders' Agreement"), so long as certain
parties to the Shareholders' Agreement continue to hold not less than 700,000
shares of common stock (as such number is adjusted for stock splits,
consolidations or other similar events), CellNet is obligated to nominate for
election representatives of certain stockholders as directors at each meeting of
CellNet's stockholders at which a vote for directors will be taken. The effect
of the Shareholders' Agreement is to give certain stockholders greater influence
over the management of CellNet than they would otherwise have and to provide
certain stockholders with, among other things, certain registration, first
refusal, co-sale and other rights.
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LITIGATION.
In October 1996, Itron, one of CellNet's competitors, filed a complaint
against CellNet in the Federal District Court in Minnesota alleging that CellNet
infringes an Itron patent which was issued in September 1996. Itron is seeking a
judgment for damages, attorneys fees and injunctive relief. On January 28, 1999,
the Court ruled in favor of CellNet that, as a matter of law, CellNet's system
did not infringe the Itron patent. The Court also ruled in favor of Itron that
the Itron patent was valid against certain prior art. These rulings are subject
to possible appeal by either or both of the parties. CellNet has not yet
determined its course of action in this regard. In CellNet's opinion, the
ultimate outcome of the lawsuit is not expected to have a material adverse
effect on CellNet's business, operating results, financial condition, cash flow
and its ability to service its indebtedness.
In April 1997, CellNet filed a patent infringement suit against Itron in the
Federal District Court for the Northern District of California, claiming that
Itron's use of its electric meter reading Encoder Receiver Transmitter
(ERT-Registered Trademark-) device infringes CellNet's U.S. Patent No.
4,783,623. CellNet sought an injunction, damages and other relief. In November
1998, the court granted Itron's motion for summary judgment, ruling that Itron's
products did not infringe the asserted claims in CellNet's patent. CellNet
intends to appeal the ruling.
The consolidated complaint of Jere Settle and Karen Zully V. John M. Seidl,
et al., No. 398464, filed in the Superior Court of California for the County of
San Mateo, is a purported class action on behalf of CellNet's stockholders
against CellNet, certain of its officers and directors and underwriters of
CellNet's initial public offering seeking unspecified damages and rescission for
alleged liability under various provisions of the federal securities law and
California state law. The plaintiffs alleged generally that the Prospectus and
Registration Statement dated September 26, 1996, pursuant to which CellNet
issued 5,000,000 shares of common stock to the public, contained materially
misleading statements and/or omissions in that CellNet was obligated to
disclose, but failed to disclose, that a patent conflict with Itron, Inc. was
likely to ensue. The complaint was dismissed on February 9, 1998, without leave
to amend. Plaintiffs filed notice of their intention to appeal the decision, and
on November 2, 1998, filed their appellate briefs in the California Court of
Appeal. CellNet filed its responsive brief on January 12, 1999.
VOLATILITY OF CELLNET COMMON STOCK PRICE.
The trading price of CellNet's common stock has been highly volatile since
CellNet's initial public offering and is likely to continue to be subject to
wide fluctuations in response to a variety of factors, including:
- quarterly variations in operating results;
- signing new services contracts or securing new customers;
- consolidations in the industry;
- technological innovations or the introduction of new products by CellNet
or its competitors;
- developments in patents or other intellectual property rights;
- general conditions in the network meter reading services industry and
other industries in which CellNet's services are or may be provided;
- comments or recommendations issued by analysts who follow CellNet and its
competitors; and
- general economic and market conditions.
In addition, in some future period CellNet's operating results could be below
the expectations of public market analysts and investors. In such event, the
price of CellNet's common stock could be materially adversely affected.
Additionally, the stock market in general, and the market for technology stocks
in particular, have recently experienced extreme price and volume fluctuations
that are not related to the
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operating performance of particular companies. These broad market fluctuations
could have a significant impact on the market price of the common stock and the
Preferred Securities.
NO DIVIDENDS ON COMMON STOCK; DIVIDEND RESTRICTIONS.
CellNet has not declared or paid any dividends on its common stock since its
inception. CellNet currently anticipates that it will retain all of its future
earnings, if any, for use in the operation and expansion of its business and
does not anticipate paying any cash dividends on the common stock in the
foreseeable future. In addition, CellNet's existing financing arrangements
restrict the payment of any dividends on the common stock.
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE.
