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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 8, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CELLNET DATA SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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<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)
--------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.001 per
share............................. 8,942,517 $14.30 $127,877,993 $35,550
</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457 under the Securities Act.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL 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 8, 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" or the "Company") to
holders electing to exercise warrants (the "Warrants") issued pursuant to the
Warrant Agreement dated as of September 29, 1997 (the "Warrant Agreement")
between the Company and The Bank of New York as Warrant Agent. The Warrants were
originally issued on September 29, 1997 in connection with the Company's
issuance of 14% Senior Discount Notes due 2007 (the "1997 Notes") to certain
investors (the "Warrant Holders") including prior holders of the Company'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. The Company 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 the Company'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 the Company 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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PAGE
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The Company................................................................................................ 3
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 24
Plan of Distribution....................................................................................... 25
Legal Matters.............................................................................................. 25
Experts.................................................................................................... 26
Where You Can Find More Information........................................................................ 26
Information Incorporated by Reference...................................................................... 26
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THE COMPANY
CellNet Data Systems, Inc. ("CellNet" or the "Company") 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 the Company'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 the
Company to benefit from the deregulation of the electric utility industry. As of
December 31, 1998, the Company 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 the Company. 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 (such as 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. The Company 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 proven, efficient, low-cost, scaleable network meter reading service
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
3
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spending and implement customer retention plans and facilitate market entrance
by new power market participants.
The Company is actively targeting the largest Metropolitan Statistical Areas
("MSAs"), and consolidated Metropolitan Statistical Areas ("CMSAs"), 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. The Company 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 the Company 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, the
Company believes that actual implementation of utility deregulation will
ultimately accelerate purchasing decisions by established utilities. The Company
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.
The Company has existing long-term contracts to provide NMR services to
Kansas City Power & Light Company ("KCPL") for approximately 437,000 meters,
AmerenUE (formerly known as the Union Electric Company) ("UE") for approximately
1,264,000 meters, Northern States Power Company ("NSP") for approximately
1,087,000 meters, Puget Sound Energy, Inc. ("PSE") for approximately 800,000
meters and Indianapolis Power & Light Company ("IP&L") 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 the Company's "saturation deployment" strategy for
providing NMR services to existing utilities. Under this strategy, the Company
builds out a network to cover every meter in a utility's designated service
area. To implement the strategy, the Company builds out its wide area network
("WAN") and local area network ("LAN") concurrently. The network begins
generating revenue shortly after individual meters come on-line, and new meters
can be added incrementally. The Company has ongoing discussions concerning
additional contracts of a similar kind with other utilities in the United
States.
The Company began actively targeting new power market participants in
September 1997. To date, the Company 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 NMR services in California, including Sempra
Energy Solutions, New West Energy, Duke Solutions, Commonwealth Energy, and
Dynergy, a division of NGC Corp. The Company 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 the Company's networks. Each of these contracts results from the
Company's alternative "broad deployment" strategy, which is a slight variation
of the Company's saturation deployment strategy outlined above. Under the
Company's broad deployment strategy, the Company first deploys its WAN 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 the
Company's services and/or to concentrate their marketing efforts. As contracts
for the provision of NMR services are obtained, the Company builds out its LAN
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.
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By using networks deployed under either the saturation or broad deployment
strategy, the Company is also able to offer NMR 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 the Company to offer
sub-metering NMR 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.
The Company 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 the
Company'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. The Company has worked with industry
leaders such as Honeywell, Inc., Real Time Data, Inc., and Interactive
Technologies, Inc. to develop such applications. The Company believes that its
utility networks will provide an excellent platform to position the Company as a
leading wholesale provider of wireless data communications services for such
non-utility applications.
The Company 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.
The Company 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.
The Company's principal executive offices are located at 125 Shoreway Road,
San Carlos, California 94070, (650) 508-6000.
5
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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.
We offer automated meter reading services and data generated from such
services to utilities, other utility industry participants and utility
customers. We contract with these parties to establish wireless data networks
for automated meter reading and the automated distribution of data. The
Company's success will be almost entirely dependent upon whether or not these
parties sign additional contracts with CellNet for network meter reading and
other services or 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. We believe that, as the utility
industry becomes more competitive through various deregulation and privatization
initiatives, the need for more accurate, timely and efficient collection of
consumption and other operating data 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
the Company has no control. We cannot accurately predict the size of our 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 it 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 the Company's technology or do so less rapidly than expected by the
Company, the Company's future financial results, including its ability to
service its indebtedness and achieve positive cash flow or profitability, will
be adversely affected.
