<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AIRNET COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3663 59-3218138
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
ORGANIZATION)
</TABLE>
100 RIALTO PLACE
SUITE 300
MELBOURNE, FLORIDA 32901
(407) 953-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GERALD Y. HATTORI
AIRNET COMMUNICATIONS CORPORATION
100 RIALTO PLACE
SUITE 300
MELBOURNE, FLORIDA 32901
(407) 953-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN G. IGOE, ESQ. PHILIP J. BOECKMAN, ESQ.
EDWARDS & ANGELL, LLP CRAVATH, SWAINE & MOORE
250 ROYAL PALM WAY 825 EIGHTH AVENUE
PALM BEACH, FL 33480 NEW YORK, NY 10019
(561) 833-7700 (212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) REGISTRATION FEE
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share............. $70,000,000 $19,460
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee and
computed under Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 24, 1999
PROSPECTUS
[LOGO]
SHARES
AIRNET COMMUNICATIONS CORPORATION
COMMON STOCK
We are selling shares of our common stock. The underwriters
named in this prospectus may purchase up to additional shares of
common stock from us to cover over-allotments.
This is the initial public offering of our common stock. We currently
expect the initial public offering price to be between $ and
$ per share. We intend to apply to have our common stock listed on the
Nasdaq National Market under the symbol "ANCC".
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
Neither the Securities and Exchange Commission nor any other securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- --------
<S> <C> <C>
Initial Public Offering Price $ $
Underwriting Discount $ $
Proceeds to AirNet Communications Corporation (before
expenses) $ $
</TABLE>
The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about
, 1999.
------------------
SALOMON SMITH BARNEY HAMBRECHT & QUIST
VOLPE BROWN WHELAN & COMPANY
, 1999
<PAGE> 3
[ARTWORK TO COME]
i
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED. YOU SHOULD NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Special Note Regarding Forward-Looking Statements........... 14
Dilution.................................................... 15
Use of Proceeds............................................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 27
Management.................................................. 39
Principal Stockholders...................................... 44
Certain Transactions........................................ 47
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 53
United States Tax Consequences to Non-U.S. Holders.......... 55
Underwriting................................................ 57
Legal Matters............................................... 59
Experts..................................................... 59
Change in Independent Accountants........................... 59
Additional Information...................................... 60
Index to Financial Statements............................... F-1
</TABLE>
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
------------------------
AIRNET(R) and AIRSITE(R) are registered with the United States Patent and
Trademark Office. AdaptaCell(TM) and Backhaul Free Base Station(TM) are
trademarks of AirNet Communications Corporation. Names of other companies used
in this prospectus are trademarks of those companies.
ii
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this
prospectus. This summary is not complete and does not contain all of the
information you should consider before investing in our common stock. You should
read the entire prospectus carefully, especially the risks of investing in our
common stock discussed under "Risk Factors."
AIRNET COMMUNICATIONS CORPORATION
We provide broadband, software-defined base stations, backhaul free base
stations and other infrastructure products to wireless service operators who use
the GSM, or Global Systems for Mobile Communications, protocol. Our base
stations incorporate a new radio architecture that is designed to allow
operators to support simultaneous voice and high-speed Internet data on a single
software-upgradeable platform. We designed our system to be easier to deploy,
easier to upgrade, and to have lower capital and operating costs than
traditional narrowband systems. We received the 1998 GSM World Award for Best
Technical Innovation from the GSM Association, an international body with
members from 133 countries, in recognition of our revolutionary software-defined
architecture and backhaul free technology.
In recent years, there has been substantial growth in the number of
wireless users around the world, reaching 303 million subscribers in 1998
according to International Data Corporation, or IDC. Approximately 44% of these
subscribers are using the GSM protocol, making it the most widely used protocol
in the world. A number of factors are contributing to this growth including the
expansion of wireless coverage outside of urban areas as well as the significant
decline in per minute prices for wireless services. The combination of this
subscriber growth with a substantial increase in minutes of use by wireless
subscribers has strained existing wireless networks. We expect the advent of new
wireless services such as high speed data to further contribute to the growth in
wireless usage. IDC estimates the number of wireless users will reach
approximately 1.1 billion in 2003, representing a compound annual growth rate of
29%.
Wireless service operators will need improved network equipment to meet the
expected demand for wireless services and remain competitive. Traditional GSM
base stations were designed to support larger operators providing voice service
in heavily populated areas. As a result, they are not cost-effective when used
in low population density areas. An additional problem with traditional base
stations is the cost associated with the digital connection, usually a T-1 line,
needed to carry, or backhaul, traffic from each base station to the network.
This requirement can result in significant recurring expense for most operators.
Finally, these traditional narrowband base stations were not designed to be
compatible with or upgradeable to next-generation, high-speed wireless data
protocols. As these protocols are developed, we believe operators will look to
purchase wireless infrastructure that can be easily and economically adapted to
conform to these emerging standards, while continuing to support the voice
services they already offer their customers.
We believe our broadband, software-defined solution positions us to meet
the industry's challenge of transitioning from today's GSM networks to
tomorrow's integrated voice and high-speed data networks. The timing of this
transition and the exact specifications of these new protocols are uncertain. We
believe that our software-defined solution will be particularly valuable to
operators during this uncertain transition as it enables operators to purchase
infrastructure today which can be adapted to tomorrow's new protocols.
We believe our solution reduces an operator's total cost of owning and
operating wireless networks. Our solution features two innovative base station
products, the AdaptaCell and the AirSite Backhaul Free Base Station, which
provide the following key benefits:
Adaptable and Easy to Upgrade. Our AdaptaCell base station
incorporates a broadband architecture and is software-defined, meaning it
uses only one radio or transceiver to process a large amount of spectrum
and uses software to control the way it encodes and decodes wireless
signals. We expect this design will support new protocols through changes
in software, and few, if any, hardware
1
<PAGE> 6
modifications. By contrast, traditional base stations must be extensively
modified or even replaced if operators want to offer high-speed data
services to their customers.
Lower Operating Costs. Our base stations are designed to result in
substantially lower operating costs per subscriber than traditional base
stations. Our AirSite is a compact GSM base station that incorporates its
own wireless backhaul and can eliminate most of the expensive T-1 lines
used in a traditional deployment. The AdaptaCell's simplified hardware
design results in a smaller base station that has fewer components, is
easier to install and maintain and uses less electricity.
Flexible Deployment. As opposed to traditional systems, our scalable
solution allows operators to start small, establish a network, and
incrementally expand coverage and capacity as subscriber demand increases.
In addition, because AirSites are backhaul free, operators are able to
deploy them in new and innovative ways.
Our goal is to become a leading worldwide supplier of wireless base
stations. Our strategy for achieving this goal includes the following core
elements:
Leverage Our Technology Leadership. We have raised approximately $130
million since our inception to develop our technology and fund operations.
We have 29 domestic patents granted, 20 patent applications pending, and 5
provisional patent applications. We believe that we currently have the only
commercially deployed broadband, software-defined base station. We intend
to leverage our technology leadership by continuing to invest in our
substantial research and development efforts in order to continue to
provide our customers with cost-effective, innovative solutions.
Continue to Market Our Product Advantages to Domestic Operators. We
will continue to focus on providing infrastructure to domestic wireless
service operators deploying systems in new markets, known as
initial-coverage areas, or filling gaps in existing deployments, known as
coverage-limited areas. Our cost-effective, scalable infrastructure is
designed to meet the needs of both new and existing operators.
Expand Into International Markets. We believe success in domestic
markets will facilitate entry into international markets. As we have done
in the U.S., we will focus initially on low-population density markets. To
achieve an international market presence as quickly as possible, we are
establishing our network of agents, distributors and original equipment
manufacturers, or OEMs.
Establish a Market Leadership Position in High-Speed Data and
Super-Capacity Markets. Our AdaptaCell positions us to establish a market
leadership position as wireless communications evolve from voice to
high-speed Internet access. The AdaptaCell is designed to support multiple
protocols, enabling a single base station to service legacy voice and
high-speed data subscribers simultaneously. We have also designed the
AdaptaCell to serve as the basis for a new generation of super-capacity
base stations which have substantially greater capacity than traditional
base stations.
We are incorporated in Delaware. Our executive offices are located at 100
Rialto Place, Suite 300, Melbourne, Florida 32901 and our telephone number is
(407) 953-6600.
2
<PAGE> 7
THE OFFERING
Common stock offered(1).......... shares
Common stock outstanding after
this offering(1)(2).............. shares
Use of proceeds.................. We intend to use the net proceeds from this
offering for general corporate purposes,
including working capital, research and
development, sales and marketing and
capital expenditures, as well as
potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol........................... ANCC
- ---------------
(1) Excludes a 30-day option granted to the underwriters to purchase up to
additional shares of our common stock to cover over-allotments, if
any.
(2) Does not give effect to shares which may be issued at a weighted
average exercise price of $ per share upon the exercise of outstanding
options. Also does not give effect to shares which may be issued
at a weighted average exercise price of $ per share upon the exercise
of outstanding warrants.
RISK FACTORS
You should read "Risk Factors" beginning on page 5 for a discussion of the
risks involved in investing in our common stock.
------------------------
Unless otherwise indicated, all information contained in this prospectus:
- assumes no exercise of the underwriters' option to purchase up to
additional shares of common stock to cover over-allotments;
- reflects the automatic conversion of all of our preferred shares into
shares of common stock upon the completion of this offering;
- assumes an initial offering price of $ per share, the midpoint of
the initial public offering price range; and
- reflects a for reverse stock split which will be effected
prior to this offering.
3
<PAGE> 8
SUMMARY FINANCIAL DATA
The following table summarizes the financial data for our business during
the periods indicated. The data set forth should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and attached notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues............................ $ 1,077 $ 1,603 $ 4,462 $ 2,312 $ 4,373
Cost of revenues........................ 665 971 2,867 1,654 2,912
-------- -------- -------- ------- --------
Gross profit............................ 412 632 1,595 658 1,461
-------- -------- -------- ------- --------
Operating expenses
Research and development.............. 20,887 11,749 13,134 5,637 7,194
Sales and marketing................... 2,171 1,107 2,709 1,220 1,756
General and administrative............ 6,293 5,000 3,750 1,072 1,139
Loss (gain) on disposal or write down
of property and equipment.......... 1,053 4 (5) -- 2
-------- -------- -------- ------- --------
Total operating expenses...... 30,404 17,860 19,588 7,929 10,091
-------- -------- -------- ------- --------
Loss from operations.................... (29,992) (17,228) (17,993) (7,271) (8,630)
Other income (expense), net............. 818 (8) 76 (46) 93
-------- -------- -------- ------- --------
Net loss................................ $(29,174) $(17,236) $(17,917) $(7,317) $ (8,537)
======== ======== ======== ======= ========
Pro forma net loss per common share
Basic and diluted(1).................. $ $
======== ========
Pro forma shares used in calculating
basic and diluted net loss per common
share(1)..............................
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)(2)
------- -----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 9,732 $
Working capital............................................. 8,735
Total assets................................................ 24,918
Long-term debt.............................................. 5,987
Total stockholders' equity.................................. 6,183
</TABLE>
--------------------
(1) Pro forma reflects the September 1999 offering of our Series G preferred
stock, including the conversion of the June 1999 bridge financing into
Series G preferred stock, and the automatic conversion of all our
outstanding shares of preferred stock into shares of our common
stock upon completion of the offering.
(2) As adjusted gives effect to the offering.
4
<PAGE> 9
RISK FACTORS
Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus before you decide to purchase shares of our common stock.
WE HAVE INCURRED SIGNIFICANT LOSSES SINCE WE BEGAN DOING BUSINESS,
ANTICIPATE CONTINUING LOSSES, AND MAY NEVER ACHIEVE OR SUSTAIN
PROFITABILITY. We have accumulated losses of $92.5 million since we began doing
business in 1994 through June 30, 1999, and we may never achieve or sustain
profitability. We will need to generate significantly higher revenues to achieve
and sustain profitability. Since we began doing business in 1994, we have
generated only $13.0 million in net revenues through June 30, 1999. We have been
marketing our GSM base stations since 1996, and to date our only meaningful
sales have been to a small number of start-up domestic licensees operating in
the so called C-F block frequencies awarded by the FCC, or United States Federal
Communications Commission. We have never reported a profit. We will continue to
incur significant research and product development, sales and marketing,
materials and general administrative expenses. We anticipate a net loss for the
year 1999 and we may continue to incur losses beyond 1999. We cannot be certain
that we will realize sufficient revenues or margins to sustain our business.
WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO BASE YOUR INVESTMENT
DECISION AND WE CANNOT PREDICT FUTURE RESULTS. We have a limited operating
history and you should not rely on our recent results as an indication of our
future results in making your investment decision. There have been only five
commercial deployments of our systems to date. We had net sales of only $1.1
million, $1.6 million and $4.5 million in 1996, 1997 and 1998, respectively, and
$4.4 million for the six months ended June 30, 1999. Unless we can achieve
significant increases in market acceptance of our products, we may never advance
beyond our start-up phase. Due to our limited operating history, it is difficult
or impossible for us to predict future results and you should not expect future
revenue growth based on our recent results. You should consider our business and
prospects in light of the risks and problems faced by technology companies in
the early stages of development.
OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT
IF AND WHEN A SALE WILL BE MADE AND COULD CAUSE US OPERATING DIFFICULTIES AND
CASH FLOW PROBLEMS. Our sales cycle, which is the period from the time a sales
lead is generated until the recognition of revenue, can be long and is
unpredictable, making it difficult to forecast revenues and operating results.
Historically, our sales cycle has been 12 to 18 months. Many of our customers
are new wireless operators that have not yet commenced the buildout of their
networks, obtained necessary financing or acquired a high degree of familiarity
with our products. The timing of sales to these customers is influenced by the
customer's degree of familiarity with our products, the customer's buildout and
deployment schedule, the customer's access to product purchase financing, the
need for functional demonstrations and field trials, the manufacturing lead time
for the products ordered, delays in final acceptance of products following
shipment, regulatory developments and other factors beyond our control. Our
inability to accurately predict the timing and magnitude of our sales could
cause a number of problems:
- we may have difficulty meeting our customers' delivery requirements in
the event many large orders are received in a short period of time
because we have limited production capacity and generally do not carry
materials in inventory;
- we may expend significant management efforts and incur substantial sales
and marketing expenses in a particular period that do not translate into
orders during that period or at all; and
- we may have difficulty meeting our cash flow requirements and obtaining
credit because of delays in receiving orders and because the terms of our
customer contracts defer certain billings until post-shipment contractual
milestones are met.
The problems resulting from our lengthy and variable sales cycle could
impede our growth, harm our stock price, and restrict our ability to take
advantage of new opportunities.
5
<PAGE> 10
WE EXPECT OUR QUARTERLY REVENUES AND OPERATING RESULTS TO FLUCTUATE
SIGNIFICANTLY WHICH COULD CAUSE OUR STOCK PRICE TO FLUCTUATE. Our quarterly
revenues and operating results have varied and we anticipate they will continue
to vary significantly in the future, which may cause our stock price to
fluctuate. The primary reasons for our fluctuating results include the
following:
- We have a limited number of customers, especially in the U.S., and
substantially all of our revenues are derived from a small number of
orders. We cannot be certain when or if we will obtain orders for our
products or how large the orders will be.
- It frequently takes us a long time from when we first contact a customer
until that customer places an order with us, and this makes it difficult
to forecast the timing of orders and revenue.
- Because we do not maintain an inventory of materials or finished goods
and there is significant variation in the manufacturing lead times for
our components, shipment for our product typically occurs 90 days after
receipt of an order from a new customer.
- While we may ship products on a regular basis as they are manufactured
for a customer, we presently record revenue only after resolution of any
uncertainties regarding satisfaction of all significant terms and
conditions of the customer contract. Given our limited operating history,
such uncertainties have been considered resolved to date when the
customer has placed the products in service or completed specified
testing procedures. A number of different factors outside our control can
delay satisfaction of these conditions. Since our products are typically
deployed as part of a complete wireless system and we often fulfill
orders through multiple shipments, customers must have received the final
shipment in order to either place our products in service or complete the
testing procedures. As a result, the time period between shipment and
revenue recognition has averaged 100 days, but varies widely, and in one
case was as long as 225 days.
- Demand for our products is influenced by regulatory or other
developments, such as the 1998 FCC C-F block re-auction proceedings that
caused operators holding those licenses to delay equipment purchases
during the second and third quarters of 1998.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful and you should not
rely on our results for any past period as an indication of our future
performance. Our operating results may be below the expectations of public
market analysts and investors. If this occurs, our stock's trading price could
significantly decline.
INTENSE COMPETITION IN THE MARKET FOR WIRELESS TELECOMMUNICATIONS EQUIPMENT
FROM MANY LARGER, MORE ESTABLISHED COMPANIES WITH GREATER RESOURCES COULD
PREVENT US FROM INCREASING OUR REVENUE AND ACHIEVING PROFITABILITY. The
wireless telecommunications infrastructure market is highly competitive. We
compete with large infrastructure manufacturers, systems integrators, and base
station subsystem suppliers, as well as new market entrants. Our competitors
include Alcatel S.A., Hughes Network Systems, LM Ericsson Telephone Company,
Lucent Technologies Inc., Motorola, Inc., NEC Corporation, Nokia Corporation,
Nortel Networks Corporation and Siemens AG. Most of our current and potential
competitors have longer operating histories, larger installed customer bases,
substantially greater name recognition, and more financial, technical,
manufacturing, marketing, sales, distribution and other resources than we do. We
may not be able to compete successfully against current and future competitors,
including existing companies that may enter our market in the future and
start-up companies that develop and market new wireless telecommunications
products and services. These competitive pressures may result in price
reductions, reduced gross margins, longer sales cycles and loss of customers.
OUR INABILITY TO PROVIDE PRODUCT PURCHASE FINANCING FOR OUR CUSTOMERS IS A
COMPETITIVE DISADVANTAGE AND COULD RESULT IN A LOSS OF SALES AND/OR CUSTOMERS TO
COMPETITORS WITH GREATER RESOURCES. Due to our size, we do not offer product
purchase financing to our customers which could cause us to lose business to our
larger competitors. Many of our customers and potential customers, including the
wireless communication service operators we have initially targeted, are
start-up and small companies that are still forming their business models,
building their infrastructures and planning or just starting to roll out their
services. These operators usually require debt or equity financing to operate
their businesses and to
6
<PAGE> 11
purchase our products, and unlike some of our larger competitors, we are not in
a position to provide product purchase financing. Because we do not provide this
financing and have no plans to do so in the future, our success may depend
significantly upon our continuing ability to help arrange product purchase
financing for our customers. If we cannot assist in arranging financing for our
customers, we may lose sales and customers to competitors that directly provide
financing.
In the future, we may attempt to provide product purchase financing for our
customers. If we provide such financing, we will face credit risks, including
slow payments or non-payments from customers, and we may need to raise
additional capital to support financed sales and to deal with related credit
risk problems.
A SMALL NUMBER OF CUSTOMERS ACCOUNT FOR SUBSTANTIALLY ALL OF OUR REVENUES
AND THE LOSS OF ANY OF THESE CUSTOMERS COULD HURT OUR RESULTS AND CAUSE OUR
STOCK PRICE TO DECLINE. Our customer base has been and may continue to be
concentrated with a small number of customers. The loss of any of these
customers or the delay, reduction or cancellation of orders by or shipments to
any of these customers could hurt our results and cause a decline in our stock
price. In 1998, three customers accounted for 96% of our net revenues, with one
accounting for 42%. For the six months ended June 30, 1999, two customers
accounted for 88% of our net revenues, with one accounting for 63%. The effect
of these risks on our operating results is compounded by our lengthy sales
cycle. Our concentrated customer base also significantly increases the credit
risks associated with slow payments or non-payments by our customers. These
risks are also higher for us since many of our customers are start-up and small
companies. Two customers accounted for 91% of our outstanding accounts
receivable as of June 30, 1999, with one customer representing 69%. Two
customers represented 97% of our outstanding accounts receivable as of December
31, 1998, with one customer representing 58%. In the past we have incurred bad
debt charges and we may be required to do so in the future. If any of our
customers fail to pay us, or fail to pay us on time, our financial condition
could be harmed and we could face significant cash flow problems.
WE HAVE DEVELOPED A SINGLE PRODUCT LINE BASED ON THE GSM PROTOCOL AND WE
MAY NOT SUCCEED IF GSM IS NOT WIDELY ACCEPTED IN THE U.S. We are concentrating
our efforts on the development and sale of a single product line of GSM base
station systems and related products. GSM, or the Global Systems for Mobile
Communication protocol, was first commercially deployed in the U.S., our current
principal market, in late 1995. According to IDC, in 1998 the U.S. had 2.1
million GSM subscribers, compared to 13.3 million users of other digital
protocols, including CDMA, or code division multiple access, and TDMA, or time
division multiple access. Additionally, there were 49.1 million analog
subscribers in the U.S. in 1998. These other protocols are more established in
the U.S. and some in the industry perceive CDMA to have several operational
advantages over GSM, including greater capacity. If GSM is not widely accepted
by domestic wireless subscribers and if we do not gain acceptance in our initial
target market, our plans to sell products abroad or in other targeted markets
could be harmed. We have no backup or alternative products in the event we are
unsuccessful at selling our currently planned GSM product line.
IF WE DO NOT SUCCEED IN THE DEVELOPMENT OF NEW PRODUCTS AND PRODUCT
FEATURES IN RESPONSE TO CHANGING TECHNOLOGY AND PROTOCOLS, CUSTOMERS WILL NOT
BUY OUR PRODUCTS. We need to develop new products and product features in
response to the evolving demands for better technology or our customers will not
buy our products. The market for our products is characterized by rapidly
changing technology, evolving industry protocols, emerging wireless transmission
protocols, and frequent new product introductions and enhancements. In
particular, we expect new protocols for high-speed data services to be deployed
over the next few years as the technologies develop, starting with GPRS, or
general packet radio service, succeeded by EDGE, or enhanced data rates for GSM
evolution, and then followed by the 3G, or third generation, protocol.
Our success depends on our ability to adapt and upgrade our base stations
for super-capacity voice and high-speed data transmission protocols such as
GPRS, EDGE and 3G. If we fail to develop our technology and products as
customers transition to the use of these protocols, we will lose significant
potential market share to our competitors. Also, because some operators do not
have sufficient licensed spectrum, some of our potential customers may not
migrate to higher speed protocols and those who do
7
<PAGE> 12
may not purchase any of our products for use with new protocols. Our base
stations do not yet support these new protocols. We will incur significant
research and development costs to develop upgrade packages to make our base
stations compatible with new protocols. We cannot predict with certainty that we
will be able to meet the technical demands of new protocols in a cost-efficient
manner. Even if we do develop our technology and products to work with new
protocols, consumer demand for wireless services may not be sufficient to
justify network operators upgrading to the new protocols.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS WHICH WOULD
HURT OUR ABILITY TO COMPETE. Although we attempt to protect our intellectual
property rights through patents, trademarks, trade secrets, copyrights,
confidentiality and nondisclosure agreements and other measures, intellectual
property is difficult to evaluate and these measures may not provide adequate
protection for our proprietary rights and information. Patent filings by third
parties, whether made before or after the date of our filings, could render our
intellectual property less valuable. Competitors may misappropriate our
proprietary rights and information, disputes as to ownership of intellectual
property may arise, and our proprietary rights and information may otherwise
become known or independently developed by competitors. Pursuant to a 1995
agreement, Motorola, Inc. has a right to obtain a non-exclusive, royalty-free
license under any two of our patents of its choice. With respect to possible
infringement of our respective digital base station transceiver patents, we and
Motorola agreed not to enjoin each other and to attempt dispute resolution,
including negotiation of nonexclusive license agreements in good faith, before
resorting to litigation. The failure to protect our proprietary rights could
seriously harm our business, operating results and financial condition. We have
not been granted any foreign patents and presently have only a relatively low
number of patent applications pending internationally. If we do not obtain
sufficient international protection for our intellectual property, then our
competitiveness in international markets could be significantly impaired, which
would limit our growth and future revenues.
OTHERS MAY BRING INFRINGEMENT CLAIMS AGAINST US THAT COULD BE
TIME-CONSUMING AND EXPENSIVE TO DEFEND. In the future, claims of infringement
of other parties' proprietary rights, invalidity claims or claims for
indemnification resulting from infringement claims may be asserted or prosecuted
against us. Even if none of these claims were valid or successful, we would be
forced to incur significant costs and divert important resources to defend
against them. Any claim of infringement, whether or not successful, could cause
us considerable expense and place a significant burden on our management.
A SIGNIFICANT DECREASE IN THE COST OF BACKHAUL AND OTHER OPERATING EXPENSES
WILL DIMINISH ONE OF OUR COMPETITIVE ADVANTAGES. Any significant decrease in
the prices of T-1 lines or alternative backhaul facilities, especially in less
populated areas, will diminish a cost advantage that we currently use to market
our products compared to traditional base stations. T-1 prices have recently
declined significantly in urban areas because of increased competition and
increased market penetration of DSL, or digital subscriber line technologies.
WE MUST EXPAND OUR CUSTOMER BASE BEYOND THE SMALLER U.S. C-F BLOCK LICENSE
HOLDERS IN ORDER TO SIGNIFICANTLY GROW OUR REVENUES. Because the U.S. C-F block
market is relatively small, we will only be able to significantly grow our
revenues if we can expand beyond the smaller C-F block operators. There are a
limited number of C-F block license holders, many of whom are smaller companies
with limited resources. These operators are less stable and more susceptible to
delays in their buildouts and deployments than more established operators. We
plan on expanding our sales to include the larger domestic operators and
international operators. However, as a result of the rapid consolidation of
larger domestic GSM operators, there are only a few larger domestic operators
remaining. To date we have not had any sales to the larger domestic or any
international operators, and we may not be successful in those markets in the
future.
WE PLAN TO EXPAND INTO INTERNATIONAL MARKETS, WHICH WILL SUBJECT US TO
ADDITIONAL BUSINESS RISKS. Because the U.S. market for GSM products is
comparatively small, we have begun marketing our products internationally. A
portion of our international sales efforts will be targeted to service operators
who plan to deploy wireless communications networks in developing countries
where risks ordinarily associated with
8
<PAGE> 13
international operations are particularly acute. International operations are
subject to a number of risks and uncertainties, including:
- difficulties and costs associated with obtaining foreign regulatory
approval for our products;
- unexpected changes in regulatory requirements;
- difficulties and costs associated with complying with a wide variety of
complex foreign laws and treaties;
- legal uncertainties regarding, and timing delays and expenses associated
with, tariffs, export licenses and other trade barriers;
- inadequate protection of intellectual property in foreign countries;
- increased difficulty in collecting delinquent or unpaid accounts;
- lack of suitable export financing;
- adverse tax consequences;
- dependence upon independent sales representatives and other indirect
resellers who may not be as effective and reliable as our employees;
- difficulties and costs associated with staffing and managing
international operations, overcoming cultural, linguistic and
nationalistic barriers and adapting to foreign business practices;
- political and economic instability; and
- currency fluctuations, including a decrease in the value of foreign
currencies relative to the U.S. dollar which could make our products less
competitive against those of foreign competitors.
Any of these factors could impair our ability to expand into international
markets and could prevent us from increasing our revenues and achieving
profitability.
IF WE HAVE PROBLEMS CONNECTING TO OUR COMPETITORS' MOBILE TELEPHONE
SWITCHES, WE WILL INCUR ADDITIONAL EXPENSE AND DELAYS IN SELLING OUR PRODUCTS
AND MAY LOSE SALES. Our broadband base station system products must be
compatible with our competitors' mobile telephone switches. Although GSM
operates on a standard interface, a GSM switch can be manufactured according to
different variations within the standard interface. As a result, we may
encounter obstacles when we attempt to integrate our products with a particular
switch, since we have not yet tested our products for compatibility with all
vendors' switches. If we have problems connecting our products to a particular
switch, then we will incur additional expense and delays in selling our products
and may lose sales.
OUR RELIANCE ON A LIMITED NUMBER OF SUPPLIERS COULD LEAD TO DELAYS,
ADDITIONAL COSTS, PROBLEMS WITH OUR CUSTOMERS AND POTENTIAL CUSTOMERS, AND LOSS
OF REVENUE. We plan to continue utilizing only one or a small number of
suppliers for each of the components of our base station systems. In particular,
there is currently only one supplier of high power amplifiers, a critical
component for a broadband base station, that can provide us with a product that
meets our quality standards. Furthermore, the majority of the switches used with
our systems have been manufactured by one of two small third party vendors. We
have no long-term contracts or arrangements with any of our suppliers that
guarantee product availability or the continuation of particular payment or
credit terms. If, for any reason, a supplier fails to meet our quality and
quantity requirements or stops selling products to us at commercially reasonable
prices, we could experience significant production delays and cost increases, as
well as higher warranty expenses and product image problems. Any of these
problems could damage relationships with current or prospective customers which
could seriously harm our operating results in a given period and impair our
ability to generate future sales. We do not maintain an inventory of components
or finished goods and many components have long lead times, with some taking 12
to 16 weeks from the time of entry of the order to delivery. We cannot guarantee
that alternative sources of supply can be arranged on short notice or that
components will be available from alternative sources on satisfactory terms.
9
<PAGE> 14
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO HIRE ADDITIONAL QUALIFIED
PERSONNEL, WE MAY NOT BE SUCCESSFUL. Our future success largely depends on our
ability to attract and retain highly-skilled hardware and software engineers,
particularly call processing engineers and digital signal processing engineers.
The market for these engineers is highly competitive and if we cannot continue
to attract and retain quality personnel, that failure would significantly limit
our ability to compete and to grow our business. Our success also depends upon
the continuing contributions of our key management, research, product
development, sales and marketing and manufacturing personnel, many of whom would
be difficult to replace, including R. Lee Hamilton, President and Chief
Executive Officer. We do not have employment or non-competition agreements with
any of our key officers. We also do not have key man life insurance policies
covering any of our employees.
IF WE FAIL TO MANAGE OUR GROWTH AND EXPANSION EFFECTIVELY, OUR BUSINESS AND
PROSPECTS COULD BE SERIOUSLY HARMED. The need to develop and offer our products
and implement our business plan in an evolving market will significantly
challenge our planning and management capabilities. At August 31, 1999, we had a
total of 146 employees. We plan to hire a significant number of new employees as
we expand our operations. We may not be able to implement management information
and control systems in an efficient and timely manner, and our current or
planned personnel, systems, procedures and controls may not be adequate to
support our future operations. If we are unable to manage our growth
effectively, our business and prospects could be seriously harmed. To manage our
expected growth of operations and personnel, we will need to:
- improve financial and operational controls, as well as our reporting
systems and procedures;
- install new management information systems; and
- hire, train, motivate and manage our sales and marketing, engineering,
technical, finance and customer support employees.
WE EXPECT THE PRICES OF OUR PRODUCTS TO DECLINE DUE TO COMPETITIVE
PRESSURES, AND THIS DECLINE COULD REDUCE OUR REVENUES AND GROSS MARGINS. We
anticipate that the prices of our products will decrease in the future due to
competitive pricing pressures, increased sales discounts, new product
introductions by us or our competitors or other factors. If we are unable to
offset these factors by increasing our sales volumes, our revenues will decline.
In addition, to maintain our gross margins, we must develop and introduce new
products and product enhancements, and we must continue to reduce the
manufacturing costs of our products. We cannot guarantee that we will be able to
do these things successfully. Our failure to do so would cause our revenue and
gross margins to decline, which could seriously harm our operating results and
cause the price of our common stock to decline.
WE MAY ENGAGE IN FUTURE ACQUISITIONS THAT DILUTE OUR STOCKHOLDERS AND CAUSE
US TO INCUR DEBT OR ASSUME CONTINGENT LIABILITIES. As part of our strategy, we
expect to review opportunities to buy other businesses or technologies that
would complement our current products, expand the breadth of our markets,
enhance our technical capabilities, help secure critical sources of supply and
the availability of compatible switches or that may otherwise offer growth
opportunities. While we have no current agreements or negotiations underway, we
may buy businesses, products or technologies in the future. In the event of any
future purchases, we could:
- issue stock that would dilute our current stockholders' percentage
ownership;
- incur debt; or
- assume liabilities.
These purchases also involve numerous risks, including:
- problems combining the purchased operations, technologies or products;
- unanticipated costs;
- diversion of management's attention from our core business;
10
<PAGE> 15
- adverse effects on existing business relationships with suppliers and
customers;
- risks associated with entering markets in which we have no or limited
prior experience; and
- potential loss of key employees of purchased organizations.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL TO FUND OUR OPERATIONS ON
REASONABLE TERMS. Our capital requirements depend on several factors, including
the rate of market acceptance of our products, the ability to expand our
distribution and customer base and to develop new technologies and products, the
growth of sales and marketing expenses and other factors that we cannot control
and may not be able to predict accurately. If our capital requirements vary from
those currently planned, we may require additional financing sooner than
anticipated and we may not be able to raise this capital on reasonable terms or
at all. If we raise additional funds through the issuance of equity securities,
the percentage of ownership of our existing stockholders will be reduced and
these equity securities may have rights, preferences or privileges senior to
those of holders of our common stock. If we raise additional funds through the
issuance of debt securities, those securities would have rights, preferences and
privileges senior to those of holders of our common stock, and the terms of this
debt could impose restrictions on our operations. If adequate funds are not
available or are not available on reasonable terms, we may be unable to develop
or enhance our products, take advantage of future opportunities or respond to
competitive pressures, which could seriously harm our business.
OUR INDUSTRY IS SUBJECT TO EXTENSIVE GOVERNMENT REGULATION THAT COULD CAUSE
SIGNIFICANT DELAYS AND EXPENSE. Wireless telecommunications are subject to
extensive regulation by the U.S. and foreign governments. If we fail to conform
our products to the requirements and standards of these regulations, our
business could be harmed, including the potential suspension or cessation of the
sale of our products in countries where our products are not compliant. The
delays inherent in the regulatory approval process may cause the rescheduling,
postponement or cancellation of the installation of telecommunications systems
by our customers which, in turn, would lower our sales. Moreover, we only plan
to qualify our products in a foreign country once we have a purchase order from
a customer located there, and this practice may deter customers or contribute to
delays in receiving or filling orders. To date we have not qualified our
products in any foreign countries.
The regulatory environment in which we operate is subject to frequent
change due to political, economic, technological and other considerations.
Regulatory changes could significantly affect our operations by restricting
development efforts by us and our customers, making current products obsolete,
or increasing the opportunity for additional competition. New regulations or
changes in interpretation could require modification of our products and
substantial costs to comply with such regulations and changes. Making any
required modifications could also be extremely time-consuming, and we may lose
sales during that time.
Products to support new services can be marketed only if permitted by
frequency allocations and regulations. The process of establishing new
regulations is complex and lengthy, and any failure of domestic and
international regulatory authorities to allocate suitable frequency spectrum
could limit our growth opportunities and our future revenues.
BECAUSE OUR PRODUCTS ARE HIGHLY COMPLEX AND ARE DEPLOYED IN COMPLEX
NETWORKS, THEY MAY HAVE ERRORS OR DEFECTS THAT WE FIND ONLY AFTER DEPLOYMENT,
WHICH IF NOT REMEDIED COULD HARM OUR BUSINESS. Our products are highly complex,
are designed to be deployed in complex networks and may contain undetected
defects, errors or failures. Although our products are tested during
manufacturing and prior to deployment, they can only be fully tested when
deployed in commercial networks. Consequently, our customers may discover errors
after the products have been deployed. The occurrence of any defects, errors or
failures could result in installation delays, product returns, diversion of our
resources, increased service and warranty costs, legal actions by our customers,
increased insurance costs and other losses to us or to our customers or end
users. Any of these occurrences could also result in the loss of or delay in
market acceptance of our products, which would harm our business and adversely
affect our operating
11
<PAGE> 16
results and financial condition. We will likely have limited experience with any
problems that may arise with new products that we introduce.
IF WE OR OUR KEY SUPPLIERS OR CUSTOMERS FAIL TO BE YEAR 2000 COMPLIANT, OUR
BUSINESS MAY BE HARMED. The year 2000 issue presents many potential problems to
our business. Many existing computer programs were designed and developed using
only two digits to represent the year of a date. This failure to consider the
upcoming change in the century could lead to the failure of computer
applications or create erroneous results by or at the year 2000. If our systems
do not correctly recognize date information when the year changes to 2000, it
could have an adverse effect on our business. The risk exists primarily in six
areas:
- warranty or other claims from our customers, which may result in
significant expense to us;
- failure of systems we use to run our business, which could interrupt our
business operations;
- failure of systems used by our suppliers or vendors, which could delay
manufacturing, affect the quality of our products or delay deployment of
our products;
- failure of our products due to year 2000 problems associated with
components supplied by others for use in our products, which may require
that we find replacement components or alternative sources and that we
potentially incur significant unexpected expenses;
- failure of systems our customers or potential customers use to run their
businesses, which could affect their ability to purchase products from
us; and
- failure of our customers' wireless networks which could affect their
business and buildout plans.
We are in the process of conducting a comprehensive inventory and
evaluation of the information systems used to run our business and we intend to
upgrade or replace systems that are identified as non-compliant. If
implementation of replacement systems is delayed, or if we fail to identify a
non-compliant product or system in a timely fashion, or if we identify
significant non-compliance issues, our business operations could be interrupted,
we could face significant unanticipated expenses, our management's time and
attention could be diverted and our sales could decline materially.
Any failures by our suppliers or vendors to ensure the year 2000 compliance
of their operations and the products and services they provide us could also
seriously harm our business. Customers may also defer purchases of our products
until the general uncertainty associated with year 2000 has passed. We cannot
anticipate all customer situations and we may see an increase in warranty and
other claims as a result of the year 2000 transition. For these reasons, the
impact of customer claims could also seriously harm our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance."
OUR COMMON STOCK HAS NEVER BEEN PUBLICLY TRADED AND ITS PRICE MAY BE
VOLATILE. Prior to this offering, there has not been a public market for our
common stock. The market price for shares of our common stock following this
offering may be volatile and could fluctuate based on a number of factors. These
factors include:
- our operating performance and the performance of similar companies;
- news announcements relating to us, our industry or our competitors;
- changes in earnings estimates or recommendations by research analysts;
- changes in general economic conditions; and
- other developments affecting us, our industry, or our competitors.
We intend to apply to have our common stock listed on the Nasdaq National
Market. However a trading market may not develop or become liquid. In recent
years the stock market has experienced significant price and volume
fluctuations. Our common stock may also experience that volatility unrelated to
our own operating performance.
12
<PAGE> 17
A NUMBER OF SHARES ARE OR WILL BE ELIGIBLE FOR FUTURE SALE WHICH MAY
DEPRESS OUR SHARE PRICE. Sales of substantial amounts of our common stock in
the public market following this offering, or the perception that a large number
of shares are available for sale, could cause the market price of our common
stock to decline. After this offering, shares beneficially owned by our current
stockholders and holders of options and warrants to acquire our common stock,
including our executive officers and directors, are expected to constitute
approximately % of the outstanding shares of our common stock, or % if
the underwriters' over-allotment option is exercised in full. Following the
expiration of a 180-day "lock-up" period to which substantially all of the
shares held by our current stockholders will be subject, the holders whose
shares are subject to that lock-up period will in general be entitled to dispose
of their shares. Moreover, Salomon Smith Barney Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to the lock-up agreements. In addition to the adverse effect a price
decline could have on holders of our common stock, that decline would likely
impede our ability to raise capital through the issuance of additional shares of
our common stock or other equity securities.
After this offering, the holders of approximately shares of our
common stock (including shares issuable upon the exercise of outstanding
warrants) will have rights, subject to some conditions, to require us to file
registration statements covering their shares, or to include their shares in
registration statements that we may file for ourselves or other stockholders. By
exercising their registration rights and selling a large number of shares, these
holders could cause the price of our common stock to decline. Furthermore, if we
were to include in a company-initiated registration statement shares held by
those holders pursuant to the exercise of their registration rights, those sales
could impair our ability to raise needed capital by depressing the price at
which we could sell our common stock.
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION OF THE BOOK VALUE OF OUR
COMMON STOCK THAT YOU PURCHASE IN THIS OFFERING. The initial public offering
price of our common stock is substantially more than the net tangible book value
per share of our common stock. As a result, holders who purchase our common
stock pursuant to this offering will experience immediate and substantial
dilution in the net tangible book value per share of our common stock from the
initial public offering price. The net tangible book value dilution to new
investors in this offering will be $ per share at an assumed initial public
offering price of $ per share. The exercise of outstanding options and
warrants is likely to result in further dilution to you.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS
COULD DISCOURAGE OR PREVENT AN ACQUISITION OF OUR COMPANY. Provisions of our
certificate of incorporation and bylaws which will be in effect prior to the
consummation of this offering, as well as provisions of Delaware corporate law,
may inhibit changes of control that are not approved by our board of directors
and could, therefore, limit the price that investors might be willing to pay in
the future for shares of our common stock. These provisions include:
- establishing a classified board of directors;
- requiring advance notice for nomination of directors and stockholder
proposals; and
- authorizing our board to issue additional preferred stock without further
stockholder approval.
The issuance of preferred stock also could diminish the voting power of the
holders of our common stock, including the loss of voting control to others.
Furthermore, our board could, without stockholder approval, use our preferred
stock to adopt a "poison pill" takeover defense mechanism. Our board and
management will effectively control which acquisitions, dispositions and
mergers, if any, we will pursue.
In addition, upon the listing of our common stock on the Nasdaq National
Market, we will be subject to Section 203 of the Delaware General Corporation
Law. Section 203 generally prevents an interested stockholder, which is defined
generally as a person owning 15% or more of the corporation's outstanding voting
stock, from engaging in a business combination, as defined by the statute, for
three years following the date that person became an interested stockholder
unless specific conditions are satisfied. Our certificate of incorporation and
bylaw provisions as well as provisions of Delaware corporate law could reduce
the opportunities for a stockholder to participate in certain tender offers,
including tender offers at
13
<PAGE> 18
prices above the then-current fair market value of our common stock that could
result from takeover attempts.
CONTROL BY OUR EXISTING STOCKHOLDERS WILL LIMIT YOUR ABILITY TO INFLUENCE
THE OUTCOME OF MATTERS REQUIRING STOCKHOLDER APPROVAL AND COULD DISCOURAGE
POTENTIAL ACQUISITION OF OUR BUSINESS BY THIRD PARTIES. The ownership of our
equity will remain relatively concentrated following this offering which could
undermine the ability of our other stockholders to influence the outcome of
matters requiring stockholder approval. We anticipate that our executive
officers, directors and entities affiliated with them, along with the current
holders of more than 5% of our equity, will, in the aggregate, beneficially own
approximately % of our outstanding common stock following the completion of
this offering. These stockholders, if acting together, would be able to
influence significantly all matters requiring approval by our stockholders,
including the election of our board of directors and the approval of mergers or
other business combination transactions. This concentration of ownership could
have the effect of delaying or preventing a change in our control or otherwise
discourage a potential acquirer from attempting to obtain control of us, which
in turn could have an adverse effect on the market price of our common stock or
prevent our stockholders from realizing a premium over the market price for
their shares of our common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"intends," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks outlined under "Risk Factors" and elsewhere in this
prospectus.
14
<PAGE> 19
DILUTION
The pro forma net tangible book value per share of our common stock is the
difference between our tangible assets and our liabilities, divided by the
number of shares of our common stock outstanding after giving effect to the
automatic conversion of all outstanding shares of preferred stock into shares of
our common stock upon completion of this offering. For investors in our common
stock, dilution is the per share difference between the $ per share initial
offering price of our common stock in this offering and the pro forma net
tangible book value of our common stock immediately after completing this
offering. Dilution in this case results from the fact that the per share
offering price of our common stock is substantially in excess of the per share
price paid by some of our current stockholders for our presently outstanding
stock.