A substantial portion of CellNet's common stock is presently eligible for
immediate sale in the public market subject, in the case of certain shares, to
the limitations of Rules 144, 144(k) or 701 under the Securities Act. In
addition, the holders of a significant number of such shares of common stock are
entitled to certain registration rights with respect to such shares and the
number of shares sold in the public market could increase substantially upon
exercise of such registration rights.
RISKS RELATED TO PREFERRED SECURITIES OF FUNDING.
In May 1998, Funding, a wholly-owned finance subsidiary of CellNet,
completed an offering of Preferred Securities which will fully accrete to a face
value of $110.0 million on June 1, 2010. The Preferred Securities bear a
cumulative dividend at the rate of 7% per annum. Funding has purchased Treasury
Strips sufficient in amount to pay cash dividends on the Preferred Securities
through June 1, 2001 and has deposited the Treasury Strips in escrow with the
Escrow Agent for the benefit of the holders of the Preferred Securities. Funding
is required to pay quarterly dividends in cash on the Preferred Securities
through June 1, 2001, and thereafter, in cash or shares of CellNet common stock,
at the option of Funding. The first two dividend payments were made on September
1 and December 1, 1998 in the amount of $2.2 million and $1.9 million,
respectively. The Preferred Securities are subject to mandatory redemption on
June 1, 2010 at a redemption price of 100% of the liquidation preference of the
Preferred Securities, plus accrued and unpaid dividends, if any. CellNet has
provided the holders of the Preferred Securities certain guarantees of payment
of dividends, distributions, and redemptions. The Preferred Securities involve a
high degree of risk, and accordingly, reference must be made to the Risk Factors
and other cautionary statements set forth in the Registration Statement on Form
S-3 in respect of the Preferred Securities and in Funding's Reports on Form 10-K
and Form 10-Q and other filings by Funding with the Securities and Exchange
Commission.
ANTI-TAKEOVER PROVISIONS.
On November 24, 1998 (the "Rights Dividend Declaration Date"), the Board of
Directors of CellNet adopted a Stockholder Rights Plan (the "Rights Plan") and
declared a dividend of one Preferred Share Purchase Right (a "Right") for each
outstanding share of common stock. The dividend was paid to stockholders of
record on December 21, 1998 (the "Record Date"). In addition, one Right will be
issued with each share of common stock that becomes outstanding between the
Record Date and the earlier to occur of the Distribution Date (as defined below)
and the Expiration Date (as defined below). This includes common stock that is
issued upon conversion of securities convertible into common stock such as stock
options, warrants, and the Preferred Securities.
The Distribution Date will occur, if at all, on the earlier of (a) the close
of business on the tenth (10(th)) day after a person or group acquires
beneficial ownership of fifteen percent (15%) or more of CellNet's common stock
(including common stock issuable upon conversion or exchange of any convertible
securities), and (b) the close of business on the tenth (10(th)) business day
after a person or group announces a tender or exchange offer, the consummation
of which would result in ownership by a person or group of
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fifteen percent (15%) or more of CellNet's common stock (including common stock
issuable upon conversion or exchange of any convertible securities).
The Rights may not be exercised prior to the Distribution Date. Following
the Distribution Date, each Right will entitle the holder to purchase for $50.00
(the "Exercise Price") one one-thousandth (1/1000) of a share of CellNet's
Series A Participating Preferred Stock, $0.001 par value per share, subject to
certain adjustments in both price and number of shares.
If a person or group acquires beneficial ownership of fifteen percent (15%)
or more of CellNet's common stock (including common stock issuable upon
conversion or exchange of any convertible securities) (an "Acquiring Person"),
THEN each Right (other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to purchase, for the Exercise Price,
a number of shares of CellNet's common stock having a then current market value
of TWICE the Exercise Price.
If, after an Acquiring Person acquires beneficial ownership of fifteen
percent (15%) or more of CellNet's common stock (including common stock issuable
upon conversion or exchange of any convertible securities), (a) CellNet merges
into another entity, (b) an acquiring entity merges into CellNet, or (c) CellNet
sells more than fifty percent (50%) of its assets or earning power, THEN each
Right (other than Rights owned by an Acquiring Person or its affiliates) will
entitle the holder thereof to purchase, for the Exercise Price, a number of
shares of the common stock of the person or entity engaging in the transaction
having a then current market value of TWICE the Exercise Price.