The utility industry has 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
6
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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 the
Company's technology, the timing and extent of such adoption cannot be
predicted. Only a limited number of utilities have made a commitment to purchase
the Company's services to date. If the Company does not enter into additional
services contracts or enter into contracts on terms favorable to the Company,
the Company's business, operating results, financial condition, cash flow and
its ability to service its indebtedness will be adversely affected.
The Company 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 contract with that
utility). The Company 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 the Company 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, the
Company 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.
The Company'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;
- the Company cannot successfully market its services to such non-utility
clients;
- the Company 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 the Company; or
- the Company 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
the Company's ability to obtain new services agreements with established
utilities and other utility industry participants and upon the successful
deployment and operation of the Company's wireless data networks. The Company
expects that utilities and other parties will sign new services contracts for
saturation or broad deployments on an irregular basis. The Company 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 the Company's capital
investments and expenses incurred to deploy and operate such networks for
several years. The Company will not begin to receive recurring revenues under a
services contract until portions of the network become operational, which is
expected to occur in saturation deployments no earlier than six months after the
execution of the applicable services contract. The Company begins to incur
capital expenditures for the construction of networks used in broad deployments
and 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 the Company'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
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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 the Company's revenues were derived from its contracts with
KCPL and UE and, during the first nine months of 1998, 92% of the Company's
revenues were derived from its contracts with KCPL, UE and NSP. The Company 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 the Company 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, the Company will
not achieve adequate cash flow to service its indebtedness or achieve positive
cash flow or profitability.
The Company's operating results will fluctuate significantly in the future
due to a variety of factors, some of which are outside of the Company'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 the Company or its competitors and the
mix of services sold; and
- pricing changes and new service introductions by the Company and its
competitors and prices charged by suppliers.
In response to a changing competitive environment, the Company 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 the Company's business, operating results, financial
condition, cash flow and its ability to service its indebtedness.
DEPENDENCE ON NON-UTILITY APPLICATIONS.
The Company 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 the Company'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, the Company's ability to service its indebtedness and to
achieve profitability will be adversely affected. While the Company is working
with industry leaders to develop such non-utility applications, there is no
guarantee that the Company will successfully develop or commercial introduce of
any such services. The Company does not currently have any contracts to deploy
non-utility services on a commercial scale. In addition, unless the Company is
successful in deploying its wireless networks in targeted service areas, the
Company 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.
The Company must form relationships with leading companies in order to
expand existing markets and enter new markets. The Company is currently
investing, and plans to continue to invest, significant resources to develop
these relationships. The Company 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 the Company cannot develop
additional relationships with such companies, maintain existing relationships or
achieve the purpose underlying such existing relationships or successfully
discourage such companies from forming competing
8
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arrangements, the Company'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.
The Company 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"). The Company 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 the Company, 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 the Company 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. The Company 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. The Company's capital
expenditures will increase significantly if new services contracts are signed,
and the Company 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 the Company to meet its debt service
requirements will depend upon achieving significant and sustained growth in the
Company's cash flow, which will be affected by a number of factors, including
the Company's success in implementing its business strategy, prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the Company's control. The Company's ability to generate such cash flow
is subject to a number of risks and contingencies, including the following:
- the Company may not obtain a sufficient number of new services contracts
on terms favorable to the Company;
- network installations may not be completed on a timely basis;
- revenues may not be generated quickly enough to meet the Company's
operating costs and debt service obligations;
- the operating and/or capital costs associated with the installation and
maintenance of the Company's networks could be higher than projected;
- the Company's wireless systems could experience performance problems; and
- the adoption of the Company's services could be less widespread than
anticipated.