On June 30, 1999, our pro forma net tangible book value was approximately
$ and the per share pro forma net tangible book value based on
shares of our common stock was approximately $ per share.
As of June 30, 1999, without taking into account any changes in our net
tangible book value subsequent to that date other than to give effect to the
sale of our common stock in this offering at the assumed offering price of
$ , less the estimated offering expenses including underwriting discounts
and commissions, the pro forma net tangible book value of each of the assumed
outstanding shares of common stock would have been $ per share after this
offering. Therefore, investors in our common stock would have paid $ for a
share of common stock having a pro forma net tangible book value of
approximately $ per share after this offering. That is, their investment
would have been diluted by approximately $ per share. At the same time, our
current stockholders would have realized an increase in pro forma net tangible
book value of $ per share after this offering without further cost or risk
to themselves. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before this
offering............................................... $
Increase in pro forma net tangible book value per share
attributable to investors in this offering.............
-----
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to the new investors..................... $
======
</TABLE>
The following table sets forth on a pro forma basis as of September 21,
1999, the number of shares of common stock purchased from AirNet, the total
consideration paid and the average price per share paid by existing and new
stockholders, before deducting underwriting discounts and commissions and
offering expenses payable by AirNet:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 1,109,523,226 % $131,855,427 % $0.12
New stockholders.................
-------------- ---- ------------ -----
Total.................. % $ %
============== ==== ============ =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
or warrants outstanding as of September 21, 1999. As of September 21, 1999,
there were options outstanding to purchase a total of 127,044,813 shares of
common stock with a weighted average exercise price of $0.036 per share and
warrants outstanding to purchase a total of 45,635,702 shares of common stock
with a weighted average exercise price of $0.05 per share. To the extent that
any of these options or warrants are exercised, your investment will be further
diluted. In addition, more options may be granted in the future under our 1999
Equity Incentive Plan.
15
<PAGE> 20
USE OF PROCEEDS
Our net proceeds from this offering, based on an assumed initial public
offering price of $ per share, are estimated to be $ , or
$ if the underwriters' over-allotment option is exercised in full,
after deducting underwriting discounts and estimated offering expenses. We
intend to use the net proceeds from this offering for general corporate
purposes, including working capital, research and development, sales and
marketing, and capital expenditures, as well as potential acquisitions. We have
no current understandings or agreements relating to potential acquisitions and
are not currently engaged in any negotiations with respect to any acquisition.
Pending those uses, we will invest the net proceeds from this offering in
short-term, investment grade, interest bearing, securities.
DIVIDEND POLICY
We have never paid dividends on our common stock, and we do not expect to
pay any dividends on our common stock for the foreseeable future. Any future
determination to pay dividends will be at the discretion of our board of
directors and will depend on our financial condition, results of operations,
capital requirements and other factors the board of directors deems relevant.
16
<PAGE> 21
CAPITALIZATION
The following table shows our total capitalization at June 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect the September 1999 offering of our Series
G preferred stock, including the conversion of the June 1999 bridge
financing into Series G preferred stock, and the automatic conversion of
all outstanding shares of preferred stock into shares of our
common stock upon completion of the offering; and
- on a pro forma as adjusted basis to give further effect to the offering.
You should read this table in conjunction with the financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 9,732 $ 33,482 $
======== ======== ========
Notes payable and other long-term debt obligations.......... $ 5,987 $ 230 $
Stockholders' equity:
Preferred stocks, $.01 par value, series A through F --
964,773,506 shares authorized;
855,440,224 shares issued and outstanding, actual;
no shares issued and outstanding, pro forma and pro
forma as adjusted...................................... 8,554 --
Common stock, $.001 par value --
1,362,709,526 shares authorized;
28,144,700 shares issued and outstanding, actual;
1,107,224,642 shares issued and outstanding, pro forma;
shares issued and outstanding, pro forma
as adjusted.......................................... 28 1,107
Additional paid-in capital................................ 90,103 127,085
Accumulated deficit....................................... (92,502) (92,502)
-------- -------- --------
Total stockholders' equity........................ 6,183 35,690
-------- -------- --------
Total capitalization........................................ $ 12,170 $ 35,920 $
======== ======== ========
</TABLE>
17
<PAGE> 22
SELECTED FINANCIAL DATA
You should read the following selected financial information in conjunction
with our financial statements and related notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from inception to December 31, 1994, and for the years ended December 31,
1995 and 1996, and the balance sheet data as of December 31, 1994, 1995, and
1996, have been derived from our audited financial statements that are not
included in this prospectus. The statement of operations data for the years
ended December 31, 1996 and 1997, and the balance sheet data as of December 31,
1997 are derived from and are qualified in their entirety by our financial
statements that have been audited by Ernst & Young LLP, independent accountants,
which are included elsewhere in this prospectus. The statement of operations
data for the year ended December 31, 1998 and the six months ended June 30, 1999
and the balance sheet data as of December 31, 1998 and as of June 30, 1999 are
derived from and are qualified in their entirety by our financial statements
that have been audited by Deloitte & Touche LLP, independent auditors, which are
included elsewhere in this prospectus. The statement of operations data for the
six-month period ended June 30, 1998 is unaudited. In the opinion of management,
all necessary adjustments (consisting only of normal recurring adjustments) have
been included to present fairly the unaudited results when read in conjunction
with the audited financial statements and the notes thereto appearing elsewhere
in this prospectus. The results presented below are not necessarily indicative
of the results to be expected for any future fiscal year or six-month period.
<TABLE>
<CAPTION>
PERIOD FROM
COMMENCEMENT SIX MONTHS ENDED
OF OPERATIONS YEARS ENDED DECEMBER 31, JUNE 30,
(JAN. 11, 1994) ------------------------------------------------- -----------------------
TO DEC. 31, 1994 1995 1996 1997 1998 1998 1999
---------------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................... $ -- $ 1,450 $ 1,077 $ 1,603 $ 4,462 $ 2,312 $ 4,373
Cost of revenues................. -- 741 665 971 2,867 1,654 2,912
--------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit..................... -- 709 412 632 1,595 658 1,461
--------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses
Research and development....... 2,622 12,360 20,887 11,749 13,134 5,637 7,194
Sales and marketing............ 150 2,022 2,171 1,107 2,709 1,220 1,756
General and administrative..... 1,164 3,437 6,293 5,000 3,750 1,072 1,139
Loss (gain) on disposal or
write-down of equipment...... -- -- 1,053 4 (5) -- 2
--------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 3,936 17,819 30,404 17,860 19,588 7,929 10,091
--------- ---------- ---------- ---------- ---------- ---------- ----------
Loss from operations............. (3,936) (17,110) (29,992) (17,228) (17,993) (7,271) (8,630)
Other income (expense), net...... 83 1,326 818 (8) 76 (46) 93
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss......................... (3,853) (15,784) (29,174) (17,236) (17,917) (7,317) (8,537)
--------- ---------- ---------- ---------- ---------- ---------- ----------
Preferred dividends.............. 266 2,548 3,456 4,095 5,616 2,611 3,398
--------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss attributable to common
stockholders................... $ (4,119) $ (18,332) $ (32,630) $ (21,332) $ (23,533) $ (9,928) $ (11,935)
========= ========== ========== ========== ========== ========== ==========
Loss per common share -- Basic
and diluted:
Net loss....................... $ (0.97) $ (1.27) $ (2.12) $ (1.17) $ (0.91) $ (0.41) $ (0.34)
========= ========== ========== ========== ========== ========== ==========
Net loss attributable to common
stockholders................. $ (1.04) $ (1.48) $ (2.37) $ (1.45) $ (1.19) $ (0.56) $ (0.48)
========= ========== ========== ========== ========== ========== ==========
Shares used in calculating basic
and diluted loss per common
share.......................... 3,960,536 12,386,460 13,741,020 14,699,920 19,774,357 17,678,713 25,030,043
========= ========== ========== ========== ========== ========== ==========
Pro forma net loss per common
share -- Basic and
diluted(1)..................... $ $
========== ==========
Pro forma shares used in
calculating basic and diluted
net loss per common share(1)...
========== ==========
</TABLE>
18
<PAGE> 23
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
------ ------- ------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $2,084 $31,490 $ 3,578 $11,348 $ 7,580 $9,732
Working capital............................... 1,605 31,691 2,419 13,012 11,239 8,735
Total assets.................................. 3,241 39,557 10,252 20,694 22,017 24,918
Long-term debt................................ -- -- 571 4,143 159 5,987
Total stockholders' equity.................... 2,714 35,806 6,684 12,983 14,463 6,183
</TABLE>
- ---------------
(1) Pro forma reflects the September 1999 offering of our Series G preferred
stock, including the conversion of the June 1999 bridge financing into
Series G preferred stock, and the automatic conversion of all our
outstanding shares of preferred stock into shares of our common
stock upon completion of the offering.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
"Selected Financial Data" and our financial statements and notes included
elsewhere in this prospectus. The discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties, such as
statements of our plans, objectives, expectations, and intentions. The
cautionary statements made in this prospectus should be read as applying to all
related forward-looking statements wherever they appear in this prospectus. Our
actual results could differ materially from those discussed here. Factors that
could cause or contribute to such differences include those discussed in "Risk
Factors," "Special Note Regarding Forward-Looking Statements," as well as those
discussed elsewhere in this prospectus.
OVERVIEW
We provide broadband, software-defined base stations, backhaul free base
stations and other infrastructure products to wireless service operators who use
the GSM, or Global Systems for Mobile Communications, protocol. Our base
stations incorporate a new radio architecture that is designed to allow
operators to support simultaneous voice and high-speed Internet data on a single
software-upgradeable platform. We designed our system to be easier to deploy,
easier to upgrade, and to have lower capital and operating costs than
traditional narrowband systems.
We began marketing our GSM base stations in the beginning of 1996 and
shipped our first GSM base station in May 1997. Through September 18, 1999, we
have shipped a total of 215 base stations and have five commercially deployed
systems. We currently sell and market our products in the U.S. through our
direct sales force. We are beginning to conduct our international sales and
marketing efforts through a network of agents, distributors and our direct sales
force.
From our inception in January 1994 through May 1997, our operations
consisted principally of start-up activity associated with the design,
development, and marketing of our products. As a result, we did not generate
significant revenues until 1998 and have generated only $13.0 million in net
revenues through June 30, 1999. We have incurred substantial losses since
commencing operations, and as of June 30, 1999, we had an accumulated deficit of
$92.5 million. We have not achieved profitability on a quarterly or annual
basis. Because we will need to continue to focus heavily on developing our
technology and products, organizing our sales and distribution systems and
assembling the personnel necessary to support our anticipated growth in the near
future, we expect to continue to incur net losses for at least the next several
quarters. We will need to generate significantly higher revenues in order to
support expected increases in research and development, sales and marketing and
general and administrative expenses, and to achieve and maintain profitability.
Our revenues are derived from sales of a single product line based on the
GSM protocol. We generate a substantial portion of our revenues from a limited
number of customers, with two customers accounting for 88% of our net revenues
during the six months ended June 30, 1999. Most of our existing customers and
many of the domestic C-F block license holders that comprise our initial target
market are start-up operators that have not yet commenced the buildout of their
networks, obtained necessary financing or acquired a high degree of familiarity
with our products.
We have and expect to continue to experience significant fluctuations in
our quarterly revenues as a result of our long and variable sales cycle.
Historically, our sales cycle, which is the period from the time a sales lead is
generated until the recognition of revenue, has ranged from 12 to 18 months. The
length and variability of our sales cycle is influenced by a number of factors
beyond our control, including: our customers' buildout and deployment schedules;
our customers' access to product purchase financing; our customers' degree of
familiarity with our products; the need for functional demonstrations and field
trials; the manufacturing lead time for our products; delays in final acceptance
of products following shipments; regulatory developments; and our revenue
recognition policies. The effect of our long sales cycle on our results is
compounded by our current dependency on a small number of customers.
20
<PAGE> 25
Revenue from product sales is recognized after delivery and resolution of
any uncertainties regarding satisfaction of all significant terms and conditions
of the customer contract. Given our limited operating history, such
uncertainties have been considered resolved to date when the customer has placed
the products in service or completed specified testing procedures. A number of
different factors outside our control can delay satisfaction of these
conditions. Since our products are typically deployed as part of a complete
wireless system and we often fulfill orders through multiple shipments,
customers must have received the final shipment in order to either place our
products in service or complete the testing procedures. As a result, the time
period between shipment and revenue recognition has averaged 100 days, but
varies widely, and in one case was as long as 225 days.
In general, our gross margins will be affected by the following factors:
- demand for our products and services;
- new product introductions, both by us and our competitors;
- changes in our pricing policies and those of our competitors;
- the mix of base stations and other products sold;
- the mix of sales channels through which our products are sold;
- the mix of domestic and international sales; and
- the volume pricing we are able to attain from contract manufacturers and
third party vendors.
We currently obtain all of our primary components and subassemblies for our
products from a limited number of independent contract manufacturers and
purchase circuit boards, electronic and mechanical parts and other component
assemblies from a limited number of OEMs, or original equipment manufacturers,
and other selected vendors. Accordingly, a significant portion of our cost of
revenues consists of payments to these suppliers. The remainder of our cost of
revenues is related to our in-house manufacturing operations, which consist
primarily of quality control, final assembly, testing and product integration.
Research and development expenses consist primarily of expenses incurred in
the design and development of our proprietary technology. We expect research and
development expenses to increase as we continue to develop our technology and
future products. In particular, we may incur significant costs in connection
with our efforts to develop the software needed to upgrade our base stations to
super-capacity and to make our products compatible with high-speed data
transmission protocols.
Sales and marketing expenses consist primarily of salaries, commissions,
consulting fees, tradeshow expenses, advertising, marketing expenses and
allocated overhead. We intend to increase expenditures for selling and marketing
as a result of expansion of distribution channels, strategic relationships,
sales and marketing personnel, and marketing programs. In particular, there may
be significant costs associated with our efforts to sell our products to larger
U.S. operators and to international operators.
General and administrative expenses consist primarily of expenses for
finance, office operations, administrative and general management activities,
including legal, accounting and other professional fees and bad debts. Increases
in general and administrative expenses are planned as we expand executive
management, finance and administration support, information systems and other
administrative functions required to support operations and the costs associated
with being a publicly-held company.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Net revenues: Net revenues increased $2.1 million or 89% from $2.3 million
for the six months ended June 30, 1998 to $4.4 million for the six months ended
June 30, 1999. For the six months ended June 30, 1999, two customers accounted
for 88% of our net revenues. One was an existing customer continuing the
buildout of its network and the other was a new customer making an initial
deployment of infrastructure for its network.
21
<PAGE> 26
Gross profit: Gross profit increased $0.8 million or 122% from $0.7
million for the six months ended June 30, 1998 to $1.5 million for the six
months ended June 30, 1999. This increase was attributable to the increase in
revenues for the same period. The gross profit margin improved to 33% for the
six months ended June 30, 1999 from 28% for the six months ended June 30, 1998.
Research and development: Research and development expenses increased $1.6
million or 28% from $5.6 million for the six months ended June 30, 1998 to $7.2
million for the six months ended June 30, 1999. This increase was primarily due
to continued development of our products and engineering support costs for test
development and technical services.
Sales and marketing: Sales and marketing expenses increased $0.5 million
or 44% from $1.2 million for the six months ended June 30, 1998 to $1.8 million
for the six months ended June 30, 1999. This increase was attributable to
additional sales and marketing personnel we hired to expand our sales and
distribution networks.
General and administrative: General and administrative expenses remained
the same at $1.1 million for each of the six month periods ended June 30, 1998
and June 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net revenues: Net revenues increased $2.9 million or 178% from $1.6
million for the year ended December 31, 1997 to $4.5 million for the year ended
December 31, 1998. This increase resulted from a full year of shipments of our
GSM base station, which we first deployed in May 1997. Net revenues were
adversely affected in the second and third quarters of 1998 by FCC proceedings
related to the final settlement of the C-F block auction process, which occurred
in mid-1998. Many of the C-F block licensees who comprise our initial target
market postponed their buildouts and new product purchases during the pendency
of these proceedings.
Gross profit: Gross profit increased $1.0 million or 159% from $0.6
million for the year ended December 31, 1997 to $1.6 million for the year ended
December 31, 1998. This increase was due primarily to the increase in net
revenues. The gross profit margin was 39% for the year ended December 31, 1997
and 37% for the year ended December 31, 1998. This decrease in gross profit
margin was attributed to unabsorbed overhead costs as we began to expand our
manufacturing capabilities in 1998.
Research and development: Research and development expenses increased $1.4
million or 12% from $11.7 million for the year ended December 31, 1997 to $13.1
million for the year ended December 31, 1998. This increase was associated with
new hires and purchases of certain engineering supplies.
Sales and marketing: Sales and marketing expenses increased $1.6 million
or 145% from $1.1 million for the year ended December 31, 1997 to $2.7 million
for the year ended December 31, 1998. Expenses increased for the recruitment and
support of additional sales staff to help establish our sales and distribution
activities. Additionally, expenses for travel, trade shows and outside services
contributed to the increase.
General and administrative: General and administrative expenses decreased
$1.2 million or 25% from $5.0 million for the year ended December 31, 1997 to
$3.8 million for the year ended December 31, 1998. This decrease was due to a
substantial reduction in all areas of general administrative expense as we sized
operations to more closely match net revenues. This decrease was partially
offset by a $1.5 million provision for bad debts related primarily to one
customer.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net revenues: Net revenues increased $0.5 million or 49% from $1.1 million
for the year ended December 31, 1996 to $1.6 million for the year ended December
31, 1997. This increase was due to our first deployment of digital GSM base
stations in 1997.
Gross profit: Gross profit increased $0.2 million or 53% from $0.4 million
for the year ended December 31, 1996 to $0.6 million for the year ended December
31, 1997. This increase was due primarily
22
<PAGE> 27
to the increase in net revenues. The gross profit margin was 38% for the year
ended December 31, 1996 and 39% for the year ended December 31, 1997.
Research and development: Research and development expenses decreased $9.2
million or 44% from $20.9 million for the year ended December 31, 1996 to $11.7
million for the year ended December 31, 1997. This decrease resulted from the
completion in 1996 of the modification of our product platform to support
digital instead of analog protocols and for which we incurred a higher level of
expenditures in 1996.
Sales and marketing: Sales and marketing expenses decreased $1.1 million
or 49.0% from $2.2 million for the year ended December 31, 1996 to $1.1 million
for the year ended December 31, 1997. This decrease resulted primarily from
reduced publications and trade show and travel expenditures.
General and administrative: General and administrative expenses decreased
$1.3 million or 21% from $6.3 million for the year ended December 31, 1996 to
$5.0 million on for the year ended December 31, 1997. This decrease is the
result of reductions in headcount and recruitment expense, expensed equipment,
and consulting/legal fees.
Loss on disposal or write-down of equipment: As a result of the
modification of our product platform to support digital instead of analog
protocols, we incurred expenses of $1.1 million for the year ended December 31,
1996 primarily for the loss on the disposal or write-down of analog-based
equipment.
Other income (expense), net: Other income of $0.8 million for the year
ended December 31, 1996, resulted from interest income generated from the
Company's cash balances during the year.
23
<PAGE> 28
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth unaudited quarterly financial data for the
four quarters in 1998 and two quarters in 1999, and such information expressed
as a percentage of our net revenues. This unaudited quarterly information has
been prepared on the same basis as the audited financial information presented
elsewhere herein and, in management's opinion, includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of the information for the quarters presented.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues..................... $ 1,373 $ 939 $ 129 $ 2,021 $ 2,158 $ 2,215
Cost of revenues................. 942 712 109 1,104 1,457 1,455
------- ------- -------- ------- ------- -------
Gross profit..................... 431 227 20 917 701 760
------- ------- -------- ------- ------- -------
Operating expenses
Research and development....... 2,912 2,725 2,988 4,509 3,735 3,459
Sales and marketing............ 604 616 681 808 891 865
General and administrative..... 503 569 547 2,127 561 580
------- ------- -------- ------- ------- -------
Total operating
expenses............. 4,019 3,910 4,216 7,444 5,187 4,904
------- ------- -------- ------- ------- -------
Loss from operations............. (3,588) (3,683) (4,196) (6,527) (4,486) (4,144)
------- ------- -------- ------- ------- -------
Other income (expense), net...... 12 (58) 4 119 74 19
------- ------- -------- ------- ------- -------
Net loss......................... $(3,576) $(3,741) $ (4,192) $(6,408) $(4,412) $(4,125)
======= ======= ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- ------------- ------------ --------- --------
(AS A PERCENTAGE OF NET REVENUES)
<S> <C> <C> <C> <C> <C> <C>
Net revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................. 68.6 75.8 84.5 54.6 67.5 65.7
------- ------- -------- ------ ------ ------
Gross profit...................... 31.4 24.2 15.5 45.4 32.5 34.3
------- ------- -------- ------ ------ ------
Operating expenses
Research and development........ 212.1 290.2 2,316.3 223.1 173.1 156.2
Sales and marketing............. 44.0 65.6 527.9 40.0 41.3 39.1
General and administrative...... 36.7 60.6 424.1 105.5 26.0 26.2
------- ------- -------- ------ ------ ------
Total operating
expenses.............. 292.8 416.4 3,268.7 368.6 240.4 221.5
------- ------- -------- ------ ------ ------
Loss from operations.............. (261.4) (392.2) (3,259.8) (323.2) (207.9) (187.2)
------- ------- -------- ------ ------ ------
Other income (expense), net....... 0.9 (6.2) 3.1 5.9 3.5 0.9
------- ------- -------- ------ ------ ------
Net loss.......................... (260.5)% (398.4)% (3,249.7)% (317.3)% (204.4)% (186.3)%
======= ======= ======== ====== ====== ======
</TABLE>
We have experienced and expect to continue to experience significant
fluctuations in quarterly operating results as a result of many factors. We
believe that period-to-period comparisons of our operating results are not
meaningful and should not be relied upon as any indication of future
performance. It is likely that future quarterly operating results from time to
time will not meet the expectations of market analysts or investors, which may
have an adverse effect on the price of our common stock.
24
<PAGE> 29
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private sales of equity securities, which have provided aggregate net proceeds
of approximately $130 million through September 21, 1999, including the net
proceeds from our offering of Series G preferred stock. At September 21, 1999,
we had approximately $27.3 million in cash. We have no credit facilities.
Net cash used in operating activities was approximately $25.2 million in
1996, $17.9 million in 1997, $17.8 million in 1998 and $3.2 million in the six
months ended June 30, 1999. The significant use of cash by operating activities
was the result of the net losses during all reported periods together with cash
used to finance our increase in accounts receivable and inventory purchases.
Customers are billed as contractual milestones are met, including deposits of up
to 50% of the contracted amount at the inception of the contract. However,
collection of the entire amounts due under our contracts to date have lagged
behind shipment of our products due to the substantial time period between
shipment and the fulfillment of our post-shipment contractual obligations, at
which time we bill substantially all of the balance of the contracted amount.
This lag requires increasing investments in working capital as our revenues
increase. As of August 31, 1999, our receivables balance was $4.0 million. This
balance is primarily attributable to two customers, and receivables from one of
these customers accounted for approximately 75% of the total amount outstanding.
We used net cash for capital expenditures of approximately $2.4 million,
$1.3 million, $0.9 million and $0.4 million for the periods ended December 31,
1996, December 31, 1997, December 31, 1998 and June 30, 1999, respectively.
These expenditures reflect our investments in computer equipment, software
development tools and test equipment, which was required to support our business
expansion.
We have no material commitments other than facility and equipment leases.
We anticipate an increase in our capital expenditures for testing and
manufacturing equipment used during the final assembly of our product as our
revenues increase. For 1999, we estimate that capital expenditures will total
approximately $1.5 million.
We believe that our available cash resources combined with the net proceeds
of this offering will be sufficient to fund operating losses and meet our
presently anticipated working capital and capital expenditure requirements for
the next twelve months. Thereafter, we may need to raise additional funds. We
may need to raise additional funds sooner to fund more rapid expansion, continue
development of new or enhanced products, respond to competitive pressures, fund
unexpected expenditures or operating losses or acquire businesses or
technologies. If additional funds are raised through the issuance of equity
securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences or privileges senior to those of the holders of our
common stock. Additional financing may not be available when needed, on
favorable terms or at all.
YEAR 2000 COMPLIANCE
Many existing computer programs and systems use only two digits to identify
a year in the date field. For example, "99" would represent 1999. These programs
and systems were designed and developed without considering the impact of the
upcoming millennium. Consequently, date sensitive computer programs may
interpret the date "00" as 1900 rather than 2000. If not corrected, many
computer systems could fail or create erroneous results in 2000.
State of Readiness. We are assessing all of our internal and external
systems and also our products that we market with respect to the year 2000
issue. In response to this assessment, we created a year 2000 committee to
resolve any non-compliant year 2000 systems and issues. This group is currently
on schedule to complete this task by October 1999. We plan to test all of our
internal and external systems, including the associated year 2000 fixes for year
2000 compliance during 1999. As part of our process, we have assessed the
potential impact of year 2000 failures from vendors and other companies upon our
business and we are currently taking steps to minimize this risk. We are in the
final stages of assessing and
25
<PAGE> 30
verifying the year 2000 compliance of all of our suppliers and vendors.
Verification will be accomplished through the use of written inquiries to
suppliers, certifications, audits and information provided by suppliers on their
websites. Some vendors have not yet responded to our inquiries regarding year
2000 compliance. Based on our current state of readiness, the actions we are
currently taking and the responses received from our suppliers and vendors to
date, we do not believe that the year 2000 problem will have a material adverse
effect on our financial position, liquidity, or operations.
Our Costs of Year 2000 Compliance. We estimate that our total costs of
year 2000 compliance will be less than $100,000. These costs include updating
our computer software and hardware, as well as contracting outside experts and
out-of-pocket expenses.
Risks of Year 2000 Issues. We procure crucial components used in our
manufacturing process from foreign vendors. As a result, we may be at risk from
foreign companies and countries that are not taking adequate measures to ensure
year 2000 compliance or that may not be at the same level of preparedness as
companies in the United States. For example, economic problems in Asia may
affect or divert resources with respect to the year 2000 issue. The failure of
those foreign countries and companies to be year 2000 compliant may cause
material shortages that could adversely impact our manufacturing operations. In
addition, some of our customers may experience catastrophic year 2000 failures,
including prolonged interruptions in their business, in which case they may have
a reduced demand for our products.
We may not be able to upgrade any or all of our major systems in accordance
with our plan to address the year 2000 issue. In addition, any such upgrades
effectively address the year 2000 issue. If required upgrades are not completed
or are unsuccessful, our operations may be materially adversely affected.
Furthermore, systems of other companies on which our own systems rely may not be
timely converted. A failure to convert by another company or a conversion that
is incompatible with our system could result in the:
- failure of our products due to year 2000 problems associated with
components supplied by others for use in our products, which may require
that we find replacement components or alternative sources and that we
potentially incur significant unexpected expenses;
- failure of systems our customers or potential customers use to run their
businesses, which could affect their ability to purchase products from
us; and
- failure of our customers' wireless networks which could affect their
business and buildout plans.
Any failures by our suppliers or vendors to ensure the year 2000 compliance
of their operations and the products and services they provide us could also
seriously harm our business. In addition, customers may defer purchases of our
products until the general uncertainty associated with year 2000 has passed. We
cannot anticipate all customer situations and we may see an increase in warranty
and other claims as a result of the year 2000 transition.
Our Contingency Plans. We are developing contingency plans with respect to
significant year 2000 issues that are within our control. We intend to replace
any suppliers or vendors who are found not be 2000 compliant with vendors that
are 2000 compliant. However, we plan to continue utilizing only one or a small
number of suppliers for each of the components of our base station systems.
Therefore, replacing a supplier may be disruptive to our business and result in
the loss of sales. In addition, even if we believe a supplier or vendor to be
year 2000 compliant, that supplier or vendor may still have year 2000 problems.
We believe that, apart from the loss of important suppliers and vendors, the
worst case year 2000 scenario would involve disruption in our utilities and
banking facilities.
26
<PAGE> 31
BUSINESS
OVERVIEW
We provide broadband, software-defined base stations, backhaul free base
stations and other infrastructure products to wireless service operators who use
the GSM, or Global Systems for Mobile Communications, protocol. Our base
stations incorporate a new radio architecture that is designed to allow
operators to support simultaneous voice and high-speed Internet data on a single
software-upgradeable platform. We designed our system to be easier to deploy,
easier to upgrade, and to have lower capital and operating costs than
traditional narrowband systems. Our system features two innovative base station
products:
The AdaptaCell broadband, software-defined base station is designed to
enable wireless service operators to change and/or add wireless protocols
by upgrading its software. This design limits the risk of choosing a
hardware platform that may become obsolete when next generation, high-speed
data protocols such as GPRS, EDGE and 3G begin to replace current
voice-only protocols.
The AirSite Backhaul Free Base Station allows wireless operators to
backhaul traffic from the AirSite to an AdaptaCell over unused RF, or radio
frequency, spectrum. This can eliminate most of the expensive T-1 lines
used in a traditional deployment. As a result, an operator's fixed network
operating costs may significantly decrease.
We were founded in 1994 and have raised approximately $130 million from
inception to develop our technology and fund operations. We have 29 domestic
patents granted, 20 patent applications pending, and 5 provisional patent
applications. We received the 1998 GSM World Award for Best Technical Innovation
from the GSM Association, an international body with members from 133 countries,
in recognition of our revolutionary software-defined architecture and backhaul
free technology.
INDUSTRY BACKGROUND
In recent years, there has been substantial growth in the number of
wireless users around the world, reaching 303 million subscribers in 1998
according to International Data Corporation, or IDC. IDC estimates the number of
wireless users will reach approximately 1.1 billion in 2003, representing a
compound annual growth rate of 29%. We expect the following factors to
contribute to continued growth in wireless usage:
Improved Coverage. Due to the high start-up costs involved, initial
wireless deployments were limited to urban centers and major traffic
corridors. Existing operators have accelerated the buildout of their
networks to meet demands for improved service, including seamless roaming
across local, regional and even national markets. In addition, new
operators have sought to develop their own networks in locations where
service had previously been inadequate or too costly.
Lower Price. The price of wireless services has decreased
significantly in developed markets. With as many as six wireless service
operators in some U.S. markets, operators are seeking to enhance their
competitive position with more efficient and cost effective networks.
New Wireless Services. Wireless networks have traditionally been
designed to support voice traffic. With the advent of the Internet and
increased focus on the development of high capacity wireless networks, we
expect operators to make additional infrastructure investments in order to
offer enhanced data and voice services while seeking to ensure
compatibility with their existing networks.
There has also been a substantial increase in wireless minutes of use.
According to Paul Kagan Associates, Inc., wireless minutes of use in the U.S.
are expected to increase from approximately 64 billion in 1997 to an estimated
150 billion in 1999. Subscribers are beginning to use wireless telephones as a
substitute for wireline communications. Operators are striving to keep up with
the resulting demand by adding more base stations and increasing the capacity of
existing base stations to increase the number of
27
<PAGE> 32
channels in their networks. Compounding the challenge, new service providers
operating at higher frequencies can require up to four times as many base
stations as traditional wireless networks in order to achieve the same coverage
pattern. As a result, Allied Business Intelligence, Inc. predicts there will be
approximately 2.1 million wireless base stations deployed by 2003 compared to
approximately 823,000 in 1998, representing a 21% compound annual growth rate.
Various analog and digital protocols are currently available to wireless
service operators, including: Global Systems for Mobile Communications, known as
GSM; Code Division Multiple Access, known as CDMA; and Time Division Multiple
Access, known as TDMA. Unlike CDMA and TDMA, GSM incorporates an open interface
between the base station and mobile switching center, or MSC. This open
interface makes it easier for wireless service operators to purchase and
integrate GSM system elements, including base stations, from multiple vendors
rather than relying on a single vendor.
GSM is the most widely used wireless protocol worldwide, with systems
operating in approximately 120 countries and serving over 160 million
subscribers as of April 1999. This represents 45% of all wireless subscribers
and 65% of digital wireless subscribers. As of September 1999, the number of
subscribers using this protocol increased to 200 million.
In the U.S., TDMA and CDMA are currently the most widely used protocols.
According to International Data Corporation, in 1998, there were approximately
5.8 million TDMA subscribers and approximately 7.4 million CDMA subscribers. The
primary users of these protocols in the U.S. have been the traditional large
wireless operators. Nevertheless, according to the GSM Alliance, LLC, as of July
1, 1999, approximately 3.8 million wireless subscribers were using GSM in the
U.S.
The growth in demand for wireless services caused a strain on the capacity
of existing wireless networks. Partially in response, the FCC allocated new RF
spectrum through a series of FCC auctions and re-auctions commencing in late
1994 and ending in early 1999. Many of the winners in this auction process were
smaller, entrepreneurial wireless service operators who won spectrum in the
so-called C-F blocks. These new operators are faced with the challenge of
rapidly deploying a wireless network infrastructure and establishing a
competitive footprint, or geographic coverage area, in order to interest
potential subscribers and become competitive with established operators. Because
of these challenges, we believe that these new operators are seeking to deploy
an infrastructure with the lowest capital and operating costs possible, while
preserving their ability to support additional subscribers and future high-
speed data services. Due to its proven technology and global roaming capability,
many of these new operators have selected GSM.
Government bodies in other countries are, like the FCC, auctioning off RF
spectrum. We believe the same dynamics that led new domestic operators to choose
GSM will also lead many new international operators to select GSM. In addition,
the less-developed countries of Asia, Africa, Eastern Europe, and South America
have limited wireline infrastructure, creating new opportunities for wireless
operators. Therefore, we believe there will continue to be a strong
international demand for GSM and the associated infrastructure equipment.
Traditional GSM base stations were designed to support larger operators
providing voice service in heavily populated areas. As a result, they are not
cost-effective when used in low population density areas. In addition, these
traditional base stations cannot be easily upgraded to support high-speed data
services. A further problem with traditional base stations is the cost
associated with leasing expensive T-1 lines to connect each base station to the
network to backhaul traffic. This can result in significant recurring expense
for most operators.
The European Telecommunications Standards Institute, a leading worldwide
promoter of standards for the telecommunications industry, has proposed next
generation protocols for GSM that will enable GSM to provide high-speed wireless
Internet access. We expect these protocols to be introduced in several phases
starting with GPRS, or general packet radio service, then EDGE, or enhanced data
rates for GSM evolution, and finally 3G, or third generation protocol. Industry
leaders have proposed a similar evolution
28
<PAGE> 33
path for TDMA, in which TDMA will converge with GSM by adopting the EDGE
protocol for high-speed wireless Internet services.
A key challenge for wireless service operators will be to incorporate new
high-speed data protocols into their networks while limiting the amount of new
infrastructure required. Operators may be required to install three different
sets of hardware: one to handle the current GSM protocol, one for high-speed
data based on EDGE, and yet another for very high-speed data service based on
3G. In addition to the associated incremental costs, these service overlays
could be inefficient because it may not be possible to move system capacity from
one type of base station to another without adding additional hardware. Finally,
at present, traditional base stations cannot be easily modified to substantially
increase capacity to handle the expected increase in voice traffic. We refer to
base stations with substantially more voice capacity than traditional base
stations as "super-capacity" base stations. We believe super-capacity base
stations will become crucial as high-speed data is increasingly accepted,
occupying a greater percentage of a wireless service operator's total system
capacity and leaving less capacity for conventional voice traffic.
THE AIRNET SOLUTION
We believe our software-defined solution positions us to meet the
industry's challenge of transitioning from today's voice-centric networks to
tomorrow's integrated voice and high-speed data networks. The timing of this
transition and the exact specifications of these new protocols are uncertain. We
believe that our software-defined solution will be particularly valuable to
operators during this uncertain transition as it enables operators to purchase
infrastructure today which can be adapted to tomorrow's new protocols.
We believe our solution reduces an operator's total cost of owning and
operating wireless networks. Our solution features two innovative base station
products, the AdaptaCell and the AirSite Backhaul Free Base Station, which
provide the following key benefits:
Adaptable and Easy to Upgrade. Our AdaptaCell base station
incorporates a broadband architecture and is software-defined, meaning it
uses only one radio or transceiver to process a large amount of spectrum
and uses software to control the way it encodes and decodes wireless
signals. We expect this design will support new protocols through changes
in software, and few, if any, hardware modifications. By contrast,
traditional base stations must be extensively modified or even replaced if
operators want to offer new high-speed data services to their customers. As
wireless operators adopt new high-speed data protocols like GPRS, EDGE and
3G, we believe the AdaptaCell's unique design will position our system as a
preferred solution. Also, since the AdaptaCell is designed to be configured
to support more than one protocol at the same time, a single base station
could, for example, be configured to support voice, EDGE and 3G
simultaneously.
High-speed data services are expected to increasingly occupy more of a
wireless service operators' total system capacity. As this occurs, we
believe it will not be cost effective to modify traditional base stations
to maintain legacy voice capacity. The AdaptaCell will require a software
upgrade to become a super-capacity base station. This software upgrade will
direct the transmission beams to specific handsets allowing more callers to
use the same frequency in the same cell. Although traditional base stations
equipped with adaptive antennae can provide increased capacity within a
cell, these antennae are expensive. We believe that a super-capacity
AdaptaCell will have approximately 1/10 the number of RF components as, and
will be significantly smaller and less expensive to operate than a
traditional base station with an adaptive antenna.
Lower Operating Costs. Our base stations are designed to result in
substantially lower operating costs per subscriber than traditional base
stations. Base stations usually require T-1 connections to backhaul traffic
which can be expensive. The AirSite features its own integral wireless
backhaul and thus eliminates the need for a T-1 or any other physical
connection from the AirSite back to the AdaptaCell. In addition,
eliminating coverage holes with a traditional base station may not be cost-
effective because an expensive T-1 or physical link from each base station
to the base station controller, or BSC, is required. In contrast, our
system only requires a T-1 line or other physical backhaul connection
between the BSC and the AdaptaCell base stations, each of which can service
29
<PAGE> 34
up to 12 separate AirSites. Finally, our simplified hardware design results
in a smaller base station that has fewer components, is easier to install
and maintain and uses less electricity.
Flexible Deployment. As opposed to traditional systems, our scaleable
solution allows operators to start small, establish a network, and
incrementally expand coverage and capacity as subscriber demand increases.
In addition, because AirSites are backhaul free, operators are able to
deploy them in new and innovative ways. For example, some customers have
mounted AirSites on telephone poles and billboards, reducing the time and
cost associated with deploying a base station by simplifying zoning and
tower construction issues.
STRATEGY
Our goal is to become a leading worldwide supplier of wireless base
stations. Our strategy for achieving this goal includes the following core
elements:
Leverage Our Technology Leadership. Since our inception, we have raised
approximately $130 million to develop our technology and fund operations. We
have 29 domestic patents granted, 20 patent applications pending, and 5
provisional patent applications. We believe that we currently have the only
commercially deployed broadband, software-defined base station. The
technological advances incorporated in our base stations provide our customers
with significant advantages. We intend to leverage our technology leadership by
continuing to invest in our substantial research and development efforts in
order to continue to provide our customers with cost-effective, innovative
solutions.
Continue to Market our Product Advantages to Domestic Operators. We will
continue to focus on providing infrastructure to domestic wireless service
operators deploying systems in new markets, known as initial-coverage areas, or
filling gaps in existing deployments, known as coverage-limited areas. We have
specifically targeted GSM operators in the so-called C-F blocks. The FCC's
recent spectrum auctions have resulted in a number of new operators in these
blocks, many of whom face similar initial-coverage and coverage-limited
deployments. We also plan to target the larger domestic GSM operators as they
address buildouts in their own suburban and low-population density areas. These
larger operators are continually upgrading and expanding coverage to maintain
parity with their competitors. Our cost-effective, scaleable infrastructure is
designed to meet the needs of both new and existing operators.
Expand Into International Markets. We believe success in domestic markets
will facilitate entry into international markets. The large infrastructure
vendors have targeted Europe and other high population density areas overseas
and have not focused as much on developing cost-effective products for use in
low population density areas. Using the same strategy we successfully
implemented in the U.S., we are focusing our international marketing efforts on
low population density markets such as Africa, Asia, Eastern Europe and South
America. We recently announced international versions of our products, including
GSM-1800 and GSM-900 which operate at 1800 and 900 MHz, respectively. To achieve
an international market presence as quickly as possible, we are establishing our
network of agents, distributors, and OEMs.
Establish a Market Leadership Position in High-Speed Data and
Super-Capacity Markets. Our AdaptaCell positions us to establish a market
leadership position as wireless communications evolve from voice to high-speed
Internet access. The AdaptaCell is designed to support multiple protocols,
enabling a single base station to service legacy voice and high-speed data
subscribers simultaneously. We have also designed the AdaptaCell to serve as the
basis for a new generation of super-capacity base stations which have
substantially greater capacity than traditional base stations.
30
<PAGE> 35
WIRELESS SYSTEM TECHNOLOGY
Figure 1 -- Mobile System Architecture
[BASE STATION SUBSYSTEM GRAPHIC]
Wireless telephone systems operate by dividing a geographic service
territory into a number of regions called cells. As Figure 1 shows, each cell
contains a base station that communicates with the wireless telephones located
in that cell. When a subscriber wishes to place a call, a signal is sent from
the subscriber's telephone to the base station in the cell in which the
subscriber is located. The base station completes the call via the BSC, or Base
Station Controller, and MSC, or Mobile Switching Center, and then assigns one of
several available channels to be used by the subscriber's telephone while
operating within the cell's range. Since all telephone conversations are
inherently two-way, a similar reverse channel from the base station to the
subscriber is assigned at the same time.
In conventional analog phone systems, a channel occupies an entire RF
carrier. In digital TDMA and GSM, a channel occupies only a small fraction, or
timeslot, within a particular RF carrier. In these systems, each wireless
telephone waits for its assigned channel timeslot and broadcasts the
subscriber's digitized speech. Thus, multiple callers can make use of the same
RF carrier at the same time. In digital CDMA, the notion of a channel is more
complex because all subscribers make use of the entire available RF spectrum
simultaneously. In these systems, each subscriber is assigned a unique
identification code, which the telephone uses to mathematically process the
subscriber's voice and spread the signal across the entire RF spectrum. On the
receiving end, the receiver uses the same unique code to unscramble the signal.
In analog and digital TDMA and GSM wireless systems, each telephone is assigned
a new channel when it enters a cell. As a wireless telephone moves from cell to
cell, it is transferred to an adjacent base station and then reassigned a new
channel. In digital CDMA systems, no channel reassignments are necessary because
the base station in the new cell simply starts unscrambling the subscriber's
signal and the old cell stops.
Traditional base stations can only support a single specific protocol and
require different hardware to support each protocol. These are known as hardware
base stations. In a hardware base station, a discrete set of components
processes each RF carrier. Adding voice channels requires additional carriers,
which typically means adding new hardware. As new protocols for high-speed data,
such as EDGE and 3G, are developed and deployed, an operator may need to install
new base stations to support these new protocols because traditional base
stations are primarily designed to support only voice services. An additional
complication arises because not every subscriber can be expected to migrate to
the new service when it is
31
<PAGE> 36
first deployed. To accommodate these late adopters, operators may need to
support more than one protocol simultaneously. In these cases, an additional
base station may be required.
Figure 2 -- Traditional Narrowband Radio Technology Versus AirNet's Broadband,
Software-Defined Radio Technology
[RADIO TECHNOLOGY]
Our AdaptaCell receives wireless telephone signals from subscribers by
digitizing a full 5 MHz of the wireless service operator's RF spectrum and then
processing the digitized spectrum using a series of digital signal processors
that run our proprietary software. An inverse process occurs when transmitting
to subscribers. When configured to support the GSM protocol, one of our
broadband, software-defined radios can process up to 12 GSM RF carriers
supporting 96 independent channels comprised of 92 voice channels and 4 control
channels using a single set of hardware. Traditional base stations use 12
duplicate sets of hardware to accomplish the same task. This is shown in Figure
2.