At any time after an Acquiring Person acquires beneficial ownership of
fifteen percent (15%) or more of CellNet's common stock (including common stock
issuable upon conversion or exchange of any convertible securities) and prior to
the acquisition by the Acquiring Person of fifty percent (50%) of CellNet's
common stock (including common stock issuable upon conversion or exchange of any
convertible securities), the Board of Directors may exchange the Rights (other
than Rights owned by the Acquiring Person or its affiliates), in whole or in
part, for shares of CellNet's common stock at an exchange ratio of one (1) share
of common stock per Right (subject to certain adjustments).
The Rights are redeemable at CellNet's option (with the approval of the
Board of Directors) at any time prior to the close of business on the day (prior
to the Expiration Date) of a public announcement that an Acquiring Person has
acquired beneficial ownership of fifteen percent (15%) or more of CellNet's
common stock (including common stock issuable upon conversion or exchange of any
convertible securities). Upon exercise of CellNet's option to redeem the Rights,
holders will be entitled to receive a redemption payment of $0.001 per Right
(subject to certain adjustments) payable in cash or in shares of CellNet's
common stock.
The Rights expire (the "Expiration Date") on the earliest of (a) November
24, 2008, (b) the consummation of any of the following transactions--(i) CellNet
merges into another entity, (ii) an acquiring entity merges into CellNet, or
(iii) CellNet sells more than fifty percent (50%) of its assets or earning
power, (c) the effective date of a redemption of the Rights determined by the
Board of Directors, and (d) the time at which the Board of Directors orders an
exchange of the Rights.
Under certain circumstances, Rights beneficially owned by an Acquiring
Person or an affiliate or associate of an Acquiring Person and any subsequent
holder of such Rights may become null and void. The Rights have no voting
rights. The Rights have the benefits of certain customary anti-dilution
provisions.
The foregoing is a summary of certain principal terms of the Rights Plan and
is qualified in its entirety by reference to the terms of the Rights Agreement
pursuant to which the Rights have been issued. A copy has been filed with the
Securities and Exchange Commission on Form 8-A dated December 9, 1998.
The Rights Plan was adopted to provide protection to CellNet's stockholders
in the event of an unsolicited attempt to acquire CellNet on terms that are not
in the stockholders' best interests. The Rights Plan does not prevent an
acquisition of CellNet, impact CellNet's ability to negotiate a transaction on
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mutually agreeable terms, or limit CellNet's flexibility in responding to
offers. The Rights Plan is designed to prevent the use of coercive and/or
abusive takeover techniques and to encourage any potential acquiror to negotiate
directly with the Board of Directors for the benefit of all stockholders. The
Rights Plan is also designed to afford the Board of Directors adequate time
within which to consider any takeover proposal and, if appropriate, to explore
alternatives. In addition, the Rights Plan is intended to provide increased
assurance that a potential acquiror would pay an appropriate control premium in
connection with any acquisition of CellNet. Nevertheless, the Rights Plan could
be utilized, under certain circumstances, as a method of discouraging, delaying
or preventing a change of control of CellNet.
CellNet is authorized to issue additional shares of undesignated preferred
stock. The Board of Directors has the authority, without further action by the
stockholders, to issue such stock in one or more series, to fix the rights,
preferences, privileges and restrictions thereof. The issuance of such stock may
also have the effect of delaying, deferring or preventing a change in control of
CellNet, may discourage bids for CellNet's common stock at a premium over its
market price and may adversely affect the market price of and the voting and
other rights of the holders of common stock. In addition, CellNet is, and will
continue to be, subject to the anti-takeover provisions of the Delaware General
Corporation Law, which could have the effect of delaying or preventing a change
of control of CellNet. Furthermore, upon a change of control, the holders of
CellNet's outstanding 1997 Notes are entitled, at their option, to be repaid in
cash. Such provisions may have the effect of delaying or preventing changes in
control or management of CellNet. All of these factors could materially
adversely affect the price of CellNet's common stock and the Preferred
Securities.
USE OF PROCEEDS
CellNet expects to receive up to $127,877,993 in gross proceeds from
exercise of all outstanding Warrants. CellNet expects to use the net proceeds
received from this offering (a) to fund continuing research and development
activities related to its wireless data communications systems, (b) to expand
opportunities for the use of its wireless data communications systems through
alternate market applications, (c) to enhance the performance and lower the
component and operating cost of its wireless data communications systems, (d) to
continue investing in an international joint venture with Bechtel Enterprises,
Inc. for the deployment of its wireless data communications systems on a
worldwide basis, (e) to fund the adaptation and migration of its technology for
use outside the United States, (f) to support network deployment for both
utility and non-utility applications, (g) to expand CellNet's business
generally, and (h) for working capital, general corporate and other purposes
permitted by the Indenture governing the 1997 Notes.