Accordingly, the Company's operations may not generate positive cash flow or
become profitable on a timely basis, or at all. The Company 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, the Company will have to take actions
which could adversely affect the Company's business such as to reduce or delay
planned capital expenditures, sell assets, restructure or refinance its
indebtedness or seek additional equity capital. The Company may not be able to
effect these strategies on
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satisfactory terms, if at all, and these strategies may yield insufficient
proceeds to make the required payments on any of the Company's indebtedness. In
particular, there is a risk that the Company 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, the Company's then performance and
financial position and the Company's projected high levels of indebtedness. Such
inability to refinance the 1997 Notes could result in cross-defaults under other
indebtedness and may limit the Company'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 the Company's indebtedness could adversely affect,
among other things:
- the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, and other general
corporate purposes;
- the Company's cash flow, if any, to the extent that it cannot be used in
the Company's business and must be dedicated to the payment of principal
and interest on its indebtedness; and
- the Company's ability to withstand economic downturns and competitive
pressures and to respond flexibly to changing business and economic
conditions.
The Company 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, the Company had $126.3 million in cash, cash
equivalents, short-term investments and restricted cash. The Company 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, the Company 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
the Company.
In the event that the Company is unable to generate sufficient cash flow and
is otherwise unable to obtain funds necessary to meet required payments on its
indebtedness, the Company 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 the Company.
HISTORY AND CONTINUATION OF OPERATING LOSSES.
The Company has incurred substantial and increasing operating losses since
inception. As of September 30, 1998, the Company had an accumulated deficit of
$382.2 million, primarily resulting from expenses incurred in the development of
the Company's wireless data communications system, marketing of the Company's
wireless network, distribution automation and other services, the installation
of its wireless data communications networks and the payment of other normal
operating costs.
The Company 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. The Company 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. The Company's network service revenues from a particular network are
expected to lag significantly behind network installation expenses until such
network is substantially complete. If the Company 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, the
Company 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. The Company
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 the
Company's system, for meter reading purposes.
There may be many potential alternative solutions to the Company'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 the Company, 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 the Company's present and potential future competitors have
substantially greater financial, marketing, technical and manufacturing
resources, name recognition and experience than the Company. The Company'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 the Company.
While CellNet believes its technology, including its software, is widely
regarded as competitive at the present time, the Company'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 the
Company'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 the Company achieves
significant success it could draw additional competitors into the market.
Providers of wireless services may in the future choose to enter the Company's
markets. Such existing and future competition could materially adversely affect
the pricing for the Company's services and the Company'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 the
Company continues to develop non-utility applications. The Company may be unable
to compete successfully against current and future competitors, and any failure
to do so would
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have a material adverse effect on the Company's business, operating results,
financial condition, cash flow and its ability to service its indebtedness.
TECHNOLOGICAL PERFORMANCE AND BUILD-OUT OF THE SYSTEM; RAPID TECHNOLOGICAL
CHANGE AND UNCERTAINTY.
The Company'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 the Company's
technology, products or services, and the Company may not successfully complete
the development and commercial implementation of its technology on a wide scale.
The Company must continue to expand and upgrade its ability to implement
successfully its wireless networks. The Company may not be able to develop
successfully a full range of endpoint devices.
The Company'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
personal communications systems ("PCS") and other commercial mobile radio
services have radically expanded communications capabilities and market
opportunities. Future advances may render the Company's technology obsolete or
less cost effective than competitive systems or erode the Company'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 the Company's customers. Consequently, the Company may be
unable to offer competitive services or obtain appropriate new technologies on a
timely basis or on satisfactory terms. The Company's future performance will
also depend significantly on its ability to respond to future regulatory
changes.
The Company must make continued substantial investments to develop its
technology. The Company 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 FEDERAL COMMUNICATIONS
COMMISSION ("FCC").
The Company 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. The Company has obtained
spectrum licenses in many of the largest Metropolitan Statistical Areas ("MSAs")
and Consolidated Metropolitan Statistical Areas ("CMSAs") in the United States.
As of December 31, 1998, the Company had obtained a total of 154 spectrum
licenses in 54 of the top 60 MSAs/CMSAs. However, sufficient frequency spectrum
may not be available to fully enable the delivery of all or a part of the
Company's wireless based data services or the Company 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 the
Company. The Company could also be unable to obtain frequency in certain areas.
Any of these circumstances could have a material adverse impact on the Company's
future ability to provide its network services and on the Company's business,
operating results, financial condition, cash flow and its ability to service its
indebtedness.
The Company's network equipment uses radio spectrum and, as such, is subject
to regulation by the FCC. The Company's network equipment uses both licensed
spectrum allocated for multiple address system ("MAS") 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
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upon the availability of spectrum in the area(s) for which the licenses are
requested. The Company 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.