Our AdaptaCell is based on broadband, software-defined radio. We believe we
are the only base station manufacturer to have successfully deployed this
technology in commercial service. The term software-defined means that the way
the radio encodes and decodes signals is controlled by the installed software.
As new protocols are developed and deployed, the same radio can be configured to
support multiple protocols by remotely loading new software into the radio. To
accomplish this, we believe traditional products will require significant
hardware changes which may be expensive. The term broadband means that the
AdaptaCell has one radio or transceiver that processes 5 MHz of RF spectrum on
both transmission and reception. By contrast, traditional base stations use many
independent narrowband radios that process a much smaller amount of RF spectrum,
1/25 as much in the case of GSM, which in effect limits them to one protocol. As
such, the AdaptaCell has far fewer components than traditional base stations,
allowing it to be more reliable.
Our broadband, software-defined radio offers another benefit in that more
than one kind of wireless service will be able to be supported on the same base
station at the same time. This is important because as new wireless services
such as EDGE and 3G high-speed data are deployed, many subscribers will still be
using wireless telephones that operate on legacy protocols. These subscribers
will expect their telephones to continue to work as new protocols are deployed.
Operators using our competitors' products will have to continually change
hardware, or even deploy multiple base stations that support old and new
protocols, to serve different populations of subscribers using wireless
telephones. After completion of a software upgrade and perhaps a few hardware
modifications, changing a setting at a central control point is all that will be
required to vary the level of support given to each protocol on an AdaptaCell.
32
<PAGE> 37
PRODUCTS
Our Base Station Subsystem, or BSS, products currently support the GSM
protocol for wireless voice and data communications services. We chose to
develop products based on this protocol because the interfaces, or connections,
between the various pieces that make up the GSM BSS are well defined and
publicly documented. One of these interfaces, the connection between the Mobile
Switching Center, or MSC, and the Base Station Controller, and ultimately the
base stations that compose the BSS, is referred to as the A-interface. This
A-Interface allows wireless operators to attach our BSS equipment to an existing
operator's MSC. It is this standard interface that makes any existing GSM
operator a potential customer for our BSS equipment. We are currently marketing
the BSS in three standard configurations, the GSM-900, GSM-1800 and GSM-1900,
operating at 900 MHz, 1800 MHz and 1900 MHz respectively.
As shown in Figure 3, our BSS features two base stations: the AdaptaCell
broadband, software-defined GSM base transceiver station and the AirSite
Backhaul Free Base Station. We also offer custom-tailored ancillary equipment
that completes the BSS. These include a Base Station Controller, a Transcoder
Rate Adaptation Unit and an Operations and Maintenance Center-Radio.
Figure 3 -- AirNet GSM Base Station Subsystem
[AIRNET BASE SYSTEM SUBSTATION IMAGE]
AdaptaCell. The AdaptaCell wireless base station supports up to 12 GSM RF
carriers (96 total channels including 92 voice/data channels and four control
channels). The AdaptaCell differs from traditional base stations in that its
operation is defined by software, not hardware. This means that as subscribers
demand new services from operators, specifically new high-speed data services
for Internet access, it will be possible to upgrade the AdaptaCell to support
those services via a change of software and few, if any, hardware modifications.
Operators using traditional equipment will likely have to install new equipment,
and potentially a completely new base station, for each new protocol they adopt.
The AdaptaCell is available in two basic configurations: omni-directional and
sectorized. An omni-directional base station serves a roughly circular
geographic area while a sectorized base station divides the area around it into
independent sectors. Sectorized base stations are useful in high-density
applications because they allow a wireless service operator to reuse frequencies
in adjacent cells more readily than with omni-directional base stations. Figure
3 shows an omni-directional configuration.
33
<PAGE> 38
AirSite. The AirSite is a compact, lower-cost wireless base station that
supports one GSM RF carrier (eight total channels including seven voice/data
channels and one control channel) and includes its own wireless backhaul system.
By contrast, traditional base stations must be connected to the rest of the
system using relatively expensive digital telephone lines known as T-1 lines.
The AirSite is a true GSM cell. It has a unique site ID for billing and "911"
emergency identification purposes, offers the same geographic coverage as
traditional cells, and has fault and error detection functionality fully
integrated into the Operations and Maintenance Center-Radio. The AirSite
operates by receiving a subscriber's wireless telephone signal and transmitting
it to the AdaptaCell. The AdaptaCell then sends the signal over a single T-1
line to the BSC and on to the MSC. In reverse, digitized voice signals come from
the MSC to the BSC and then to the serving AdaptaCell, which then transmits the
signal to the AirSite. The AirSite then transmits the signal to the subscriber.
System capacity can be expanded by deploying two AirSites in a tandem
configuration at the same cell site, thus supporting two GSM RF carriers (16
total channels including 15 voice/data channels and one control channel).
BSC. Our Base Station Controller, or BSC, controls the activities of the
AdaptaCells physically attached to it and all the AirSites served by those
AdaptaCells. A single BSC can support up to 20 AdaptaCells and up to 240
AirSites. Among other things, the BSC monitors handset signal levels and the
operational status of each of its attached base stations, controls handset
transmit power, and orchestrates handoffs between base stations.
TRAU. In most telecommunications systems, digitized voice requires 64 Kbps
of bandwidth to accurately convey human speech. Our Transcoder Rate Adaptation
Unit, or TRAU, compresses a standard 64 Kbps voice stream to a GSM standardized
13 Kbps format more suitable for transmission within the BSS. This means that
the T-1 telephone line used to connect the BSC to the MSC can carry four times
as many voice conversations as it normally would. This makes it less expensive
to attach a BSS to its associated MSC.
OMC-R. The Operations and Maintenance Center-Radio, or OMC-R, provides the
network management facility for one or more of our BSSs. Our OMC-R provides a
comprehensive graphical user interface for maintenance personnel. In its maximum
configuration, our OMC-R can simultaneously manage 10 BSCs, 200 AdaptaCells, and
2,400 AirSites.
CUSTOMERS
The following table is a list of customers that have each ordered
approximately $1 million or more of our products from January 1997 through
September 23, 1999:
Airlink Communications, Inc.*
Carolina PCSI Limited Partnership
Coleman County Telephone Cooperative, Inc.
Comtel PCS Mainstreet Limited Partnership
Hafatel, LLC
High Plains/Midwest L.L.C.
MBO Wireless
NPI Wireless*
OnQue Communications, Inc.
Panhandle Telecommunications Systems, Inc.*
Pinpoint Communications*
Third Kentucky Cellular Corporation
- ---------------
* Accounted for 10% or more of our revenues for the six months ended June 30,
1999 or for the year ended December 31, 1998. Together, these customers
accounted for substantially all of our revenues for these periods.
Through September 18, 1999, we have shipped 215 base stations to our
customers.
SALES AND MARKETING
We sell and market our products in the U.S. through our direct sales force.
Our international sales and marketing efforts are conducted through a network of
agents, distributors and our direct sales force. We have developed programs to
attract and retain high quality, motivated sales representatives that have the
technical skills and consultative sales experience necessary to sell our
infrastructure solutions.
34
<PAGE> 39
We have established a marketing communications organization that is
responsible for the branding and marketing of our products and services and for
distinguishing the AirSite and AdaptaCell as branded product offerings. The
marketing organization is responsible for all new product launches to ensure
both internal execution and marketplace acceptance.
Direct Sales. Our direct sales force works as a team with our support
personnel. The direct sales account manager contacts a potential customer and
assists that customer in identifying its technology goals. A budgetary proposal
is then prepared for the customer containing a pro forma business analysis
comparing the customer's initial deployment costs and operating expenses using
traditional wireless infrastructure with those costs and expenses using our
products. The customer is then invited for an executive visit to review our
manufacturing and development facilities in Melbourne and tour one of our
deployed systems, and to discuss the customer's needs for financing, if any.
Final contract negotiations are scheduled shortly thereafter.
We have initiated direct sales efforts in Australia, Africa, South America,
and the Pacific Rim.
International Sales Agents, Distributors and OEMs. In order to further our
international sales objectives, we are establishing relationships with a number
of country/region specific sales agents, distributors, and OEMs. Our network
currently consists of sales agents working in Africa, Chile, and Venezuela and a
distributor working in Australia. We are negotiating a relationship with an OEM
in China. Since GSM has been widely adopted throughout the world, other
geographical areas have been targeted for penetration via similar third party
relationships; most notably, Eastern Europe and the Pacific Rim.
CUSTOMER SERVICE AND SUPPORT
We provide a full range of customer support during all program
implementation phases. The following services are provided:
- rapid resolution of field problems through a 24-hour hot-line service;
- administration of service contracts and warranty policies; and
- software maintenance, support and improvements.
Our field service provides a host of program management services focusing
on equipment installation and system implementation. We install, commission, and
transfer operational control to the customer in a carefully planned program
designed to ensure success. Field service provides these services:
- RF design, including preparation of coverage maps;
- installation;
- system drive testing; and
- maintenance.
We also provide certificate-based training programs to our customers in all
aspects of system installation, operation and maintenance.
RESEARCH AND PRODUCT DEVELOPMENT
Our product strategy is to develop and offer a suite of software upgrade
packages designed to run on our AdaptaCell platform to support future high-speed
data standards and super-capacity applications while augmenting our line of
backhaul free base stations with new lower-cost designs.
We have invested heavily in the development of broadband, software-defined
base station technology. We began development in 1994 and shipped our first
prototype base stations in 1996.
35
<PAGE> 40
In mid-1997, a customer deployed our first GSM BSS featuring the broadband,
software-defined BTS teamed with AirSite Backhaul Free Base Stations. This
system first saw commercial service in late 1997 and continues in service.
In 1998, we focused on adapting the BSS for connection to other vendor's
switching equipment at the industry standard A-interface. During the year, we
shipped products that were successfully integrated with the switches of two MSC
vendors, including Nortel. We also added additional features such as support for
short message service and enhanced full-rate vocoders.
In 1999, we shipped the AdaptaCell, which is the third generation of our
broadband, software-defined base station. This third generation base station may
be deployed in sectorized configurations. In addition, 900 MHz and 1800 MHz
versions, which are required for international markets, can be supported.
Our current product development plans focus on the GPRS, EDGE and 3G
protocols. We plan to develop a GPRS high-speed data upgrade package. We also
plan to take advantage of the evolution of digital signal processors and other
digital components to reduce the cost of our base stations.
Subsequently, we expect to develop an EDGE high-speed data upgrade package
and deliver the first of our super-capacity AdaptaCell GSM base stations.
Ultimately, we expect to develop 3G software upgrade packages. We may not
be able to introduce these, or any other products as scheduled. In addition,
market conditions may not ultimately dictate the necessity of developing a
particular new product. Also, while few modifications to the AdaptaCell hardware
platform are expected as the product evolves in accordance with our product
plan, some enhanced hardware, including upgraded digital signal processors, will
be required to support some features.
Our product development strategy has been to concentrate our engineering
resources on our core technology while making maximum use of third party vendors
and products for everything else. In practice, this means our engineering
resources are focused on broadband, software-defined base station technology,
the AirSite Backhaul Free Base Station, and the software upgrades necessary to
support new high-speed data and super-capacity applications.
As of August 31, 1999, 96 of our 146 full-time employees were engaged in
research and product development, including hardware and software engineering.
MANUFACTURING
We currently use a limited number of third-party contractors to manufacture
all of our primary components and subassemblies for our products. As a result,
our in-house manufacturing operations consist primarily of quality control,
final assembly, testing and product integration. Circuit boards, electronic and
mechanical parts, and other component assemblies are purchased from OEM
manufacturers and other selected vendors. Quality control is maintained by an
in-house staff that sets standards and manages our manufacturing contractors.
There is currently only one supplier of high power amplifiers, a critical
component of our broadband base stations, that can provide us with a product
that meets our quality standards.
COMPETITION
The wireless telecommunications infrastructure market is highly
competitive. The market for our products is characterized by rapidly changing
technology, evolving industry protocols, emerging wireless transmission
protocols, and frequent new product introductions and enhancements. Failure to
keep pace with these changes could seriously harm our competitive position and
prospects for growth. Our ability to compete depends on many factors including
product and protocol flexibility, price and reliability.
Current and potential competitors consist primarily of major domestic and
international companies, most of whom have longer operating histories; larger
installed customer bases; substantially greater name recognition; and greater
financial, technical, manufacturing, marketing, sales and distribution
resources. Competing base station vendors can be divided into two groups:
existing large equipment manufacturers
36
<PAGE> 41
who supply a complete range of wireless base station systems to wireless service
operators and smaller companies that typically market components of wireless
systems to the system suppliers or directly to wireless carriers. Our current
competitors include Alcatel S.A., Hughes Network Systems, LM Ericsson Telephone
Company, Lucent Technologies Inc., Motorola, Inc., NEC Corporation, Nokia
Corporation, Nortel Networks Corporation and Siemens AG. We face actual and
potential competition not only from these established companies but from
start-up companies that develop and market new wireless telecommunications
products and services.
PROPRIETARY RIGHTS
We consider our technologies proprietary and seek to protect our
intellectual property rights. We have 29 domestic patents granted, 20 patent
applications pending, and 5 provisional patent applications. In addition, we are
seeking patent protection for our inventions in foreign countries. One of the
allowed domestic patents was based upon proprietary rights originally obtained
from Harris Corporation, one of our stockholders, and is subject to a
non-exclusive cross license to a third party. We also obtained from Harris
Corporation a royalty-free, worldwide, non-exclusive right and license to use
six other patents in the manufacture and sale of products covered by these
patents. Our patents cover the basic architecture of the system, sub-components,
and frequency reuse planning schemes.
Simultaneously with Motorola's equity investment in January 1995, we signed
an agreement granting Motorola the right to obtain a non-exclusive, royalty-free
license under any two of our patents. In the event of a potential merger,
consolidation or sale of our company, we have the right to require Motorola to
either exercise its right or to cancel its right in exchange for a payment of $1
million per patent. With respect to possible infringement of our respective
digital base station transceiver patents, each of us agreed not to enjoin the
other and to attempt dispute resolution, including negotiation of nonexclusive
license agreements in good faith, before resorting to litigation.
While we believe that our patents will render it more difficult for
competitors to develop and market similar products, our patents may be
invalidated, circumvented, or challenged. Our patent rights may fail to provide
us with competitive advantages. Any pending or future patent applications,
whether or not being currently challenged by applicable governmental patent
examiners, may not be issued with the scope we seek.
We also rely upon copyright and trade secret laws. Source code for our own
proprietary software is protected as an unpublished copyrighted work and as a
trade secret. In addition, we generally enter into confidentiality or licensing
agreements with employees, consultants, vendors, customers, and licensees, and
generally limit access to the details of proprietary designs, software,
documentation, and other confidential information.
Notwithstanding our efforts to protect our rights, it may be possible for a
third party to copy or to obtain and use our intellectual property without our
authorization. We may have to pursue litigation in the future to enforce our
proprietary rights or to defend against claims of infringement, although we are
not presently aware of any circumstances that would lead to litigation. Such
litigation could result in substantial costs and diversion of resources and
could seriously harm our business, operating results, and financial condition.
In addition, others may develop technologies superior to our technology,
duplicate our technology, or design around our patents.
GOVERNMENT REGULATION
Our products must conform to a variety of requirements and protocols. In
order for our products to be used in certain jurisdictions, regulatory approval
may be necessary. The delays inherent in this regulatory approval process may
cause the rescheduling, postponement or cancellation of the installation of
telecommunications systems by our customers which, in turn, may significantly
reduce sales of products to such customers. The failure to comply with current
or future regulations or changes in the interpretation of existing regulations
in a particular country could result in the suspension or cessation of sales in
that country, restrictions on our development efforts and those of our
customers, render current products
37
<PAGE> 42
obsolete, or increase the opportunity for additional competition. Such
regulations or such changes in interpretation could require us to modify our
products and incur substantial costs to comply with such regulations and
changes. Products to support new services can be marketed only if permitted by
frequency allocations and regulations. We only plan to qualify our products in a
foreign country once we have a purchase order from a customer located there, and
this practice may deter customers or contribute to delays in receiving or
filling orders.
EMPLOYEES
As of August 31, 1999, we had 146 full-time employees. Of these
individuals, 96 are in research and product development, 17 are in
manufacturing, 12 are in sales and marketing, 12 are in customer and field
services, and 9 are in finance and administration. We also use contract
personnel, primarily for research and development.
None of our employees are represented by a labor union and we believe that
our relations with employees are good.
FACILITIES
Our headquarters consist of approximately 23,400 square feet of space
leased through December 31, 2001, located at 100 Rialto Place in Melbourne,
Florida. The primary manufacturing and product engineering operation is located
at 3950 Dow Road, Melbourne, Florida, consisting of approximately 26,580 square
feet, leased through December 31, 2001. We also maintain a manufacturing and
engineering facility in Westbury, New York, consisting of approximately 12,000
square feet, leased through December 31, 2001. We believe that these facilities
will be adequate to meet our requirements for the foreseeable future and that
suitable additional space will be available if needed.
LEGAL PROCEEDINGS
On January 21, 1997, we filed a complaint against Amplidyne, Inc. in
Brevard County, Florida, alleging breach of contract and non-performance in
connection with the delivery of certain high-power amplifier units used in our
base stations. We are seeking approximately $4.4 million in damages. Amplidyne
filed an answer alleging certain affirmative defenses and a counterclaim against
us for approximately $463,000. Amplidyne's motion for summary judgment was
denied in February 1999, and the litigation is currently still in a preliminary
stage with discovery not yet completed.
We are also involved in various claims and litigation matters arising in
the ordinary course of business. We believe that the ultimate outcome of these
matters will not have a material effect on our results of operations or
financial condition.
38
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- -----------------------------------------------------
<S> <C> <C>
R. Lee Hamilton, Jr.(1)(3)... 40 President and Chief Executive Officer, Director
Gerald Y. Hattori............ 47 Vice President of Finance, Chief Financial Officer,
Treasurer and Secretary
Glenn A. Ehley............... 37 Vice President of Sales and Marketing
Mark G. Demange.............. 39 Vice President of Engineering
J. Douglass Mullins(3)....... 50 Chairman
Joel P. Adams(1)(3).......... 42 Director
James W. Brown(1)(3)......... 48 Director
Robert M. Chefitz(2)......... 40 Director
Richard G. Coffey(1)(2)...... 39 Director
Bruce R. DeMaeyer(2)......... 61 Director
Milo D. Harrison(2).......... 60 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating Committee
R. Lee Hamilton, Jr. has served as President and Chief Executive Officer
since January 1999. He joined us in July 1996 as Vice President of Engineering
and Operations. In April 1998 he was elected President and Chief Operating
Officer. Prior to joining us, Dr. Hamilton served in various executive roles at
Motorola, Inc., from 1990 to 1996, most recently as General Manager for Systems
Transmission Products. Prior to joining Motorola, Dr. Hamilton was a Professor
of Electrical Engineering at Ohio State University, where he successfully
obtained funding for and managed a noted research program in wireless
communications systems. He holds a Ph.D. in Electrical Engineering from Purdue
University, and a B.S. in Electrical Engineering from Virginia Polytechnic
Institute and State University.
Gerald Y. Hattori has served as Vice President of Finance and Chief
Financial Officer since March 1999 and as Treasurer and Secretary since
September 1999. Prior to joining us, Mr. Hattori was Vice President of Finance,
Chief Financial Officer and Treasurer of Nexar Technologies, Inc., a
manufacturer of personal computers, since October 1996. From September 1987 to
October 1996, Mr. Hattori served as Corporate Controller of Sipex Corporation, a
manufacturer of analog semiconductors. Mr. Hattori holds an M.B.A. from New
Hampshire College and a B.S. degree in Business Administration/Accounting from
Merrimack College.
Glenn A. Ehley has served as Vice President Sales and Marketing since
August 1997. Mr. Ehley joined us in July 1995 and served as Director of Sales.
Prior to joining us, Mr. Ehley served in several positions at Siemens
Stromberg-Carlson, most recently as Senior Product Management Manager. Mr. Ehley
received an M.B.A. and M.S. in Computer Engineering from Florida Atlantic
University and received a B.S. in Computer Science from Illinois Benedictine
College.
Mark G. Demange has served as Vice President of Engineering since February
1999. Prior to joining us, Mr. Demange served in several positions at Zenith
Electronics Corp., most recently as Vice President and General Manager of the
Cable Modem Business Unit. From October 1996 to February 1999, Mr. Demange held
several engineering management positions in Motorola's Wireless Data Group. Mr.
Demange holds an M.B.A. from Northern Illinois University, an M.S. in Electrical
Engineering from Midwest College of Engineering and a B.S. in Electrical
Engineering from Southern Illinois University.
39
<PAGE> 44
J. Douglass Mullins has served as a Director since our inception in January
1994. He served as Chairman of the Board from October 1996 until April 1998 and
has served as Chairman since March 1999. Mr. Mullins was acting Chief Executive
Officer between February 3, 1997 and March 10, 1997. Mr. Mullins also served as
Secretary and Treasurer during 1994. Since 1993, Mr. Mullins has been President
of Venture First Associates of Melbourne, Inc., a venture capital firm, and
General Partner of HVFM-I, L.P., one of our stockholders. Since 1984, Mr.
Mullins has served as a General Partner of various partnerships that manage
venture capital funds. Mr. Mullins received an M.B.A. from Harvard University
and a B.S. from Georgia Institute of Technology.
Joel P. Adams has served as a Director since our inception in January 1994.
Mr. Adams has served since 1987 as Vice President of Fostin Capital Corporation
and since 1994 as President of Adams Capital Management, a venture capital firm
and one of our stockholders. In addition, Mr. Adams is a former Director of
NetSolve, Inc., a public company, and currently serves on several private
company boards. Mr. Adams received an M.S. in Industrial Administration from
Carnegie Mellon University and a B.S. in Nuclear Engineering from the State
University of New York at Buffalo.
James W. Brown has served as a Director since November 1997 as the designee
of SCP Private Equity Partners, L.P., one of our stockholders. Mr. Brown has
been a Partner of SCP Private Equity Management, L.P., which manages a private
equity investment fund, since its inception in 1996. Mr. Brown has also been a
Managing Director of CIP Capital Management, Inc. since 1994. From 1989 until
1994, Mr. Brown was Chief of Staff to the Governor of Pennsylvania. Mr. Brown
received a J.D. from the University of Virginia and a B.A. from Villanova
University's Honors Program.
Robert M. Chefitz has served as a Director since January 1997. Mr. Chefitz
is a General Partner and Vice President of Patricof & Co. Ventures, Inc., an
affiliate of some of our stockholders. He joined the firm in 1987 and was
admitted as a General Partner in 1991. Previously, Mr. Chefitz was a Senior
Associate with Golder, Thomas & Cressey Co. of Chicago, a venture capital firm.
Mr. Chefitz received an M.B.A. from Columbia University and a B.A. from
Northwestern University.
Richard G. Coffey has served as a Director since August 1998. He is
Managing Director of Tandem Investments, Inc., a private equity firm located in
West Hartford, Connecticut, and a Managing Member of Tandem GSM Capital, LLC,
the Special Limited Partner of Tandem PCS Investments, L.P., one of our
stockholders. Prior to founding Tandem, Mr. Coffey was Director of Private
Investments for the Pennsylvania Public School Employees' Retirement Systems.
Mr. Coffey received an M.B.A. from the Darden School of the University of
Virginia and an A.B. from Princeton University.
Bruce R. DeMaeyer has served to serve as a Director since January 1996.
Since 1992, Mr. DeMaeyer has been President of Great Western Teleconsulting,
focusing primarily on the domestic and international wireless telecommunications
marketplace. Prior to founding Great Western Teleconsulting, Mr. DeMaeyer served
as President of Ameritech Mobile Communications. Mr. DeMaeyer received a B.S. in
Electrical Engineering from Illinois Institute of Technology.
Milo D. Harrison has served as a Director since December 1997. Semi-retired
since 1989, Mr. Harrison served as an environmental consultant to major chemical
corporations after serving from 1981 to 1989 as President and Vice President of
Chemical Waste Management Company. Mr. Harrison received an M.B.A. from the
University of Buffalo and a B.S. from Ohio Northern University.
BOARD OF DIRECTORS COMMITTEES
The Audit Committee consists of Mr. Coffey, Chairman, Mr. Chefitz, Mr.
DeMaeyer and Mr. Harrison. The Audit Committee reviews our records and affairs
to determine our financial condition, oversees the adequacy of the systems of
internal control and monitors our adherence in accounting and financial
reporting to generally accepted accounting principles.
The Compensation Committee consists of Mr. Adams, Chairman, Mr. Brown, Mr.
Coffey and Mr. Hamilton. The Compensation Committee determines compensation for
our officers and administers our 1999 Equity Incentive Plan. However, the Board
of Directors must approve all awards granted under
40
<PAGE> 45
the Plan to directors and employees who are subject to Section 16 of the
Securities Exchange Act of 1934, as amended. No officer serving on the board of
directors or the Compensation Committee has or will participate in decisions
awarding compensation or granting stock options to himself.
The Nominating Committee consists of Mr. Mullins, Chairman, Mr. Adams, Mr.
Brown and Mr. Hamilton. The Nominating Committee seeks candidates and recommends
nominations for election to the board of directors.
DIRECTOR COMPENSATION
Non-employee directors are entitled to receive option grants and other
awards under the 1999 Equity Incentive Plan. Non-employee directors are
currently entitled to receive an award of nonqualified stock options every three
years, the amount of which is determined by the board of directors in its sole
discretion. These director options will have an exercise price equal to the fair
market value of our common stock when granted and will vest in three annual
installments provided the director has attended at least 75% of board of
director meetings in the 12 months preceding each vesting date, with exception
for special circumstances. Unvested options for a particular year will vest on a
pro rata basis if a director leaves or is removed from office, provided he met
the attendance requirement for the portion of the year he served as a director.
All directors will be reimbursed for expenses incurred in attending meetings of
the board of directors and its committees. In September 1999, each non-employee
director received non-qualified stock options to purchase 500,000 shares of our
common stock at an exercise price of $0.13 per share. In September 1999, we also
issued to Mr. DeMaeyer 507,692 shares of our common stock in satisfaction of
$66,000 of accrued fees due to him for his services as a director under our
prior policy of cash compensation of $1,500 per meeting for independent
directors.
TERM OF EXECUTIVE OFFICERS AND DIRECTORS
Our directors currently serve terms until the next annual meeting of
stockholders and the election of their successors. At the next annual meeting of
stockholders, the board of directors will be divided into three classes, with
three directors in each class. The Class I directors will be nominated for
election for a term of three years, the Class II directors will be nominated for
election for a term of two years, and the Class III directors will be nominated
for election for a term of one year. Thereafter, each director will serve for a
term of three years. Directors will hold office until the annual meeting of
stockholders in the year in which the term of their class expires and until
their successors have been duly elected and qualified. Executive officers are
appointed by and serve at the discretion of the board.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
compensation paid or to be paid during the fiscal year ended December 31, 1998
to the Chief Executive Officer and the other most highly
41
<PAGE> 46
compensated executive officers whose compensation exceeded $100,000, based on
salary and bonus earned in fiscal 1998, who were executive officers on December
31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ----------------------------- UNDERLYING ALL OTHER
OCCUPATION YEAR SALARY BONUS OPTIONS COMPENSATION
------------------ ---- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Jerrold D. Adams 1998 $250,000 -- 14,315,237 --
Chairman and
Chief Executive Officer
R. Lee Hamilton, Jr. 1998 178,154 -- 5,905,268 --
President and
Chief Operating Officer
Glenn Ehley 1998 117,231 -- 3,002,634 $27,978(1)
Vice President,
Sales & Marketing
</TABLE>
- ---------------
(1) Represents performance-based sales commissions.
1999 EQUITY INCENTIVE PLAN
1999 Equity Incentive Plan. The 1999 Equity Incentive Plan, which amended
and restated our 1994 Stock Option Plan and Independent Director Stock Option
Plan, provides for the issuance of a maximum of 212,870,132 shares of common
stock pursuant to the grant of incentive stock options, non-qualified stock
options, restricted stock, stock appreciation rights, performance awards and
other stock-based awards to employees, directors and independent contractors.
The 1999 Equity Incentive Stock Plan is administered by the Compensation
Committee which has the authority to determine recipients of awards under the
Plan. However, the board of directors must approve all awards granted under the
Plan to directors and employees who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended. The exercise price of options and the vesting
periods, expiration dates and other terms of awards under the Plan are
determined by the Compensation Committee or the board of directors. Awards are
not transferable except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order. Unless otherwise determined by
the board of directors, in the event of a change of control of our company, all
unexercised stock options granted pursuant to the Plan become fully vested and
immediately exercisable.
At September 21, 1999, we had granted options for the purchase of
145,483,944 shares of common stock, excluding options that expired upon the
termination of employment of certain employees (which shares are currently
reserved for future grant). Options for the purchase of 18,439,131 shares had
been exercised, and options for the purchase of 127,044,813 shares remained
outstanding. At September 21, 1999, a total of 67,386,188 shares were reserved
for grant of options.
42
<PAGE> 47
Option Grants in Last Fiscal Year. The following table shows certain
information regarding stock options granted to the Named Executive Officers
during the fiscal year ended December 31, 1998. All of these stock options were
granted under the 1994 Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER OF PERCENT OF TOTAL RATE OF
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM $(3)
OPTIONS EMPLOYEES PER EXPIRATION ----------------------
NAME GRANTED DURING PERIOD SHARE DATE 5% 10%
---- ---------- ---------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jerrold D. Adams..... 14,315,237 25.7% $0.02 4/19/99 -- --
R. Lee Hamilton,
Jr................. 5,905,268(1) 10.6% $0.02 02/19/08 $ 72,276 $188,230
Glenn A. Ehley....... 3,002,634(2) 5.4% $0.02 02/19/08 $ 37,767 $ 97,709
</TABLE>
- ---------------
(1) Does not include options to purchase 21,000,000 shares of common stock
granted to Mr. Hamilton on January 19, 1999 or options to purchase 2,000,000
shares of common stock granted to Mr. Hamilton on September 1, 1999.
(2) Does not include options to purchase 5,000,000 shares of common stock
granted to Mr. Ehley on February 16, 1999.
(3) The dollar amounts under these columns represent the potential realizable
value of each grant assuming that the market value of our stock appreciates
from the date of grant to the expiration of the option at annualized rates
of 5% and 10%. These assumed rates of appreciation have been specified by
the SEC for illustrative purposes only and are not intended to forecast
future financial performance or possible future appreciation in the price of
our stock. The actual amount the Named Executive Officer may realize will
depend on the extent to which the stock price exceeds the exercise price of
the options on the date the option is exercised.
Options Exercised and Year-End Option Values. The following table sets
forth certain information with respect to option exercises during 1998 by the
Named Executive Officers and the stock options held as of December 31, 1998 by
the Named Executive Officers.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR-END AT FISCAL YEAR-END
SHARES DECEMBER 31, 1998 DECEMBER 31, 1998($)(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED $(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jerrold D. Adams...... 2,658,750 $144,278 -- -- -- --
R. Lee Hamilton,
Jr.................. -- -- 4,449,382 5,500,787 $83,811 $219,411
Glenn A. Ehley........ -- -- 1,442,953 3,568,545 $60,111 $143,207
</TABLE>
- ---------------
(1) Based on the fair market value of our stock on the date of exercise, as
determined by our board of directors, minus the exercise price, multiplied
by the number of shares issued upon exercise of the option.
(2) Based on the fair market value of our stock on December 31, 1998, as
determined by the board of directors, less the exercise price.
43
<PAGE> 48
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 21, 1999, certain
information with respect to our common stock owned beneficially by each
director, by the executive officers, by all executive officers and directors as
a group and by each beneficial owner of more than 5% of our outstanding common
stock. Except as noted in the footnotes, each of the persons listed has sole
investment and voting power with respect to the shares of common stock included
in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENT OF OWNERSHIP
COMMON STOCK ---------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------ ------------------- --------------- --------------
<S> <C> <C> <C>
SCP Private Equity Partners, LP................ 253,035,734(1) 22.5%
800 The Safeguard Building 435 Devon Park
Drive Wayne, PA 19087
Funds Managed by:
Adams Capital Management, Inc. .............. 179,170,468(2) 16.1
518 Broad Street Sewickley, PA 15143
Harris Corporation............................. 156,236,764(3) 13.9
1025 West Nasa Boulevard Melbourne, FL 32919
Tandem PCS Investments, LP..................... 153,272,691(4) 13.7
c/o Live Cycles Holding Co. 1981 Avenue
McGill College Montreal, Quebec H3A 3C7,
Canada
Funds Managed by:
Patricof & Co. Ventures, Inc................. 146,771,003(5) 13.2
445 Park Avenue New York, NY 10022
HVFM-I, LP..................................... 115,142,733(6) 10.3
c/o Venture First Associates of Melbourne,
Inc. 1901 S. Harbor City Boulevard, Suite 501
Melbourne, FL 32901
James W. Brown................................. 253,063,510(7) 22.5
Joel P. Adams.................................. 179,198,244(8) 16.1
Richard G. Coffey.............................. 153,300,467(9) 13.7
Robert M. Chefitz.............................. 146,798,779(10) 13.2
J. Douglass Mullins............................ 115,170,509(11) 10.3
R. Lee Hamilton, Jr............................ 8,018,333(12) *
Glenn A. Ehley................................. 2,739,655(13) *
Milo D. Harrison............................... 1,428,826(14) *
Bruce R. DeMaeyer.............................. 865,468(15) *
All executive officers and directors as a group
(11 persons)................................. 860,583,791 74.6
</TABLE>
- ---------------
* Less than 1% of the outstanding common stock.
44
<PAGE> 49
(1) Includes 228,193,610 shares held by SCP Private Equity Partners, L.P. and
13,570,918 shares issuable upon exercise of a warrant, and 11,271,206
shares held by CIP Capital, L.P.
(2) Includes (a) 51,611,826 shares held by The P/A Fund, L.P. and 542,831
shares issuable upon exercise of a warrant, (b) 18,028,290 shares held by
Fostin Capital Associates II, and (c) 105,730,501 shares held by Adams
Capital Management, L.P. and 3,257,020 shares issuable upon exercise of a
warrant.
(3) Includes 145,007,067 shares held by Harris Corporation and 11,229,697
shares issuable upon exercise of a warrant.
(4) Includes 142,415,957 shares held by Tandem PCS Investments, LP and
10,856,734 shares issuable upon exercise of a warrant.
(5) Includes (a) 65,249,861 shares held by APA Excelsior III, L.P. and 757,805
shares issuable upon exercise of a warrant (b) 24,866,349 shares held by
Coutts & Co. (Jersey), Ltd., Custodian for APA Excelsior III/Offshore, L.P.
and 288,789 shares issuable upon exercise of a warrant, (c) 3,414,458
shares held by CIN Venture Nominees, Ltd. and 39,084 shares issuable upon
exercise of a warrant, and (d) 51,611,826 shares held by The P/A Fund,
L.P., which is co-managed by APA Pennsylvania Partners II and Fostin
Capital Partners II (see footnotes 2 and 8), and 542,831 shares issuable
upon exercise of a warrant.
(6) Includes 111,885,712 shares held by HVFM-I, L.P., and 3,257,020 shares
issuable upon exercise of a warrant.
(7) Includes 228,193,610 shares held by SCP Private Equity Partners, L.P. and
13,570,918 shares issuable upon exercise of a warrant, and 11,271,206
shares held by CIP Capital, L.P. Also includes options which are
exercisable within 60 days of September 21, 1999 for 27,776 shares. Mr.
Brown is President of SCP Private Equity Partners, L.P. and Managing
Director of CIP Capital, L.P. Mr. Brown disclaims beneficial ownership of
all such shares except to the extent of his pecuniary interest therein.
(8) Includes (a) 51,611,826 shares held by The P/A Fund, L.P. and 542,831
shares issuable upon exercise of a warrant, (b) 18,028,290 shares held by
Fostin Capital Associates II, and (c) 105,730,501 shares held by Adams
Capital Management, L.P. and 3,257,020 shares issuable upon exercise of a
warrant. Also includes options which are exercisable within 60 days of
September 21, 1999 for 27,776 shares. Mr. Adams is the President of Adams
Capital Management which manages the assets of Fostin Capital Corp. which
is a general partner Adams Capital Management, L.P. and of Fostin Capital
Partners II, which is a general partner of The P/A Fund, L.P. Mr. Adams is
also Vice President of Fostin Capital Corp. Mr. Adams disclaims beneficial
ownership of all such shares except to the extent of his pecuniary interest
therein.
(9) Includes 142,415,957 shares held by Tandem PCS Investments, LP and
10,856,734 shares issuable upon exercise of a warrant. Also includes
options which are exercisable within 60 days of September 21, 1999 for
27,776 shares. Mr. Coffey is a Managing Member of the Special Limited
Partner of Tandem PCS Investments, LP. Mr. Coffey disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest
therein.
(10) Includes (a) 65,249,861 shares held by APA Excelsior III, L.P. and 757,805
shares issuable upon exercise of a warrant, (b) 24,866,349 shares held by
Coutts & Co. (Jersey), Ltd., Custodian for APA Excelsior III/Offshore, L.P.
and 288,789 shares issuable upon exercise of a warrant, (c) 3,414,458
shares held by CIN Venture Nominees, Ltd. and 39,084 shares issuable upon
exercise of a warrant, and (d) 51,611,826 shares held by The P/A Fund,
L.P., which is co-managed by APA Pennsylvania Partners II and Fostin
Capital Partners II (see footnotes 2 and 8), and 542,831 shares issuable
upon exercise of a warrant. Also includes options which are exercisable
within 60 days of September 21, 1999 for 27,776 shares. Mr. Chefitz is a
Senior Vice President of Patricof & Co. Venture, Inc., which acts as the
investment manager for CIN Venture Nominees, Ltd. Mr. Chefitz disclaims
beneficial ownership of all such shares except to the extent of his
pecuniary interest therein.
45
<PAGE> 50
(11) Includes 111,885,712 shares held by HVFM-I, L.P., and 3,257,020 shares
issuable upon exercise of a warrant. Also includes options which are
exercisable within 60 days of September 21, 1999 for 27,776 shares. Mr.
Mullins is the President and one of two directors of Venture First
Associates of Melbourne, Inc. the general partner of HVFM-I, L.P. Mr.
Mullins disclaims beneficial ownership of all such shares except to the
extent of his pecuniary interest therein.
(12) Includes 100 shares held by Mr. Hamilton and options exercisable
immediately for 8,018,233 shares.
(13) Includes 13,635 shares held by Mr. Ehley, options exercisable immediately
for 2,707,640 shares and options exercisable within 60 days of September
21, 1999 for 18,381 shares.
(14) Includes 1,304,832 shares held by Mr. Harrison, options exercisable
immediately for 87,500 shares, options exercisable within 60 days of
September 21, 1999 for 27,776 shares and 58,718 shares issuable upon
exercise of a warrant.
(15) Includes 507,692 shares held by Mr. DeMaeyer, options exercisable
immediately for 330,000 shares and options exercisable within 60 days of
September 21, 1999 for 27,776 shares.
46
<PAGE> 51
CERTAIN TRANSACTIONS
COMPANY FORMATION AND SERIES A FINANCING
Harris Corporation acquired an interest in the Company through HVFM-I, L.P.
in exchange for a contribution of capital and proprietary technology.
In 1994 and early 1995, we raised approximately $11.9 million in gross
proceeds from the sale of units of our stock to six investors: The P/A Fund,
L.P. f/k/a APA/Fostin Pennsylvania Venture Capital Fund II, Fostin Capital
Associates II, HVFM-I, L.P., APA Excelsior III, L.P., Coutts & Co. (Jersey),
Ltd., Custodian for APA Excelsior III/Offshore, L.P., and CIN Venture Nominees,
Ltd. (an affiliate and nominee of Excelsior III, L.P.). These six investors paid
$1.00 for each unit, which consisted of one share of Non-Voting Redeemable
Preferred Stock, Series A and one share of common stock.
The following directors are affiliated with these investors:
- Joel P. Adams as President of Adams Capital Management manages the
investments in our company that were made by The P/A Fund, L.P. and
Fostin Capital Associates II and is a general partner of Fostin Capital
Partners II, a general partner of The P/A Fund, L.P.;
- Mr. Adams is also a stockholder and officer of Fostin Capital Corp., a
general partner of Fostin Capital Associates II;
- Mr. Mullins is a stockholder, director and President of Venture First
Associates of Melbourne, the general partner of HVFM-I, L.P.; and
- Robert M. Chefitz is a General Partner and Vice President of Patricof &
Co. Ventures, Inc., which manages investments of The P/A Fund, L.P., APA
Excelsior III, L.P., Coutts & Co. (Jersey), Ltd., Custodian for APA
Excelsior III/Offshore, L.P., and CIN Venture Nominees, Ltd.
On January 26, 1995, pursuant to a recapitalization, the six investors
listed above exchanged their shares of Non-Voting Redeemable Preferred Stock,
Series A on a one-for-one basis for shares of our Series A Preferred Stock.
SERIES B FINANCING
In early 1995, we raised approximately $15.8 million in gross proceeds from
the sale of our Series B Preferred Stock to 18 investors, at a purchase price of
$4.883818833 per share. In connection with Motorola Inc.'s purchase of shares of
Series B Preferred Stock, we entered into an OEM and Patent and License Option
Agreement under which we granted Motorola nonexclusive options to purchase 25
pre-commercial versions of our AdaptaCell base station and other products and
components designed or manufactured by us. Also, under the agreement:
- Motorola has the option to acquire a worldwide, nonexclusive,
royalty-free license under any two of our patents (for manufacture of
designs by Motorola, but not for access to or copying of our designs);
- in the event of a potential merger, consolidation or sale of our company,
we have the right to require Motorola to either exercise its options or
to cancel its options in exchange for a payment of $1 million per option;
- with respect to possible infringement of our respective digital base
station transceiver patents, each of us agreed not to enjoin the other
and to attempt dispute resolution, including negotiation of nonexclusive
license agreements in good faith, before resorting to litigation; and
- Motorola may receive discounts on nonexclusive royalty-bearing licenses
from us.
47
<PAGE> 52
SERIES C FINANCING
In July 1995, we raised an aggregate of approximately $30.0 million in
gross proceeds from the sale of shares of our Series C Preferred Stock to 102
investors, at a purchase price of $6.00 per share.
SERIES D FINANCING
In April 1997, we raised approximately $8.9 million in gross proceeds from
the sale of Series D Preferred Stock to 66 investors, at a purchase price of
$1.10 per share. Substantially all of these funds were invested by existing
Series A, Series B and Series C Preferred stockholders, including HVFM-I, L.P.,
The P/A Fund, L.P., Fostin Capital Associates II, APA, Excelsior III, L.P.,
Coutts & Co. (Jersey) Ltd., Custodian for APA Excelsior III/Offshore, L.P. and
CIN Venture Nominees, Ltd.
1997 BRIDGE FINANCING
On August 8, 1997, we closed on a 60 day $2 million secured bridge loan
from certain existing holders of our Series A Preferred Stock as follows: APA
Excelsior III, L.P. ($398,857); Coutts & Co. (Jersey) Ltd., Custodian for APA
Excelsior III/Offshore, L.P. ($152,000); CIN Venture Nominees, Ltd. ($20,572);
The P/A Fund, L.P. ($285,714); Fostin Capital Associates II, APA ($142,857); and
HVFM-I, L.P. ($1 million). The loans were evidenced by convertible promissory
notes that were secured by a first priority security interest in all our assets
and accrued interest at 16% per annum. The principal under these notes was
automatically converted into $2 million of shares of Series E Preferred Stock
upon the initial closing of the offering of Series E Preferred Stock described
below and the security interests were terminated.