PLAN OF DISTRIBUTION
The price of the common stock offered hereby is based on the exercise price
of the Warrants as provided in the Warrant Agreement. Certain of CellNet's
executive officers will participate in the sale of the Warrant Shares to holders
upon exercise of the Warrants. These participants, who will not receive any
compensation for these activities, will not be deemed to brokers pursuant to
Rule 3a4-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and will merely ensure compliance with CellNet's obligations under the
Warrant Agreement in connection with the issuance of Warrant Shares upon
exercise of the Warrants. CellNet will not pay any finder's fee or commission in
connection with the offering hereby of Warrant Shares in connection with the
exercise of Warrants. CellNet will pay all of the expenses incident to the
offering of Warrant Shares which are estimated to be approximately $83,050.
The Warrants may be exercised for cash or on a cashless basis any time
before the expiration date on October 1, 2007. Any holder electing to exercise
on a cashless basis will receive the number of Warrant Shares equal to the
product of the number of Warrant Shares for which the Warrant is exercisable and
the Cashless Exercise Ratio as defined in the Warrant Agreement. The "Cashless
Exercise Ratio" is defined in
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Section 2.2(c) of the Warrant Agreement as a fraction, the numerator of which is
the excess of the Current Market Value of the common stock on the date of
exercise over the exercise price per share as of the date of exercise and the
denominator of which is the Current Market Value of the common stock on the date
of exercise. The "Current Market Value" per share of the Warrant Shares is
defined in Section 5.1(n) of the Warrant Agreement as the average of the daily
closing bid prices for each business day during the period commencing 15
business days before such date and ending on the date one day prior to such date
or, if the security has been registered under the Exchange Act for less than 15
consecutive business days before such date, then the average of the daily
closing bid prices for all of the business days before such date for which daily
closing bid prices are available. If the closing bid is not determinable for at
least 10 business days in such period, the Current Market Value of the security
shall be determined reasonably and in good faith by a disinterested majority of
the Board of Directors of CellNet and certified in a board resolution, or, if at
the time there are not at least three disinterested members of the Board of
Directors, by a nationally recognized investment banking firm or appraisal firm
which is not an affiliate of CellNet.
Delivery of the Warrant Shares upon exercise of a Warrant will be made to
the holder immediately following receipt by CellNet of the original Warrant
certificate, an election to exercise (which is set forth on the reverse side of
the Warrant certificate) duly completed and signed by the registered holder or
holders thereof (an "Election to Exercise"), and full payment of the aggregate
exercise price if the exercise is on a cash basis. If a Warrant is currently
held by the Depository Trust Company in global form, the holder must, by written
request, request the Warrant Agent to issue the holder a definitive Warrant
certificate which may then be delivered to CellNet upon exercise thereof. Upon
receipt by CellNet of the Warrant certificate and Election to Exercise and
collection of the aggregate exercise price, if applicable, such Warrant
certificate and any such payment must be delivered by CellNet immediately to the
Warrant Agent. The exercise date shall be deemed to be the date the Warrant
Agent receives the foregoing items, and the Warrant Agent upon determining that
such exercise has been timely, shall then promptly remit payment of the exercise
price, if any, to CellNet and advise CellNet with respect to delivery of Warrant
Shares to the holder. CellNet as soon thereafter as practicable must issue or
cause the issuance of the appropriate number of Warrant Shares to such holder
and such Warrant Shares. Any such Warrant Shares issued in connection with a
timely exercise will be shares of CellNet's Common Stock which have been
registered under the Securities Act as provided in the Warrant Agreement and are
expected to be listed on the Nasdaq National Market.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California,
counsel to CellNet.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from CellNet's Annual Report on Form 10-K for the year ended December
31, 1997 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Accordingly, we file annual,
quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). You may read and copy any
document that we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. You can obtain copies of
our SEC filings at prescribed rates from the SEC Public Reference
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Section at 450 Fifth Street, N.W., Washington, D.C. 20549. Our SEC filings are
also available to you free of charge at the SEC's web site at
http://www.sec.gov.
Shares of our common stock are traded as "National Market Securities" on the
Nasdaq National Market. Documents we file can be inspected at the offices of the
National Association of Securities Dealers, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
You can read and print press releases, financial statements and additional
information about us, free of charge, at our web site at http://www.cellnet.com.