The Company plans to use these provisions of the FCC's rules to expand its
network system.
The FCC requires that a minimum configuration of an MAS 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 MAS frequencies.
The eighteen-month deadline may be extended upon a showing of good cause, but
the FCC may not grant any such extension. The Company 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 the Company's equipment utilizing the
902-928 MHz band, although the equipment must be certified by the Company and
the FCC as being compliant with certain FCC restrictions on radio frequency
emissions designed to protect licensed services from objectionable interference.
While the Company 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 the Company'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 the Company. 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. The Company'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 ("LMS"), which will auction off licenses
covering the entire nation where incumbent licensees have not been authorized.
While the Company believes that the rules adopted in the LMS proceeding are
adequate to provide interference protection for its systems, the authorization
of additional LMS licensees may adversely impact the Company's operations in any
given location.
While the Company intends to offer alternate market services over its
private, internal network, some of those services may include the use of the
Company's network for private carrier service offerings. The Company'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 MAS
frequencies on which the Company 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, the Company may be
required to restructure such offering or to utilize other frequencies for the
purpose of providing such service. The Company may not be able to gain access to
such other frequencies. Future interpretation of regulations by the FCC or
changes in the regulation of the Company's industry by the FCC or other
regulatory bodies or legislation by Congress could have a material adverse
effect on the Company'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
the Company now operates its wide area network) to systems exclusively
used for private internal purposes;
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- 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;
- 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 MAS channels, including extensive
comments from the Company. The Company has urged, in particular, that there
should not be any restrictions imposed on the use of the 928/952 MHz bands in
which the Company has developed its network facilities that would unreasonably
limit the Company's ability to provide its current and anticipated utility and
non-utility service offerings. The Company 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. The Company has also
supported many of the proposed changes that will make the use of the band more
technically efficient, although the Company 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. The Company'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 the Company'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. The Company is unable to determine how the new
auction legislation will affect the proposals in that proceeding, whether the
Company's use of MAS 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 the Company
currently operates from circumstances in which mutual exclusivity
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between applicants for the same license, requiring the use of auctions, is
likely to exist. Nor is the Company 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. The Company 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 in this proceeding. However, the Company 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 the Company's uses of the MAS
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 the Company currently operates,
requiring the Company to develop equipment capable of operating in one of the
other MAS bands, and further requiring the Company to obtain future licenses in
a competitive bidding process. Although the Company believes that additional
licensed frequency will be generally available to it as required, the cost
associated with acquiring such licensed frequency as well as the Company's
operating costs could increase, perhaps substantially, and the Company 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 the Company's
business, operating results, financial condition and cash flow.
In connection with the foregoing, the FCC has temporarily suspended
acceptance of MAS 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 MAS 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 the Company's
pending applications for licenses in the 928/952 MHz band have been or are being
processed in due course. In addition, the Company's applications for the
assignment of licenses held by others have been processed during the processing
suspension. At the request of the Company, the FCC has determined that the
Company's current use of the MAS spectrum constitutes the use as a private,
internal network, and so the Company's applications for new licenses, and for
major modifications to existing licenses, are being processed in due course. The
Company's future uses of the MAS 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, the Company's ability to obtain new
licenses could be materially adversely affected, with similar consequences on
the Company's ability to service areas where it has not yet acquired adequate
frequencies.
Finally, when the Company acquires licenses assigned to other applicants, or
utilizes licenses issued in the past, the Company is required to modify its
licenses to reflect more advanced technological parameters now utilized by the
Company and its systems. The Company 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 the Company's introduction of service
on a particular license, and the failure to obtain the required license
modifications could have a material adverse effect on the Company's ability to
serve areas covered by such unmodified licenses.
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION.
The Company is offering its network meter reading services in international
markets through BCN, its international joint venture with Bechtel Enterprises,
Inc. The Company does not expect to generate
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material revenues from its international operations during 1999. The Company 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, the Company's
business, operating results, financial condition, cash flow and its ability to
service its indebtedness could be materially adversely affected. International
demand for the Company'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;
- competitive factors;
- demand for services;
- labor costs;
- the availability of spectrum and the costs of spectrum acquisition; and
- political and economic conditions.