SERIES E FINANCING
In the second half of 1997, we raised approximately $15.3 million in gross
proceeds from the sale of shares of Series E Preferred Stock to 49 investors, at
a per share purchase price of $.035619838954. A significant portion of the
funding was provided by existing holders of Series A, B, C and D Preferred
Stock, including HVFM-I, L.P., The P/A Fund, L.P., Fostin Capital Associates II,
APA Excelsior III, L.P., Coutts & Co. (Jersey) Ltd., Custodian for APA Excelsior
III/Offshore, L.P., and CIN Venture Nominees, Ltd. In addition to the
investments by then-existing stockholders, SCP Private Equity Partners, L.P. and
CIP Capital, L.P. invested in Series E Preferred Stock. James Brown, one of our
directors, is a Partner of SCP and Managing Director of CIP.
The initial closing of the Series E Offering (including the sale of $6
million of Series E Preferred Stock and the sale of the note and warrant to
Harris Corporation, as described below) was consummated on September 15, 1997.
At this initial closing we sold to Harris Corporation a $4 million Senior
Secured Convertible Promissory Note which was convertible into 112,296,970
shares of Series E Preferred Stock. This note accrued interest at 8% and was
secured by a first priority security interest in all of our assets. On August
28, 1998, Harris Corporation elected to convert this note into 112,296,970
shares of Series E Preferred Stock and the security interests were terminated.
We also issued Harris Corporation a warrant to purchase an additional 11,229,697
shares of Series E Preferred Stock. Following this offering, the warrant by its
terms becomes exercisable for the same number of our common shares.
Harris Corporation is the principal investor and limited partner of HVFM-I,
L.P., a holder of shares of Series A, D, E, F and G Preferred Stock, common
stock, and one of the June 1999 convertible promissory notes described below.
Harris Corporation has represented in writing to us that it does not control or
manage HVFM-I, L.P. Nevertheless, Mr. Mullins, a director of our company and a
director and President of Venture First, the general partner of HVFM-I, L.P.,
abstained from the board of director votes approving our transactions with
Harris Corporation.
48
<PAGE> 53
SERIES F FINANCING
In late 1998, we raised approximately $15.6 million in gross proceeds from
the sale of Series F Preferred Stock to 31 investors, at a per share purchase
price of $0.05526523774. The lead investor in the Series F Offering was Tandem
PCS Investments, L.P. with the remainder of the funding being provided by
existing stockholders, including HVFM-I, L.P., The P/A Fund, L.P., Fostin
Capital Associates II, APA Excelsior III, L.P., Coutts & Co. (Jersey) Ltd.,
Custodian for APA Excelsior III/Offshore, L.P. and CIN Venture Nominees, Ltd.
Richard G. Coffey, one of our directors, is a Managing Member of the Special
Limited Partner of Tandem PCS Investments, L.P.
1999 BRIDGE FINANCING
In early June 1999, we closed on loans in an aggregate amount of $800,000
from certain existing stockholders or related affiliates as follows: The P/A
Fund, L.P., APA Excelsior III, L.P., Coutts & Co. (Jersey) Ltd., Custodian for
APA Excelsior III/Offshore, L.P. and CIN Venture Nominees, Ltd. ($200,000);
HVFM-I, L.P. ($200,000); Adams Capital Management, L.P. ($200,000); and SCP
Private Equity Partners ($200,000). The loans were evidenced by demand
promissory notes and accrued interest at the prime rate plus 2% per annum. The
demand notes were canceled and exchanged for convertible promissory notes as
part of the initial closing of our convertible promissory notes and warrant
offering.
In mid-June 1999, we closed on $6.0 million of convertible promissory notes
along with warrants to purchase approximately 32.6 million shares of our common
stock. In July and August 1999, we closed on an additional $338,187 of
convertible promissory notes along with warrants to purchase approximately 1.8
million shares of our common stock. All of the warrants had an exercise price of
$0.05526523774 per share. The purchasers of the convertible promissory notes and
warrants, all of whom are existing stockholders, invested in this offering as
follows: SCP Private Equity Partners ($2.5 million); Adams Capital Management,
Inc. ($600,000); The P/A Fund, L.P., APA Excelsior III, L.P., Coutts & Co.
(Jersey) Ltd., Custodian for APA Excelsior III/Offshore, L.P. and CIN Venture
Nominees, Ltd. ($300,000); HVFM-I, L.P. ($600,000); Tandem PCS Investments, L.P.
($2 million), and other existing investors ($338,187). The convertible
promissory notes were secured by a security interest in all of our assets.
The principal and accrued interest under the outstanding convertible
promissory notes was automatically converted into shares of Series G Preferred
Stock upon the closing of the Series G financing.
SERIES G FINANCING
In September 1999, we raised $30.0 million in gross proceeds from the sale
of Series G Preferred Stock to 45 investors, at a per share purchase price of
$0.13, including conversion of principal and accrued interest under $6.3 million
of the convertible promissory notes issued in the 1999 bridge financing. The
lead outside investors in the Series G offering were Mellon Ventures, Inc., Peak
Telecommunications Investments, LLC and Peak Telecommunications Investments II,
LLC and Damac Investors Inc. and Damac Investors (III) Inc., and a substantial
portion of the funding was provided by existing stockholders, including Tandem
PCS Investments, L.P., HVFM-I, L.P., Adams Capital Management, L.P., SCP Private
Equity Partners, The P/A Fund, L.P., APA Excelsior III, L.P., Coutts & Co.
(Jersey) Ltd., Custodian for APA Excelsior III/Offshore, L.P. and CIN Venture
Nominees, Ltd.
49
<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Under our Fifth Amended and Restated Certificate of Incorporation, our
authorized capital stock consists of 1,648,333,055 shares of common stock and
1,195,542,737 shares of preferred stock. No other class of capital stock is
authorized. Under our Sixth Amended and Restated Certificate of Incorporation,
which will be adopted prior to the closing of this offering, our authorized
capital stock will consist of shares of common stock and 10,000,000
shares of preferred stock. No other class of capital stock will be authorized.
The following information relates only to our Sixth Amended and Restated
Certificate of Incorporation.
COMMON STOCK
Upon the closing of this offering, we expect to have 1,109,523,226 shares
of common stock issued and outstanding, excluding the shares sold in the
offering. All of the issued and outstanding common stock will be fully paid and
nonassessable.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. As of the date of this prospectus, there are 179 holders of record of
our common stock. Our common stock does not have cumulative voting rights, which
means that the holders of a majority of the outstanding common stock voting for
the election of directors can elect all directors then being elected. The
holders of common stock are entitled to receive dividends when, as, and if
declared by the board of directors out of legally available funds. Upon
liquidation or dissolution, the holders of common stock will be entitled to
share ratably in the assets legally available for the distribution to
stockholders after payment of liabilities and subject to the prior rights of any
holders of preferred stock then outstanding. The holders of common stock have no
conversion, sinking fund, redemption, preemptive or subscription rights. All of
the outstanding shares of common stock are, and the shares of common stock to be
sold in this offering when issued and paid for will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of common stock
are subject to the rights of the holders of shares of any series of preferred
stock which we may issue in the future.
PREFERRED STOCK
We have 10,000,000 shares of undesignated preferred stock authorized for
issuance. Upon the closing of the offering, no shares of preferred stock will be
issued and outstanding.
Our board of directors may, without further action by our stockholders,
from time to time direct the issuance of preferred stock in one or more series,
and may, at the time of issuance, fix the dividend rights, dividend rates, any
conversion rights or right of exchange, any voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
the liquidation preferences, and any other rights, preferences, privileges, and
restrictions of any series of preferred stock and the number of shares
constituting such series and the designation thereof. We have no present plans
to issue any shares of preferred stock.
WARRANTS
Warrants issued to Harris Corporation on September 12, 1997 entitle Harris
Corporation to purchase 11,229,697 shares of our common stock for
$0.035619838954 per share. Such warrants are currently exercisable and expire on
September 12, 2002.
In June and July 1999, we issued warrants to purchase up to 34,406,005
shares of common stock in connection with our sale of $6.3 million of our
convertible promissory notes and warrants. The exercise price for the warrants
is $0.05526523774 per share. The warrants are currently exercisable and expire
on June 10, 2009.
50
<PAGE> 55
REGISTRATION RIGHTS
After the 180 day period following the closing of this offering, the
holders of 1,091,018,264 shares of common stock and holders of warrants to
purchase 45,635,702 shares of common stock have rights to require us to register
their shares for sale under the Securities Act. Under two separate agreements
with these stockholders, if we propose to register any of our securities for
sale, either for our own account or for the account of another holder exercising
registration rights, these stockholders are entitled to include their shares in
our registration. These stockholders have the right to demand that we register
their shares on two occasions (under each agreement) on a form other than Form
S-3 and on an unlimited number of additional occasions using Form S-3, if we are
eligible to use Form S-3.
All of the registration rights are subject to conditions and limitations,
including the right of underwriters to limit the number of shares included in a
registration and to exclude holders' shares from a registration initiated by us
for our account. We have agreed to pay the expenses of those registrations in
most cases. We are not required to honor demands for registration within 180
days after the effective date of any registration statement and we can defer
demand registration requests for up to 120 days if our board of directors
determines that a registration would be detrimental to us.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CERTIFICATE OF
INCORPORATION AND BYLAWS
Prior to the consummation of this offering, we will amend and restate our
certificate of incorporation by filing our Sixth Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware. Some provisions of our amended and restated certificate of
incorporation, our bylaws and Delaware law could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock, even if doing so would be beneficial to our stockholders.
Classified Board of Directors. Our amended and restated certificate of
incorporation will provide for the board of directors to be divided into three
classes of directors serving staggered three-year terms. As a result,
approximately one-third of the board of directors will be elected each year.
Holders of a majority of the outstanding shares of capital stock entitled to
vote with respect to an election of directors will be able to remove directors
only for cause. Vacancies on the board of directors may be filled by the
remaining directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of our board of directors or one
of its committees, of candidates for election as director as well as for other
stockholder proposals to be considered at stockholders' meetings. Notice of
stockholder proposals and director nominations must be timely given in writing
to our secretary prior to the meeting at which the matters are to be acted upon
or the directors are to be elected, and must contain certain information
specified in the bylaws. For notice to be timely, we must receive it at our
principal executive offices not less than 120 days prior to the anniversary date
of the release of our proxy statement in connection with our immediately
preceding annual meeting of stockholders. However, in the event no annual
meeting was held in the previous year or the annual meeting is called for a date
that is not within 60 days before or after such anniversary date, notice by the
stockholder in order to be timely must be received within a reasonable time
before the solicitation is made.
Blank Check Preferred. Our board of directors will have the authority to
issue up to 10,000,000 shares of preferred stock and to determine the
preferences, rights and privileges of those shares without any further vote or
action by our stockholders. The rights of the holders and the market value of
our common stock may be adversely affected by the rights of the holders of any
series of preferred stock that may be issued in the future. Furthermore, our
board could, without stockholder approval, use our preferred stock to adopt a
"poison pill" takeover defense mechanism.
Delaware Anti-Takeover Statute. Upon the listing of our common stock on
the Nasdaq National Market, we will be subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover statute. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a
51
<PAGE> 56
"business combination" with an "interested stockholder" for a period of three
years following the date the person became an interested stockholder, unless
(with certain exceptions) the "business combination" or the transaction in which
the person became an interested stockholder is approved in a prescribed matter.
Generally, a "business combination" includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision could have an
anti-takeover effect with respect to transactions not approved in advance by our
board of directors, including discouraging takeover attempts that might result
in you receiving a premium over the market price for your shares of common
stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Continental Stock
Transfer & Trust Company. Their telephone number is 212-509-4000.
52
<PAGE> 57
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding shares
of common stock, or shares if the underwriters' over-allotment option
is exercised in full, in each case excluding 45,635,702 shares
underlying warrants and 127,044,813 shares underlying outstanding options. Of
these shares, the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act except for
any shares purchased by an "affiliate", which will be subject to the limitations
of Rule 144 under the Securities Act. As defined in Rule 144 under the
Securities Act, an "affiliate" of an issuer is a person that directly, or
indirectly through the use of one or more intermediaries, controls, is
controlled by or is under common control with such issuer. The remaining
outstanding shares of common stock will be "restricted securities" as defined in
Rule 144 under the Securities Act and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from such
registration, including exemptions provided by Rule 144 under the Securities
Act. In addition, we and our executive officers and directors, and other holders
of most of our stock, have agreed not to offer, sell, contract to sell or
otherwise dispose of any common stock or any securities convertible into or
exchangeable for common stock for a period of 180 days after the date of this
prospectus without the prior written consent of Salomon Smith Barney.
Immediately following this offering, the existing stockholders will own
1,109,523,226 restricted shares, representing approximately %, % if
the underwriters' over-allotment option is exercised in full, of the then
outstanding shares of common stock. Our executive officers and directors will
own shares.
Prior to this offering, there has been no established market for our common
stock and we can make no predictions about the effect, if any, that market sales
of shares or the availability of shares for sale will have on the market price
of our common stock prevailing from time to time. Nevertheless, sales of
substantial amounts of our common stock in the public market, or the perception
that such sales may occur, may cause the market price for our common stock to
decline.
RULE 144
In general, under Rule 144 as currently in effect, a person, or persons
whose shares must be aggregated, who has beneficially owned restricted shares
for at least one year, including persons who are affiliates, would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of:
- one percent of the then outstanding shares of our common stock,
approximately shares immediately after this offering; or
- the reported average weekly trading volume of our common stock during the
four calendar weeks preceding a sale by such person.
Sales under Rule 144 are also subject to certain manner-of-sale provisions,
notice requirements, and the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person, or persons whose shares must be aggregated,
who has held restricted shares for a minimum of two years and who is not, and
for three months prior to the sale of such shares has not been one of our
affiliates is free to sell such shares immediately following this offering
without regard to the volume, manner-of-sale, and certain other limitations
contained in Rule 144. However, our transfer agent may require an opinion of
counsel that a proposed sale of shares comes within the terms of Rule 144 of the
Securities Act prior to effecting a transfer of the shares. Upon completion of
this offering holders of 15,814,195 shares are eligible to freely sell such
shares under Rule 144(k).
REGISTRATION RIGHTS
After the 180 day period following the closing of this offering, the
holders of 1,091,018,264 shares of common stock, including 20,031,344 shares
held by affiliates, and holders of warrants to purchase
53
<PAGE> 58
45,635,702 shares, including 32,570,201 shares held by affiliates, of common
stock have rights to require us to register their shares for sale under the
Securities Act. See "Description of Capital Stock -- Registration Rights."
OPTIONS
Options to acquire 127,044,813 shares of our common stock are outstanding.
We intend to file a registration statement on Form S-8 under the Securities Act
to register all of the shares of our common stock which are issuable upon
exercise of stock options granted or to be granted under the 1999 Equity
Incentive Plan. The filing of this registration statement will allow these
shares, other than those held by members of management who are deemed to be
affiliates, to be eligible for resale without restriction, subject to the
lock-up period related to this offering, or further registration upon issuance
to participants. After the effective date of the registration statement on Form
S-8 and, if applicable, the expiration of the lock-up period related to this
offering, shares purchased upon exercise of options granted pursuant to the 1999
Equity Incentive Plan generally will be available for resale in the public
market by non-affiliates without restriction. Sales by our affiliates of shares
registered on this registration statement are subject to all of the Rule 144
restrictions except for the one-year holding period requirement.
In addition to possibly being able to sell option shares without
restriction under a Form S-8 registration statement when effective, persons
other than our affiliates are allowed under Rule 701 under the Securities Act to
sell shares of our common stock issued upon exercise of stock options beginning
90 days after the date of this prospectus, subject only to the manner of sale
provisions of Rule 144 and to the lock-up period related to this offering. Our
affiliates may also begin selling option shares beginning 90 days after the date
of this prospectus but are subject to all of the Rule 144 restrictions except
for the one-year holding period requirement and for the 180 day lock-up period
related to this offering.
54
<PAGE> 59
UNITED STATES TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of the material U.S. federal income
and estate tax consequences of the purchase, ownership and disposition of our
common stock to a non-U.S. Holder. For the purpose of this discussion, a
non-U.S. Holder is any holder that for U.S. federal income tax purposes is not a
U.S. person. For purposes of this discussion, the term U.S. person means:
- a citizen or resident of the U.S.;
- a corporation or other entity taxable as a corporation and created or
organized in the U.S. or under the laws of the U.S. or any political
subdivision thereof;
- an estate whose income is included in gross income for U.S. federal
income tax purposes regardless of its source; or
- a trust whose administration is subject to the primary supervision of a
U.S. court and which has one or more U.S. persons who have the authority
to control all substantial decisions of the trust.
This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant in light of a non-U.S. Holder's particular
facts and circumstances, such as being a U.S. expatriate, and does not address
any tax consequences arising under the laws of any state, local or non-U.S.
taxing jurisdiction. Furthermore, the following discussion is based on current
provisions of the Internal Revenue Code of 1986, as amended, the Treasury
Regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof, and all of which
are subject to change, possibly with retroactive effect. ACCORDINGLY, EACH
NON-U.S. HOLDER SHOULD CONSULT A TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE,
LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF SHARES OF OUR COMMON STOCK.
DIVIDENDS
We have never paid dividends on our common stock and do not expect to pay
any cash dividends on our common stock for the foreseeable future. In the event,
however, that we do pay dividends on our common stock, any dividend paid to a
non-U.S. Holder of common stock generally will be subject to U.S. withholding
tax either at a rate of 30% of the gross amount of the dividend or such lower
rate as may be specified by an applicable tax treaty. Dividends received by a
non-U.S. Holder that are effectively connected with a U.S. trade or business
conducted by the non-U.S. Holder are exempt from such withholding tax. However,
those effectively connected dividends, net of certain deductions and credits,
are taxed at the same graduated rates applicable to U.S. persons.
In addition to the graduated tax described above, dividends received by a
corporate non-U.S. Holder that are effectively connected with a U.S. trade or
business of the corporate non-U.S. Holder may also be subject to a branch
profits tax at a rate of 30% or such lower rate as may be specified by an
applicable tax treaty.
A non-U.S. Holder of common stock that is eligible for a reduced rate of
withholding tax pursuant to a tax treaty may obtain a refund of any excess
amounts currently withheld by filing an appropriate claim for refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. Holder generally will not be subject to U.S. federal income tax
on any gain realized upon the sale or other disposition of our common stock
unless:
- the gain is effectively connected with a U.S. trade or business of the
non-U.S. Holder (which gain, in the case of a corporate non-U.S. Holder,
must also be taken into account for branch profits tax purposes);
- the non-U.S. Holder is an individual who holds his or her common stock as
a capital asset (generally, an asset held for investment purposes) and
who is present in the U.S. for a period or
55
<PAGE> 60
periods aggregating 183 days or more during the calendar year in which
the sale or disposition occurs and certain other conditions are met; or
- we are or have been a "United States real property holding corporation"
for U.S. federal income tax purposes at any time within the shorter of
the five-year period preceding the disposition or the holder's holding
period for our common stock. We have determined that we are not and do
not believe that we will become a "United States real property holding
corporation" for U.S. federal income tax purposes.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Generally, we must report annually to the IRS the amount of dividends paid,
the name and address of the recipient, and the amount, if any, of tax withheld.
A similar report is sent to the holder. Pursuant to tax treaties or other
agreements, the IRS may make its reports available to tax authorities in the
recipient's country of residence.
Dividends paid to a non-U.S. Holder at an address within the U.S. may be
subject to backup withholding at a rate of 31% if the non-U.S. Holder fails to
establish that it is entitled to an exemption or to provide a correct taxpayer
identification number and other information to the payer. Backup withholding
generally will not apply to dividends paid to non-U.S. Holders at an address
outside the U.S. on or prior to December 31, 2000 unless the payer has knowledge
that the payee is a U.S. person. Under recently finalized Treasury Regulations
regarding withholding and information reporting, payment of dividends to
non-U.S. Holders at an address outside the U.S. after December 31, 2000 may be
subject to backup withholding at a rate of 31% unless such non-U.S. Holder
satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the U.S. office of a broker is subject
to information reporting and backup withholding at a rate of 31% unless the
holder certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a non-U.S. Holder of common stock outside the U.S. to or through
a foreign office of a broker will not be subject to backup withholding but will
be subject to information reporting requirements if the broker is:
- a U.S. person;
- a "controlled foreign corporation" for U.S. federal income tax purposes;
or
- a foreign person 50% or more of whose gross income for certain periods is
from the conduct of a U.S. trade or business
unless the broker has documentary evidence in its files of the holder's non-U.S.
status and certain other conditions are met, or the holder otherwise establishes
an exemption. Neither backup withholding nor information reporting generally
will apply to a payment of the proceeds of a disposition of common stock by or
through a foreign office of a foreign broker not subject to the preceding
sentence.
In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certifications procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-U.S. Holders should consult their tax advisors
regarding the effect, if any, of those final Treasury Regulations on an
investment in our common stock. Those final Treasury Regulations generally are
effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
56
<PAGE> 61
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of that underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc. ................................
Hambrecht & Quist LLC.....................................
Volpe Brown Whelan & Company, LLC.........................
---------
Total.....................................................
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of particular legal matters by counsel and to other conditions. The
underwriters are obligated to purchase all the shares, other than those covered
by their over-allotment option described below, if they purchase any of the
shares.
The underwriters, for whom Salomon Smith Barney Inc., Hambrecht & Quist LLC
and Volpe Brown Whelan & Company, LLC are acting as representatives, propose to
offer some of the shares directly to the public at the public offering price set
forth on the cover page of this prospectus and some of the shares to certain
dealers at the public offering price less a concession not in excess of $
per share. The underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share on sales to certain other dealers. If all the
shares are not sold at the initial offering price, the underwriters may change
the public offering price and other selling terms. The representatives have
advised us that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to additional shares of our
common stock at the public offering price less the underwriting discount. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, in connection with this offering. To the extent this
option is exercised, each underwriter will be obligated, subject to some
conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
We, our officers and directors and holders of most of our stock have agreed
that, for a period of 180 days from the date of this prospectus, we will not,
without the prior written consent of Salomon Smith Barney Inc., dispose of or
hedge, any shares of our common stock or any securities convertible into, or
exercisable or exchangeable for, our common stock. Salomon Smith Barney Inc., in
its sole discretion, may release any of the securities subject to these lock-up
agreements at any time without notice.
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the shares was determined by
negotiation among us and the representatives. Among the factors considered in
determining the initial public offering price were:
- our record of operation;
- our current financial condition;
- our future prospects;
- our markets;
- the economic conditions in and future prospects for the industry in which
we compete;
- our management; and
- currently prevailing general conditions in the equity securities markets,
including current market valuations of publicly traded companies
considered comparable to us.
57
<PAGE> 62
The prices at which the shares will sell in the public market after this
offering may, however, be lower than the price at which they are sold by the
underwriters. Additionally, an active trading market in our common stock may not
develop and continue after this offering.
We will apply to have our common stock included for quotation on the Nasdaq
National Market under the symbol "ANCC".
The following table shows the underwriting discounts and commissions that
we will pay to the underwriters in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
-------------- --------------
<S> <C> <C>
Per share.................................... $ $
Total........................................ $ $
</TABLE>
In connection with this offering Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of shares in excess of the number of shares to be purchased by the
underwriters in this offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the shares in the open
market after the distribution has been completed in order to cover syndicate
short positions. Stabilizing transactions consist of certain bids for or
purchases of shares made to prevent or retard a decline in the market price of
the shares while this offering is in progress.
The underwriters may also impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the shares to be higher than
it would otherwise be in the open market in the absence of such transactions.
Salomon Smith Barney Inc. may effect these transactions on the Nasdaq National
Market or in the over-the-counter market, or otherwise and may discontinue them
at any time.
We estimate that our total expenses for this offering will be $ .
The representatives or their respective affiliates may in the future
perform various investment banking and advisory services for us from time to
time, for which they will receive customary fees. The representatives may, from
time to time, engage in transactions with and perform services for us in the
ordinary course of business.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
58
<PAGE> 63
LEGAL MATTERS
The validity of our common stock and certain other legal matters related to
this offering will be passed upon for us by Edwards & Angell, LLP (a limited
liability partnership including professional corporations), Palm Beach, Florida.
Certain legal matters will be passed upon for the underwriters by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The financial statements as of June 30, 1999 and December 31, 1998 and for
the six-month period ended June 30, 1999 and the year ended December 31, 1998
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing. The financial statements of AirNet
Communications Corporation at December 31, 1997 and for each of the two years in
the period ended December 31, 1997 appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon the authority of such firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
On August 6, 1999, we engaged Deloitte & Touche LLP as our independent
accountants for the fiscal year ended December 31, 1998 to replace Ernst & Young
LLP, who we dismissed as our independent accountants effective August 5, 1999.
The decision to change accountants was approved by our board of directors upon
the recommendation of the audit committee.
The reports of Ernst & Young on our financial statements for 1996 and 1997
did not contain an adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with the audits of our financial statements for the fiscal years
ended December 31, 1996 and 1997, and in the subsequent interim period preceding
the dismissal of Ernst & Young, except as disclosed in the following paragraph,
there were no disagreements with Ernst & Young on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to the satisfaction of Ernst & Young would have
caused Ernst & Young to make a reference to the matter in their report. During
the two most recent fiscal years and subsequent interim period preceding the
dismissal of Ernst & Young, we have not been advised of any matters described in
Regulation S-K, Item 304(a)(1)(v) of the Securities Act.
During 1999, we asked Ernst & Young for advice about the possibility of
changing our revenue recognition policies for the year ending December 31, 1999
and thereafter. We expressed our opinion that revenue should be recognized upon
shipment of our products. Ernst & Young informed us that we could not recognize
revenue until all uncertainties about customer acceptance had been resolved
pursuant to the requirements of AICPA SOP 97-2.
Although the audit committee of our board of directors had preliminary
discussions with Ernst & Young regarding our revenue recognition policies in a
February 1999 meeting, neither the audit committee nor our board of directors
had any subsequent discussions with Ernst & Young.
We have not changed our revenue recognition policies.
We authorized Ernst & Young to respond fully to the inquiries of Deloitte &
Touche regarding our revenue recognition policies. We have requested that Ernst
& Young furnish us with a letter addressed to the Securities and Exchange
Commission stating whether or not they agree with the above statements. A copy
of such letter is filed as an exhibit to the registration statement which
includes this prospectus.
59
<PAGE> 64
Prior to engaging Deloitte & Touche as our new independent accountants:
- we requested advice from Deloitte & Touche concerning the revenue
recognition issues referenced above. Deloitte & Touche did not provide us
with advice.
- we did not consult with Deloitte & Touche regarding the type of audit
opinion that might be rendered by them or items that were or should have
been subject to the AICPA's Statement on Auditing Standards No. 50,
"Reports on the Application of Accounting Principles."
We have requested that Deloitte & Touche review the above disclosures
regarding our change in accountants and have given them the opportunity to
furnish us with a letter addressed to the Securities and Exchange Commission in
which Deloitte & Touche may include new information, clarify our statements on
the change in accountants or disclose the respects in which they disagree with
the statements made by us in this prospectus regarding our change in
accountants. If Deloitte & Touche elects to submit such a letter to the
Securities and Exchange Commission, we will file the letter as an exhibit to the
registration statement when received.
ADDITIONAL INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission under the Securities Act with respect to the shares offered
in this offering. This prospectus, which constitutes a part of the registration
statement, does not contain all the information set forth in the registration
statement, parts of which are omitted as permitted by the rules and regulations
of the Commission. Statements contained in this prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete. For further information pertaining to us and our common stock, we
refer you to our registration statement and the exhibits and schedules thereto,
copies of which may be inspected without charge at the public reference section
of the Commission at 450 Fifth Street, NW, Washington, DC 20549 and at the
regional offices of the commission located at 75 Park Place, New York, New York
10007, and Northwestern Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of all or any portion of the registration
statement may be obtained from the Commission at prescribed rates. In addition,
the Commission maintains a web site that contains reports and other information
that is filed through the Commission's EDGAR System. The web site can be
accessed at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing
audited financial statements and an opinion thereon expressed by independent
certified public accountants. We also intend to furnish other reports as we may
determine or as required by law.
60
<PAGE> 65
AIRNET COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report on the Financial Statements as
of June 30, 1999 and December 31, 1998 and for the
Six-Month Period Ended June 30, 1999 and the Year Ended
December 31, 1998......................................... F-2
Report of Independent Auditors on the Financial Statements
as of December 31, 1997 and for the Years Ended December
31, 1997 and 1996......................................... F-3
Balance Sheets at June 30, 1999, December 31, 1998 and
1997...................................................... F-4
Statements of Operations for the Six-Month Periods Ended
June 30, 1999 and June 30, 1998 (unaudited), and the Years
Ended December 31, 1998, 1997, and 1996................... F-5
Statements of Stockholders' Equity for the Six-Month Period
Ended June 30, 1999 and Years Ended December 31, 1998,
1997 and 1996............................................. F-6
Statements of Cash Flows for the Six-Month Periods Ended
June 30, 1999 and June 30, 1998 (unaudited) and the Years
Ended December 31, 1998, 1997, and 1996................... F-7
Notes to Financial Statements............................... F-8
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AirNet Communications Corporation:
We have audited the accompanying balance sheets of AirNet Communications
Corporation (the Company) as of June 30, 1999 and December 31, 1998, and the
related statements of operations, stockholders' equity, and cash flows for the
six-month period ended June 30, 1999 and the year ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company at June 30, 1999
and December 31, 1998, and the results of its operations and its cash flows for
the six-month period ended June 30, 1999 and the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Orlando, Florida
September 22, 1999
F-2
<PAGE> 67
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AirNet Communications Corporation
We have audited the accompanying balance sheet of AirNet Communications
Corporation as of December 31, 1997, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AirNet Communications
Corporation at December 31, 1997, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Orlando, Florida
March 6, 1998
F-3
<PAGE> 68
AIRNET COMMUNICATIONS CORPORATION
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 9,731,725 $ 7,580,482 $ 11,347,796
Accounts receivable -- net of allowance for
doubtful accounts of $1,515,100, $1,505,000 and
$14,500 in 1999, 1998, and 1997, respectively... 3,609,614 3,010,106 1,588,196
Inventories........................................ 7,970,018 7,806,876 2,535,797
Other.............................................. 171,770 235,722 222,455
------------ ------------ ------------
21,483,127 18,633,186 15,694,244
------------ ------------ ------------
PROPERTY AND EQUIPMENT:
Test equipment and other........................... 4,212,451 3,521,955 2,639,149
Computer equipment................................. 3,234,780 3,145,589 3,005,011
Software........................................... 1,917,969 1,850,625 1,665,231
Office equipment, furniture, and fixtures.......... 490,230 451,480 441,384
Leasehold improvements............................. 450,548 450,548 447,732
------------ ------------ ------------
10,305,978 9,420,197 8,198,507
Accumulated depreciation........................... (7,018,882) (6,161,388) (4,336,857)
------------ ------------ ------------
3,287,096 3,258,809 3,861,650
------------ ------------ ------------
OTHER LONG-TERM ASSETS............................... 147,562 124,592 1,137,954
------------ ------------ ------------
$ 24,917,785 $ 22,016,587 $ 20,693,848
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 2,310,250 $ 2,174,379 $ 1,311,671
Accrued compensation and related withholdings...... 984,254 547,322 378,254
Other accrued expenses............................. 145,270 261,095 67,462
Current portion of long-term debt obligations...... 473,452 358,637 524,582
Customer deposits.................................. 5,017,132 1,154,604 --
Deferred revenues.................................. 3,817,246 2,898,122 1,285,733
------------ ------------ ------------
Total current liabilities.................. 12,747,604 7,394,159 3,567,702
------------ ------------ ------------
NOTES PAYABLE AND OTHER LONG-TERM DEBT OBLIGATIONS... 5,986,754 159,415 4,142,950
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stocks (aggregate liquidation values of
$120,753,169 at June 30, 1999).................. 8,554,402 8,554,402 4,596,720
Common stock, $.001 par value, 1,362,709,526 shares
authorized, 28,144,700 shares issued and
outstanding at June 30, 1999; 1,320,793,000
shares authorized, 24,273,700 shares issued and
outstanding at December 31, 1998; 858,237,220
shares authorized, 17,285,262 shares issued and
outstanding at December 31, 1997................ 28,145 24,274 17,285
Additional paid-in capital......................... 90,103,083 89,849,070 74,416,969
Accumulated deficit................................ (92,502,203) (83,964,733) (66,047,778)
------------ ------------ ------------
Total stockholders' equity................. 6,183,427 14,463,013 12,983,196
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........... $ 24,917,785 $ 22,016,587 $ 20,693,848
============ ============ ============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 69
AIRNET COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998 (UNAUDITED),
AND YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES....................... $ 4,373,227 $ 2,311,916 $ 4,462,001 $ 1,602,994 $ 1,077,017
COST OF REVENUES................... 2,912,271 1,653,745 2,867,076 970,786 664,908
------------ ------------ ------------ ------------ ------------
Gross profit............. 1,460,956 658,171 1,594,925 632,208 412,109
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Research and development......... 7,194,371 5,637,156 13,134,459 11,748,770 20,887,554
Sales and marketing.............. 1,755,875 1,220,012 2,709,453 1,107,410 2,170,996
General and administrative....... 1,139,016 1,071,791 3,749,773 5,000,168 6,293,253
Loss (gain) on disposal or
write-down of property and
equipment..................... 2,242 -- (4,986) 3,722 1,052,572
------------ ------------ ------------ ------------ ------------
Total costs and
expenses............... 10,091,504 7,928,959 19,588,699 17,860,070 30,404,375
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS............... (8,630,548) (7,270,788) (17,993,774) (17,227,862) (29,992,266)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income.................. 137,836 210,752 430,191 229,793 872,459
Interest expense................. (32,577) (262,614) (373,242) (233,495) (13,864)
Other -- net..................... (12,181) 5,870 19,870 (4,918) (40,585)
------------ ------------ ------------ ------------ ------------
93,078 (45,992) 76,819 (8,620) 818,010
------------ ------------ ------------ ------------ ------------
NET LOSS........................... (8,537,470) (7,316,780) (17,916,955) (17,236,482) (29,174,256)
PREFERRED DIVIDENDS................ 3,398,059 2,611,415 5,616,152 4,095,453 3,455,838
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS..................... $(11,935,529) $ (9,928,195) $(23,533,107) $(21,331,935) $(32,630,094)
============ ============ ============ ============ ============
LOSS PER COMMON SHARE, BASIC AND
DILUTED:
Net loss......................... $ (0.34) $ (0.41) $ (0.91) $ (1.17) $ (2.12)
============ ============ ============ ============ ============
Net loss attributable to common
stockholders.................. $ (0.48) $ (0.56) $ (1.19) $ (1.45) $ (2.37)
============ ============ ============ ============ ============
SHARES USED IN CALCULATING BASIC
AND DILUTED LOSS PER COMMON
SHARE............................ 25,030,043 17,678,713 19,774,357 14,699,920 13,741,020
============ ============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 70
AIRNET COMMUNICATIONS CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
SIX-MONTH PERIOD ENDED JUNE 30, 1999
AND YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCKS COMMON STOCK ADDITIONAL
------------------------ ---------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ---------- ---------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995...... 20,170,642 $ 201,706 13,166,913 $ 131,669 $55,109,349 $(19,637,040) $ 35,805,684
Exercise of common stock
options....................... -- -- 891,725 8,917 43,817 -- 52,734
Net loss........................ -- -- -- -- -- (29,174,256) (29,174,256)
----------- ---------- ---------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1996...... 20,170,642 201,706 14,058,638 140,586 55,153,166 (48,811,296) 6,684,162
Issuance of Series D preferred
stock......................... 8,174,049 81,740 -- -- 8,294,302 -- 8,376,042
Issuance of Series E preferred
stock......................... 431,327,408 4,313,274 -- -- 10,703,294 -- 15,016,568
Exercise of common stock
options....................... -- -- 3,226,624 13,094 17,515 -- 30,609
Change of par value to $.001 per
share......................... -- -- -- (136,395) 136,395 -- --
Issuance of warrants............ -- -- -- -- 112,297 -- 112,297
Net loss........................ -- -- -- -- -- (17,236,482) (17,236,482)
----------- ---------- ---------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1997...... 459,672,099 4,596,720 17,285,262 17,285 74,416,969 (66,047,778) 12,983,196
Issuance of Series F preferred
stock......................... 283,471,155 2,834,712 -- -- 12,567,498 -- 15,402,210
Exercise of common stock
options....................... -- -- 6,988,438 6,989 21,886 -- 28,875
Conversion of note to Series E
preferred stock............... 112,296,970 1,122,970 -- -- 2,842,717 -- 3,965,687
Net loss........................ -- -- -- -- -- (17,916,955) (17,916,955)
----------- ---------- ---------- --------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1998...... 855,440,224 8,554,402 24,273,700 24,274 89,849,070 (83,964,733) 14,463,013
Exercise of common stock
options....................... -- -- 3,871,000 3,871 10,714 -- 14,585
Issuance of warrants............ -- -- -- -- 243,299 -- 243,299
Net loss........................ -- -- -- -- -- (8,537,470) (8,537,470)
----------- ---------- ---------- --------- ----------- ------------ ------------
BALANCE AT JUNE 30, 1999.......... 855,440,224 $8,554,402 28,144,700 $ 28,145 $90,103,083 $(92,502,203) $ 6,183,427
=========== ========== ========== ========= =========== ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 71
AIRNET COMMUNICATIONS CORPORATION
STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998 (UNAUDITED),
AND YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................... $(8,537,470) $(7,316,780) $(17,916,955) $(17,236,482) $(29,174,256)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 865,509 874,655 1,919,061 1,959,758 2,087,694
Provision for losses on accounts
receivable............................ 10,100 -- 1,490,500 -- --
Write down for inventory obsolescence.... 24,235 14,096 187,802 569,414 5,646,823
Loss (gain) on disposal and write-down of
fixed assets.......................... 2,242 -- (4,986) 3,722 1,052,572
Changes in operating assets and
liabilities:
Accounts receivable................... (609,609) (419,892) (2,027,282) (1,386,742) 456,273
Inventory............................. (187,377) (228,157) (5,458,881) (1,650,453) (4,043,284)
Other current assets.................. 63,952 (15,975) (101,324) (41,088) 54,580
Other long-term assets................ (22,970) 62,467 128,234 (712,085) 112,492
Accounts payable...................... 135,871 (124,756) 862,708 (598,641) 853,587
Accrued expenses...................... 321,107 329,338 362,701 (116,789) (2,069,541)
Customer deposits..................... 3,862,529 105,195 1,154,604 -- (132,238)
Deferred revenue...................... 919,124 (1,117,497) 1,612,389 1,285,733 --
----------- ----------- ------------ ------------ ------------
Net cash used in operating
activities........................ (3,152,757) (7,837,306) (17,791,429) (17,923,653) (25,155,298)
----------- ----------- ------------ ------------ ------------
INVESTING ACTIVITIES -- Cash paid for
property and equipment..................... (351,310) (170,134) (855,175) (1,324,427) (2,366,828)
----------- ----------- ------------ ------------ ------------
FINANCING ACTIVITIES:
Net proceeds from issuance of long-term
borrowings............................... 6,000,000 -- -- 3,909,539 --
Net proceeds from issuance of preferred and
common stocks and warrants............... 14,585 4,779 15,431,085 23,535,516 52,734
Principal payments on capital lease
obligations.............................. (359,275) (245,097) (551,795) (427,009) (443,058)
----------- ----------- ------------ ------------ ------------
Net cash provided by (used in)
financing activities.............. 5,655,310 (240,318) 14,879,290 27,018,046 (390,324)
----------- ----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH.............. 2,151,243 (8,247,758) (3,767,314) 7,769,966 (27,912,450)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD..................................... 7,580,482 11,347,796 11,347,796 3,577,830 31,490,280
----------- ----------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD... $ 9,731,725 $ 3,100,038 $ 7,580,482 $ 11,347,796 $ 3,577,830
=========== =========== ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for interest... $ 32,577 $ 262,614 $ 373,242 $ 233,495 $ 13,864
=========== =========== ============ ============ ============
No amounts were paid for income taxes during any of the periods presented.
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Property and equipment acquired under
capital lease obligations................ $ 544,728 $ 23,959 $ 368,002 $ -- $ 1,435,228
=========== =========== ============ ============ ============
Capital stock issued in exchange for
cancelation of long-term obligations..... $ -- $ -- $ 3,965,687 $ -- $ --
=========== =========== ============ ============ ============
Issuance of warrants in connection with
bridge financing......................... $ 243,299
===========
</TABLE>
See notes to financial statements.
F-7
<PAGE> 72
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- AirNet Communications Corporation (the Company or
AirNet) is engaged in the design, development, manufacture, and installation of
broadband, software-defined base stations, base station controllers, and related
wireless infrastructure components for wireless telecommunications in the Global
Systems for Mobile Communications (GSM) market. The Company was founded in 1994
and is incorporated in the state of Delaware.
Development Stage Enterprise -- Prior to January 1, 1998, the Company was
considered a development stage company under Statement of Financial Accounting
Standards No. 7, Accounting and Reporting by Development-Stage Enterprises,
issued by the Financial Accounting Standards Board (FASB), as the Company's
operations principally involved research, development and refinement of the
product and production process, and other business planning activities from
which it was not deriving significant revenues. The total deficit accumulated
during the development stage was $66,047,778.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Vulnerability Due to Certain Concentrations and Other Risks -- The Company
performs ongoing credit evaluations of its customers' financial conditions and
generally does not require collateral on accounts receivable; hence, the
accounts receivable are unsecured and the Company is at risk to the extent such
amounts become uncollectible. Customers are billed as contractual milestones are
met, including deposits of up to 50% of the contracted amount at the inception
of the contract. However, collection of the entire amounts due under the
Company's contracts to date have lagged behind shipment of products due to the
substantial time period between shipment and the fulfillment of post-shipment
contractual obligations. As of June 30, 1999 and December 31, 1998 and 1997, two
customers represented 91 percent, 97 percent, and 100 percent, respectively, of
accounts receivable, with one customer representing 69 percent, 58 percent, and
56 percent, respectively, of accounts receivable.
The Company's customers are comprised primarily of cellular service
providers. To date, all of the Company's sales have been to customers in the
United States, wherein communications are subject to the regulations imposed by
the U.S. Federal Communications Commission.
The Company's future results of operations involve a number of significant
risks and uncertainties. Factors that could affect the Company's future
operating results and cause actual results to vary materially from expectations
include, but are not limited to, dependence on key personnel, dependence on a
limited number of customers, ability to design new products, product
obsolescence, ability to generate consistent sales, ability to finance research
and development, government regulation, technological innovations and
acceptance, competition, reliance on certain vendors, credit and risks
associated with the Year 2000.
Long-Lived Assets -- At January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of (Statement 121),
which requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity should be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. To the extent the estimated future cash flows (undiscounted and
without interest) attributable to the assets, less estimated future cash
outflows, are less than the carrying amount, an impairment loss is recognized.
The amount of the loss is measured by the difference between the asset carrying
value and its fair value less costs to sell. As a result of the adoption of
Statement 121, the Company recorded an impairment loss on analog-based
F-8
<PAGE> 73
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equipment in the amount of approximately $812,000 in 1996. No impairment losses
were recorded in 1997, 1998, or the six-month period ended June 30, 1999.
Comprehensive Income -- In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
(Statement 130), effective for fiscal years beginning after December 15, 1997.
Statement 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The Company
adopted Statement 130 in 1998; however, there were no changes in equity during
1998 and for the six-month period ended June 30, 1999 exclusive of investments
by owners and losses from operations. As such, the comprehensive loss for all
periods presented is equal to the amount shown on the statement of operations as
net loss.
Stock-Based Compensation -- In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(Statement 123), effective for fiscal years beginning after December 15, 1995.
Statement 123 requires expanded disclosures of stock-based compensation
arrangements and encourages (but does not require) compensation cost to be
measured based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees (APB 25), which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB 25 to its employee stock-based
compensation awards. (See Note 6 for the effect on net loss if the Company had
applied the fair value method as prescribed by Statement 123.)