This Prospectus is a part of a Registration Statement on Form S-3 (together
with all amendments and exhibits, referred to as the "Registration Statement")
filed by us with the SEC under the Securities Act of 1993, as amended. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the SEC. For further information with respect to us and the
shares of Common Stock offered hereby, please refer to the Registration
Statement. The Registration Statement may be inspected at the public reference
facilities maintained by the SEC at the addresses set forth above. Statements in
this Prospectus about any document filed as an exhibit are not necessarily
complete and, in each instance, you should refer to the copy of such document
filed with the SEC. Each such statement is qualified in its entirety by such
reference.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this Prospectus, and information that we file later with the SEC
will automatically update and supersede previously filed information, including
information contained in this Prospectus.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until this offering has been completed:
(1) Our Annual Report on Form 10-K for the fiscal year ended December
31, 1997;
(2) Our Quarterly Report on Form 10-Q for the quarters ended March 31,
1998, June 30, 1998 and September 30, 1998;
(3) Our Proxy Statement for the Annual Meeting of Stockholders held on
April 30, 1998, filed with the SEC on March 27, 1998; and
(4) The description of our common stock contained in the Registration
Statement on Form 8-A which was filed on September 23, 1996, and in the
Registration Statement on Form 8-A filed on December 9, 1998, each of which
was filed pursuant to Section 12 of the Exchange Act, and any amendment or
report filed for the purpose of updating such description.
You may request a free copy of these documents by writing to Investor
Relations, CellNet Data Systems, Inc., 125 Shoreway Road, San Carlos, CA 94070,
or by calling our Investor Relations department at (650) 508-6000.
You should rely only on the information incorporated by reference or
provided in this Prospectus or a prospectus supplement or amendment. We have not
authorized anyone to provide you with different information. This Prospectus
does not offer these securities in any state where the offer is not permitted.
Also, this Prospectus does not offer to sell any securities other than the
securities covered by this Prospectus. You should not assume that the
information in this Prospectus or a prospectus supplement or amendment is
accurate as of any date other than the date on the front of the document.
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<PAGE>
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION THAT DIFFERS FROM WHAT IS IN THIS PROSPECTUS. IF ANY PERSON DOES
MAKE A STATEMENT THAT DIFFERS FROM WHAT IS IN THIS PROSPECTUS, YOU SHOULD NOT
RELY ON IT. THIS PROSPECTUS IS NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE SHARES OFFERED HEREBY. THIS PROSPECTUS IS
NOT AN OFFER TO SELL, NOR IS IT SEEKING AN OFFER TO BUY, THESE SHARES IN ANY
JURISDICTION IN WHICH THE OFFER OR SALE IS PROHIBITED. THE INFORMATION IN THIS
PROSPECTUS IS COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE INFORMATION MAY
CHANGE AFTER THAT DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company................................................................................................ 3
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 24
Plan of Distribution....................................................................................... 24
Legal Matters.............................................................................................. 25
Experts.................................................................................................... 25
Where You Can Find More Information........................................................................ 25
Information Incorporated by Reference...................................................................... 26
</TABLE>
------------------------
CELLNET DATA SYSTEMS, INC.
8,942,517 SHARES
OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
FEBRUARY , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
CellNet will pay all expenses incident to the offering and sale to the
public of the shares being registered other than any commissions and discounts
of underwriters, dealers or agents and any transfer taxes. Such expenses are set
forth in the following table. All of the amounts shown are estimates except the
SEC registration fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 35,550
NASDAQ National Market listing fee................................. 17,500
Legal fees and expenses............................................ 15,000
Accounting fees and expenses....................................... 10,000
Miscellaneous expenses............................................. 5,000
---------
Total............................................................ $ 83,050
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he or she is or is threatened
to be made a party by reason of such position, if such person has acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, in any criminal proceeding, if such
person had no reasonable cause to believe his or her conduct was unlawful;
provided that, in the case of actions brought by or in the right of the
corporation, no indemnification may be made with respect to any matter as to
which such person has been adjudged to be liable to the corporation unless and
only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Registrant's Certificate of Incorporation provides that no director will
be personally liable to the Registrant or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Registrant or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for authorizing the payment of a
dividend or repurchase of stock or (iv) for any transaction in which the
director derived an improper personal benefit.