In addition, the Company 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, the Company has extremely limited experience
in developing a localized version of its wireless data communications system for
international markets. The Company believes its ability to establish business
alliances in each international market will be critical to its success. If the
Company is unsuccessful in developing, marketing and implementing its system in
international markets or in establishing successful business alliances for these
markets, the Company's future international operations could be adversely
affected and, consequently, the Company'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 the Company'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 the Company's intellectual property.
One or more of such factors could have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, operating results, financial condition, cash flow and its ability to
pay its debts.
The Company's strategy of pursuing international markets through BCN may
involve additional partners in particular countries. The Company 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 the
Company 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 the Company or
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BCN or that such partner will not impose the same or similar accounting and
financial controls as the Company or BCN. The risk is also present that a
partner may be unable to meet its economic or other obligations and that the
Company or BCN may be required to fulfill those obligations. In addition, in any
entity in which the Company or BCN does not have a majority interest, the
Company 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 the
Company or BCN.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL.
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. The Company'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. The Company's growth may require the
addition of new management personnel and the development of additional expertise
by existing management personnel. The Company may be unable to effectively
manage the expansion of its operations. In addition, the Company's systems,
procedures or controls may be inadequate to support the Company's operations or
Company management may be unable to exploit opportunities for the Company's
services. An inability to manage growth, if any, could have a material adverse
effect on the Company's business, operating results, financial condition, cash
flow and its ability to service its indebtedness.
The success of the Company is substantially dependent on its key management
and technical personnel, the loss of one or more of whom could adversely affect
the Company's business. Substantially all of the Company's employees and
officers are employed on an at-will basis. Presently, the Company does not
maintain a "key man" life insurance policy on any of its executives or
employees. The Company'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 the Company
may be unable to attract or retain highly qualified technical and managerial
personnel in the future. If the Company is unable to attract and retain the
necessary technical and managerial personnel, the Company'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.
The Company relies on a combination of trade secret protection, copyright,
patent, trademark and confidentiality agreements and licensing arrangements to
establish and protect its proprietary rights. The Company'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 the Company 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 the Company's proprietary rights. In
addition, any patents issued to the Company or licensed by the Company may be
challenged, invalidated or circumvented, and the patent rights may not
adequately protect the Company'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 the Company's products
or approach. Despite its efforts, the Company may not be able to safeguard and
maintain these proprietary rights, and the Company's competitors may
independently develop and patent technologies that are substantially equivalent
or superior to the Company's technologies. Participants in the wireless
industry, including competitors of the Company, typically seek to obtain patents
which will provide as
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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 the Company 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 the Company to significant liabilities, require disputed rights to be
licensed or restrict the Company's ability to use such technology. The Company
also relies to a substantial degree upon unpatented trade secrets. Others,
including the Company's competitors, may independently develop or otherwise
acquire substantially equivalent trade secrets. In addition, whether or not
additional patents are issued to the Company, others may receive patents which
contain claims applicable to products or processes developed by the Company. If
any such claims were to be upheld, the Company would require licenses. Such
licenses may not be available on acceptable terms, if at all. In addition, the
Company could incur substantial costs in defending against suits brought against
it by others for infringement of intellectual property rights or in prosecuting
suits which the Company might bring against other parties to protect its
intellectual property rights. From time to time the Company receives inquiries
with respect to the coverage of its intellectual property rights, and inquiries
could develop into litigation.
In October 1996, Itron, one of the Company's competitors, filed a complaint
against the Company in the Federal District Court in Minnesota, alleging that
the Company 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 the Company that, as a matter of
law, the Company'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. The Company has not yet determined its course of action in this regard.
In the Company's opinion, the ultimate outcome of the lawsuit is not expected to
have a material adverse effect on the Company's business, operating results,
financial condition, cash flow and its ability to service its indebtedness.
DEPENDENCE ON THIRD-PARTY MANUFACTURERS; EXPOSURE TO COMPONENT SHORTAGES.
The Company 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 the Company signs additional services contracts, third party
manufacturers must significantly ramp-up the amount of manufacturing to be
undertaken for CellNet in order to enable the Company to meet its contractual
commitments. These manufacturers may not be able to meet the Company's
manufacturing needs in a satisfactory and timely manner. In addition, the
Company may be unable to obtain additional manufacturers when and if needed.