Financial Instruments -- The carrying amounts reported in the balance sheet
under cash and cash equivalents, accounts receivable, accounts payable and notes
payable approximate fair value due to the immediate or short-term maturity of
these financial instruments.
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument; they
are subjective in nature and involve uncertainties and matters of judgement and,
therefore, cannot be determined with precision. These estimates do not reflect
any premium or discount that could result from offering for sale at one time the
Company's entire holdings of a particular instrument. Changes in assumptions
could significantly affect these estimates.
Cash Equivalents -- The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
As of June 30, 1999, the Company had cash and cash equivalent balances totaling
$9,431,725 in financial institutions, which were in excess of federally insured
amounts. The Company's policy is to invest excess funds in only well capitalized
financial institutions.
Inventory -- Inventory is valued at the lower of cost (determined by the
first-in, first-out basis) or market. Inventories are reviewed periodically and
items considered to be slow moving or obsolete are written down to their
estimated net realizable value. Finished goods delivered to customers are
recorded in inventory until the related revenue is recognized.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is computed by the straight-line method over the estimated useful
lives of the related assets, which ranges from two to five years. Assets held
under capital leases and leasehold improvements are amortized over the life of
the related leases and the amounts are included in depreciation.
Intangible Assets -- On January 18, 1994, the Company capitalized $440,289
of patent costs transferred by an initial investor to the Company in exchange
for 440,301 shares of the Company's
F-9
<PAGE> 74
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Series A nonvoting convertible cumulative preferred stock and 439,102 shares of
common stock. Recoverability of the intangible asset was assessed using
estimated undiscounted cash flows of related operations. The intangible asset
was amortized over five years using the straight-line method, and as such, was
fully amortized in 1998. The unamortized balance of the intangible asset prior
to 1998 is included in Other Long-Term Assets on the accompanying balance sheet
as of December 31, 1997.
Revenue Recognition -- Revenue from product sales is recognized after
delivery and resolution of any uncertainties regarding satisfaction of all
significant terms and conditions of the customer contract. Given the Company's
limited operating history, such uncertainties have been considered resolved to
date when the customer has either placed the products in service or completed
specified testing procedures. Resolution of such uncertainties is partly
dependent on factors outside of the Company's control. Revenues on products
shipped, which have not met the foregoing conditions, are deferred until such
time that the conditions are satisfied. Historically, the time period over which
satisfaction of such conditions has occurred has varied widely and has been
substantial. Sales of the Company's products are not subject to right of return.
Sales of services are recognized at the time of performance.
Warranty and Customer Support -- The Company typically warrants its
products against defects in materials and workmanship for a period of one year
from the date of revenue recognition. A provision for estimated future warranty
and customer support is recorded when revenue is recognized. To date, warranty
and customer support costs have not been material.
Research and Development Expenses -- Expenditures relating to the
development of new products and processes, including significant improvements to
existing products, are expensed as incurred. These expenses include continued
product development and engineering support costs for test development and
technical services.
Income Taxes -- The Company accounts for income taxes under the asset and
liability method. Under this method, deferred income taxes are recognized for
the tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred taxes of a change in tax rates is recognized in
income in the period that the change in the rate is enacted.
Loss per Share -- Basic loss per share is computed by dividing the net loss
and the net loss attributable to common stockholders by the weighted average
number of common shares outstanding. The Company has incurred losses since
inception. Net loss attributable to common stockholders is computed by adding
dividends accrued but unpaid on cumulative preferred stocks to the net loss
reported. Diluted net loss per share
F-10
<PAGE> 75
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
equals basic net loss per share for all periods reported since potential common
shares are anti-dilutive. A reconciliation of the components used in computing
basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- ---------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss........................ $ 8,537,470 $ 7,316,780 $17,916,955 $17,236,482 $29,174,256
----------- ----------- ----------- ----------- -----------
Plus preferred dividends:
Series A...................... 354,627 354,627 709,254 709,254 709,254
Series B...................... 473,292 473,292 946,584 946,584 946,584
Series C...................... 900,000 900,000 1,800,000 1,800,000 1,800,000
Series D...................... 269,744 269,744 539,487 404,615 --
Series E...................... 773,752 613,752 1,307,505 235,000 --
Series F...................... 626,644 -- 313,322 -- --
----------- ----------- ----------- ----------- -----------
3,398,059 2,611,415 5,616,152 4,095,453 3,455,838
----------- ----------- ----------- ----------- -----------
Net loss attributable to common
stockholders.................. $11,935,529 $ 9,928,195 $23,533,107 $21,331,935 $32,630,094
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding................... 25,030,043 17,678,713 19,774,357 14,699,920 13,741,020
=========== =========== =========== =========== ===========
Basic and diluted net loss per
share......................... $ (0.48) $ (0.56) $ (1.19) $ (1.45) $ (2.37)
=========== =========== =========== =========== ===========
</TABLE>
For the above-mentioned periods, the Company had securities outstanding
that could potentially dilute earnings per share in the future but were excluded
from the computation of diluted net loss per share in the periods presented
since their effect would have been anti-dilutive. The potential number of common
shares into which these outstanding securities are convertible are as follows:
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------------- -----------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Convertible preferred
stocks.................... 848,309,931 452,541,807 848,309,931 452,541,807 13,040,350
Outstanding options......... 55,881,971 12,636,611 18,161,488 7,050,719 --
------------ ------------ ------------ ------------ -----------
Total....................... 904,191,902 465,178,418 866,421,419 459,592,526 13,040,350
============ ============ ============ ============ ===========
Weighted average exercise
price of options.......... $ 0.03 $ 0.02 $ 0.02 $ 0.01 $ --
============ ============ ============ ============ ===========
</TABLE>
Reclassifications -- Certain 1997 and 1996 balances have been reclassified
in order to conform to the 1998 and 1999 financial statement presentation.
F-11
<PAGE> 76
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials.................................. $4,051,815 $4,589,729 $1,516,017
Work in process................................ 975,225 987,515 191,745
Finished goods delivered to customers.......... 2,942,978 2,229,632 828,035
---------- ---------- ----------
$7,970,018 $7,806,876 $2,535,797
========== ========== ==========
</TABLE>
3. SENIOR SECURED CONVERTIBLE PROMISSORY NOTE PAYABLE
On September 12, 1997, the Company entered into a Convertible Note and
Warrant purchase agreement with Harris Corporation (Harris), pursuant to which
Harris purchased a secured convertible promissory note and a warrant for
$4,000,000. The Harris note was secured by all assets of the Company and bears
interest at an annual rate of 8 percent. The Harris note was convertible into
112,296,970 shares of the Company's Series E voting cumulative preferred stock,
and the Harris warrant was exercisable for the purchase of an additional
11,229,697 shares of Series E voting cumulative preferred stock at a warrant
exercise price of $0.036 per share. The warrant expires on September 12, 2002.
The fair value of the Harris warrant was calculated at $112,297 at the date of
grant using the minimum valuation model. This fair value was accounted for as a
discount on the note, and was being amortized over the life of the note.
Harris exercised its right of conversion of the note in September 1998 and
received 112,296,970 shares of the Company's Series E voting convertible
preferred stock and the note was canceled. The warrant remained outstanding at
June 30, 1999.
4. BRIDGE FINANCING
Through a private placement in June 1999, the Company issued $6,000,000 of
securities comprised of convertible promissory notes (Bridge Notes) with
attached warrants (the Bridge Warrants). The investors are also preferred
stockholders. The Bridge Notes, which mature on December 11, 2000, bear interest
at a rate of prime plus 2 percent (9.75 percent at June 30, 1999), payable upon
maturity. The Bridge Notes are collateralized by a security interest in all
assets of the Company, subordinated to a first lien for any debt incurred to
finance receivables and inventory. The conversion feature of the Bridge Notes is
automatically initiated in the event that the Company closes on a private
financing of at least $10 million or closes on an initial public offering (IPO)
of the Company's common stock. In the event of the private financing, the
amounts outstanding will be converted into the security issued in such
financing. As of September 16, 1999, the principal and accrued interest on this
financing was converted into Series G senior voting convertible preferred stock
(see Note 11).
The Bridge Warrants vest immediately, have a ten-year term, and contain a
cashless exercise option. Warrants to purchase 32,570,201 shares of common stock
at $0.0553 per share were issued. The Bridge Warrants expire on June 11, 2009.
The fair value of the Bridge Warrants was calculated at $243,299 at the date of
grant using the fair value method. This fair value was accounted for as a
discount on the Bridge Notes, and is being amortized over the life of the Bridge
Notes.
F-12
<PAGE> 77
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. PREFERRED STOCKS
The Company has the following preferred stocks outstanding (liquidation
values are as of June 30, 1999):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Series A voting convertible cumulative
preferred stock, $.01 par value, 12,000,000
shares authorized, 11,940,301 shares issued
and outstanding (liquidation value,
$15,262,351)................................. $ 119,403 $ 119,403 $ 119,403
Series B voting convertible cumulative
preferred stock, $.01 par value, 3,300,000
shares authorized, 3,230,341 shares issued
and outstanding (liquidation value,
$19,799,382)................................. 32,303 32,303 32,303
Series C voting convertible cumulative
preferred stock, $.01 par value, 5,000,000
shares authorized, issued, and outstanding
(liquidation value, $37,200,000)............. 50,000 50,000 50,000
Series D voting convertible cumulative
preferred stock, $.01 par value, 13,727,364
shares authorized, 8,174,049 shares issued
and outstanding (liquidation value,
$10,205,300)................................. 81,740 81,740 81,740
Series E voting convertible cumulative
preferred stock, $.01 par value, 568,855,000
shares authorized, 543,624,378 shares issued
and outstanding at June 30, 1999 and December
31, 1998 and 713,086,000 shares authorized
and 431,327,408 issued and outstanding at
December 31, 1997 (liquidation value,
$21,680,069)................................. 5,436,244 5,436,244 4,313,274
Series F voting convertible cumulative
preferred stock, $.01 par value, 361,891,142
shares authorized, 283,471,155 shares issued
and outstanding (liquidation value,
$16,606,067)................................. 2,834,712 2,834,712 --
---------- ---------- ----------
$8,554,402 $8,554,402 $4,596,720
========== ========== ==========
</TABLE>
Dividends -- The preferred stockholders are entitled to receive, when
declared, cumulative cash dividends at the following rates per share per year:
<TABLE>
<S> <C>
Series A.................................................... $0.059
Series B.................................................... $0.293
Series C.................................................... $0.360
Series D.................................................... $0.066
Series E.................................................... $0.003
Series F.................................................... $0.004
</TABLE>
Dividends contractually accrue quarterly whether or not declared by the
Board of Directors and regardless of profits, surplus or other funds legally
available for payment. All unpaid cash dividends will be cancelled in the event
of an underwritten public offering of the Company's common stock of at least $20
million. Holders of Series F and E preferred stocks are entitled to receive cash
dividends in preference to any dividends payable on common stock or Series A
through D preferred stocks. Holders of Series D preferred stock are entitled to
receive cash dividends in preference to any dividends payable on common
F-13
<PAGE> 78
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock or Series A through C preferred stocks. No dividends can be paid on Series
C preferred stock until all dividends that accrued on Series A and B preferred
stocks prior to the sale of Series C preferred stock have been paid. Thereafter
Series A through C rank equally with regard to the payment of dividends.
The payment of dividends on all shares of preferred stocks outstanding can
be waived in writing by the holders of 60 percent of the voting power of each
series of stock (66.67 percent for Series F).
At June 30, 1999, the cumulative unpaid dividends on preferred stocks are
as follows:
<TABLE>
<S> <C>
Series A................................................ $ 3,441,453
Series B................................................ 4,022,982
Series C................................................ 7,200,000
Series D................................................ 1,213,846
Series E................................................ 2,316,257
Series F................................................ 939,966
-----------
$19,134,504
===========
</TABLE>
No dividends have been declared on any series of preferred stock and,
accordingly, a liability has not been recorded for the unpaid cumulative
dividends.
Conversion -- Preferred stocks are convertible, at the option of the
holder, at any time, into the following number of common shares:
<TABLE>
<CAPTION>
SHARES
-----------
<S> <C>
Series A................................................ 2,970,186
Series B................................................ 3,924,426
Series C................................................ 6,145,737
Series D................................................ 8,174,049
Series E................................................ 543,624,378
Series F................................................ 283,471,155
-----------
Total................................................... 848,309,931
===========
</TABLE>
Upon the closing of the sale of shares of common stock in a fully underwritten
public offering of at least $20 million, all preferred stocks will automatically
convert into shares of common stock and all the rights of the preferred
shareholders will be terminated.
Liquidation -- In the event of any liquidation, dissolution, or winding up
of the Company, the holders of preferred stocks (Series A through D) shall be
entitled to receive in cash out of the assets of the Company, before any
distribution to any junior stock, the following amounts per share:
<TABLE>
<S> <C>
Series A.................................................... $0.990
Series B.................................................... $4.884
Series C.................................................... $6.000
Series D.................................................... $1.100
</TABLE>
Series D preferred stockholders are entitled to receive a liquidation
distribution prior to any distribution to Series A through C preferred stocks.
Series E and F preferred stockholders have liquidation preferences and rank
ahead of Series A through D preferred stockholders. The amount of preference is
the greater of (a) the aggregate stated value of all Series E and Series F
preferred stocks ($0.036 and $0.055, respectively) plus accrued and unpaid
dividends or (b) the amount that would be distributable to the holders of the
Series E and F
F-14
<PAGE> 79
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
preferred stocks if the entire remaining assets and funds of the Company legally
available for distribution, if any, were distributed among the holders of Series
E and F preferred stocks in proportion to the number of shares of common stock
of the Company into which their respective shares of Series E and F preferred
stocks are convertible as of the date of liquidation.
Voting -- Holders of preferred stocks have the right to one vote for each
share of common stock issuable upon conversion. So long as any shares of Series
E or F preferred stocks remain outstanding, the Company shall not, without the
vote or written consent of at least a majority of the voting power of those
stockholders (voting together as a single class), approve certain transactions,
including any creation or issuance of additional common stock, merger, sale of
substantially all the assets of the Company, liquidation of the Company,
acquisition transaction, payment of dividends or repurchase of preferred stocks.
The written consent of the holders of at least 60 percent of the
outstanding shares of preferred stocks (Series A through D) is required to amend
the rights and privileges of the Series A through D preferred stocks, increase
the number of authorized shares, create another class of capital stock, or merge
with another corporation.
The written consent of the holders of 60 percent of the voting power of
Series E preferred stock and 66.67 percent of Series F preferred stock is
required to approve any change in the rights and privileges of the holders of
the Series E or F preferred stocks, to authorize issuance of any parity
securities, make any dividends or other distributions, or issue common stock or
preferred stocks.
Preemptive Rights -- Holders of preferred stocks have the preemptive rights
to purchase, on a pro rata basis, any new securities, except common stock in an
underwritten public offering and shares reserved for issuance on grant of stock
options under the option plans noted in Note 6, which the Company may issue.
6. STOCK COMPENSATION PLANS
Officers and employees of the Company are awarded options periodically for
the purchase of common stock of the Company under the Company's 1994 Stock
Option Plan, as amended. The options, which expire five to ten years from the
date of grant, are exercisable equally over a vesting period up to four years.
Effective April 1998, under the Company's 1996 Independent Director Stock
Option Plan, as amended, each independent director of the Company is eligible to
receive a grant of options. During 1998, 750,000 shares were issued under this
plan at exercise prices ranging from $0.02 to $0.036 per share.
F-15
<PAGE> 80
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes option activity for the period from December
31, 1995 through June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED
EXERCISE AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
----------- --------------- --------------
<S> <C> <C> <C>
Outstanding at December 31, 1995................ 3,022,875 $0.010 - $1.000 $0.19
Granted....................................... 1,264,900 $0.050 - $1.000 $0.41
Terminated.................................... (766,223) $0.010 - $1.000 $0.36
Exercised..................................... (891,725) $0.010 - $1.000 $0.06
----------- --------------- -----
Outstanding at December 31, 1996................ 2,629,827 $0.010 - $1.000 $0.29
Granted....................................... 44,200,768 $0.001 - $0.050 $0.01
Terminated.................................... (1,299,656) $0.001 - $1.000 $0.06
Exercised..................................... (3,226,624) $0.001 - $0.600 $0.01
----------- --------------- -----
Outstanding at December 31, 1997................ 42,304,315 $0.001 - $0.050 $0.01
Granted....................................... 66,678,726 $0.020 - $0.036 $0.03
Terminated.................................... (11,187,413) $0.010 - $1.000 $0.02
Exercised..................................... (6,988,186) $0.001 - $0.500 $0.04
----------- --------------- -----
Outstanding at December 31, 1998................ 90,807,442 $0.001 - $0.050 $0.02
Granted....................................... 55,493,991 $0.036 - $0.036 $0.04
Terminated.................................... (26,825,918) $0.001 - $0.050 $0.02
Exercised..................................... (3,870,871) $0.001 - $0.050 $0.04
----------- --------------- -----
Outstanding at June 30, 1999.................... 115,604,644 $0.001 - $0.050 $0.03
=========== =============== =====
</TABLE>
The outstanding options expire at various dates through December 2009. At
June 30, 1999, a total of 37,081,599 shares were exercisable, with a weighted
average exercise price of $0.02 per share. The weighted average remaining
contractual life of options at June 30, 1999 with exercise prices ranging from
$0.001 to $0.050 is 6.1 years. The weighted average fair value of the options
issued during the six-month periods ended June 30, 1999 and (unaudited) 1998 was
$0.04 and $0.02, respectively, and for the year ended December 31, 1998 was
$0.02. No compensation expense has been recorded related to the issuance of
these options. At June 30, 1999, a total of 25,626,388 shares of the Company's
common stock were available for future grants of stock warrants and options.
Pro forma information regarding net loss is required by Statement 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the following assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997 1996
-------- ---- ---- ----
<S> <C> <C> <C> <C>
Risk-free interest rate............................... 6.11% 5.15% 6.0% 6.0%
Dividend yield........................................ 0.0% 0.0% 0.0% 0.0%
Volatility............................................ 40.7% 40.7% 0.0% 0.0%
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
applying Statement 123's fair value method to the
F-16
<PAGE> 81
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company's stock options granted in 1998 and the six-month periods ended June 30,
1999 and 1998 (unaudited) results in the following pro forma amounts:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, DECEMBER 31,
1999 1998 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net loss................................... $(8,735,431) $(7,458,616) $(18,128,650)
Net loss per share -- basic and diluted.... $ (0.35) $ (0.42) $ (0.92)
</TABLE>
The effect of applying Statement 123's fair value method to the Company's
stock options granted in 1996 and 1997 results in a net loss that was not
materially different from the amount presented.
7. EMPLOYEE RETIREMENT PLAN
The Company sponsors a retirement plan for all employees through a salary
deduction 401(k) savings plan. Employees are permitted to contribute to the plan
up to 15 percent of eligible wages, not to exceed the maximum amount allowable
by law. The Company has not historically matched employee contributions.
Employees are 100 percent vested upon entering the plan.
8. INCOME TAXES
At June 30, 1999, the Company has net operating loss carryforwards
available to offset future taxable income of approximately $80,615,000 expiring
at various dates through 2019. In addition, the Company has available
approximately $1,255,000 of research and development tax credit carryforwards,
expiring at various dates through 2018, which may be used to offset future
regular tax liabilities. The benefit of the net operating loss carryforwards has
been fully offset by a valuation allowance. U.S. tax rules impose limitations on
the use of net operating losses and tax credits following certain defined
changes in ownership. The Company has not completed the complex analysis
required by the Internal Revenue Code to determine if an ownership change has
occurred. If such a change were deemed to have occurred, the limitation could
reduce or eliminate the amount of these benefits that would be available to
offset future taxable income each year, starting with the year of ownership
change.
A reconciliation of statutory income tax rate to the Company's effective
tax rate is as follows:
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED JUNE 30,
---------------------------------------------
1999 % 1998 %
------------ ----- ----------- -----
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax benefit at federal income tax rate.......... $ (2,902,740) (34.0) $(2,487,705) (34.0)
State income taxes -- net of federal benefit.... (308,867) (3.6) (341,443) (4.7)
Research and development credits................ (279,736) (3.3) (66,185) (1.0)
Other........................................... 9,755 -- 6,721 --
Valuation allowance............................. 3,481,588 40.9 2,888,612 39.7
------------ ----- ----------- -----
Effective tax rate.............................. $ -- -- $ -- --
============ ===== =========== =====
</TABLE>
F-17
<PAGE> 82
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1998 % 1997 % 1996 %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Tax benefit at federal income
tax rate..................... $(6,091,734) (34.0) $(5,860,404) (34.0) $(9,919,247) (34.0)
State income taxes-net of
federal benefit.............. (649,239) (3.6) (630,212) (4.0) (1,061,726) (4.0)
Research and development
credits...................... (397,393) (2.2) (282,236) (2.0) (55,235) --
Other.......................... 11,030 -- 10,904 -- 27,407 --
Valuation allowance............ 7,127,336 39.8 6,761,948 40.0 11,008,801 38.0
----------- ----- ----------- ----- ----------- -----
Effective tax rate............. $ -- -- $ -- -- $ -- --
=========== ===== =========== ===== =========== =====
</TABLE>
Significant components of the net deferred tax balances are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Deferred tax liabilities:
Intangible assets..................... $ -- $ -- $ (33,136)
Accruals.............................. (11,367) (25,925) (24,167)
------------ ------------- ------------
Total deferred tax liabilities.......... (11,367) (25,925) (57,303)
------------ ------------- ------------
Deferred tax assets:
Net operating loss carryforwards...... 30,335,434 26,908,081 19,010,415
Inventory............................. 3,094,723 3,185,285 4,614,927
Fixed assets.......................... 36,488 105,071 214,244
Start-up costs........................ 325,295 455,413 715,650
Research and development credits...... 1,255,856 976,120 578,727
Bad debts............................. 570,132 566,332 --
Other................................. 196,053 150,649 117,066
------------ ------------- ------------
Total deferred tax assets............... 35,813,981 32,346,951 25,251,029
------------ ------------- ------------
Net deferred tax assets................. 35,802,614 32,321,026 25,193,726
Valuation allowance for net deferred tax
assets................................ (35,802,614) (32,321,026) (25,193,726)
------------ ------------- ------------
$ -- $ -- $ --
============ ============= ============
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its primary manufacturing and office
facilities under long-term noncancelable operating leases. The Company also has
operating leases for certain other furniture, equipment and computers. Future
minimum lease payments for long-term noncancelable operating leases for the
twelve-month periods ending June 30 are as follows:
<TABLE>
<S> <C>
2000..................................................... $ 612,667
2001..................................................... 630,597
2002..................................................... 320,578
2003..................................................... --
----------
$1,563,842
==========
</TABLE>
F-18
<PAGE> 83
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rental expense charged to operations was $489,615 and $640,003 for the
six-month periods ended June 30, 1999 and 1998 (unaudited), respectively, and
$1,127,798, $1,411,896, and $1,535,372 for the years ended December 31, 1998,
1997, and 1996, respectively.
Capital Lease Obligations -- The Company also leases certain computer and
test equipment under capital lease agreements. Summary information is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cost........................................... $2,308,830 $1,819,065 $1,521,340
Accumulated depreciation....................... (1,335,313) (1,063,810) (886,609)
---------- ---------- ----------
$ 973,517 $ 755,255 $ 634,731
========== ========== ==========
</TABLE>
A schedule of future minimum lease payments under the capital leases for
the Company and the related present value of the net minimum lease payments as
of June 30, 1999 follows:
<TABLE>
<S> <C>
2000...................................................... $492,288
2001...................................................... 223,728
2002...................................................... 35,103
2003...................................................... 1,614
--------
Total minimum lease payments.............................. 752,733
Less amount representing interest......................... (49,228)
--------
Present value of lease payments........................... 703,505
Less capital lease obligations -- current portion......... 473,452
--------
Capital lease obligations, less current portion........... $230,053
========
</TABLE>
Agreements -- Simultaneously with its equity investment in January 1995,
Motorola, Inc. (Motorola) entered into an agreement with the Company whereby
Motorola was granted the right to obtain non-exclusive, royalty-free licenses
under any two of AirNet's patents of Motorola's choice. In return, the Company
and Motorola have agreed not to enjoin the other and to negotiate license
agreements in good faith with respect to possible patent infringement. In the
event of a merger, consolidation or sale of AirNet, the Company has the option
to require Motorola to either exercise its right to obtain such licenses or to
cancel such right in exchange for a payment by Airnet of $1 million per patent.
The Company has entered into Change of Control Severance and Bonus
Agreements (the Agreements) with four key employees. Under the Agreements, the
Company is obligated to pay the key employees twelve months salary upon a
Termination Event (as defined in the Agreements). A Bonus Payment (as defined)
equal to the greater of .05 percent to 2 percent of all consideration in excess
of $50 million or 15 percent of the employee's annual salary shall be paid in
the event of a change in control. Also, if the Company is acquired during 1999
or 2000 for a price of greater than $25 million, then all employees of the
Company (excluding the key employees aforementioned) would receive a bonus of 15
percent of their annual salary, pro rated if an employee has been employed with
the Company for less than one year. The Agreements terminate upon the issuance
of any underwritten public offering of the Company's common stock.
In April 1998, the Company entered into a Special Outside Director
Acquisition Bonus Pool (the Director Bonus Pool) with three directors. In the
event the Company is acquired, the Director Bonus Pool is determined by the sale
price in excess of $50 million. For every $1 million in excess of $50 million,
the Director Bonus Pool increases by $3,000. The total amount is divided between
these three directors
F-19
<PAGE> 84
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
according to a formula approved by the board of directors. The Director Bonus
Pool terminates on the earlier of December 31, 1999 or the closing of an
underwritten public offering.
Litigation -- In January 1997, the Company filed a complaint seeking
$4,400,000 in damages against a vendor alleging breach of contract and
nonperformance in connection with the delivery of certain high-power amplifier
units used in the Company's base stations. The defendant vendor has filed an
answer alleging certain affirmative defenses and a counterclaim against the
Company in the amount of approximately $463,000. The defendant's motion for
summary judgment was denied in February 1999, and the litigation is currently
still in a preliminary stage with discovery not yet completed.
The Company is also involved from time to time in various claims and
litigation matters arising in the ordinary course of business. Management
believes that the ultimate outcome of these matters will not have a material
effect on the Company's results of operations or financial condition.
10. MAJOR CUSTOMERS
Revenue generated from major customers representing more than 10 percent of
net revenues is summarized below:
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ ----------------------------------
1999 1998 1998 1997 1996
---------- ----------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer A........................ $ -- $1,397,880 $1,496,894 $ 372,504 $ --
Customer B........................ $ -- $ -- $ -- $1,230,490 $ --
Customer C........................ $2,742,188 $ -- $1,872,126 $ -- $ --
Customer D........................ $ -- $ -- $ 894,949 $ -- $ --
Customer E........................ $1,093,118 $ -- $ -- $ -- $ --
Customer F........................ $ -- $ -- $ -- $ -- $639,985
Customer G........................ $ -- $ -- $ -- $ -- $376,336
</TABLE>
11. SUBSEQUENT EVENTS
Authorized Capital Stock -- On August 2, 1999, the Company's Board of
Directors approved and adopted an amended and restated certificate of
incorporation, which increased the number of authorized capital shares from
2,327,483,032 to 2,843,875,792, primarily to accommodate the issuance of Series
G preferred stock.
Stock Options -- Effective September 1, 1999, the Company adopted the 1999
Equity Incentive Plan (1999 Plan), which amended and restated the 1994 Stock
Option and the 1996 Independent Director Stock Option Plan. The 1999 Plan
provides for the issuance of a maximum of 212,870,132 shares of common stock
pursuant to the grant of incentive stock options, non-qualified stock options,
restricted stock, stock appreciation rights, performance awards and other
stock-based awards to employees, directors and independent contractors.
In July, August and September 1999, the Company's Board of Directors
approved and issued options to employees, directors and officers for the
purchase of 3,265,601, 1,531,000 and 11,732,692 shares, respectively, of the
Company's common stock with an exercise price of $0.13.
Additional Bridge Financing -- In July and August 1999, the Company issued
additional Bridge Notes and 1,835,804 Warrants for proceeds of $338,187. These
additional securities were issued on the same terms as those described in Note
4.
F-20
<PAGE> 85
AIRNET COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Series G Senior Voting Convertible Preferred Stock -- In September 1999,
the Company issued 230,769,231 shares at $0.13 per share of its Series G senior
voting convertible preferred stock, par value $0.01 per share. Of this total,
45,165,974 shares were converted from the holders of the Bridge Notes, including
accrued interest, and the cash proceeds from the offering, exclusive of the
Bridge Notes conversion, were approximately $23,700,000.
The Series G preferred stockholders are entitled to receive, when declared,
cumulative cash dividends at the rate of $0.0104 per share per year. Each share
of Series G preferred stock is convertible into one share of common stock at the
option of the holder at any time and will automatically convert into common
stock upon a fully underwritten public offering of at least $20 million.
The liquidation rights of Series G preferred stockholders are identical to
those of Series E and Series F preferred stockholders (see Note 5). The voting
rights of Series G preferred stockholders are the same as the Series E preferred
stockholders.
F-21
<PAGE> 86
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
AIRNET COMMUNICATIONS
CORPORATION
COMMON STOCK
[LOGO]
------------
PROSPECTUS
, 1999
------------
SALOMON SMITH BARNEY
HAMBRECHT & QUIST
VOLPE BROWN WHELAN & COMPANY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of our common stock registered hereby:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 19,460
NASD fee.................................................... 7,500
Printing and engraving expenses............................. 100,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. --
Nasdaq/NMS application fee.................................. 40,000
Transfer agent fees and expenses............................ 25,000
Miscellaneous............................................... *
--------
Total............................................. $ *
</TABLE>
- ---------------
* To be completed.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our officers and directors are covered by provisions of the Delaware
General Corporation Law and our certificate of incorporation and bylaws, which
serve to limit, and, in some instances, to indemnify them against, liabilities
which they may incur in their respective capacities. Our certificate of
incorporation limits the liability of our directors to the fullest extent
permitted by Delaware law. Specifically, the directors of the Company will not
be personally liable for monetary damages for breach of a director's fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Company or its shareholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments of dividends or unlawful stock repurchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit.
Our bylaws provide for the indemnification of our directors and officers
(as well as certain other persons) if the person acted in good faith and in a
manner reasonably believed to be in or not opposed to our best interests, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. In an action by or in the right of the
Company, no indemnification may be made if the person shall have been adjudged
to be liable to the Company unless the court in which the action was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for the expenses which the court deems proper. Our bylaws
also provide that any indemnification (unless ordered by a court) may be made by
the Company only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the person has met the
applicable standard of conduct. This determination must be made (i) by the board
of directors by a majority vote of a quorum consisting of directors who were not
parties to the action, (ii) if a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the shareholders of the Company. If an
indemnified person has been successful on the merits or otherwise in defense of
any action described above, or in the defense of any matter in the action, the
person will be indemnified against expenses (including attorneys' fees) incurred
in connection with the action, without the necessity of authorization in the
specific case. Expenses incurred in defending or investigating a threatened or
pending action may be paid by us in advance of the final disposition of the
II-1
<PAGE> 88
action upon receipt of an undertaking by the person to repay the amount if it is
ultimately determined that indemnification is not proper. The indemnification
and advancement of expenses provided by or granted under our bylaws are not
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, contract,
vote of shareholders or disinterested directors or otherwise, it being our
policy that indemnification of the persons specified in the bylaws shall be made
to the fullest extent permitted by law. The indemnification and advancement of
expenses provided by our bylaws, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
inure to the benefit of the heirs, executors and administrators of that person.
We carry directors' and officers' liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, we have issued unregistered securities to a
limited number of persons as described below:
In April 1997, we raised approximately $8.4 million from the sale of
an aggregate of 8,093,022 shares of Series D Preferred Stock to 66
investors in an offering at $1.10 per share. We paid Robertson, Stephens &
Company LLC $145,096.98 and issued an additional 81,027 shares of Series D
Preferred Stock to Robertson, Stephens & Company LLC as consideration for
its services as a placement agent in connection with the Series D offering.
In the second half of 1997, we raised approximately $15 million from
the sale of an aggregate of 431,327,408 shares of Series E Preferred Stock
to 49 investors in an offering at $.035619838954 per share. We paid
BankAmerica Robertson Stephens a placement agent fee in the amount of
$32,040 as consideration for its services as a placement agent in
connection with the Series E offering.
In late 1998, we raised approximately $15.6 million from the sale of
an aggregate of 283,471,155 shares of Series F Preferred Stock to 31
investors in an offering at $0.05526523774 per share.
On June 11, 1999 and August 2, 1999, we raised approximately $6.0
million and $338,187, respectively, from the sale of convertible promissory
notes along with warrants to purchase shares of our common stock to certain
of our existing stockholders. These loans were evidenced by convertible
promissory notes and $6.3 million of the notes automatically converted into
shares of Series G Preferred Stock upon the closing of the offering of
Series G Preferred Stock.
In September 1999, we raised $30 million from the sale of an aggregate
of 230,769,231 shares of Series G Preferred Stock to 45 investors in an
offering at $0.13 per share.
From January 1, 1996 through September 21, 1999, (the most recent
practicable date), we granted stock options to purchase an aggregate of
141,197,533 shares of our common stock at prices ranging from $0.001 to
$0.13 per share to employees, consultants and directors (net of options
forfeited for failure to exercise prior to expiration date).
From January 1, 1996 through September 21, 1999, (the most recent
practicable date), we issued and sold an aggregate of 17,302,526 shares of
our common stock to employees, consultants and directors for aggregate
consideration of $215,872 pursuant to exercise of stock options and grant
of stock awards.
For additional information concerning these sales of unregistered
securities, see "Certain Transactions" in the form of prospectus included in
this registration statement.
Except where otherwise provided above, none of these unregistered sales
transactions involved any underwriters, underwriting discounts or commissions,
or any public offering. We believe that each transaction was exempt from the
registration requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act, Regulation D promulgated under Section 4(2) or Rule 701 pursuant
to compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The
II-2
<PAGE> 89
recipients in these transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities, and appropriate legends were affixed to
the share certificates and instruments issued in the transactions. All
recipients had adequate access, through their relationships with us, to
information about us.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits:
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Sixth Amended and Restated Certificate of
Incorporation.
*3.2 Bylaws.
*4.1 Specimen Certificate evidencing shares of Common Stock.
4.2 Second Amended and Restated Shareholders' and Registration
Rights Agreement dated as of April 16, 1997.
*4.3 First Amendment to Second Amended and Restated Shareholders'
and Registration Rights Agreement dated September 23, 1999.
4.4 Second Amended and Restated Agreement Among Series E, Series
F and Series G Second Amended and Restated Preferred
Stockholders and Senior Registration Rights Agreement dated
as of September 7, 1999.
*4.5 First Amendment to Second Amended and Restated Preferred
Stockholders and Senior Registration Rights Agreement dated
September 23, 1999.
*5.1 Opinion of Edwards & Angell, LLP regarding legality of the
Common Stock.
10.1 AirNet Communications Corporation 1999 Equity Incentive
Plan.
10.2 OEM and Patent License Option Agreement dated January 27,
1995 between Motorola, Inc. and AirNet Communications
Corporation.
11.1 Statement regarding computation of per share earnings.
16.1 Letter from Ernst & Young regarding Change in Independent
Accountants.
*23.1 Consent of Edwards & Angell, LLP (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule, June 30, 1999.
27.2 Financial Data Schedule, December 31, 1998.
</TABLE>
- ---------------
* To be filed by amendment.
b. Financial Statement Schedules:
Financial Statement Schedules have been omitted because of the absence of
conditions under which they would be required or because the required
information has been included in the financial statements.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question
II-3
<PAGE> 90
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 91
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Melbourne, State of
Florida, on September 24, 1999.
AIRNET COMMUNICATIONS CORPORATION
By: /s/ R. LEE HAMILTON
------------------------------------
Name: R. Lee Hamilton
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Lee Hamilton and Gerald Y. Hattori,
each of them individually, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead in any and all capacities, to sign any or all amendments
(including post-effective amendments pursuant to Rule 462(b) or otherwise) to
this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their 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 by the following persons in the
capacities indicated on September 24, 1999.
<TABLE>
<C> <S>
/s/ R. LEE HAMILTON Director, President and Chief Executive Officer
- ---------------------------------------------
R. Lee Hamilton
/s/ GERALD Y. HATTORI Vice President of Finance, Chief Financial Officer,
- --------------------------------------------- Treasurer and Secretary
Gerald Y. Hattori
/s/ JOEL P. ADAMS Director
- ---------------------------------------------
Joel P. Adams
/s/ JAMES W. BROWN Director
- ---------------------------------------------
James W. Brown
/s/ ROBERT M. CHEFITZ Director
- ---------------------------------------------
Robert M. Chefitz
/s/ RICHARD G. COFFEY Director
- ---------------------------------------------
Richard G. Coffey
Director
- ---------------------------------------------
Bruce R. DeMaeyer
/s/ MILO D. HARRISON Director
- ---------------------------------------------
Milo D. Harrison
/s/ J. DOUGLASS MULLINS Director
- ---------------------------------------------
J. Douglass Mullins
</TABLE>
II-5
<PAGE> 92
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Sixth Amended and Restated Certificate of
Incorporation.
*3.2 Bylaws.
*4.1 Specimen Certificate evidencing shares of Common Stock.
4.2 Second Amended and Restated Shareholders' and Registration
Rights Agreement dated as of April 16, 1997.
*4.3 First Amendment to Second Amended and Restated Shareholders'
and Registration Rights Agreement dated September 23, 1999.
4.4 Second Amended and Restated Agreement Among Series E, Series
F and Series G Second Amended and Restated Preferred
Stockholders and Senior Registration Rights Agreement dated
as of September 7, 1999.
*4.5 First Amendment to Second Amended and Restated Preferred
Stockholders and Senior Registration Rights Agreement dated
September 23, 1999.
*5.1 Opinion of Edwards & Angell, LLP regarding legality of the
Common Stock.
10.1 AirNet Communications Corporation 1999 Equity Incentive
Plan.
10.2 OEM and Patent License Option Agreement dated January 27,
1995 between Motorola, Inc. and AirNet Communications
Corporation.
11.1 Statement regarding computation of per share earnings.
16.1 Letter from Ernst & Young regarding Change in Independent
Accountants.
23.1 Consent of Edwards & Angell, LLP (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule, June 30, 1999.
27.2 Financial Data Schedule, December 31, 1998.
</TABLE>
- ---------------
* To be filed by amendment.
II-6
<PAGE> 1
Exhibit 4.2
SECOND AMENDED AND RESTATED SHAREHOLDERS'
AND REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED SHAREHOLDERS' AND REGISTRATION RIGHTS
AGREEMENT (this "Agreement"), dated as of the 16th day of April, 1997, is
between and among AIRNET COMMUNICATIONS CORPORATION, a Delaware corporation (the
"Company"), and the shareholders whose signatures appear on the signature pages
hereto (the shareholders are collectively referred to as the "Shareholders" and
individually as a "Shareholder").
W I T N E S S E T H:
WHEREAS, as of the date hereof, the Company's authorized capital stock
consists of 84,327,364 shares, including 50,300,000 shares of common stock, par
value $.01 per share ("Common Stock"); 12,000,000 shares of Series A Voting
Convertible Preferred Stock, par value $.01 per share ("Series A Preferred
Stock"); 3,300,000 shares of Series B Voting Convertible Preferred Stock, par
value $.01 per share ("Series B Preferred Stock"); 5,000,000 shares of Series C
Voting Convertible Preferred Stock, $0.01 par value per share ("Series C
Preferred Stock"); and 13,727,364 shares of Series D Voting Convertible
Preferred Stock, $0.01 par value per share ("Series D Preferred Stock") (the
Series A Preferred Stock, the Series B Preferred Stock, Series C Preferred Stock
and the Series D Preferred Stock are collectively referred to as the "Collective
Preferred Stock");
WHEREAS, the Company is issuing up to 13,636,364 shares of the
Company's Series D Preferred Stock (the "Securities"), and up to an additional
91,000 units of the Securities may be issued to Robertson, Stephens & Company as
compensation;
WHEREAS, the execution and delivery of this Agreement by the Company
and the Shareholders is one of the conditions to the purchase of the Securities;
WHEREAS, set forth on Schedule A attached hereto and made a part hereof
is a table detailing issued and outstanding Shares (as defined in Section 1.3
below);
WHEREAS, shares of Common Stock acquired by any Shareholder upon
exercise of options granted under the Company's Amended and Restated 1994 Stock
Option Plan (January 1997 Restatement, as Amended February 1997) (the "1994
Stock Option Plan") and the Company's 1996 Independence Director Stock Option
Plan (as Amended February 1997) (the "1996 Independent Director Stock Option
Plan") are not subject to or covered by this Agreement;
WHEREAS, the Shareholders desire to provide for the orderly ownership
and disposition of each Shareholder's shares covered by this Agreement,
including their shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock issued
and outstanding as of the date hereof, the Common Stock issuable upon conversion
of such shares of Collective Preferred Stock; and
WHEREAS, the Company and the holders of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock are parties to an Amended
and Restated Shareholders' and Registration Rights Agreement dated as of July
10, 1995 (the "Shareholders' Agreement"), which includes provisions relating to
the transfer of shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, and Common Stock underlying such
preferred stock, and registration rights with respect to Common Stock held by or
issuable upon conversion of such shares of preferred stock to such shareholders;
<PAGE> 2
WHEREAS, the Company has agreed to grant certain registration rights to
the holders of Series D Preferred Stock; and
WHEREAS, the Company and the holders of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock desire to amend and
restate the Shareholder's Agreement, and the holders of Series D Preferred Stock
desire to enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements and
covenants hereinafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
SECTION 1
EFFECTIVENESS OF AGREEMENT; SHARES COVERED BY AGREEMENT
1.1 This Agreement shall become effective upon the execution and
delivery hereof and shall remain in effect until terminated in accordance with
this Section. This Agreement shall terminate upon the earliest to occur of any
of the following events:
(a) bankruptcy, receivership or dissolution of the
Company;
(b) whenever there is only one Shareholder bound by the
terms hereof; or
(c) the voluntary agreement of all parties who are then
bound by the terms hereof.
1.2 This Agreement amends, supersedes and replaces the Shareholders'
Agreement in its entirety. The Shareholders who hold Shares of Series A
Preferred Stock and the Company hereby acknowledge and agree that the
registration rights granted pursuant to the Securities Purchase Agreement dated
January 13, 1994, as amended, are hereby void, terminated, superseded and
replaced by the registration rights granted by the Company to the Shareholders
in Section 4 of this Agreement.
1.3 Shares covered by this Agreement ("Shares") shall include the
following shares held by the Shareholders who are or become parties to this
Agreement: (i) the shares of Common Stock, Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and the
shares of Common Stock issuable upon conversion of such shares of preferred
stock, (ii) shares of Common Stock issued in respect of such shares (including,
but not limited to, stock splits, stock dividends, reclassifications,
recapitalizations, or similar events), and (iii) any of such shares acquired by
a Shareholder from an "Offering Shareholder" (as defined in Section 3.1 below)
pursuant to the exercise of the rights of first refusal set forth in Section 3
of this Agreement. The foregoing notwithstanding, any shares of Common Stock
issued or issuable upon the exercise of stock options granted to any Shareholder
under the Company's 1994 Stock Option Plan or under the Company's 1996
Independent Directors Stock Option Plan are not covered by this Agreement, and
accordingly are not included in the "Shares."