The Registrant's by-laws provide that the Registrant must indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Registrant) by reason of the fact that he or she is or was a
director or officer of the Registrant, or that such director or officer is or
was serving at the request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture trust or other
enterprise (collectively "Agent"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is approved
in advance by the Registrant, which approval may not be unreasonably withheld)
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, will not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed
II-1
<PAGE>
to be in or not opposed to the best interests of the Registrant, and with
respect to any criminal action or proceeding, had reasonable cause to believe
that his or her conduct was unlawful.
The Registrant's by-laws provide further that the Registrant must indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Registrant to procure a judgment in its favor by reason of the fact that he or
she is or was an Agent against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Registrant, provided that no indemnification may be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable to
the Registrant unless and only to the extent that the Delaware Court of Chancery
or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court deems proper.
Pursuant to its by-laws, the Registrant has the power to purchase and
maintain a directors and officers liability policy to insure its officers and
directors against certain liabilities.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
ITEM 16. EXHIBITS.
Please see Index of Exhibits on Page II-5 below.
ITEM 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3)
Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
II-2
<PAGE>
PROVIDED, HOWEVER, that paragraphs A(1)(i) and A(1)(ii) do not apply if
the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act") that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT
DOCUMENTS BY REFERENCE.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the Registration Statement 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.
C. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC 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 such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Carlos, California, on this 24th day of February,
1999.
CELLNET DATA SYSTEMS, INC.
By: /s/ PAUL G. MANCA
-----------------------------------------
Paul G. Manca,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John M.
Seidl and David L. Perry, jointly and severally, as attorneys-in-fact, each with
the power of substitution, for him or her in any and all capacities, to sign any
amendment to this Registration Statement and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting to said attorneys-in-fact, and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully 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 or any of them, or their or his or
her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on the
24th day of February, 1999 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
------------------------------ --------------------------
<S> <C> <C>
President, Chief Executive
* Officer and Director
------------------------------ (Principal Executive
John M. Seidl Officer)
Vice President and Chief
* Financial Officer
------------------------------ (Principal Financial and
Paul G. Manca Accounting Officer)
*
------------------------------ Director
Paul M. Cook
*
------------------------------ Director
Neal M. Douglas
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
------------------------------ --------------------------
<S> <C> <C>
*
------------------------------ Director
E. Linn Draper, Jr.
*
------------------------------ Director
William C. Edwards
*
------------------------------ Director
William Hart
*By:
/s/ DAVID L. PERRY
------------------------------ Attorney-in-Fact
David L. Perry
</TABLE>
II-5
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1* Warrant Agreement between the Registrant and The Bank of New York dated as of September 29, 1997.
2.2* Warrant Registration Rights Agreement between and among the Registrant, Morgan Stanley & Co., Inc. and
Donaldson, Lufkin & Jenrette Securities Corp. dated as of September 24, 1997.
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of Deloitte & Touche LLP, Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1** Power of Attorney (included on page II-5).
</TABLE>
- ------------------------
* Incorporated by reference to CellNet's Registration Statement on Form S-4,
filed with the SEC on October 15, 1997.
** Previously filed with this Registration Statement.
<PAGE>
EXHIBIT 5.1
CellNet Data Systems, Inc.
125 Shoreway Road
San Carlos, CA 94070
RE: REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
This letter is delivered to you in connection with a Registration Statement
on Form S-3 (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, for the
registration of 8,942,517 shares of CellNet's Common Stock, $.001 par value (the
"Shares"), of CellNet Data Systems, Inc., a Delaware corporation (the
"Company"), to be issued and sold by CellNet upon exercise of warrants (the
"Warrants") issued in conjunction with CellNet's 14% Senior Notes due 2007 (the
"Senior Notes").
In connection with this opinion, we have examined the Registration Statement
and such other documents, instruments and records as we have deemed necessary or
appropriate to enable us to render the opinion expressed below. In such
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to original
documents of all documents submitted to us as copies.
Based upon and subject to the foregoing, it is our opinion that upon
conclusion of the proceedings being taken or contemplated by us, as your
counsel, to be taken prior to the issuance of the Shares, and upon completion of
the proceedings being taken in order to permit such transactions to be carried
out in accordance with the securities laws of the various states where regarded,
the Shares will have been duly authorized and will be validly issued, fully paid
and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement and any subsequent amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-71967 of CellNet Data Systems, Inc. on Form S-3
of our report dated February 2, 1998, appearing in the Annual Report on Form
10-K of CellNet Data Systems, Inc. for the year ended December 31, 1997 and to
the reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ Deloitte & Touche LLP
San Jose, California
February 19, 1999