Although the Company believes alternative manufacturers are available, if the
Company is unable to develop alternative suppliers quickly or cost-effectively,
the Company's ability to manufacture and install systems could be impaired which
would adversely affect the Company's business, operating results, financial
condition, cash flow and its ability to service its indebtedness. The Company'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 the Company
believes that these manufacturers would have an economic incentive to perform
such manufacturing for the Company, the quality, amount and timing of resources
to be devoted to these activities are not within the control of the Company, 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 the Company's business, operating
results, financial condition, cash flow and its ability to service its
indebtedness.
The Company 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
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such materials generally in the marketplace from time to time in the past. The
Company'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 the
Company's business, operating results, financial condition, cash flow and its
ability to service its indebtedness. Although the Company believes alternative
suppliers of subassemblies, components and network equipment are available, the
inability of the Company 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 the Company to use working capital to purchase increased levels of
inventory.
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 the Company's wireless data
networks are critical to the Company'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 the
Company's services for future utilities or other customers. The occurrence of
any of the foregoing could have a material adverse effect on the Company's
business, operating results, financial condition and cash flow and its ability
to service its indebtedness.
POSSIBLE TERMINATION OF CONTRACTS.
The Company 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
the Company'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, the Company
may incur substantial losses. In addition, the Company's contracts with other
utility market participants will generally have shorter terms than the Company's
existing utility contracts.
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The Company'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 the Company'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 the Company'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 ("IT-Systems") and other property and
equipment not directly associated with information systems ("Non-IT Systems"),
such as elevators, phones, other office equipment used by many companies,
including the Company, 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.
The Company is in the process of conducting an internal review of all of its
IT-Systems and contacting all material software and other suppliers to determine
any major areas of exposure of its IT Systems to Year 2000 issues. As a result
of the internal review to date, the Company 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, the Company decided to replace
certain of the Company'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 the Company's core financial and reporting systems have already
been replaced and the Company 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.
The Company is also in the process of conducting an internal review of its
Non-IT 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, the Company 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. The Company 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.
The Company has been informed by most of the suppliers responding to the
Company'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 the Company's
business, operating results, financial condition, cash flow and its ability to
service its indebtedness. The Company 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 the Company's ability to carry on its business as well as
disrupt the business of the Company's suppliers and customers.
Although the Company 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 the Company or otherwise have a material adverse effect on the
Company's business, operating results, financial condition, cash flow and its
ability to service its indebtedness. Furthermore, the Company 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
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products and services such as those offered by the Company, which could result
in a material adverse effect on the Company'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 the Company and certain
stockholders of the Company (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), the Company is obligated to nominate
for election representatives of certain stockholders as directors at each
meeting of the Company'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 the Company than they would otherwise
have and to provide certain stockholders with, among other things, certain
registration, first refusal, co-sale and other rights.
LITIGATION.
In October 1996, Itron, one of the Company's competitors, filed a complaint
against the Company in the Federal District Court in Minnesota alleging that the
Company 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 the Company that, as a matter of law, the
Company'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. The
Company has not yet determined its course of action in this regard. In the
Company's opinion, the ultimate outcome of the lawsuit is not expected to have a
material adverse effect on the Company's business, operating results, financial
condition, cash flow and its ability to service its indebtedness.
In April 1997, the Company 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. The Company 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 the Company's
patent. The Company 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 the Company's stockholders
against the Company, certain of its officers and directors and underwriters of
the Company'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 the Company
issued 5,000,000 shares of common stock to the public, contained materially
misleading statements and/or omissions in that the Company 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. The Company filed its responsive brief on January 12, 1999.
VOLATILITY OF CELLNET COMMON STOCK PRICE.
The trading price of the Company's common stock has been highly volatile
since the Company'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;
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- signing new services contracts or securing new customers;
- consolidations in the industry;
- technological innovations or the introduction of new products by the
Company 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 the Company'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 the Company's operating results could be
below the expectations of public market analysts and investors. In such event,
the price of the Company'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 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.
The Company has not declared or paid any dividends on its common stock since
its inception. The Company 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, the Company'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 the Company'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 the Company,
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 the Company 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. The Company 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.
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ANTI-TAKEOVER PROVISIONS.