SECTION 2
RESTRICTIONS ON TRANSFER OF SHARES
2.1 No Shareholder shall sell, transfer, pledge, or otherwise encumber
or dispose of (collectively, and throughout this Agreement, "transfer") any of
his, her or its Shares or any
-2-
<PAGE> 3
interest therein, or suffer the same to be subject, directly or indirectly, to
transfer by operation of law or agreement, except as expressly permitted by this
Agreement. Any purported transfer in any other manner shall be void, and shall
not be recognized or given effect by the Company. The restriction set forth in
this Section 2 on transfers of Shares applies to all transfers, including
transfers between Shareholders, but does not apply to (a) voluntary transfers by
an individual Shareholder during his or her lifetime, or transfer upon the death
of such Shareholder, of all or any portion of such Shareholder's Shares to
members of the class consisting of his or her spouse, parents, children or
grandchildren, or a trust for the benefit of such Shareholder or any of the
foregoing persons, or (b) transfers from a nominee or custodian to another
nominee or custodian provided such transfer is not a sale, gift or other
disposition and does not involve a change in the direct or indirect beneficial
ownership of the Shares (each transferee member of the foregoing class a
"Permitted Transferee"), and it shall be a condition precedent to such transfers
that such Permitted Transferee execute and deliver to each of the parties hereto
an agreement acknowledging that all Shares transferred to such Permitted
Transferee are and shall remain subject to the terms and conditions of this
Agreement, and that he, she or it agrees to be bound by the terms of this
Agreement.
SECTION 3
RIGHT OF FIRST REFUSAL
3.1 If at any time a Shareholder desires to transfer his, her or its
Shares to a third party other than a Permitted Transferee pursuant to a bona
fide offer from that third party (the "Proposed Transferee"), the Shareholder
(the "Offering Shareholder") shall first submit a written offer (the "Offer")
offering to sell such Shares (the "Offered Shares") to the other Shareholders
(the "Purchasing Shareholders") on the same terms and conditions, including
price, as those on which the Offering Shareholder proposes to sell such Shares
to the Proposed Transferee. Simultaneously, the Offering Shareholder shall send
a copy of the Offer to the Company. The Offer shall disclose the identity of the
Proposed Transferee, the number of Shares proposed to be transferred, the terms
and conditions, including price of the proposed transfer, and any other material
facts relating to the proposed transfer. The Offer shall further state that the
Purchasing Shareholder(s) may acquire, in accordance with the provisions of this
Agreement, all of the Offered Shares for the price and upon the other terms and
conditions, including deferred payment (if applicable), set forth therein. The
right of first refusal in this Section 3 shall not apply to any proposed sale of
Shares by a Shareholder or Shareholders pursuant to a registration statement
filed with the Securities and Exchange Commission or pursuant to a proposed
exchange of shares in connection with a merger or acquisition of assets approved
by the Company and its shareholders entitled to vote on such a transaction.
3.2 The Purchasing Shareholder(s) may accept the Offer to purchase all,
but not less than all, of the Offered Shares by giving the Offering Shareholder
notice of such acceptance within thirty (30) days of the date that the Offer is
received by the Company ("Offer Date"). The Offering Shareholder shall not take
part in the Purchasing Shareholders' decision as to whether to accept the
Offering Shareholder's Offer. Such acceptance notice shall specify the number of
Offered Shares to be purchased by each Purchasing Shareholder, determined as
follows: each Purchasing Shareholder shall have the right to purchase that
number of Offered Shares as shall equal the number of Offered Shares multiplied
by a fraction, the numerator of which shall be (i) the number of Shares of
Common Stock then issued and outstanding and held of record by such Purchasing
Shareholder plus (ii) the number of Shares of Common Stock issuable upon
conversion of Shares of Collective Preferred Stock then issued and outstanding
and held of record by such Purchasing Shareholder, and the denominator of which
shall be (i) the aggregate number of Shares of Common Stock then issued and
outstanding and held of record by all Purchasing Shareholders plus (ii) the
aggregate number of Shares of Common Stock issuable upon conversion of Shares of
Collective Preferred Stock then issued and outstanding and held of
-3-
<PAGE> 4
record by all Purchasing Shareholders (the "Pro Rata Amount"). The Purchasing
Shareholders shall have a right of oversubscription, such that if any Purchasing
Shareholder does not accept the Offer or accepts the Offer with respect to less
than his, her or its Pro Rata Amount, the other Purchasing Shareholders shall
have the right to purchase the balance of any Offered Shares not elected to be
purchased by that Purchasing Shareholder, on a pro rata basis in accordance with
their respective Pro Rata Amounts, or as they may otherwise determine among
themselves. Notice of acceptance from the Purchasing Shareholder(s) shall, when
taken in conjunction with the Offer, be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of the Offered
Shares. If the Purchasing Shareholder(s), separately or in the aggregate, accept
the Offer with respect to all of the Offered Shares, then the Offering
Shareholder shall sell, and the Purchasing Shareholder(s) shall purchase, the
Offered Shares for the consideration and upon the terms and conditions set forth
in the Offer, subject to the potentially differing provisions for the time and
manner of payment set forth in this Section 3 or in Section 5. For purposes of
Section 5, an Offering Shareholder whose Offer has been accepted by the
Purchasing Shareholder(s) with respect to all of the Offered Shares shall be the
"Selling Shareholder."
3.3 If the Offer submitted pursuant to Section 3.1 provides for payment
of consideration which is of such a nature that it cannot be duplicated by the
Purchasing Shareholder(s) (referred to herein as "the unique consideration"),
then the Purchasing Shareholder(s) may in lieu of the unique consideration elect
to pay a Substituted Cash Consideration, as such term is defined herein. The
Purchasing Shareholder's notice of election to purchase the Offered Shares shall
be sufficient if such notice states that it, he or they shall pay a Substituted
Cash Consideration to be determined in accordance with this Section 3.3.
"Substituted Cash Consideration" shall be an amount agreed to in writing between
the Purchasing Shareholder(s) and the Selling Shareholder within thirty (30)
days after the Selling Shareholder's receipt of the Purchasing Shareholder's
notice of election to purchase the Offered Shares, or, if the parties are unable
to so agree within such time period, an amount equal to the present cash value
of the unique consideration as determined by an arbitrator mutually selected by
the parties. If the parties are unable to agree on an arbitrator within fifteen
(15) days of the expiration of such thirty (30) day period, the Selling
Shareholder shall, by written notice given to the Purchasing Shareholder(s), as
appropriate, within such period, name an arbitrator. Within five (5) days after
receipt of such notice, the Purchasing Shareholder(s) shall by written notice to
the Selling Shareholder, appoint one additional arbitrator. The arbitrators thus
appointed shall themselves thereupon select a third arbitrator ("Third
Arbitrator") (the three arbitrators shall be the "Arbitration Board"), and all
the arbitrators so named or the sole arbitrator, as the case may be, shall be
certified public accountants, business appraisers or investment bankers familiar
with the business conducted by the Company. Such arbitration shall take place in
Melbourne, Florida or such other place mutually acceptable to such Selling
Shareholder and the Purchasing Shareholder(s). Any party may submit evidence and
be represented by counsel. The determination of the sole arbitrator, or the
majority of the Arbitration Board, as the case may be, as to the Substituted
Cash Consideration shall be final, binding and conclusive upon the parties and
their respective successors and permitted assigns, and judgment on such award
may be entered in any court of competent jurisdiction. Each Purchasing
Shareholder, in proportion to the number of Shares purchased by such Purchasing
Shareholder, and the Selling Shareholder shall pay their own costs and expenses,
including attorneys' fees, in connection with the arbitration, and the cost and
fees of the arbitrator chosen by each, if three arbitrators are used. The cost
and fees of a single arbitrator mutually selected by the parties, or those of
the Third Arbitrator, if any, shall be paid equally by the Purchasing
Shareholder(s), in proportion to the number of Shares purchased by each of them,
on the one hand, and the Selling Shareholder, on the other hand.
3.4 If the Purchasing Shareholder(s) do not collectively elect to
purchase all of the Offered Shares, the Offered Shares may be sold by the
Offering Shareholder to the Proposed Transferee at any time within one hundred
twenty (120) days after the Offer Date at the same price and upon the other
terms and conditions, if any, specified in the Offer. At the closing of
-4-
<PAGE> 5
any sale to a Proposed Transferee, the Company shall issue, upon cancellation of
the certificate(s) for the Offering Shareholder's Shares, a new certificate in
the name of the Proposed Transferee, and deliver or execute such other documents
or instruments as may be reasonably requested by the Offering Shareholder and/or
the Proposed Transferee. It shall be a condition precedent to the sale of any
Shares to the Proposed Transferee that such Proposed Transferee execute and
deliver to each of the parties hereto an agreement acknowledging that all Shares
transferred to him are and shall be subject to the terms and conditions of this
Agreement, and agreeing to be bound by the terms of this Agreement. Any Offered
Shares not sold to the Proposed Transferee within such one hundred twenty (120)
day period shall remain subject to the restrictions set forth in this Agreement,
including this Section 3.
3.5 The right of first refusal granted by each Shareholder to the
Shareholders in this Section 3 shall expire upon the Company's closing of an
Initial Public Offering which raises an aggregate of at least Twenty Million
Dollars ($20,000,000) in gross sale proceeds (before deduction of underwriting
discounts, commissions and expenses of sale). For purposes of this Agreement,
the term "Initial Public Offering" shall mean an initial underwritten offering
to the public of the Company's shares of Common Stock pursuant to a registration
statement filed under the Securities Act of 1933, as amended.
SECTION 4
REGISTRATION RIGHTS
4.1 As used in this Section 4, the following terms shall have the
following respective meanings:
(i) "Act" means the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission issued
under the Act, as they each may, from time to time, be in effect.
(ii) "Commission" means the Securities and Exchange
Commission, or any other federal agency at the time administering the Act.
(iii) "Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal statute, and the rules and regulations
of the Commission issued under such act, as they each may, from time to time, be
in effect.
(iv) "Holder" means any person who holds Registrable Shares
(as defined below) including any person to whom the rights granted under this
Section 4 are transferred pursuant to Section 4.2 hereof, and Holders means all
of them.
(v) "Registration Statement" means a registration statement
filed by the Company with the Commission for a public offering and sale of
securities of the Company.
(vi) "Registration Expenses" has the meaning ascribed thereto
in Section 4.6.
(vii) "Registrable Shares" means the shares of Common Stock
included in the "Shares" as defined in Section 1.3 hereof; provided, however,
that shares which are Registrable Shares shall cease to be Registrable Shares
upon any sale of such Shares pursuant to a Registration Statement, or any sale
in any manner to a person or entity which, by virtue of Section 4.2 of this
Agreement, is not entitled to the rights provided by this Section 4.
4.2 The rights to cause the Company to register Registrable Shares
pursuant to this Section 4 may be assigned (but only with all related
obligations) by a Holder to a transferee of
-5-
<PAGE> 6
such securities in connection with a transfer of such securities which is exempt
from registration under the Act, provided the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee and the securities with respect to which such registration
rights are being assigned; and provided, further, that such assignment shall be
effective only if (i) immediately following such transfer the further
disposition of such securities by the transferee is restricted under the Act and
(ii) such transfer was effectuated in full accordance with Section 3 of this
Agreement.
4.3 (a) The Holders, who together as a single class hold at least 60%
of the issued and outstanding shares of Collective Preferred Stock, (or, in the
event of a mandatory conversion of Collective Preferred Stock upon the closing
of an Initial Public Offering, 60% of the issued and outstanding Shares of
Common Stock held by Holders) may request in writing, at any time, that the
Company effect the registration on Form S-l or Form SB-2, as appropriate (or any
successor form), of Registrable Shares owned by such Holders having an aggregate
gross offering price of at least $20,000,000. If the Holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. In the event
such registration is underwritten, the right of other Holders to participate
shall be conditioned upon such other Holders' agreement to participate in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Holders. Such Holders shall
have the right, by giving written notice to the Company within twenty (20)
business days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Holders may
request in such notice of election, subject to the approval of the underwriter
managing the offering. Thereupon, the Company shall, as soon as reasonably
practicable, use its best efforts to effect the registration, on Form S-l or
Form SB-2, as appropriate (or any successor form), of all Registrable Shares and
registrable shares held by others with registration rights which the Company has
been requested to so register. If the number of Registrable Shares held by
Holders, and registrable shares held by others with registration rights to be
included in the underwriting in accordance with the foregoing, is less than the
total number of shares which the Holders of Registrable Shares and others with
registration rights have requested to be included, then all of such Holders and
holders entitled to be included in such registration shall participate in the
underwriting pro rata based upon their total ownership of Registrable Shares and
other shares entitled to be included. The Company shall be entitled to include
in such registration, for its own account or for the account of others at the
Company's request, such amount of its stock as it may elect; provided, however,
that if the managing underwriter shall inform the Company and the Holders
requesting such registration by letter of its belief that the number of
securities requested to be included in such registration exceeds the number
which can be sold in (or during the time of) such offering, then the Company
will include in such registration (i) securities proposed by the Company to be
sold for its own account or for the accounts of others at the Company's request,
(ii) Registrable Shares requested to be included in such registration and (iii)
other securities of the Company requested to be included in such registration,
each pro rata on the basis of the number of shares of such securities so
proposed to be sold and so requested to be included such that such registration
does not exceed the number which such managing underwriter believes can be sold
in (or during the time of) such offering; and provided, further, that a
registration shall not be deemed to have been made pursuant to this Section 4.3
if 51% or more of the stock included in such registration is registered for the
account of the Company or for the account of others (other than the Holders) at
the Company's request.
(b) At any time after the Company becomes eligible to file a
Registration Statement on Form S-3 (or any successor form relating to secondary
offerings), the Holders of Registrable Shares may request the Company, in
writing, to effect the registration on Form S-3 (or any successor form) of
Registrable Shares owned by such Holders having an aggregate gross offering
price of at least Five Million Dollars ($5,000,000) (based upon the then current
market price or fair value). Upon receipt of such request, the Company shall
promptly give written notice of such proposed registration to all Holders. Such
Holders shall have the right, by giving
-6-
<PAGE> 7
written notice to the Company within twenty (20) business days after the Company
provides its notice, to elect to have included in such registration such of
their Registrable Shares as such Holders may request in such notice of election.
Thereupon, the Company shall, as soon as reasonably practicable, use its best
efforts to effect the registration on Form S-3, or such successor form, of all
Registrable Shares which the Company has been requested to register.
(c) The Company shall not be required to effect more than two
registrations pursuant to Section 4.3(a). In addition, the Company shall not be
required to effect any registration under any provision of this Section 4 within
six (6) months after the effective date of any other Registration Statement of
the Company.
(d) If at any time of any request to register Registrable
Shares pursuant to this Section 4.3, the Company is engaged or has fixed plans
to engage within ninety (90) days of the time of the request, in a registered
public offering as to which the Holders may include Registrable Shares pursuant
to Section 4.4, or is engaged in any other activity which, in the good faith
determination of the Company's Board of Directors, would be adversely affected
by the requested registration to the material detriment of the Company, then the
Company may at its option direct that such request be delayed for a period not
in excess of ninety (90) days from the effective date of such offering or the
date of commencement of such other material activity, as the case may be (unless
a longer period is dictated by Section 4.3(c)), such right to delay a request to
be exercised by the Company not more than once in any two-year period.
4.4 (a) Whenever the Company proposes to file a Registration Statement
(other than by a registration pursuant to Section 4.3, a registration statement
on Form S-3 that is automatically declared effective, or a registration
statement on Form S-4 or S-8 or their successors, or any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation) at any time and from time to time, it will, prior
to such filing, give written notice to all Holders of its intention to do so
and, upon the written request of a Holder or Holders given within twenty (20)
business days after the Company provides such notice, the Company shall use its
best efforts to cause all Registrable Shares which the Company has been
requested by such Holder or Holders to register to be registered under the Act
to the extent necessary to permit their sale or other disposition in accordance
with the intended methods of distribution specified in the request of such
Holder or Holders; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 4.4 without
obligation to any Holder.
(b) In connection with any offering under this Section 4.4
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in the
opinion of the underwriters, jeopardize the success of the offering by the
Company; provided, that if in the opinion of the underwriters the inclusion of
any Registrable Shares in such underwriting would jeopardize the success of the
offering by the Company, the Company will not be required to include any
Registrable Shares in such underwriting. If in the opinion of the managing
underwriter the registration of all, or part of, the Registrable Shares which
the Holders have requested to be included would materially and adversely affect
such public offering, then the Company shall be required to include in the
underwriting only that number of Registrable Shares, if any, which the managing
underwriter believes may be sold without causing such adverse effect. If the
number of Registrable Shares to be included in the underwriting in accordance
with the foregoing is less than the total number of shares which the Holders of
Registrable Shares have requested to be included, then the Company may include
all securities proposed to be registered by the Company to be sold for its own
account and the Holders of Registrable Shares who have requested registration
shall participate, along with other holders of shares to be included pursuant to
other registration rights granted by the Company, in the underwriting pro rata
based upon their total ownership of Registrable Shares and the total
-7-
<PAGE> 8
ownership of registrable shares of Common Stock of the Company by such other
holders. If any Holder would thus be entitled to include more shares than such
Holder requested to be registered, the excess shall be allocated among other
requesting Holders pro rata based upon their total ownership of Registrable
Shares.
(c) All Holders of Registrable Shares proposing to distribute
their securities in an offering under this Section 4.4 involving an underwriting
shall (together with the Company and other stockholders of securities
distributing their shares through such underwriting) enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
the underwriting.
(d) The Holders acknowledge that the Company may, in its
discretion, grant to employees who hold at least 100,000 shares of Common Stock
the right to include their shares of Common Stock in any Registration Statement
filed by the Company, subject to any pro rata cutbacks deemed advisable by the
Company or an underwriter in an underwritten registered offering, or as required
under the terms of this Section 4.
4.5 If and whenever the Company is required by the provisions of this
Agreement to use its best efforts to effect the registration of any of the
Registrable Shares under the Act, the Company shall:
(a) File with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
(b) As soon as reasonably practicable prepare and file with
the Commission any amendments and supplements to the Registration Statement and
the prospectus included in the Registration Statement as may be necessary to
keep the Registration Statement effective until the earlier of (i) the period of
time required by the Commission, or (ii) 180 days from the effective date;
provided, that the Company may discontinue any registration of its securities
that are not Registrable Shares (and, under the circumstances specified in
Section 4.4(b), its securities that are Registrable Shares) at any time prior to
the effective date of such Registration Statement;
(c) As soon as reasonably practicable furnish to each selling
Holder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Act, and such
other documents as the selling Holder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Holder;
(d) As soon as reasonably practicable use its best efforts to
register or qualify the Registrable Shares covered by the Registration Statement
under the securities or Blue Sky laws of such states as the selling Holders
shall reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Holders to consummate the public
sale or other disposition in such states of the Registrable Shares owned by the
selling Holder; provided, however, that the Company shall not be required in
connection with this Section 4.5(d) to qualify as a foreign corporation or
execute a general consent to service of process in any jurisdiction; and
(e) Obtain a comfort letter from the Company's independent
public accountants who have certified the Company's financial statements
included in such Registration Statement in customary form and covering such
matters of the type customarily covered by comfort letters and an opinion from
the Company's counsel in customary form and covering such matters of the type
customarily covered in public issuances of securities, in each case addressed to
the selling Holders.
-8-
<PAGE> 9
If the Company has delivered a preliminary or final prospectus to the selling
Holders and after having done so the prospectus is amended to comply with the
requirements of the Act, the Company shall promptly notify the selling Holders
and, if requested, the selling Holders shall immediately cease making offers of
Registrable Shares and return all prospectuses to the Company. The Company shall
promptly provide the selling Holders with revised prospectuses and, following
receipt of the revised prospectuses, the selling Holders shall be free to resume
making offers of the Registrable Shares.
4.6 The Company will pay all Registration Expenses of all registrations
permitted under this Agreement; provided, however, that if a registration is
withdrawn at the request of the Holders requesting such registration (other than
as a result of information concerning the business or financial condition of the
Company which is made known to the Holders after the date on which such
registration was requested) and if the requesting Holders elect not to have such
registration counted as a registration requested under Section 4.3(a), the
requesting Holders shall pay the Registration Expenses of such registration pro
rata in accordance with the number of their Registrable Shares and other
registrable shares included in such registration. For purposes of this Section
4, the term "Registration Expenses" shall mean all expenses incurred by the
Company in complying with this Section 4, including without limitation, all
registration and filing fees, exchange listing fees, printing expenses, the fees
and disbursements of counsel for the Company and the fees and disbursements of
one counsel selected by the selling Holders and other shareholders registering
shares, the fees and disbursements of the Company's accountants, state Blue Sky
fees and expenses, and the expense of any special audits incident to or required
by any such registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of the selling Holders' own counsel (other
than the counsel selected to represent all of the selling Holders and other
shareholders registering shares).
4.7 (a) In the event of any registration of any of the Registrable
Shares under the Act pursuant to this Agreement, the Company will indemnify and
hold harmless each selling Holder of such Registrable Shares, each of its
directors, officers or partners and each other person, if any, who controls such
selling Holder within the meaning of the Act or the Exchange Act against any
losses, claims, damages or liabilities, joint or several, to which such selling
Holder or controlling person may become subject under the Act, the Exchange Act,
Blue Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares were registered
under the Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; and the Company will reimburse such selling Holder and each such
controlling person for any legal or any other expenses reasonably incurred by
such selling Holder or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon any untrue
statement or omission made in such Registration Statement, preliminary
prospectus or prospectus, or any such amendment or supplement, in reliance upon
and in conformity with information furnished to the Company, in writing, by or
on behalf of such selling Holder or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Act pursuant to this Agreement, each selling Holder of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each person, if any, who
controls the Company within the meaning of the Act or the Exchange Act, against
any losses, claims, damages or liabilities, joint or several, to which the
Company, such directors and officers or controlling persons may become subject
under the Act, Exchange
-9-
<PAGE> 10
Act, Blue Sky laws or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, if the statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of such selling Holder, specifically for use in connection with the preparation
of such Registration Agreement, prospectus, amendment or supplement; provided,
however, that the obligations of each Holder hereunder shall be limited to an
amount equal to the proceeds to each Holder of Registrable Shares sold as
contemplated herein.
(c) Each party entitled to indemnification under this Section
4.7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 4.7. The Indemnified Party may participate in
such defense at such party's expense; provided, however, that the Indemnifying
Party shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
4.8 In the event that Registrable Shares are sold pursuant to a
Registration Statement in an underwritten offering pursuant to Section 4.3(a),
the Company agrees to enter into an underwriting agreement containing customary
representations and warranties with respect to the business and operations of an
issuer of the securities being registered and customary covenants and agreements
to be performed by such issuer, including, without limitation, customary
provisions with respect to indemnification by the Company of the underwriters of
such offering.
4.9 Each Holder of Registrable Shares included in any registration
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may request in writing and
as shall be required in connection with any registration, qualification or
compliance referred to in this Section 4.
4.10 Each Holder hereby agrees that he, she or it will not sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by such Holder for a period of time specified by the Company
and its underwriter (not to exceed 180 days) following the effective date of a
Registration Statement. Each Holder agrees to execute an agreement relating to
such restriction upon the request of the Company or its underwriter, which
agreement shall be in writing in a form satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the Registrable Shares or other securities subject to the foregoing restriction
until the end of such "lock-up" period.
-10-
<PAGE> 11
SECTION 5
PRE-CLOSING AND CLOSING PROCEDURES
5.1 Unless otherwise agreed to by the Selling Shareholder and the
Purchasing Shareholder(s), the closing of any purchase and sale of Offered
Shares provided for in Section 3.2 shall be held at the then principal office of
the Company at 10:00 a.m. on the Closing Date. The "Closing Date" shall be the
date which is, with respect to Section 3.2, the earlier of (A) the ninetieth
(90th) day after any election by the Purchasing Shareholder(s) to purchase the
Offered Shares has been delivered to the Selling Shareholder in accordance with
Section 9.4, or (B) on the 10th day after the Substituted Cash Consideration
payable for the Offered Shares is finally determined by agreement or arbitration
as provided for in Section 3.3.
5.2 At such closing, the Selling Shareholder shall deliver to the
Purchasing Shareholder(s), free and clear of all liens, claims, charges, and
encumbrances, a certificate(s) representing the Offered Shares, in proper form
for transfer and with evidence of payment of all applicable transfer taxes by
the Selling Shareholder.
5.3 At the closing of any sale under this Section 5, the Company shall
issue, upon cancellation of the certificate(s) for the Offered Shares, a new
certificate(s) in the name(s) of the purchaser(s) representing such Offered
Shares. In the event that a note and pledge agreement are used to purchase such
Offered Shares, the new certificate(s) or attached stock power shall be duly
endorsed in blank by the purchaser(s) and delivered to the Selling Shareholder,
to be held as collateral security for the payment of the note(s) and the costs
and expenses (including reasonable attorney's fees and disbursements) which may
be incurred in the collection or attempted collection of any note executed in
connection with such purchase. At closing and thereafter, the Purchasing
Shareholder(s) shall execute such financing statements, continuation statements
and security agreements and other instruments with respect to the Offered Shares
as the Selling Shareholder may reasonably request.
SECTION 6
LEGEND
6.1 So long as this Agreement shall remain in effect, all certificates
representing outstanding Shares and the Warrants shall be endorsed with
substantially the following legend (such legend has previously been or is
simultaneously with the execution hereof being endorsed on the certificates
representing the Shareholders' Shares):
The transfer of the shares represented by this certificate, and all
rights represented by such shares, are subject to, and restricted
by, the terms of a Shareholders' Agreement (the "Agreement")
between the Company and certain of its shareholders, as the same
may be amended from time to time, a copy of which Agreement is on
file at the principal office of the Company and will be provided to
a shareholder upon request and without charge. Any person who
wishes to become the owner of this certificate or of the shares
which it represents, or to obtain any interest in such certificate
of shares, shall agree to become bound by the provisions of such
shareholders' agreement.
-11-
<PAGE> 12
SECTION 7
FAILURE TO DELIVER STOCK
7.1 If a Shareholder who has become obligated to sell his Shares
hereunder shall fail to deliver such Shares in accordance with this Agreement,
the Company may, in addition to all other remedies it may have, send to that
Shareholder by registered mail, return receipt requested, the purchase price for
such Shares provided for hereunder. Thereupon, the Company, upon written notice
to that Shareholder, shall cancel on its books the certificate(s) representing
the Shares to be sold, and thereupon all of that Shareholder's rights in and to
such Shares shall terminate. The effecting of such sale in such manner shall not
relieve that Shareholder of any of his, her or its obligations hereunder,
including any obligation to execute and deliver any documents which the Company
would otherwise have been entitled to receive.
SECTION 8
CONFIDENTIALITY
8.1 During the term of this Agreement, the Company may disclose or make
known to the Shareholders, and the Shareholders may be given access to or may
become acquainted with, certain information, trade secrets or both, including
but not limited to confidential information and trade secrets regarding tapes,
computer programs, designs, skills, procedures, formulations, methods,
documentations, drawings, facilities, customers, policies, marketing, pricing,
customer lists and leads, and other information and know-how, not previously
known to such Shareholder(s), all relating to or useful in the Company's
business or the business of its affiliates (collectively "Information"), and
which the Company considers proprietary and desires to maintain confidential.
8.2 During the term of this Agreement and at all times thereafter, the
Shareholders shall not in any manner, either directly or indirectly, divulge,
disclose, or communicate to any person or firm, except to or for the Company or
its affiliates' benefit as directed by the Company, any of the Information which
he, she or it may have acquired in the course of or as an incident to his, her
or its status as a Shareholder, director, officer or employee of the Company,
the parties agreeing that such Information affects the successful and effective
conduct of the Company's or its affiliates' business and its goodwill and that
any breach of the terms of this Section 8 is a material breach of this
Agreement. All equipment, documents, memoranda, reports, records, files,
materials, samples, books, correspondence, lists, other written and graphic
records, and the like (collectively, the "Materials"), affecting or relating to
the business of the Company or its affiliates, which a Shareholder shall
prepare, use, construct, observe, possess or control shall be and remain the
Company's or its affiliates' sole property or in the Company's or its
affiliates' exclusive custody. If at any time a Shareholder shall cease to be a
Shareholder, director, officer or employee of the Company, the Materials and all
copies thereof in the custody of control of any such Shareholder shall be
delivered promptly to the Company.
SECTION 9
MISCELLANEOUS
9.1 The stock of the Company cannot be readily purchased or sold in the
open market, and, for that reason, among others, the parties will be irreparably
damaged (and damages at law would be an inadequate remedy) if this Agreement is
not specifically enforced. Therefore, in the event of a breach or threatened
breach by any party of any provision of this Agreement, then the other parties
shall be entitled, in addition to all other rights or remedies, to injunctions
restraining
-12-
<PAGE> 13
such breach, without being required to show any actual damage or to post any
bond or other security, to a decree for specific performance of the provisions
of this Agreement.
9.2 This Agreement constitutes the entire understanding and agreement
among the parties hereto with respect to the subject matter hereof, and
supersedes all other prior or contemporaneous negotiations, agreements,
understandings and representations (if any) made by and among such parties with
respect to such subject matter. This Agreement may be amended, modified and its
provisions may be waived only in writing by Shareholders who are then a party to
this Agreement holding at least 60% of the aggregate number of Shares of Common
Stock then outstanding plus Shares of Common Stock issuable upon conversion of
Collective Preferred Stock then outstanding; provided that a copy of any such
amendment shall be mailed to each Shareholder who is then a party to this
Agreement; and provided further that no amendment, modification or waiver which
materially adversely affects the rights of less than all of the Shareholders
shall be valid unless approved in writing by all Shareholders who are then a
party to this Agreement.
9.3 The parties hereby agree from time to time to execute and deliver
such further and other transfers, assignments and documents and do all matters
and things which may be convenient or necessary to carry out more effectively
and completely the intentions of this Agreement.
9.4 All notices, requests, consents and other communications required
or permitted under this Agreement shall be in writing (including telex, telecopy
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to the parties as specified below:
If to the Company:
AirNet Communications Corporation
100 Rialto Place, Suite 300
Melbourne, FL 32901
Attn: Jerrold D. Adams
with a copy to:
Edwards & Angell
250 Royal Palm Way
Palm Beach, FL 33480
Attn: John G. Igoe, Esq.
If to the Shareholders:
To their address in the stock records of the Company. The Company will
provide such addresses to any Shareholder upon written request if the
request is for the purpose of sending notices to Shareholders under this
Agreement.
or to such other address as any party may designate by notice complying with the
terms of this Section 9.4. Each such notice shall be deemed delivered: (a) on
the date delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by telex, telecopy or other telegraphic communication;
and (c) on the date upon which the return receipt is signed or delivery is
refused or the notice if designated by the postal authorities as not
deliverable, as the case may be, if mailed.
-13-
<PAGE> 14
9.5 All of the terms and provisions of this Agreement, whether so
expressed or not, shall be binding upon, inure to the benefit of, and be
enforceable by the parties and their respective administrators, executors, legal
representatives, heirs, successors and permitted assigns.
9.6 The headings contained in this Agreement are for convenience of
reference only and shall not limit or otherwise affect in any way the meaning or
interpretation of this Agreement.
9.7 If any part of this Agreement or any other agreement entered into
pursuant hereto is contrary to, prohibited by or deemed invalid under applicable
law or regulation, such provision shall be inapplicable and deemed omitted to
the extent so contrary, prohibited or invalid, but the remainder of this
Agreement shall not be invalidated thereby and shall be given full force and
effect so far as possible. If any provision of this Agreement may be construed
in two or more ways, one of which would render the provision invalid or
otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable.
9.8 All covenants, agreements, representations and warranties made
herein or otherwise made in writing by any party pursuant hereto shall survive
the execution and deliver of this Agreement and the consummation of the
transactions contemplated hereby.
9.9 The failure or delay of any party at any time to require
performance by another party of any provision of this Agreement, even if known,
shall not affect the right of such party to require performance of that
provision or to exercise any right, power or remedy hereunder, and any waiver by
any party of any breach of any provision of this Agreement should not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power or remedy
under this Agreement. No notice to or demand on any party in any case shall, of
itself, entitle such party to any other or further notice or demand in similar
or other circumstances. The exercise or use of one of the provisions of this
Agreement shall not preclude the exercise or use of any other provision.
9.10 Except as provided otherwise herein, if any legal action or other
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default or misrepresentation in connection with any
provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorney's fees, sales and use taxes,
court costs and all expenses even if not taxable as court costs (including,
without limitation, all such fees, costs and expenses incident to arbitration,
appellate, bankruptcy and post-judgment proceedings), incurred in that action or
proceeding, in addition to any other relief to which such party or parties may
be entitled. Attorney's fees shall include, without limitation, paralegal fees,
investigative fees, administrative costs, sales and use taxes and all other
charges billed by the counsel to the prevailing party.
9.11 This Agreement and all transactions contemplated by this Agreement
shall be governed by, and construed and enforced in accordance with, the
internal laws of the State of Delaware without regard to principles of conflicts
of laws.
9.12 The parties acknowledge that a substantial portion of
negotiations, anticipated performance and execution of this Agreement occurred
or shall occur in Brevard County, Florida, and that, therefore, without limiting
the jurisdiction or venue of any other federal or state courts, each of the
parties irrevocably and unconditionally: (a) agrees that any suit, action or
legal proceeding arising out of or relating to this Agreement may be brought in
the courts of record of the State of Florida in Brevard County or the District
Court of the United States, Southern District of Florida; (b) consents to the
jurisdiction of each such court in any suit, action
-14-
<PAGE> 15
or proceeding; (c) waives any objection which it may have to the laying of venue
of any such suit, action or proceeding in any of such courts; and (d) agrees
that service of any court paper may be effected on such party by mail, as
provided in this Agreement, or in such other manner as may be provided under
applicable laws or court rules in said state.
9.13 This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In the event that any shareholder who acquires
shares of any series of Collective Preferred Stock after the date hereof shall
be required and permitted to become a party to this Agreement, such shareholder
may do so by executing a counterpart signature page to this Agreement and with
the acknowledgment of the Company on such counterpart signature page, such
shareholder shall be deemed a "Shareholder" under the Agreement. The Company
shall deliver written notice of the purchase of shares of any series of
Collective Preferred Stock after the date hereof by a new Shareholder to the
Shareholders within thirty (30) days of the execution of this Agreement by such
new Shareholder by delivering a copy of the executed and acknowledged
counterpart signature page to this Agreement, reflecting ownership by each
Shareholder who is then a party to this Agreement. The Company may, from time to
time, amend Schedule A to reflect changes in the number of Shares issued and
outstanding.
SECTION 10
INFORMATION RIGHTS
10.1 The Company shall deliver to its Shareholders copies of its
unaudited quarterly and audited annual financial statements prepared in
accordance with generally accepted accounting principles, as soon as reasonably
practical after the end of any quarter or fiscal year. The annual financial
statements shall be audited by a nationally known accounting firm. This
provision shall terminate upon the closing of the Company's Initial Public
Offering.
[SIGNATURES ON NEXT PAGE]
-15-
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amended and Restated Shareholders' and Registration Rights Agreement as of the
day and year first above written.
COMPANY:
AIRNET COMMUNICATIONS CORPORATION
By: /s/ GERALD D. ADAMS
-------------------------------------
Name: Gerald D. Adams
-------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
SHAREHOLDERS:
See attached Counterpart Signature Pages
-16-
<PAGE> 17
COUNTERPART SIGNATURE PAGE
TO SECOND AMENDED AND RESTATED SHAREHOLDERS'
AND REGISTRATION RIGHTS AGREEMENT
(the "Shareholders' Agreement")
dated April____, 1997
between and among
AIRNET COMMUNICATIONS CORPORATION
and
the Shareholders whose signatures appear
on the Counterpart Signature Pages thereto
---------------------------------------------------
By execution of this Counterpart Signature Page and upon acknowledgment
by AirNet Communications Corporation, the undersigned agrees to become a party
to and be bound by the terms of the Shareholders' Agreement, and the undersigned
shall be deemed a "Shareholder" under the Shareholders' Agreement.
[NON-INSTITUTIONAL INVESTORS] [INSTITUTIONAL INVESTORS]
- ---------------------------------- -----------------------------------
By:_______________________________ By:________________________________
Name:_____________________________ Name:______________________________
Title:______________________________ Title:_______________________________
Date:_________________________, 19__ Date:__________________________, 19__
ACKNOWLEDGMENT:
AirNet Communications Corporation hereby acknowledges execution of this
Counterpart Signature Page by the above Shareholder(s).
AIRNET COMMUNICATIONS CORPORATION
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
-17-
<PAGE> 18
SCHEDULE A
to
AirNet Communications Corporation
Second Amended and Restated Shareholders'
and Registration Rights Agreement
Issued and Outstanding Shares
<TABLE>
<CAPTION>
Collective
Preferred Stock Underlying Common Stock Total
Outstanding Common Stock Outstanding Common Stock
-------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Holders of
Series A Preferred
Stock 11,940,301 2,444,870 11,939,102 14,383,972
Holders of
Series B Preferred
Stock 3,230,341 3,230,341 -0- 3,230,341
Holders of
Series C Preferred
Stock 5,000,000 5,087,050 (a) -0- 5,087,050 (a)
Holders of
Series D Preferred
Stock 13,727,364 (b) 13,727,364 -0- 13,727,364
</TABLE>
(a) Including additional shares of Common Stock issuable upon conversion of
Series C Preferred Stock as a result of antidilution adjustments to the
conversion price assuming the sale of 3,000,000 units of Series D
Preferred Stock and Warrants currently being offered for sale by the
Company.
(b) Assuming the sale of all 13,636,364 shares of Series D Preferred Stock
currently being offered for sale by the Company, including up to 91,000
shares of Series D Preferred Stock which may be issued as compensation to
Robertson, Stephens & Company.
A-1
<PAGE> 1
Exhibit 4.4
SECOND AMENDED AND RESTATED AGREEMENT
AMONG SERIES E, SERIES F AND SERIES G PREFERRED STOCKHOLDERS
AND SENIOR REGISTRATION RIGHTS AGREEMENT
This Second Amended and Restated Agreement Among Series E, Series F and Series
G Preferred Stockholders and Senior Registration Rights Agreement (this
"Agreement") which amends and restates the Amended and Restated Agreement among
Series E and Series F Preferred Stockholders and Senior Registration Rights
Agreement, dated as of August 28, 1998, as amended as of June 11, 1999 (the
"Restated Agreement") by and among AirNet Communications Corporation, a
Delaware corporation (the "Company"), Harris Corporation, a Delaware
corporation ("Harris Corporation"), Tandem PCS Investments, L.P., a Delaware
limited partnership ("Tandem"), Adams Capital Management, L.P. ("Adams"), SCP
Private Equity Partners, L.P. ("SCP"), HVFM-I, L.P. ("HVFM"), APA Excelsior
III, L.P. ("APA") and such other purchasers identified therein (Tandem, Adams,
SCP, HVFM, APA and such other Purchasers are collectively, "Purchasers"), the
Series E Preferred Stockholders listed on Exhibit A hereto (the "Series E
Investors"), the Series F Preferred Stockholders listed on Exhibit B hereto
(the "Series F Investors"), is made as of September 7, 1999 by and among the
Company, Harris Corporation, the Purchasers, the Series E Investors, the Series
F Investors and the Series G Preferred Stockholders listed on Exhibit C hereto
(the "Series G Investors"). Capitalized terms used but not defined herein have
the meanings ascribed to such terms in the "Stock Purchase Agreement" (as
defined below).
WITNESSETH:
WHEREAS, pursuant to those certain Confidential Stock Purchase Agreements,
dated as of the date hereof, among the Company and the Series G Investors (each
a "Stock Purchase Agreement"), the Series G Investors have purchased
230,769,231 shares of Series G Preferred Stock, in the aggregate (such shares
of Series G Preferred Stock, together with the "Common Stock" (as defined
below) into which such shares of Series G Preferred Stock are convertible, are
hereinafter referred to collectively as the "Series G Registrable Securities");
WHEREAS, it is a condition precedent to the Series G Investors making the
investments contemplated by the Stock Purchase Agreement that the Company grant
to the Series G Investors certain registration rights with respect to the
Series G Registrable Securities as provided herein; and
WHEREAS, the parties hereto desire to amend and restate the Restated Agreement
as provided herein and by executing this Agreement consent to the terms and
provisions hereof;
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual agreements herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Unless otherwise defined herein, capitalized terms
used in this Agreement shall have the meanings set forth in the Stock Purchase
Agreement. The following capitalized terms shall have the following meanings:
"1999 Note Purchase Agreements" shall mean, collectively, the
Convertible Note and Warrant Purchase Agreements, dated as of June 11, 1999 or
August 2, 1999, among the Company and certain of the Purchasers, individually,
pursuant to which such Purchasers purchased (i) Notes in an aggregate principal
amount equal to $6,338,187.06, which are convertible into shares of Series G
Preferred Stock and (ii) Warrants to purchase shares of Common Stock (the
"Warrants").
"Affiliate" means, as to any person, any other person that,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such person. For purposes of this definition, "control" of a
person means the power, directly or indirectly, either to (i) vote 30% or more
of the securities having ordinary voting power for the election of directors of
such person or (ii) direct or cause the direction of the management and
policies of' such person, whether by contract or otherwise.
"Board" shall mean the Board of Directors of the Company.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, par value
$.001 per share.
"Convertible Securities" shall mean the Series E Convertible
Securities, the Series F Convertible Securities and the Series G Convertible
Securities.
"Form S-3" shall mean a Registration Statement on Form S-3, or any
substantially similar form then in effect, under the Securities Act.
"Harris" means Harris Corporation, a Delaware corporation,
together with any subsidiaries of Harris to which it assigns, in whole or in
part, its rights and/or obligations hereunder, provided that (a) Harris
Corporation and any such subsidiaries shall be treated as a single person for
purposes of this Agreement and (b) Harris Corporation shall be conclusively
presumed to be authorized to act on behalf of any such subsidiaries.
- 2 -
<PAGE> 3
"Harris Warrant" means the Series E Preferred Stock Purchase
Warrant, dated September 12, 1997, issued by the Company to Harris with respect
to 11,229,697.04 shares of Series E Preferred Stock, as such Warrant may be
amended from time to time.
"Holder" shall mean any holder of outstanding Restricted Securities
"Initiating Holder(s)" shall mean (i) any Holder or Holders who in
the aggregate hold (a) at least twenty-five percent (25%) of the Series E
Registrable Securities, (b) at least twenty-five percent (25%) of the Series F
Registrable Securities, or (c) at least twenty-five percent (25%) of the Series
G Registrable Securities, and (ii) each Significant Holder.
"Key Management" shall mean, at any time, any director or
executive officer of the Company at such time.
"Material Adverse Event" shall mean an occurrence having a
consequence that either (i) is materially adverse as to the business,
properties, prospects or financial condition of the Company or (ii) is
reasonably foreseeable, has a reasonable likelihood of occurring, and if it
were to occur might materially adversely effect the business, properties,
prospects or financial condition of the Company.
"Notes" shall mean those certain Convertible Promissory Notes in
an aggregate principal amount equal to $6,338,187.06, dated as of June 11, 1999
or August 2, 1999, and executed by the Company, as such Notes may be amended
from time to time.
"Prior Series Agreement" shall mean the Company's Second Amended
and Restated Shareholders' and Registration Rights Agreement dated as of April
16, 1997 exercised in connection with the Series A, Series B, Series C and
Series D Voting Convertible Preferred Stock.
"Purchaser" shall have the meaning ascribed to such term in the
first paragraph hereof.
"Purchaser Securities" shall mean the Notes, the Warrants, the
shares of Series G Preferred Stock into which the Notes are convertible and any
shares of Common Stock into which such shares of Series G Preferred Stock are
convertible.