On November 24, 1998 (the "Rights Dividend Declaration Date"), the Board of
Directors of the Company 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 the Company'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 fifteen
percent (15%) or more of the Company'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 the Company's
Series A Participating Preferred Stock, $0.001 par value per share (the
"Preferred Stock"), 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 the Company'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 the Company'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 the Company's common stock (including common stock
issuable upon conversion or exchange of any convertible securities), (a) the
Company merges into another entity, (b) an acquiring entity merges into the
Company, or (c) the Company 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 the Company'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 the
Company'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 the Company'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 the Company'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 the Company's
common stock (including common stock issuable upon conversion or exchange of any
convertible securities). Upon exercise of the Company'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 the
Company's common stock.
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The Rights expire (the "Expiration Date") on the earliest of (a) November
24, 2008, (b) the consummation of any of the following transactions--(i) the
Company merges into another entity, (ii) an acquiring entity merges into the
Company, or (iii) the Company 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 the Company's
stockholders in the event of an unsolicited attempt to acquire the Company on
terms that are not in the stockholders' best interests. The Rights Plan does not
prevent an acquisition of the Company, impact the Company's ability to negotiate
a transaction on mutually agreeable terms, or limit the Company'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 the Company.
Nevertheless, the Rights Plan could be utilized, under certain circumstances, as
a method of discouraging, delaying or preventing a change of control of CellNet.
The Company 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 the Company, may discourage bids for the Company'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, the Company 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 the Company. Furthermore, upon
a change of control, the holders of the Company'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 the
Company. All of these factors could materially adversely affect the price of the
Company's common stock and the Preferred Securities.
USE OF PROCEEDS
The Company expects to receive up to $127,877,993 in gross proceeds from
exercise of all outstanding Warrants. The Company expects to use the net
proceeds received from this offering (i) to fund continuing research and
development activities related to its wireless data communications systems, (ii)
to expand opportunities for the use of its wireless data communications systems
through alternate market applications, (iii) to enhance the performance and
lower the component and operating cost of its wireless data communications
systems, (iv) 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, (v) to fund the adaptation and migration of its
technology for use outside the United States, (vi) to support network deployment
for both utility and non-utility applications, (vii) to expand the Company's
business generally, and (viii) for working capital, general corporate and other
purposes permitted by the Indenture governing the 1997 Notes.
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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 the Company'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 the Company's obligations under the
Warrant Agreement in connection with the issuance of Warrant Shares upon
exercise of the Warrants. The Company 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. The Company 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 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 the Company 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 the
Company.
Delivery of the Warrant Shares upon exercise of a Warrant will be made to
the holder immediately following receipt by the Company 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 the Company upon exercise thereof.
Upon receipt by the Company 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 the Company 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 the Company and advise the Company with respect to delivery of
Warrant Shares to the holder. The Company 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 the Company'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 the Company.
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EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company'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 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
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(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.
27
<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....................................................................................... 25
Legal Matters.............................................................................................. 25
Experts.................................................................................................... 26
Where You Can Find More Information........................................................................ 26
Information Incorporated by Reference...................................................................... 26
</TABLE>
------------------------
CELLNET DATA SYSTEMS, INC.
8,942,517 SHARES
OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
JANUARY , 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company 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 8th 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 8th
day of February, 1999 in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
President, Chief Executive
/s/ JOHN M. SEIDL Officer and Director
- ------------------------------ (Principal Executive
John M. Seidl Officer)
Vice President and Chief
/s/ PAUL G. MANCA Financial Officer
- ------------------------------ (Principal Financial and
Paul G. Manca Accounting Officer)
/s/ PAUL M. COOK
- ------------------------------ Director
Paul M. Cook
/s/ NEAL M. DOUGLAS
- ------------------------------ Director
Neal M. Douglas
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ --------------------------
<C> <S>
/s/ E. LINN DRAPER, JR.
- ------------------------------ Director
E. Linn Draper, Jr.
/s/ WILLIAM C. EDWARDS
- ------------------------------ Director
William C. Edwards
/s/ WILLIAM HART
- ------------------------------ Director
William Hart
</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 the Company's Registration Statement on Form
S-4, filed with the SEC on October 15, 1997.
<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 the Company's Common Stock, $.001 par value
(the "Shares"), of CellNet Data Systems, Inc., a Delaware corporation (the
"Company"), to be issued and sold by the Company upon exercise of warrants (the
"Warrants") issued in conjunction with the Company'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 Registration Statement
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 2, 1999