"Qualified Public Offering" shall mean the consummation of a firm
commitment public offering of Common Stock, underwritten by an underwriter
reasonably acceptable to the holders of a majority of the then outstanding
voting power of the Senior Preferred Stock, voting together as a single class,
registered under the Securities Act, other than a registration relating solely
to a transaction under Rule 145 under the Securities Act (or any successor
thereto) or to an employee benefit plan of the Company, in which (i) the
aggregate sales price to the Company of which (before deduction of underwriting
discount, commissions and expenses of sale) is not less than $20,000,000, and
(ii) the product of the price per share paid by the public for the Common Stock
sold in such offering, multiplied by the number of shares of Common Stock
outstanding immediately after such offering, is not less than $220,000,000.
- 3 -
<PAGE> 4
The terms "Register", "Registered", and "Registration" refer to a
registration effected by preparing and filing a Registration Statement, and the
declaration or ordering of the effectiveness of such Registration Statement.
"Registrable Securities" shall mean (i) all Common Stock issued or
issuable upon conversion of any of the Convertible Securities, other than
Common Stock sold pursuant to a Registration Statement, (ii) any securities of
the Company deemed to be Registrable Securities as provided in Section 2.7 of
this Agreement, and (iii) all Common Stock, other than Common Stock sold
pursuant to a Registration Statement, issued or issuable upon (a) the exercise
of any Warrant; (b) the exercise of the conversion rights set forth in, or
automatic conversion of, any Note; or (c) the exercise of conversion rights in
respect of, or automatic conversion of, any other Purchaser Securities.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Article II of this Agreement, including, without
limitation, all federal and state registration, qualification and filing fees,
printing expenses, fees and disbursements of counsel for the Company and one
special counsel (if different from counsel for the Company) for the Holders
participating in any such Registration, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such Registration.
"Restricted Securities" shall mean the Convertible Securities and
the Registrable Securities.
"Registration Statement" shall mean a registration statement in
compliance with the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities pursuant
to this Agreement.
"Senior Preferred Stock" shall mean, collectively, the Series E
Preferred Stock, the Series F Preferred Stock and the Series G Preferred Stock.
"Series E Convertible Securities" shall mean the Series E
Preferred Stock, the Harris Warrant and the shares of Series E Preferred Stock
issuable upon exercise of the Harris Warrant.
"Series E Preferred Stock" shall mean the 543,624,378 issued and
outstanding shares of Series E Senior Voting Convertible Preferred Stock, par
value $0.01 per share.
"Series E Registrable Securities" shall mean all Registrable
Securities issued or issuable upon conversion of any of the Series E
Convertible Securities.
- 4 -
<PAGE> 5
"Series F Convertible Securities" shall mean the Series F
Preferred Stock.
"Series F Preferred Stock" shall mean the 283,471,155 issued and
outstanding shares of Series F Senior Voting Convertible Preferred Stock, par
value $0.01 per share.
"Series F Registrable Securities" shall mean all Registrable
Securities issued or issuable upon conversion of any of the Series F
Convertible Securities.
"Series G Convertible Securities" shall mean the Series G
Preferred Stock.
"Series G Preferred Stock" shall mean the _________ issued and
outstanding shares of Series G Senior Voting Convertible Preferred Stock, par
value $0.01 per share.
"Series G Registrable Securities" shall mean all Registrable
Securities issued or issuable upon conversion of any of the Series G
Convertible Securities.
"Significant Holder" shall mean (i) each person or group of
related persons under common ownership or management control (such persons,
"Related Persons") that purchased on or before September 12, 1997 and continues
to own shares of Series E Preferred Stock with an aggregate Stated Value of not
less than $3,000,000; (ii) the initial transferee or assignee (whether a single
person or a group of Related Persons) of Series E Preferred Stock with an
aggregate Stated Value of not less than $3,000,000 from a Significant Holder
described in clause (i); (iii) the purchaser of the Company's Senior Secured
Convertible Promissory Note and Series E Preferred Stock Purchase Warrant
issued on September 15, 1997 and September 12, 1997, respectively, both of
which are exercisable for Series E Preferred Stock (collectively, the "Series E
Rights"), including entities controlling, controlled by, and under common
control with, such purchaser (collectively, the "Series E Rights Holder");
provided that the Series E Rights Holder (x) continues to own Series E
Preferred Stock, or Series E Rights exercisable for shares of Series E
Preferred Stock, with an aggregate Stated Value of at least $1,000,000 and (y)
does not have any transferee or assignee that qualifies as a Significant Holder
under clause (iv); and (iv) one initial transferee or assignee (whether a
single person or a group of Related Persons) of the Series E Rights Holder that
owns shares of Series E Preferred Stock, or Series E Rights exercisable for
shares of Series E Preferred Stock, with an aggregate Stated Value of at least
$1,000,000.
"Significant Investor" shall have the meaning set forth in the
Stock Purchase Agreement.
"Warrants" shall have the meaning ascribed to such term in the
definition of the 1999 Note Purchase Agreements.
- 5 -
<PAGE> 6
ARTICLE II
REGISTRATION RIGHTS
2.1 Demand Registration.
(a) Request for Registration on Form Other than Form S-3.
Subject to the terms of this Agreement, in the event that the Company shall
receive from Initiating Holder(s) at any time after the earlier of (i)
September 13, 2000, or (ii) three (3) months after the effective date of a
Qualified Public Offering (provided that, if so required in writing by the
underwriter(s) of the Qualified Public Offering, such three-month period may be
extended to a period not to exceed the greater of (I) the length of the lock-up
period imposed on members of senior management of the Company in connection
with the Qualified Public Offering and (II) six (6) months, provided further
that if such three-month period is so extended, the Company shall use its
reasonable best efforts to arrange for the Registration provided for in this
Section 2.1(a) to be effective at or before the end of such extended period), a
written request that the Company effect a Registration with respect to all or a
part of the Registrable Securities of such Initiating Holder(s) on a form other
than Form S-3 for an offering of (x) in the case of a request delivered by
Initiating Holder(s), other than a Significant Holder of at least twenty-five
percent (25%) of the then outstanding Series E Registrable Securities, at least
twenty-five percent (25%) of the then outstanding Series F Registrable
Securities or at least twenty-five percent (25%) of the then outstanding Series
G Registrable Securities, or (y) in the case of a request from an Initiating
Holder who is a single Significant Holder, at least fifty percent (50%) of the
then outstanding Registrable Securities represented by Convertible Securities
owned by such Significant Holder, the Company shall (A) promptly give written
notice of the proposed Registration to all other Holders and (B) as soon as
practicable, use its best efforts to effect Registration of the Registrable
Securities specified in such request of the Initiating Holder(s), together with
any Registrable Securities of any Holder joining in such request as are
specified in a written request given within twenty (20) business days after
written notice from the Company. The Company shall not be obligated to take any
action to effect any such Registration pursuant to this Section 2.1(a) (i)
except as provided above, within the three (3) to six (6) months period
referred to in the first sentence of this Section 2.1(a) or (ii) after the
Company has effected two (2) such Registrations pursuant to this Section 2.1(a)
in which the Company has not Registered securities for its own account and such
Registrations have been declared effective. If the number of Registrable
Securities proposed to be Registered by the Initiating Holder(s) is reduced
pursuant to Section 2.1(e)(iii), such Registration shall not count toward the
limit of two (2) Registrations referred to in the preceding sentence.
(b) Right of Deferral of Registration on Form Other than Form
S-3. If the Company shall furnish to all such Holders who joined in the request
for any Registration pursuant to Section 2.1(a) a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board,
it would be detrimental to the Company for any Registration to be effected as
requested under Section 2.1(a), the Company shall have the right to defer the
filing of a Registration Statement with respect to such requested Registration
for a period of not more than one hundred twenty (120) days from delivery of
the request of the Initiating Holders;
- 6 -
<PAGE> 7
provided, however, that the Company may not utilize this right more than once
in any twelve-month period.
(c) Request for Registration on Form S-3. Subject to the
terms of this Agreement, in the event that the Company receives from one or
more Initiating Holders a written request that the Company effect any
Registration on Form S-3 (or any successor form to Form S-3 regardless of its
designation) at a time when the Company is eligible to Register securities on
Form S-3 (or any successor form to Form S-3 regardless of its designation) for
an offering of Registrable Securities, the Company will promptly give written
notice of the proposed Registration to all other Holders and will as soon as
practicable use its best efforts to effect Registration of the Registrable
Securities specified in such request, together with all of such Registrable
Securities of any Holder joining in such request as are specified in a written
request delivered to the Company within twenty (20) business days after written
notice from the Company of the proposed Registration on Form S-3. There shall
be no limit to the number of occasions on which the Company shall be obligated
to effect Registration under this Section 2.1(c), but the Company shall not be
required to effect more than two (2) such Registrations in any calendar year.
(d) Registration of Other Securities in Demand Registration.
Any Registration Statement filed pursuant to the request of the Initiating
Holders under this Article II may, subject to the provisions of Sections 2.1(e)
and 2.7, include securities of the Company other than Registrable Securities,
including, without limitation, any securities that the Company is required or
permitted to register pursuant to any other registration rights agreement.
(e) Underwriting in Demand Registration.
(i) Notice of Underwriting. If the Initiating
Holders intend to distribute the Registrable Securities covered by the request
by means of an underwriting, they shall so advise the Company, as a part of
their request made pursuant to this Article II, and the Company shall include
such information in the written notice referred to in Section 2.1(a) or (c).
The right of any Holder to Registration pursuant to this Section 2.1 shall be
conditioned upon such Holder's agreement to participate in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting.
(ii) Selection of Underwriter in Demand
Registration. The Company shall (together with all Holders proposing to
distribute their Registrable Securities through such underwriting) enter into
an underwriting agreement with the representative ("Underwriter's
Representative") of the underwriter or underwriters selected for such
underwriting by the Holders of a majority of the Registrable Securities being
Registered pursuant to the written request of the Initiating Holders or
Significant Holder, as the case may be, and agreed to by the Company, which
agreement shall not be unreasonably withheld.
(iii) Marketing Limitation in Demand
Registration. In the event the Underwriter's Representative advises the
Initiating Holders or Significant Holder, as the case may be, in writing that
market factors (including, without limitation, the aggregate number of shares
of Common Stock requested to be Registered, the general condition of the
market, and the
- 7 -
<PAGE> 8
status of the persons proposing to sell securities pursuant to the
Registration) require a limitation of the number of shares to be underwritten,
then the Company will include in such Registration, first Registrable
Securities requested to be included in the Registration by Holders, second
securities proposed by any member of Key Management to be sold for his/her own
account, third securities proposed by the Company to be sold for its own
account or for the account of others at the Company's request, and fourth
securities to be included in such Registration pursuant to the Prior Series
Agreement, each pro rata based upon the number of shares of such securities
proposed to be sold and so requested to be included such that such Registration
does not exceed the Underwriter's Representative's limit. No Registrable
Securities or other securities excluded from the underwriting by reason of this
Section 2.1(e)(iii) shall be included in such Registration Statement.
(iv) Right of Withdrawal in Demand Registration. If
any Holder of Registrable Securities, or a holder of other securities entitled
(upon request) to be included in such Registration, disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and the Initiating Holders delivered at least
seven (7) days prior to the effective date of the Registration Statement. The
securities so withdrawn shall also be withdrawn from the Registration
Statement.
(f) Blue Sky in Demand Registration. In the event of any
Registration pursuant to Section 2.1, the Company will exercise its best
efforts to Register and qualify the securities covered by the Registration
Statement under such Blue Sky or other securities laws of such jurisdictions as
shall be reasonably appropriate for the distribution of such securities;
provided, however, that (i) the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, and (ii) notwithstanding anything in this Agreement to the
contrary, in the event any jurisdiction in which the securities shall be
qualified imposes a non-waivable requirement that expenses incurred in
connection with the qualification of the securities be borne by selling
stockholders, such expenses shall be payable pro rata by selling stockholders.
2.2 Piggyback Registration.
(a) Notice of Piggyback Registration and Inclusion of
Registrable Securities. Subject to the terms of this Agreement, in the event
the Company decides to Register any of its securities (either for its own
account or the account of a security holder other than pursuant to a demand
Registration) on a form that would be suitable for a Registration involving
Registrable Securities, the Company will (i) promptly give each Holder written
notice thereof (which shall include a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under the applicable Blue
Sky or other state securities laws) and (ii) include in such Registration (and
any related qualification under Blue Sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request delivered to the Company by any Holder within fifteen (15) days
after delivery of such written notice from the Company.
- 8 -
<PAGE> 9
(b) Underwriting in Piggyback Registration.
(i) Notice of Underwriting in Piggyback
Registration. If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
2.2(a). In such event, the right of any Holder to Registration shall be
conditioned upon such underwriting and the inclusion of such Holder's
Registrable Securities in such underwriting to the extent provided in this
Section 2.2. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement with the Underwriter's Representative for such offering.
The Holders shall have no right to participate in the selection of the
underwriters for an offering pursuant to this Section 2.2.
(ii) Marketing Limitation in Piggyback
Registration. In the event the Underwriter's Representative advises the Holders
seeking Registration of Registrable Securities pursuant to Section 2.2 in
writing that market factors (including, without limitation, the aggregate
number of shares of Common Stock requested to be Registered, the general
condition of the market, and the status of the persons proposing to sell
securities pursuant to the Registration) require a limitation of the number of
shares to be underwritten, the Underwriter's Representative (subject to the
allocation set forth in Section 2.2(b)(iii)) may exclude some or all
Registrable Securities from such Registration and underwriting.
(iii) Allocation of Shares in Piggyback
Registration. In the event that the Underwriter's Representative limits the
number of shares to be included in a Registration pursuant to Section
2.2(b)(ii), or shall otherwise require a limitation of the number of shares to
be included in the Registration, then the Company will include in such
Registration first securities proposed by the Company to be sold for its own
account; second securities included in such Registration pursuant to the Prior
Series Agreement, third Registrable Securities requested to be included in the
Registration by the Holders, and fourth securities proposed by any member of
Key Management to be sold for his/her own account, each pro rata based upon the
number of shares of such securities proposed to be sold and so requested to be
included such that such Registration does not exceed the Underwriter's
Representative's limit. No Registrable Securities or other securities excluded
from the underwriting by reason of this Section 2.2(b)(iii) shall be included
in the Registration Statement.
(iv) Right of Withdrawal in Piggyback
Registration. If any Holder disapproves of the terms of any such underwriting,
such person may elect to withdraw therefrom by written notice to the Company
and the underwriter delivered at least seven (7) days prior to the effective
date of the Registration Statement. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such Registration.
(c) Blue Sky in Piggyback Registration. In the event of
any Registration of Registrable Securities pursuant this to Section 2.2, the
Company will exercise its best efforts to Register and qualify the securities
covered by the Registration Statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably appropriate for the
- 9 -
<PAGE> 10
distribution of such securities; provided, however, that (i) the Company shall
not be required to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, and (ii)
notwithstanding anything in this Agreement to the contrary, in the event any
jurisdiction in which the securities shall be qualified imposes a non-waivable
requirement that expenses incurred in connection with the qualification of the
securities be borne by selling stockholders, such expenses shall be payable pro
rata by selling stockholders.
2.3 Expenses of Registration. All Registration Expenses incurred in
connection with two (2) Registrations pursuant to Section 2.1(a), three (3)
Registrations pursuant to Section 2.1(e) (Form S-3), and all Registrations
pursuant to Section 2.2 shall be borne by the Company. Notwithstanding the
above, the Company shall not be required to pay for any expenses of any
Registration proceeding begun pursuant to Section 2.1 if the Registration
request is subsequently withdrawn at the request of the Holder(s) of a majority
of the Registrable Securities to be Registered (which Holders shall bear such
expenses), provided, however, that if at the time of such withdrawal, the
Holder(s) have learned of a Material Adverse Event not known to the Holders at
the time of their request, then the Holders shall not be required to pay any
such expenses. All Selling Expenses shall be borne by the holders of the
securities Registered pro rata on the basis of the number of shares Registered.
2.4 Registration Procedures. The Company will keep each Holder whose
Registrable Securities are included in any Registration pursuant to this
Agreement advised as to the initiation and completion of such Registration. At
its expense, the Company will (a) use its best efforts to keep such
Registration effective for a period of one hundred eighty (180) days (or if
such Registration is a shelf Registration, the first date upon which all
Registrable Securities covered by such shelf Registration Statement shall have
been sold) or until the Holder or Holders have completed the distribution
described in the Registration Statement relating thereto, whichever first
occurs; and (b) furnish such number of prospectuses (including preliminary
prospectuses) and other documents as a Holder from time to time may reasonably
request. In connection with any Registration pursuant to this Agreement, the
Holder(s) participating therein shall have the right to obtain copies of, and
letters permitting them to rely upon, any of the following delivered to the
underwriter(s) or the Company: (a) any comfort letter(s) delivered by the
Company's independent public accountants, (b) any opinion(s) delivered by the
Company's counsel and (c) any officers' certificate(s) delivered by the
Company.
2.5 Information Furnished by Holder. It shall be a condition precedent
of the Company's obligations under this Agreement that each Holder of
Registrable Securities included in any Registration furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder
or Holders as the Company may reasonably request.
2.6 Indemnification.
(a) Company's Indemnification of Holders. To the extent
permitted by law, the Company will indemnify each Holder, each of its officers,
directors, managers and constituent partners and members, legal counsel for the
Holders, and each person controlling such Holder, with respect to which
Registration, qualification or compliance of Registrable
- 10 -
<PAGE> 11
Securities has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls each such underwriter (collectively,
"Holder Indemnitees"), against all claims, losses, damages or liabilities (or
actions in respect thereof) to the extent such claims, losses, damages or
liabilities arise out of or are based upon any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus or other
document (including any related Registration Statement) incident to any such
Registration, qualification or compliance, or are based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of any title or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such Registration, qualification
or compliance, and the Company will reimburse each such Holder Indemnitee, for
any legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action;
provided, however, that the indemnity contained in this Section 2.6(a) shall
not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if settlement is effected without the consent of the
Company (which consent shall not unreasonably be withheld); and provided,
further, that the Company will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based upon any untrue statement or omission based upon written information
furnished to the Company by such Holder Indemnitee about such Holder Indemnitee
for use in connection with the offering of securities of the Company.
(b) Holders' Indemnification of Company. To the extent
permitted by law, each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such Registration,
qualification or compliance is being effected pursuant to this Agreement,
indemnify the Company, each of its directors and officers, each legal counsel
and independent accountant of the Company, each underwriter, if any, of the
Company's securities covered by such a Registration Statement, each person who
controls the Company or such underwriter within the meaning of the Securities
Act, and each other such Holder, each of its officers, directors, managers and
constituent partners and members and each person controlling such other Holder
(collectively, "Company Indemnitees"), against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue statement) of a material fact obtained from
such Holder and contained in any such Registration Statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by such Holder of
any rule or regulation promulgated under the Securities Act applicable to such
Holder and relating to action or inaction required of such Holder in connection
with any such Registration, qualification or compliance; and will reimburse the
Company Indemnitees for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder about such Holder and stated to be
specifically for use in connection with the offering of securities of the
Company, provided, however, that each Holder's liability under this Section
2.6(b) shall not exceed such Holder's
- 11 -
<PAGE> 12
proceeds from the offering of securities made in connection with such
Registration net of any reasonably determined selling expenses for the account
of such Holder.
(c) Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 2.6 of notice of the commencement of any
action, such indemnified party will, if a claim in respect thereof is to be
made against an indemnifying party under this Section 2.6, notify the
indemnifying party in writing of the commencement thereof and generally
summarize such action. The indemnifying party shall have the right to
participate in and to assume the defense of such claim; provided, however, that
the indemnifying party shall be entitled to select counsel for the defense of
such claim with the approval of any parties entitled to indemnification, which
approval shall not be unreasonably withheld; provided further, however, that if
either party reasonably determines that there may be a conflict between the
position of the indemnifying party and the indemnified party in conducting the
defense of such action, suit or proceeding by reason of recognized claims for
indemnity under this Section 2.6, then counsel for such party shall be entitled
to conduct the defense to the extent reasonably determined by such counsel to
be necessary to protect the interest of such party. The failure to notify an
indemnifying party promptly of the commencement of any such action, if
prejudicial to the ability of the indemnifying party to defend such action,
shall relieve such indemnifying party, to the extent so prejudiced, of any
liability to the indemnified party under this Section 2.6, but the omission so
to notify the indemnifying party will not relieve such party of any liability
that such party may have to any indemnified party otherwise other than under
this Section 2.6.
2.7 Limitations on Registration Rights Granted to Other
Securities. From and after the date of this Agreement, without the consent of
the Holders of at least (i) a majority of the Series E Registrable Securities,
voting as a separate single class on the basis of one vote for each share of
Series E Preferred Stock then outstanding, (ii) the Holders of at least 66 2/3%
of the Series F Registrable Securities, voting as a separate single class on
the basis of one vote for each share of Series F Preferred Stock then
outstanding, and (iii) the Holders of at least 60% of the Series G Registrable
Securities, voting as a separate single class on the basis of one vote for each
share of Series G Preferred Stock then outstanding, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the granting to such holder of any Registration
rights except Registration rights that are either subordinate or equivalent in
all respects to those granted under this Agreement. In the case of such
equivalent rights, such additional holders shall be added as parties to this
Agreement with regard to any or all securities of the Company held by them as
to which Registration rights are granted. Any such additional parties shall
execute a counterpart of this Agreement, and upon execution by such additional
parties and by the Company, shall be considered a Holder for all purposes of
this Agreement. The additional parties and the additional securities that shall
be deemed to be Registrable Securities hereunder shall be identified in such
amendment.
2.8 Transfer of Rights. The right to cause the Company to Register
securities granted by the Company to the Holders under Sections 2.1 and 2.2 may
be assigned by any Holder to a transferee or assignee of any Restricted
Securities or Registrable Securities not previously sold to the public;
provided, however, that (a) the Company must receive written notice at the time
of said transfer, stating the name and address of said transferee or assignee
and identifying the
- 12 -
<PAGE> 13
securities with respect to which such rights are being assigned, and (b) the
transferee or assignee of such rights must not be a person deemed by the Board,
in its best judgment, to be a competitor of the Company.
2.9 Market Stand-off. The Holders hereby agree that, if so requested
by the Company and the Underwriter's Representative (if any), no Holder shall
sell or otherwise transfer any Registrable Securities or other securities of
the Company during the ninety (90) day period following the effective date of a
Registration Statement of the Company filed under the Securities Act (provided
that if so required in writing by the underwriter(s) of the offering to which
such Registration Statement relates, such 90-day period may be extended to a
period not to exceed the greater of (a) the length of the lock-up period
imposed on members of senior management of the Company in connection with such
offering or (b) one hundred eighty (180) days) provided that such restriction
shall only apply to the first two (2) Registration Statements of the Company to
become effective which include securities to be sold on behalf of the Company
to the public in an underwritten offering.
2.10 No Action Letter in Lieu of Registration; Conversion of Preferred
Stock. Notwithstanding anything else in this Agreement to the contrary, if the
Company shall have obtained from the Commission a "no-action" letter addressed
to the Company in which the Commission has indicated that it will take no
action if, without Registration under the Securities Act, any Holder disposes
of Registrable Securities covered by any request for Registration made under
this Agreement in the specific manner in which such Holder proposes to dispose
of the Registrable Securities included in such request (such as including,
without limitation, the inclusion of such Registrable Securities in an
underwriting initiated by either the Company or the Holders), the shares
included in such request shall not be eligible for Registration under this
Agreement; provided, however, that any Registrable Securities not so disposed
of shall be eligible for Registration in accordance with the terms of this
Agreement with respect to other proposed dispositions to which this Section
2.10 does not apply. The Registration rights of the Holders of the Convertible
Securities set forth in this Agreement are conditioned upon the conversion of
the shares of Convertible Securities with respect to which Registration is
sought into Common Stock on or before the effective date of the Registration
Statement. The Registration rights of the Holders of the Harris Warrant set
forth in this Agreement are conditioned upon the exercise of the Harris Warrant
in accordance with their terms and the conversion of the shares of Series E
Preferred Stock received by such Holders upon such exercise with respect to
which Registration is sought into Common Stock on or before the effective date
of the Registration Statement.
2.11 Sale of Convertible Securities to Underwriter. Notwithstanding
any provision in this Agreement to the contrary, in lieu of converting any
Convertible Securities prior to the effective date of any Registration
Statement filed pursuant to this Agreement, the holder of such Convertible
Securities may sell such Convertible Securities to the underwriters of the
offering being Registered upon the undertaking of such underwriters to convert
the Convertible Securities on or prior to the closing date of the offering. The
Company agrees to cause the Common Stock issuable on the conversion of the
Convertible Securities to be issued within such time period as
- 13 -
<PAGE> 14
will permit the underwriters to make and complete the distribution contemplated
by the underwriting.
2.12 Rule 144 Requirements. Immediately after the date on which a
Registration Statement filed by the Company under the Securities Act becomes
effective, the Company shall undertake to make publicly available, and
available to the Holders of Registrable Securities, such information as is
necessary to enable the holders of Registrable Securities to make sales of
Registrable Securities pursuant to Rule 144 of the Commission under the
Securities Act. The Company shall furnish to any holder of Registrable
Securities, upon request, a written statement executed by the Company as to the
steps it has taken to comply with the current public information requirements
of Rule 144.
2.13 Termination of Company Agreements. The Registration rights set
forth in Sections 2.1 and 2.2 shall terminate seven (7) years after the
effective date of the Company's Registration Statement filed in connection with
the Company's first Qualified Public Offering or, as to any Holder that is not
an "affiliate" of the Company (as such term is defined in Rule 144), at any
time following the effective date of the Company's first Qualified Public
Offering when such Holder is entitled to sell all of such Holder's Registrable
Securities (without any limitation on the volume of sales) pursuant to Rule
144(k) of the Commission under the Securities Act.
ARTICLE III
VOTING AGREEMENTS AND CERTAIN RIGHTS OF
HOLDERS OF SERIES E, SERIES F AND SERIES G PREFERRED STOCK
3.1 Election of Members of Board of Directors. Pursuant to the
Company's Certificate of Incorporation, Holders of Series E Preferred Stock and
Series F Preferred Stock, voting together as a separate single class, on the
basis of one vote for each share of Series E Preferred Stock and Series F
Preferred Stock then outstanding, have the right to elect six (6) directors out
of nine (9) of the Board, provided, however, if the Company has not consummated
a Qualified Public Offering on or before September 7, 2000, then (x) the number
of members of the Board shall be eleven (11); and (y) the Holders of (i) Series
E Preferred Stock and Series F Preferred Stock, voting together as a separate
single class, on the basis of one vote for each share of Series E Preferred
Stock and Series F Preferred Stock then outstanding, shall have the right to
elect six of the eleven directors, and (ii) Series G Preferred Stock, voting as
a separate single class, on the basis of one vote for each share of Series G
Preferred Stock then outstanding, shall have the right to elect one of the
eleven directors. Each Holder of Series E Preferred Stock and Series F
Preferred Stock voting together as a single class, agrees that, until such time
as a Qualified Public Offering, it shall vote to elect, as one of the directors
that Holders of Series E Preferred Stock and Series F Preferred Stock voting
together as a single class are entitled to elect, (a) the individual that
serves as Chief Executive Officer of the Company from time to time, (b) any
individual nominated for election to the Board of Directors of the Company by a
Significant Holder, (c) any individual nominated for election to the Board of
Directors of the Company by SCP (but only for so long as SCP and CIP Capital
L.P. and their affiliates continue to own Series E Preferred Stock with an
aggregate Stated Value of at least $3,000,000); (d) any individual nominated
for election to the
- 14 -
<PAGE> 15
Board of Directors of the Company by Adams (but only for so long as Fostin
Capital Associates II and Adams and their affiliates continue to own Series E
Preferred Stock with an aggregate Stated Value of at least $3,000,000); and (e)
any individual nominated for election to the Board of Directors of the Company
by Tandem PCS Investments, L.P. ("Tandem Designee") (but only for so long as
Tandem and its affiliates continue to own Series F Preferred Stock with an
aggregate Stated Value of at least $3,000,000). This Section 3.1 shall
terminate upon the consummation of a Qualified Public Offering.
3.2 Board Visitation Rights of Significant Holders. Until such time as
a Significant Holder chooses to nominate a member of the Board of Directors of
the Company as provided in Section 3.1, each Significant Holder shall have the
right, at its option exercised by written notice to the Company, to (a) require
the Company to give it reasonable advance written notice of all meetings of the
Board, (b) obtain on a confidential basis copies of all materials distributed
to members of the Board, and (c) have a representative of the Significant
Holder observe, but not participate in, meetings of the Company's Board.
3.3 Board Visitation Rights of Significant Investor. So long as the
Holders who are Affiliates of the Significant Investor hold at least 50%, in
the aggregate, of the Series G Preferred Stock issued by the Company to such
Holders on the date hereof, the Significant Investor shall have the right, at
its option exercised by written notice to the Company, to (a) require the
Company to give it reasonable advance written notice of all meetings of the
Board, (b) obtain on a confidential basis copies of all materials distributed
to members of the Board, and (c) have a representative appointed by it observe,
but not participate in, meetings of the Company's Board.
3.4 Other Voting Agreements. So long as there exists a Significant
Holder, Holders of Series E Preferred Stock shall not waive any right that may
be waived by, or vote in favor of any matter that requires the affirmative vote
of (i) sixty percent (60%) of the voting power of the then outstanding Series E
Preferred Stock, or (ii) sixty percent (60%) of the voting power of the then
outstanding Series E Preferred Stock, Series F Preferred Stock and Series G
Preferred Stock, voting together as a single class, unless such waiver or
affirmative vote is consented to in writing by each Significant Holder.
3.5 Agreement Binding on Transferees. In the event of any transfer of
shares of any Senior Preferred Stock or Registrable Securities, the transferee
shall become party to this Agreement, shall agree to perform all of the
obligations of the transferring party and shall execute, acknowledge and
deliver to the Company and each Significant Holder, if any, such instruments of
transfer, assignment and assumption of such other certificates,
representations, and documents and shall perform all other acts that the
Company may deem necessary or desirable, to confirm that the transferee has
accepted, assumed, and agreed to be subject to, all of the terms, obligations
and conditions of this Agreement. The Company shall refuse to record on its
stock transfer records any transfer of any Senior Preferred Stock or
Registrable Securities that does not comply with this Section 3.5.
3.6 Pre-Emptive Rights. Article IV.C.9 of the Company's Certificate of
Incorporation provides that the holder of the Harris Warrant shall have the
same pre-emptive rights as holders
- 15 -
<PAGE> 16
of Series E Preferred Stock. Each Holder of Series E Preferred Stock
acknowledges and agrees to the existence of such pre-emptive rights, which have
the effect of reducing the pre-emptive rights such Holders would otherwise have
prior to exercise of the Harris Warrant for Series E Preferred Stock.
3.7 Further Assurances. The Company and each party to this Agreement
shall take such steps as may be necessary, in the judgment of the Company or
any Significant Holder, to ensure that the rights intended to be conferred by
this Article III shall be enforceable and implemented as provided herein.
3.8 Legends. So long as this Agreement shall remain in effect, all
certificates representing outstanding shares of Series E Preferred Stock and
Series F Preferred Stock shall be endorsed with substantially the following
legend (such legend has previously been or is simultaneously with the execution
hereof being endorsed on the certificates representing the shares of Series E
and Series F Preferred Stock to be issued on the date hereof):
The shares represented by this certificate, and all rights
represented by such shares, are subject to, and restricted by, the
terms of an Agreement Among Series E and Series F Preferred
Stockholders and Senior Registration Rights Agreement (the
"Agreement") between the Company and certain of its stockholders,
as the same may be amended from time to time, a copy of which
Agreement is on file at the principal office of the Company and
will be provided to stockholders upon request and without charge.
The Agreement includes, among other things, certain voting
agreements among holders of the Series E and Series F Preferred
Stock. Any person that wishes to become the owner of this
certificate or the shares which it represents, or to obtain any
interest in such certificate or shares, shall agree to become
bound by the provisions by the Agreement.
So long as this Agreement shall remain in effect, all certificates
representing outstanding shares of Series G Preferred Stock shall be endorsed
with substantially the following legend (such legend has previously been or is
simultaneously with the execution hereof being endorsed on the certificates
representing the shares of Series G Preferred Stock to be issued on the date
hereof):
The shares represented by this certificate, and all rights
represented by such shares, are subject to, and restricted by, the
terms of a Second Amended and Restated Agreement Among Series E,
Series F and Series G Preferred Stockholders and Senior
Registration Rights Agreement (the "Agreement") between the
Company and certain of its stockholders, as the same may be
amended from time to time, a copy of which Agreement is on file at
the principal office of the Company and will be provided to
- 16 -
<PAGE> 17
stockholders upon request and without charge. The Agreement
includes, among other things, certain voting agreements among
holders of the Company's Series E Preferred Stock, the Series F
Preferred Stock and the Series G Preferred Stock. Any person that
wishes to become the owner of this certificate or the shares which
it represents, or to obtain any interest in such certificate or
shares, shall agree to become bound by the provisions by the
Agreement.
3.9 Purchase of Employee Shares. So long as the Holders who are
Affiliates of the Significant Investor hold at least 50%, in the aggregate, of
the Series G Preferred Stock issued by the Company to such Holders on the date
hereof, except for repurchases by the Company of the Company's equity
securities held by employees of the Company (collectively, "Employee Shares")
pursuant to (a) the Company's exercise of its rights of first refusal, or (b)
the termination for cause of an employee of the Company, the Company shall not
repurchase any Employee Shares for an aggregate purchase price in excess of
$100,000 in any calendar year without the prior written consent of the holders
of at least sixty percent (60%) of the Series G Preferred Stock outstanding
immediately prior to such repurchase.
ARTICLE IV
AGREEMENT CONVENTIONS
4.1 Independent Contractor. Each party hereto is an independent
contractor, and nothing contained in this Agreement shall be construed to be
inconsistent with this relationship or status. Nothing in this Agreement shall
be in any way construed to constitute any party as the agent, employee, or
representative of the other. As an independent contractor, each party has
relied on its own expertise or the expertise of its legal, financial, technical
of other advisors.
4.2 No Partnership or Joint Venture Intended. The parties expressly do
not intend hereby to form a partnership under any state partnership or limited
partnership act or a joint venture. The parties do not intend to be partners or
joint venturers with one another, or partners or joint venturers as to any
third party. No party owes a fiduciary duty to the others.
4.3 No Other Duties. The only duties and obligations of the parties are
as specifically set forth in this Agreement, and no other duties or obligations
shall be implied in fact, law or equity, or under any principle of fiduciary
obligation.
4.4 Reliance on Counsel and Other Advisors. Each party has consulted
such legal, financial, technical or other expert as it deems necessary or
desirable before entering into this Agreement. Each party represents and
warrants that it has read, knows, understands and agrees with the terms and
conditions of this Agreement.
4.5 Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including
telex, telecopy and telegraphic communication) and shall be (as elected by the
person giving such notice) hand delivered by messenger or courier service,
telecommunicated, or mailed (airmail if international) by registered
- 17 -
<PAGE> 18
or certified mail (postage prepaid), return receipt requested, addressed to the
parties as specified below:
If to the Company: AirNet Communications Corporation
100 Rialto Place, Suite 300
Melbourne, FL 32934
Attention: President and CEO
Facsimile: (407) 676-9914
With a copy to: Edwards & Angell, LLP
250 Royal Palm Way, Suite 300
Palm Beach, FL 33480
Attention: John G. Igoe
Facsimile: (561) 655-8719
If to Harris: Harris Corporation
1025 W. NASA Boulevard
Melbourne, FL 32919
Attention: Corporate Secretary
Facsimile: (407) 727-9222
If to the Holders: To their address in the stock
records of the Company.
The Company will provide such addresses to any Holder upon written request if
the request is for the purpose of sending notices to the Holders under this
Agreement, or to such other address as any party may designate by notice
complying with the terms of this Section 4.5. Each such notice shall be deemed
delivered: (a) on the date delivered if by personal delivery; (b) on the date
of transmission with confirmed answer back if by telex, telecopy or other
telegraphic communication; and (c) on the date upon which the return receipt is
signed or delivery is refused or the notice is designated by the postal
authorities as not deliverable, as the case may be, if mailed.
4.6 Governing Law. This Agreement shall in all respects be governed
by, and construed in accordance with, the laws (excluding conflict of laws
rules and principles) of the State of Delaware applicable to agreements made
and to be performed entirely within such State, including all matters of
construction, validity and performance.
4.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties relating to the subject matter hereof and supersedes all prior
contracts or agreements, whether oral or written. There are no representations,
agreements, arrangements or understandings, oral or written, between or among
the parties relating to the subject matter of this Agreement which are not
fully expressed in this Agreement.
- 18 -
<PAGE> 19
4.8 Severability. Should any provision of this Agreement or the
application thereof to any person or circumstance be held invalid or
unenforceable to any extent: (a) such provision shall be ineffective to the
extent, and only to the extent, of such unenforceability or prohibition and
shall be enforced to the greatest extent permitted by law; (b) such
unenforceability or prohibition in any jurisdiction shall not invalidate or
render unenforceable such provision as applied (i) to other persons or
circumstances or (ii) in any other jurisdiction; and (c) such unenforceability
or prohibition shall not affect or invalidate any other provision of this
Agreement.
4.9 Amendment. Neither this Agreement nor any of the terms hereof may
be terminated, amended, supplemented or modified orally, but only by an
instrument in writing. Except as otherwise expressly provided herein, this
Agreement may be amended, modified and its provisions may be waived only in a
writing by Holders who are then a party to this Agreement holding at least 75%
of the aggregate number of shares of Common Stock issued or issuable upon
conversion of any of the Convertible Securities (including any securities of
the Company deemed to be Registrable Securities as provided in Section 2.7 of
this Agreement), other than Common Stock sold pursuant to a Registration
Statement, provided that a copy of any such amendment shall be mailed to each
Holder who is then a party to this Agreement; provided further no amendment,
modification or waiver which materially adversely affects the rights of less
than all of the Holders shall be valid unless approved in writing by all
Holders who are then a party to this Agreement; provided further that no
amendment, modification or waiver which adversely affects the rights of
Significant Holders shall be valid unless approved in writing by all
Significant Holders who are then a party to this Agreement; provided further
that no amendment, modification or waiver which adversely affects the rights of
holders of Series F Preferred Stock or Series F Registrable Securities shall be
valid unless approved in writing by holders of sixty-six and two-thirds percent
(66-2/3%) of the Series F Registrable Securities voting as a separate single
class on the basis of one vote for each share of Series F Registrable
Securities then outstanding.
4.10 Effect of Waiver or Consent. No waiver or consent, express or
implied, by any person to or of any breach or default by any party in the
performance by such party of its obligations hereunder shall be deemed or
construed to be a consent or waiver to or of any other breach or default in the
performance by such party of the same or any other obligations of such party
hereunder. No single or partial exercise of any right or power, or any
abandonment or discontinuance of steps to enforce any right or power, shall
preclude any other or further exercise thereof or the exercise of any other
right or power. Failure on the part of a party to complain of any act of any
party or to declare any party in default, irrespective of how long such failure
continues, shall not constitute a waiver by such person of its rights hereunder
until the applicable statute of limitation period has run.
4.11 Rights and Remedies Cumulative. The rights and remedies provided
by this Agreement are cumulative, and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Such rights and remedies are given in addition to any other rights the parties
may have under applicable Law or otherwise.
- 19 -
<PAGE> 20
4.12 Successors and Assigns. Each and all of the covenants, terms,
provisions, and agreements contained in this Agreement shall be binding upon,
and inure to the benefit of the parties hereto and their successors and
assigns.
4.13 Limitation on Rights of Others. Nothing in this Agreement,
whether expressed or implied, shall be construed to give any Person (other than
the parties hereto and their respective permitted successors and assigns and as
expressly provided herein) any legal or equitable right, remedy or claim under
or in respect of this Agreement or any covenants, conditions or provisions
contained herein, as a third party beneficiary or otherwise.
4.14 Facsimiles. For purposes of this Agreement, any copy, facsimile
telecommunication or other reliable reproduction of a writing, transmission or
signature may be substituted or used in lieu of the original writing,
transmission or signature for any and all purposes for which the original
writing, transmission or signature could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing, transmission or signature, as the
case may be.
4.15 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all signatory parties had signed the
same document. All counterparts shall be construed together and shall
constitute one and the same instrument. In the event that any stockholder who
acquires any shares of Senior Preferred Stock or Registrable Securities after
the date hereof shall be required and permitted to become a party to this
Agreement, such stockholder may do so by executing a counterpart signature page
to this Agreement and, with the acknowledgment of the Company on such
counterpart signature page, such stockholder shall be deemed a Holder under the
Agreement. The Company shall deliver written notice of the purchase of any
shares of Senior Preferred Stock or Registrable Securities after the date
hereof by a new Holder to the other Holders within thirty (30) days of the
execution of this Agreement by such new Holder by delivering a copy of the
executed and acknowledged counterpart and signature page to this Agreement,
reflecting ownership by each Holder who is then a party to this Agreement.
4.16 Effective Date. This Agreement will become effective only upon
the closing of the sale by the Company of shares of Series G Preferred Stock.
4.17 Headings, Etc. The words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. All
references as to "Sections", "Articles", "Schedules" and "Exhibits" shall be to
Section, Articles, Schedules and Exhibits, respectively, of this Agreement
unless otherwise specifically provided.
4.18 Consents. By executing this Agreement each party hereto that is a
party to the Second Restated Agreement acknowledges and agrees that such
execution shall constitute such party's consent, and waiver of any objections,
to the terms and provisions of this Agreement as required by the Second
Restated Agreement, including, without limitation, Section 4.9 thereof.
- 20 -
<PAGE> 21
4.19 Restated Agreement. This Agreement amends and restates the
Restated Agreement in its entirety and effective as of the date hereof the
Restated Agreement shall be of no further force or effect.
[Remainder of page intentionally left blank.]
- 21 -
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized officers or agents as of the date first
above written.
AIRNET COMMUNICATIONS CORPORATION
By: /s/ R. LEE HAMILTON
-------------------
R. Lee Hamilton
President and CEO
- 22 -
<PAGE> 23
SIGNATURE PAGE TO
SECOND AMENDED AND RESTATED AGREEMENT
AMONG SERIES E, SERIES F AND SERIES G PREFERRED STOCKHOLDERS AND
SENIOR REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered by their duly authorized officers or agents as of the date first
above written.
INVESTOR:
____________________________________
Print Name of Investor
By:_________________________________
Signature of Person Signing
Name:_______________________________
Print Name of Person Signing
Title:______________________________
Date:_______________________________
- 23 -
<PAGE> 1
Exhibit 10.1
AIRNET COMMUNICATIONS CORPORATION 1999 EQUITY INCENTIVE PLAN
1. Purpose
The purpose of the Airnet Communications Corporation 1999 Equity
Incentive Plan (the "Plan") is to attract and retain the best available talent
and encourage the highest level of performance by directors, employees and other
persons who perform services for Airnet Communications Corporation (the
"Company"). By affording eligible persons the opportunity to acquire proprietary
interests in the Company and by providing them incentives to put forth maximum
efforts for the success of the Company's business, the Plan is intended to serve
the best interests of the Company and its stockholders. The Plan shall
constitute a Second Amendment and Restatement of the Company's 1994 Stock Option
Plan, as amended, and a First Amendment and Restatement of the Company's 1996
Independent Director Stock Option Plan.
2. Definitions
"Affiliate" shall mean (i) any entity that, directly or indirectly, is
controlled by the Company, and (ii) any entity in which the Company has a
significant equity interest, in either case as determined by the Committee.
"Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Award or other Stock-Based Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange act) of 50% or more of either (i) then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (ii) the
combined voting power of then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities") or;
(ii) the cessation for any reason of individuals who, as of the date
hereof, constitute the Board (the "Incumbent Board") to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date
<PAGE> 2
hereof whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such individual were a member
of the Incumbent Board; or
(iii) the approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, more than 50% of, respectively, then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be; or
(iv) the approval by the shareholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean the Compensation Committee of the Board or such
other committee consisting of not less than two Board members designated by the
Board to administer the Plan.
"Common Shares" shall mean shares of the common stock, $.001 par value,
of the Company, or such other securities of the Company as may be designated by
the Committee from time to time.
"Company" shall mean Airnet Communications Corporation, a Delaware
corporation.
"Effective Date" means September 1, 1999.
"Employee" shall mean an employee of the Company or of any Affiliate, a
director of the Company, or any non-employee who provides services to the
Company or any Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" of the Common Shares shall mean the average of the
high and low prices of the Common Shares as reported by the New York Stock
Exchange, or the Fair Market
- 2 -
<PAGE> 3
Value of any other property or other item being valued as determined by the
Committee in its sole discretion.
"Freestanding Right" shall mean a Stock Appreciation Right awarded by
the Committee pursuant to Paragraph 7 of the Plan other than in connection with
an Option.
"Incentive Stock Option" shall mean the right to purchase Common Shares
from the Company that is granted under Section 6 of the Plan and that is
intended to meet the requirements of Section 422 of the Code or any successor
provision thereto.
"Insider" shall mean, at any time, an individual who is an officer,
director, or 10% stockholder of the Company within the meaning of Exchange Act
Rule 16a-1(f) as promulgated and interpreted by the SEC under the Exchange Act,
or any successor rule or regulation thereto as in effect from time to time.
"Non-Qualified Stock Option" shall mean a right to purchase Common
Shares from the Company that is granted under Section 6 of the Plan and that is
not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean any right granted under Section 10
of the Plan.
"Participant" shall mean any Employee, director or individual
independent contractor of the Company or one of its Affiliates selected by the
Committee to receive an Award under the Plan.
"Performance Award" shall mean any right granted under Section 9 of the
Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, government
or political subdivision thereof or other equity.
"Plan" shall mean this Airnet Communications Corporation 1999 Equity
Incentive Plan.
"QDRO" shall mean a domestic relations order meeting such requirements
as the Committee shall determine, in its sole discretion.
"Restricted Period" shall mean the period during which Restricted Stock
and Restricted Units may be forfeited to the Company.
"Restricted Stock" shall mean Common Shares granted under Paragraph 8
of the Plan.
"Restricted Stock Unit" shall mean any unit granted under Paragraph 8
of the Plan.
- 3 -
<PAGE> 4
"Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by
the SEC under the Exchange Act, or any successor rule or regulation thereto as
in effect from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Stock Appreciation Right" shall mean any Tandem Right or Freestanding
Right granted under Paragraph 7 of the Plan.
"Tandem Right" shall mean a Stock Appreciation Right awarded by the
Committee in connection with an Option pursuant to Paragraph 7 of the Plan.
"Total Disability" shall mean a determination by the Committee that the
Employee is unable to perform the duties required of him or her by the Company
as a result of any physical or mental condition.
3. Scope and Duration
Awards under the Plan may be granted in the form of Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Shares, Restricted Units, Performance Awards or Other Stock-Based Awards. The
maximum aggregate number of Common Shares as to which Awards may be granted from
time to time under the Plan is 212,870,132 shares, subject to adjustment as
provided in Paragraph 14. The Common Shares available may be in whole or in
part, as the Board shall from time to time determine, authorized but unissued
shares or issued shares re-acquired by the Company. Unless otherwise provided by
the Committee, Common Shares covered by expired, terminated or forfeited Awards,
Awards which are settled for cash or consideration other than the delivery of
Common Shares, or Common Shares which are used to exercise any Award or to
satisfy the withholding tax liabilities of any Award will be available for
subsequent awards under the Plan. No Incentive Stock Option shall be granted
more than 10 years after the Effective Date.
4. Administration
The Plan shall be administered by the Committee. The Committee shall
have plenary authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to grant Awards, to determine the terms and
conditions applicable to Awards, to determine the persons to whom, and the time
or times at which, Awards shall be granted and the number of Common Shares to be
covered by each grant; to determine the terms and provisions of the Award
Agreements entered into in connection with Awards under the Plan; to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; and to make all other determinations provided for in the Plan, or deemed
necessary or advisable for the administration of the Plan. To the extent
permissible by law, the Committee may delegate to one or more of its members or
to one or more agents such administrative duties as it may deem advisable, and
the Committee or any person to whom it has delegated duties as aforesaid may
employ one or more
- 4 -
<PAGE> 5
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan.
5. Eligibility; Factors to be Considered in Granting Awards
Subject to the discretion of the Committee, Awards may be granted to
any Employee of the Company and its Affiliates, a director of the Company, or a
non-employee who provides service to the Company or its Affiliates, except that
a non-employee shall not be granted an Incentive Stock Option. In determining
the Employees to whom Awards shall be granted and the number of Common Shares or
units to be covered by each Award, the Committee shall take into account the
nature of the Employee's duties, the present and potential contributions to the
success of the Company, and such other factors as it shall deem relevant in
connection with accomplishing the purposes of the Plan.
No award of Incentive Stock Options shall result in the aggregate Fair
Market Value of Common Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year
(determined at the time the Incentive Stock Option is granted) exceeding
$100,000.
The maximum number of Common Shares with respect to which Options and
Stock Appreciation Rights can be awarded under the Plan to any Employee is
42,574,026 Common Shares during the first 4 calendar years of the Plan, and
10,643,506 per year thereafter. The "per Employee" limitations described in this
paragraph shall be construed and applied consistent with the rules and
regulations under Code Section 162(m).
6. Stock Options
(a) Exercise Price
The purchase price of the Common Shares covered by each Option shall be
determined by the Committee, but in the case of an Incentive Stock Option shall
not be less than 100% of the Fair Market Value (110% in the case of a
stockholder owning more than 10% of the combined voting power of all classes of
Company stock) of the Common Shares on the date the Option is granted, or if
there are no sales on such date, on the next preceding day on which there were
sales.
(b) Terms of Options
The term of each Incentive Stock Option granted under the Plan shall
not be more than 10 years (5 years in the case of a stockholder of the Company
owning more than 10% of the combined voting power of all classes of Company
stock) from the date of grant, as the Committee shall determine, subject to
earlier termination as provided in Paragraphs 11 and 12. The term of each
Non-Qualified Stock Option granted under the Plan shall be such period of time
- 5 -
<PAGE> 6
as the Committee shall determine, subject to earlier termination as provided in
Paragraphs 11 and 12.
(c) Exercise of Options
(i) Subject to the provisions provided herein, an Option granted under
the Plan shall become vested as determined by the Committee. The Committee may,
in its discretion, determine as a condition of any Option, that all or a stated
percentage of the Option shall become exercisable, in installments or otherwise,
only after the completion of a specified service requirement, or the
satisfaction or occurrence of other conditions. The Committee may also, in its
discretion, accelerate the exercisability of any Option at any time and provide
in any Award Agreement that the Option shall become immediately exercisable as
to all Common Shares remaining subject to the Option upon a Change in Control.
(ii) Subject to applicable regulatory restrictions, an Option may be
exercised at any time or from time to time (further subject, in the case of an
Incentive Stock Option, to such restrictions as may be imposed by the Code), as
to any or all full shares as to which the Option has become exercisable.
Notwithstanding the foregoing provision, no Option may be exercised without the
prior consent of the Committee by an Insider until the expiration of six months
from the date of the grant of the Option.
(iii) Except as provided in Paragraphs 11, 12 and 13, no Option may be
exercised at any time unless the holder thereof is then an Employee, director or
individual independent contractor of the Company or one of its Affiliates.
(d) Payment
The purchase price of the Common Shares as to which an Option is
exercised shall be paid in full at the time of exercise. Payment may be made (i)
in cash, which may be paid by check, or other instrument acceptable to the
Company, (ii) with the consent of the Committee or the Chief Executive Officer,
in Common Shares, valued at the Fair Market Value on the date prior to exercise,
or if there were no sales on such date, on the next preceding day on which there
were sales, (iii) with the consent of the Committee and subject to such terms
and conditions as it may determine, by surrender of outstanding Awards under the
Plan, (iv) with the consent of the Committee, the delivery of a promissory note
containing such terms as deemed acceptable to the Committee, or (v) any
combination of the above. In addition, any amount necessary to satisfy
applicable federal, state or local tax requirements shall be paid promptly upon
notification of the amount due. The Committee may permit such amount to be paid
in Common Shares previously owned by the Employee, or a portion of the Common
Shares that otherwise would be distributed to such Employee upon exercise of the
Option, or a combination of cash and such Common Shares.
(e) Change in Control
- 6 -
<PAGE> 7
Unless the Board determines otherwise, and except as otherwise provided
herein, all Options outstanding under the Plan shall accelerate and become
immediately exercisable for a period of fifteen days, or such longer or shorter
period as the Board may prescribe, (the "notice period") immediately prior to
the scheduled consummation of a Change in Control, provided, however, that any
such acceleration and any exercise of options during the notice period shall be
(i) conditioned upon the consummation of the Change in Control and (ii)
effective only immediately before the consummation of such Change in Control.
Upon consummation of any Change in Control, the Plan and all
outstanding but unexercised Options shall terminate. Notwithstanding the
foregoing, to the extent provision is made in writing in connection with such
Change in Control for the continuation of the Plan and the assumption of Options
under the Plan theretofore granted, or for the substitution for such Options of
new options covering the stock of a successor company, or a parent or subsidiary
thereof, with appropriate adjustments as to the number and kinds of shares or
units and exercise prices, then the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided, and the acceleration and
termination provisions set forth in the first two sentences of this Paragraph
6(e) shall be of no effect. The Company shall send written notice of a Change in
Control to all individuals who hold Options not later than the time at which the
Company gives notice thereof to its stockholders.
7. Stock Appreciation Rights
(a) Awards
The Committee may award Stock Appreciation Rights to Employees of the
Company or any of its Affiliates. Stock Appreciation Rights may be either Tandem
Rights or Freestanding Rights. Tandem Rights may be awarded either at the time
the Option is granted or at any time prior to the exercise of the Option.
(b) Terms and Conditions
(i) Each Tandem Right shall be subject to the same terms and conditions
as the related Option and shall be exercisable only to the extent the Option is
exercisable.
(ii) The price per share specified in a Freestanding Right shall be
determined by the Committee, but in no event shall be less than the Fair Market
Value of the Common Shares as of the date of grant. The term of each
Freestanding Right shall be such period of time as the Committee shall
determine. Subject to the provisions of the Plan, each Freestanding Right shall
become vested as determined by the Committee. Prior to becoming 100% vested,
each Freestanding Right shall become exercisable, in installments or otherwise,
as the Committee shall determine. The Committee may also, in its discretion,
accelerate the exercisability of any Freestanding Right at any time, including a
Change in Control.
- 7 -
<PAGE> 8
(c) Exercise
(i) Upon exercise of a Stock Appreciation Right, (subject, in the case
of a Tandem Right, to the surrender of the related Option or any unexercised
portion thereof which the Employee determines to surrender for this purpose) the
Employee shall be entitled to receive, subject to the provisions of the Plan and
such rules and regulations as from time to time may be established by the
Committee, a payment having an aggregate value equal to (A) the excess of (i)
the Fair Market Value on the exercise date of one Common Share over (ii) the
Option price per share, in the case of a Tandem Right, or the price per share
specified in the terms of a Freestanding Right, times (B) the number of Common
Shares with respect to which the Stock Appreciation Right shall have been
exercised.
(ii) Upon exercise of a Tandem Right, the number of Common Shares
subject to exercise under the related Option shall automatically be reduced by
the number of Common Shares represented by the Option or portion thereof
surrendered.
(iii) A Tandem Right related to an Incentive Stock Option may only be
exercised if the Fair Market Value of a Common Share on the exercise date
exceeds the Option price.
(d) Payments
(i) The payment described in subparagraph (c)(i) above shall be made in
the form of cash, Common Shares, or a combination thereof, as elected by the
Employee, provided that the Committee shall have sole discretion to consent to
or disapprove the election of an officer or director to receive all or part of a
payment in cash.
(ii) If upon exercise of a Stock Appreciation Right the Employee is to
receive a portion of the payment in Common Shares, the number of shares received
shall be determined by dividing such portion by the Fair Market Value of a share
on the exercise date. The number of Common Shares received may not exceed the
number of Common Shares covered by any Option or portion thereof surrendered.
Cash will be paid in lieu of any fractional share.
(iii) Whether payments to Employees upon exercise of Tandem Rights or
Freestanding Rights are made in cash, Common Shares or a combination thereof,
the Committee shall have sole discretion as to timing of the payments, whether
in one lump sum or in annual installments or otherwise deferred, which deferred
payments may in the Committee's sole discretion (i) bear amounts equivalent to
interest or cash dividends, (ii) be treated as invested in the manner from time
to time determined by the Committee, with dividends or other income thereon
being deemed to have been so reinvested, or (iii) for the convenience of the
Company, contributed to a trust, which may be revocable by the Company or
subject to the claims of its creditors, for investment in the manner from time
to time determined by the Committee and set forth in the instrument creating
such trust, all as the Committee shall determine.
- 8 -
<PAGE> 9
(iv) No payment will be required from the Employee upon exercise of a
Stock Appreciation Right, except that any amount necessary to satisfy applicable
federal, state or local tax requirements shall be withheld or paid promptly upon
notification of the amount due and prior to or concurrently with delivery of
cash or a certificate representing shares. The Committee may permit such amount
to be paid in (i) Common Shares previously owned by the Employee, (ii) a portion
of the Common Shares that otherwise would be distributed to such Employee upon
exercise of the right, or (iii) a combination of cash and Common Shares.
8. Restricted Shares or Restricted Units
(a) Awards
Restricted Stock or Restricted Stock Units may be awarded by the
Committee in its sole discretion. At the time an award of Restricted Shares or
Restricted Units is made, the Committee shall (i) establish a Restricted Period
applicable to such award, (ii) prescribe conditions for the incremental lapse of
restrictions during the Restricted Period, or for the lapse or termination of
restrictions upon the satisfaction or occurrence of other conditions in addition
to or other than the expiration of the Restricted Period, including a Change in
Control, and (iii) determine all other terms and conditions of such award,
including voting and dividend or dividend equivalent rights.
(b) Restrictions on Transfer
Upon the grant of Restricted Shares, a stock certificate representing
the number of Common Shares equal to the number of Restricted Shares granted to
an Employee shall be registered in the Employee's name but shall be held in
custody by the Company for the Employee's account. The Employee shall not be
entitled to delivery of the certificate or to sell, transfer, assign, pledge or
otherwise encumber the Restricted Shares until the expiration of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee.
Upon the forfeiture of any Restricted Shares, such forfeited Restricted Shares
shall be transferred to the Company without further action by the Employee.
(c) Delivery of Shares
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee or at such
earlier time as provided for in Paragraph 12, a stock certificate for the number
of Common Shares with respect to which the restrictions have lapsed, or one
Common Share for each Restricted Unit with respect to which the restrictions
have lapsed, shall be delivered, free of all such restrictions, except any that
may be imposed by law, to the Employee or the Employee's beneficiary or estate,
as the case may be. Fractional Shares will be paid in cash.
(d) Payment
- 9 -
<PAGE> 10
No payment will be required from the Employee upon the issuance or
delivery of any Common Shares, except that any amount necessary to satisfy
applicable federal, state or local tax requirements shall be withheld or paid
promptly upon notification of the amount due and prior to or concurrently with
the issuance or delivery of a certificate representing such shares. The
Committee may permit such amount to be paid in (i) Common Shares previously
owned by the Employee, (ii) a portion of the Common Shares that otherwise would
be distributed to such Employee upon the lapse of the restrictions applicable to
the Restricted Shares or Restricted Units, or (iii) a combination of cash and
Common Shares.
9. Performance Awards
(a) Grant
Performance Awards may be granted to any Employee by the Committee in
its sole discretion. A Performance Award shall consist of a right that is (i)
denominated in cash or Common Shares, (ii) valued, as determined by the
Committee, in accordance with the achievement of such performance goals during
such performance periods as the Committee shall establish, and (iii) payable at
such time and in such form as the Committee shall determine.
(b) Terms and Conditions
Subject to the terms of the Plan and any applicable Award Agreement,
the Committee shall (i) determine the performance goals to be achieved during
any performance period, (ii) the length of any performance period, (iii) the
amount of any Performance Award, (iv) the amount and kind of any payment or
transfer to be made pursuant to any Performance Award, and (v) all other terms
and conditions of any Performance Award, including the consequences of death,
Disability, termination of employment and Change in Control.
(c) Payment of Performance Awards
Performance Awards may be paid in a lump sum or in installments
following the close of the performance period or, in accordance with procedures
established by the Committee, on a current or deferred basis.
10. Other Stock-Based Awards
The Committee shall have authority to grant to eligible Employees an
"Other Stock-Based Award", which shall consist of any right that is an Award of
Common Shares or an Award denominated or payable in, valued in whole or in part
by reference to, or otherwise based on or related to, Common Shares (including,
without limitation, securities convertible into Common Shares), as deemed by the
Committee to be consistent with the purposes of the Plan, other than an Award
described in Paragraphs 6 through 9 above.
- 10 -
<PAGE> 11
11. Termination of Employment
Unless otherwise determined by the Committee, and subject to such
restrictions as may be imposed by the Code in the case of any Incentive Stock
Options, in the event that the employment of an Employee to whom an Option or
Stock Appreciation Right has been granted under the Plan shall be terminated
(except as set forth in Paragraph 12), such Option or Stock Appreciation Right
may, subject to the provisions of the Plan, be exercised, to the extent that the
Employee was entitled to do so at the termination of his employment, at any time
within three months after such termination, but in no case later than the date
on which the Option or Stock Appreciation Right terminates.
Unless otherwise determined by the Committee, if an Employee to whom
Restricted Shares or Restricted Units have been granted ceases to be an Employee
prior to the end of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee for any reason other than death or Total
Disability, the Employee shall immediately forfeit all Restricted Shares and
Restricted Units.
12. Death or Total Disability of Employee
Unless otherwise determined by the Committee, if an Employee to whom an
Option or Stock Appreciation Right has been granted under the Plan shall die or
suffer a Disability while employed by the Company, such Option or Stock
Appreciation Right may be exercised, to the extent it was exercisable at the
date of termination, at any time within one year after the date of the
Employee's death or Total Disability, but in no case later than the date on
which the Option or Stock Appreciation Right otherwise terminates.
If an Employee to whom Restricted Shares or Restricted Units have been
granted shall die or suffer a Disability prior to the end of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee,
or in cases of other special circumstances, the Committee may, in its sole
discretion, waive in whole or in part any or all remaining restrictions with
respect to such Employee's Restricted Shares or Restricted Units.
13. Non-Transferability of Awards
Awards granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution, or pursuant to a qualified
domestic relations order as defined by Section 414(p) of the Code except to the
extent provided in any Award Agreement and permitted under applicable law.
- 11 -
<PAGE> 12
14. Adjustment upon Changes in Capitalization, etc.
(i) The existence of outstanding Options or other Awards shall not
affect in any way the right or ability of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations, reorganizations or
other changes in the Company's capital structure or its business, or any merger
or consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Shares or the rights
hereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business or substantially all of
the outstanding stock of the Company, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(ii) If the Company shall effect a subdivision, consolidation or
reclassification of the Common Shares or other capital readjustment or
recapitalization, the payment of a stock dividend, or other increase or
reduction in the number of the Common Shares outstanding, without receiving
compensation therefor in money, services or property, then the number, class,
and per share price of Common Shares shall be appropriately adjusted in such a
manner as to entitle Employees to receive, for the same aggregate cash
consideration, if applicable, the same total number and class of shares as he
would have received as a result of the event requiring the adjustment and the
number of shares of stock which may be issued under the Plan shall be
appropriately adjusted in order to prevent dilution or enlargement of rights.
(iii) Except as hereinbefore expressly provided, the issue by the
Company of shares of stock of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Common Shares then subject to outstanding options.
15. Effective Date
The Plan shall be effective as of September 1, 1999, provided that the
adoption of the Plan shall have been approved by the stockholders of the Company
not later than 12 months after such date. The Committee may, in its discretion,
grant Awards under the Plan, the grant, exercise or payment of which shall be
expressly subject to the conditions that, to the extent required at the time of
grant, exercise or payment, (i) if the Company deems it necessary or desirable,
a Registration Statement under the Securities Act of 1933 with respect to such
Common Shares shall be effective, and (ii) any requisite approval or consent of
any governmental authority of any kind having jurisdiction over Awards granted
under the Plan shall be obtained.
16. Termination and Amendment
The Board may suspend, terminate, modify or amend the Plan at any time
without stockholder approval except as may be required by the Company's
Certificate of Incorporation,
- 12 -
<PAGE> 13
applicable laws, regulations and exchange requirements. If the Plan is
terminated, the terms of the Plan shall, notwithstanding such termination,
continue to apply to Awards granted prior to such termination. In addition, no
suspension, termination, modification or amendment of the Plan may, without the
consent of the Employee to whom an Award shall theretofore have been granted,
adversely affect the rights of such Employee under such Award.
17. Miscellaneous
(a) Written Agreements
Each Award hereunder shall be evidenced by an Award Agreement which
shall contain such restrictions, terms and conditions as the Committee may
require.
(b) No Right to Employment
Nothing in the Plan or in any Award granted pursuant to the Plan shall
confer upon any Employee any right to continue in the employ of the Company or
any of its subsidiaries or interfere in any way with the right of the Company or
any such subsidiary to terminate such employment at any time.
(c) Governing Law
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in
accordance with the laws of the State of Delaware.
(d) Severability
If any provision of the Plan or any Award is or becomes or is deemed to
be invalid, illegal, or unenforceable in any jurisdiction or as to any Employee
or Award, or would disqualify the Plan or any Award under any law or regulations
deemed applicable, or the compliance with which is deemed desirable, including
any accounting rules or regulations, by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, rules or
regulations, or if it cannot be construed or deemed amended without, in the
determination of the Committee, materially altering the intent of the Plan or
the Award, such provision shall be stricken as to such jurisdiction, Employee or
Award and the remainder of the Plan and any such Award shall remain in full
force and effect.
(e) Other Laws
The Committee may refuse to issue or transfer any Common Shares or
other consideration under an Award if, acting in its sole discretion, it
determines that the issuance or transfer of such Common Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act,
- 13 -
<PAGE> 14
and any payment tendered to the Company by an Employee, other holder or
beneficiary in connection with the exercise of such Award shall be promptly
refunded to the relevant Employee, holder, or beneficiary.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Plan as of the ____ day of ___________, 1999.
AIRNET COMMUNICATIONS CORPORATION
By:_______________________________
Title:______________________________
- 14 -
<PAGE> 1
Exhibit 10.2
OEM AND PATENT LICENSE OPTION AGREEMENT
THIS AGREEMENT ("this Agreement"), dated January 27, 1995, is made
by and between MOTOROLA, INC., a Delaware corporation having its principal place
of business at 1303 East Algonquin Road, Schaumburg, Illinois 60196-1065, and
AIRNET COMMUNICATIONS CORPORATION, a Delaware corporation having its principal
place of business at 100 Rialto Place, Suite 300, Melbourne, Florida 32901.
RECITALS
WHEREAS, pursuant to an Investment Agreement of even date herewith,
Motorola has agreed to make an equity investment in AirNet as specified therein,
as part consideration for this Agreement; and
WHEREAS, AirNet is willing to grant Motorola certain options to
purchase certain AirNet equipment on certain conditions; and
WHEREAS, AirNet is willing to grant Motorola certain options to
take licenses under AirNet's patents on certain conditions; and
WHEREAS, Motorola and AirNet are willing to enter into other mutual
covenants with one another on certain terms and conditions; and
WHEREAS, Motorola and AirNet wish to set forth their agreement
regarding the options for equipment purchases, licenses, and other mutual
covenants in writing as specified herein;
NOW, THEREFORE, in consideration of the foregoing recitals, and the
covenants, representations and warranties set forth herein, and other good and
valuable consideration, the parties hereto hereby agree as follows:
ARTICLE I
Certain Defined Terms
The following capitalized terms used in this Agreement shall have
the following meanings:
1.1 "AirNet" shall mean AirNet Communications Corporation, a
corporation of the State of Delaware having its principal place of business at
100 Rialto Place, Melbourne, Florida 32901.
1.2 "AirNet Licensee" shall mean any third party who has been
granted a royalty bearing license to AirNet's intellectual property.
1.3 "Commercial", when used as an adjective to refer to AirNet's
products, shall mean an AirNet product that has been made available for shipment
by AirNet to its regular customers.
Page 1
<PAGE> 2
1.4 "Pre-Commercial", when used as an adjective to refer to
AirNet's products, shall refer to an AirNet product that is under development by
AirNet and which is not yet available for shipment by AirNet to its regular
customers.
1.5 "BDR" or "Broadband Digital Radio" shall mean that part of a
BTS that interfaces between a BPU and one or more antenna(s) or linear power
amplifier(s), and which consists of radio frequency (RF) or intermediate
frequency (IF) receiving and transmitting circuits and analog-to-digital and
digital-to-analog conversion circuits.
1.6 "BPU" or "Broadband Processing Unit" shall mean that part of a
BTS that interfaces between a BDR and a base station controller or other
telephone network switching system.
1.7 "BTS" or "Broadband Transceiver System" shall mean the
combination of a BDR and a BPU.
1.8 "Motorola" shall mean Motorola, Inc., and any Non-Competing
Motorola-Owned Company.
1.9 "Motorola, Inc." shall mean Motorola, Inc., a Delaware
corporation having its principal place of business at 1303 East Algonquin Road,
Schaumburg, Illinois, 60196-1065, and any wholly owned subsidiaries of Motorola,
Inc.
1.10 "Non-Competing Motorola-Owned Company" shall mean any business
enterprise in which Motorola owns at least a 51 % interest and which is not in
direct competition with AirNet. Such a business enterprise shall not be
considered to be in direct competition with AirNet if: (1) the business
enterprise was created for the purpose of satisfying the domestic content
requirements of foreign governments in order to enable Motorola to have its
products manufactured overseas; (2) Motorola, Inc. remains the primary access
point for customers for the products and/or services manufactured and/or sold by
the business enterprise; or (3) the business enterprise is not engaged in
selling wireless base station products or services.
1.11 "Other Substantial Investor" shall mean any third person or
entity who is not one of the Other Strategic Companies and whom makes an equity
investment in AirNet of at least the same value as the equity investment made by
Motorola in AirNet.
1.12 "Other Strategic Companies" shall mean AT&T Corporation,
Northern Telecom Limited, L.M. Ericsson, and Nokia Oy AB.
1.13 "Other Strategic Partner" shall mean any one or more of the
Other Strategic Companies which may make an equity investment in AirNet.
ARTICLE 2
Equipment Purchase Options
2.1 AirNet hereby agrees to grant Motorola a non-exclusive right to
purchase Commercial AirNet products or components thereof for application in
traditional analog AMPS/NAMPS wireless architectures for deployment in North
America. This right to purchase
Page 2
<PAGE> 3
shall be subject to reasonable terms and conditions, including price, to be
mutually agreed upon at the time of a firm order or orders by Motorola.
2.2 AirNet hereby agrees to grant Motorola a non-exclusive right to
purchase Commercial BPUs for DCS 1900/GSM applications for deployment anywhere
in the world, subject to reasonable terms and conditions, including price, to be
mutually agreed upon at the time of a firm order or orders by Motorola.
2.3 AirNet hereby agrees to grant Motorola a non-exclusive right to
purchase up to 10,000 Commercial BPUs for any application, pursuant to firm
orders, with a lead time to be mutually agreed upon, for delivery during the
first twelve months after such units become commercially available, subject to
reasonable terms and conditions, including price, to be mutually agreed upon,
but which terms will be no less favorable than those enjoyed by any other AirNet
customer at that time. Motorola understands that Motorola alone will be
responsible for any integration or software development necessary to integrate
the AirNet BPU into Motorola's application. However, as part of such a later
definitive BPU purchase order, AirNet will agree to provide appropriate
documentation to enable Motorola to develop software for the BPUs, and to
install and maintain the BPUs, with appropriate limits on Motorola's use of such
BPU documentation.
2.5 AirNet hereby agrees to sell to Motorola twenty-five (25)
Pre-Commercial BTS units (with or without digital signal processing decoding),
as agreed to in a definitive order with reasonable terms and conditions,
including price and reasonable lead time, to be mutually agreed upon, and in
accordance with specifications to be agreed upon, for delivery in June, 1995.
ARTICLE 3
Licenses
3.1 In further consideration for Motorola's execution and delivery
of the above-referenced Investment Agreement, AirNet hereby grants Motorola an
option, at Motorola's request, to take a worldwide, non-exclusive, irrevocable,
paid-up, royalty free license under any two of AirNet's patents (including
continuations in part and foreign counterparts thereof) which issue at any time,
subject to the limitations set forth below.
3.2 The patent licenses granted in Section 3.1 above are personal
to Motorola and may not be sold, leased, transferred, assigned, or sub-licensed
in any way. Such patent licenses shall extend only to products manufactured by
Motorola, it being understood, however, that any such patent license will extend
to products manufactured by Motorola and sold directly by Motorola to Motorola's
distributors and Motorola's customers, including any value-added reseller
customers of Motorola. Motorola shall not use any such patent licenses to
knowingly put third parties in direct competition with AirNet. Although AirNet
recognizes that such patent licenses to Motorola may permit Motorola and AirNet
to compete with each other, Motorola shall not be granted any right to
sub-license others under AirNet's patents.
3.3 Motorola's patent license rights granted pursuant to section
3.1 shall be limited to AirNet's digital transceiver technology patent(s), and
AirNet shall not, for example, be obligated to grant Motorola any license to
AirNet's frequency reuse technology, or any technology
Page 3
<PAGE> 4
not directly related to cellular or wireless base station operation. Any such
patent license shall be evidenced by a definitive patent license agreement with
mutually acceptable terms. Any such license shall be a patent license only, and
not a license under any other intellectual property right that AirNet may have
in the AirNet Products, such as a copyright, trade secret, know-how, or other
proprietary right. Motorola shall not, for example, be granted any right to
access or copy the confidential aspects of the design of AirNet's products.
3.4 In addition, should AirNet ever grant a royalty-bearing
intellectual property license for Commercial AirNet products in whole or in part
to an AirNet Licensee, then AirNet will, at Motorola's request, offer Motorola
the opportunity to take a similar license. The terms and conditions of such a
license shall be more favorable than those received by any such AirNet
Licensees, such that the aggregate payments under any such license to Motorola
shall be at least 20% lower than the lowest aggregate payments required to be
paid by any AirNet Licensee. This discounted license payment right is intended
to be a discount from AirNet's traditional licenses only, and shall not include
cross-licenses, or licenses which may be required for AirNet to satisfy the
domestic content requirements of foreign governments to enable AirNet to have
its products manufactured overseas. This right in favor of Motorola's 20%
discount shall also not apply to any royalty-bearing intellectual property
license granted by AirNet to an Other Strategic Partner or an Other Substantial
Investor, provided, however, that Motorola's aggregate payment discount shall be
at least as favorable as the discount granted to an Other Strategic Partner or
Other Substantial Investor.
3.5 In the event of a potential merger, consolidation or sale of
AirNet (a "Major Transaction"), and if Motorola has not yet exercised its option
to take a worldwide, non-exclusive, irrevocable, paid-up, royalty-free license
under Section 3.1 above under one or two of AirNet's patents, AirNet, at
AirNet's option, by delivery of written notice (the "Sale of Company Notice") to
Motorola, may require Motorola to (a) exercise ("Exercise") such option for two
(or one if only one is still available), of such licenses, which Exercise may,
at Motorola's option, be subject to the closing of such Major Transaction; or
(b) to cancel and terminate ("Cancel") such option with respect to two (or one
if only one is still available) of such licenses in consideration for a payment
from AirNet of $1,000,000 for each option so canceled. Motorola shall elect to
Exercise or to Cancel by delivering written notice (the "Election Notice") to
AirNet within twenty (20) days of Motorola's receipt of the Sale of Company
Notice. In the event that Motorola fails to respond to the Sale of Company
Notice by delivering an appropriate Election Notice within such period, Motorola
shall be deemed to have elected to Cancel, subject to the closing of such Major
Transaction. In the event Motorola elects to Cancel, AirNet's obligation to pay
for such cancellation, and Motorola's obligation to Cancel, shall be subject to
the closing of such Major Transaction. In the event that Motorola elects to
Exercise such option, for each such option still available, Motorola shall have
the right pick a worldwide, non-exclusive, irrevocable, paid-up, royalty-free
license under Section 3.1 to (i) an AirNet patent then issued; (ii) an AirNet
patent application then pending which has not yet issued; or (iii) an AirNet
patent disclosure document which has been filed with a government patent office
but which is not yet pending.
Page 4
<PAGE> 5
ARTICLE 4
Patent Infringement Dispute Resolution
4.1 Motorola agrees not to seek an injunction against AirNet for
infringement of any Motorola digital base station transceiver technology patent.
Before filing suit against AirNet, Motorola agrees that it will first attempt to
settle any such claim or controversy based upon infringement of a Motorola
patent through consultation and negotiation in good faith of an appropriate
non-exclusive license in a spirit of mutual cooperation with AirNet. If those
attempts fail, then such dispute will be mediated by a mutually acceptable
mediator to be chosen by the parties within fifteen (15) business days after
written notice by one of the parties demanding mediation. Neither party may
unreasonably withhold consent to the selection of the mediator. By mutual
agreement, however, the parties may postpone mediation. The parties may also
mutually agree to replace mediation with some other form of alternative dispute
resolution ("ADR"), such as neutral fact-finding or a mini-trial.
Any dispute which Motorola and AirNet cannot resolve through
negotiation, mediation, or another form of ADR within forty-five (45) days of
the date of the initial demand for ADR by one of the parties may be submitted to
any federal or state court of competent jurisdiction. The use of any ADR
procedures will not be construed under the doctrine of laches, waiver, or
estoppel to affect adversely the rights of any party. Nothing in this Section 4.
1 will prevent either party from resorting to judicial proceedings if good faith
efforts to resolve the dispute under these procedures have been unsuccessful.
4.2 AirNet agrees not to seek an injunction against Motorola for
infringement of any AirNet digital base station transceiver technology patent.
Before filing suit, AirNet agrees that it will first attempt to settle any such
claim or controversy based upon infringement of an AirNet patent through
consultation and negotiation in good faith of an appropriate non-exclusive
license in a spirit of mutual cooperation with Motorola. If those attempts fail,
then such dispute will be mediated by a mutually acceptable mediator to be
chosen by the parties within fifteen (15) business days after written notice by
one of the parties demanding mediation. Neither party may unreasonably withhold
consent to the selection of the mediator. By mutual agreement, however, the
parties may postpone mediation. The parties may also mutually agree to replace
mediation with some other form of alternative dispute resolution ("ADR"), such
as neutral fact-finding or a mini-trial.
Any dispute which AirNet and Motorola cannot resolve through
negotiation, mediation, or another form of ADR within forty-five (45) days of
the date of the initial demand for ADR by one of the parties may be submitted to
any federal or state court of competent jurisdiction. The use of any ADR
procedures will not be construed under the doctrine of laches, waiver, or
estoppel to affect adversely the rights of any party. Nothing in this Section
4.2 will prevent either party from resorting to judicial proceedings if good
faith efforts to resolve the dispute under these procedures have been
unsuccessful.
Page 5
<PAGE> 6
ARTICLE 5
Representations and Warranties of AirNet
5.1 Authority. AirNet has all requisite power and authority to
enter into and execute this agreement and to perform its obligations hereunder.
All corporate action on the part of AirNet and its officers and directors
necessary for the authorization, execution, delivery and performance of AirNet
under this agreement has been duly and validly taken.
5.2 Binding Agreement. This agreement constitutes a legal, valid
and binding obligation of AirNet, and is enforceable against AirNet in
accordance with its terms except as enforceability may be limited by (i)
bankruptcy, reorganization, insolvency and other laws affecting the enforcement
of creditor's rights generally, and (ii) general principles of equity, whether
or not the enforceability of this agreement is considered in a proceeding in
equity or at law.
5.3 Intellectual Promptly Warranty. As part of any patent license
granted by AirNet to Motorola pursuant to Article 3 above, AirNet will include a
warranty representing that to the best of AirNet's knowledge at the time such
patent license(s) are entered into, the patent(s) licensed thereby are valid and
enforceable. AirNet also agrees to include with such warranty a provision that
in the event any patent so licensed is later held, by a final decree of a court
of competent jurisdiction or patent office administrative reexamination
proceeding, and after all possibilities of appeal have been exhausted, to be
invalid or unenforceable, and AirNet has breached such warranty to Motorola,
AirNet will grant Motorola another option, at Motorola's request, to take a
license to another of AirNet's patents, to replace such license for the patent
held invalid or unenforceable, such other patent license being subject to the
same limitations as set forth in Article 3 above.
ARTICLE 6
Representations and Warranties of Motorola
6.1 Authority. Motorola has all requisite power and authority to
enter into and execute this agreement and to perform its obligations hereunder.
All corporate action on the part of Motorola and its officers and directors
necessary for the authorization, execution, delivery and performance of all
obligations of Motorola under this agreement has been duly and validly taken.
6.2 Binding Agreement. This agreement constitutes a legal, valid
and binding obligation of Motorola, and is enforceable against Motorola in
accordance with its terms except as enforceability may be limited by (i)
bankruptcy, reorganization, insolvency and other laws affecting the enforcement
of creditor's rights generally, and (ii) general principles of equity, whether
or not the enforceability of this agreement is considered in a proceeding in
equity or at law.
ARTICLE 7
Indemnification
7.1 Each party shall indemnify and hold harmless the other party
and its incidental agents, employees, successors, and assigns, from and against
any and all damages, claims, losses, expenses, costs, obligations and
liabilities, including, without limitation, liabilities
Page 6
<PAGE> 7
for attorneys' fees suffered or incurred, either directly or indirectly, as a
result of (i) any material breach of any representation or warranty under this
Agreement; or (ii) any material failure to perform or fulfill the duties and
responsibilities under this Agreement. This indemnification shall not, however,
extend to include any incidental, special, or consequential damages.
ARTICLE 8
Confidential Information
8.1 Motorola and AirNet shall maintain in confidence all
proprietary information communicated to one another pursuant to the licenses
which may be granted hereunder, in accordance with the terms of the Reciprocal
Confidentiality Agreement between AirNet and Motorola dated June 24, 1994, as
amended December 14, 1994.
ARTICLE 9
Miscellaneous Provisions
9.1 No Agency or Partnership Between AirNet and Motorola. Nothing
in this Agreement or any of the transactions, obligations or relationships
contemplated hereby shall, in and of itself, constitute an agreement that either
AirNet or Motorola shall have the authority to act as the agent, employee or
legal representative for the other for any purpose whatsoever, nor shall any
party to this Agreement hold itself out as such. This Agreement does not create
and shall not be deemed to create a relationship of partners, joint venturers,
associates or principal-and-agent between AirNet and Motorola, and each of the
parties hereto acknowledges that it is acting as a principal hereunder. Motorola
is one of several equity investors in AirNet and this Agreement is being made in
connection with AirNet's grant of the right to purchase products and other
mutual license rights described herein.
9.2 Costs and Expenses. Unless otherwise specified in this
Agreement, each party hereto shall bear its own costs and expenses (including,
but not limited to, attorney's fees) in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement, and the
consummation of the transactions contemplated hereby.
9.3 Specific Performance. In the event either party shall fail or
refuse to perform its obligations under this Agreement, the other party, after
complying with Section 3.8, if applicable, shall not have any right to specific
performance.
9.4 Further Assurances. From time to time after the date hereof,
AirNet or Motorola shall execute all such additional instruments, licenses and
certificates, and shall take all such other action as AirNet or Motorola, as the
case may be, may reasonably request in connection with the consummation of this
Agreement and effecting the intent and purpose hereof
9.5 Notices. Any notice, demand or other communication ("Notice")
that may be or is required to be given hereunder or with respect hereto shall be
in writing, and shall be given either (i) by personal delivery, (ii) by
certified mail, return receipt requested, (iii) .by facsimile, or (iv) by
overnight delivery service. Any such Notice shall be deemed to have been given
or made when personally delivered, seven (7) days after the date such Notice is
deposited in the mail, first class postage prepaid, on the date on which the
party receiving such Notice given or made by facsimile acknowledges receipt
thereof (as required below), or the next business day
Page 7
<PAGE> 8
following the day such Notice is dispatched by overnight delivery service, as
the case may be, addressed as follows:
If to Motorola:
Motorola, Inc.
1303 E. Algonquin Road
Schaumburg, Illinois 60196
Attention: James W. Gilman, Esq.
Senior Vice President and Director for
Patents, Trademarks and Licensing
Phone: (708) 576-5223
Fax No: (708) 576-3750
If to AirNet:
AirNet Communications Corporation
100 Rialto Place, Suite 300
Melbourne, Florida 32901
Attention: David J. Thibodeau, Jr.
Vice President-General Counsel
Phone: (407) 984-1990
Fax No: (407) 984-2348
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the Effective Date stated above.
MOTOROLA, INC.
By: /s/ William E. Spencer
----------------------------------------
William E. Spencer
Title: Corporate Vice President and
Motorola Director, Strategy
AIRNET COMMUNICATIONS CORPORATION
By: /s/ Bernard R. Smedley
----------------------------------------
Bernard R. Smedley
Title: President & CEO
Page 8
<PAGE> 1
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six-Month Periods Ended Years Ended
June 30, December 31,
-------------------------- -----------------------------------------
1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss ................................. $ 8,537,470 $ 7,316,780 $17,916,955 $17,236,482 $29,174,256
----------- ----------- ----------- ----------- -----------
Plus preferred dividends:
Series A ............................ 354,627 354,627 709,254 709,254 709,254
Series B ............................ 473,292 473,292 946,584 946,584 946,584
Series C ............................ 900,000 900,000 1,800,000 1,800,000 1,800,000
Series D ............................ 269,744 269,744 539,487 404,615 --
Series E ............................ 773,752 613,752 1,307,505 235,000 --
Series F ............................ 626,644 -- 313,322 -- --
----------- ----------- ----------- ----------- -----------
3,398,059 2,611,415 5,616,152 4,095,453 3,455,838
----------- ----------- ----------- ----------- -----------
Net loss attributable to common
stockholders ........................ $11,935,529 $ 9,928,195 $23,533,107 $21,331,935 $32,630,094
=========== =========== =========== =========== ===========
Weighted average common shares
outstanding ........................ 25,030,043 17,678,713 19,774,357 14,699,920 13,741,020
=========== =========== =========== =========== ===========
Basis and diluted net loss per share .... $ (0.48) $ (0.56) $ (1.19) $ (1.45) $ (2.37)
=========== =========== =========== =========== ===========
</TABLE>
(1) Diluted net loss per share equals basic net loss per share for all periods
reported since potential common shares are anti-dilutive.
<PAGE> 1
Exhibit 16.1
September 24, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the disclosure related to Change in Independent
Accountants on page 59 of Form S-1 dated September 24, 1999 of AirNet
Communications Corporation and are in agreement with the statements contained
in the first through fourth paragraphs and the sixth paragraph. We have no
basis to agree or disagree with other statements of the registrant contained
therein.
Ernst & Young LLP
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of AirNet
Communications Corporation on Form S-1 of our report dated September 22, 1999,
appearing in the Prospectus, which is part of this Registration Statement, and
to the reference to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Orlando, Florida
September 22, 1999
<PAGE> 1
Exhibit 23.3
CONSENT
We consent to the reference to our firm under the caption "Experts" and
"Selected Financial Data" and to the use of our report dated March 6, 1998 with
respect to the financial statements of AirNet Communications Corporation
included in the Registration Statement Form S-1 dated September 24, 1999 and
related Prospectus of AirNet Communications Corporation for the registration of
its common stock.
/s/ ERNST & YOUNG LLP
Orlando, Florida
September 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 9,731,725
<SECURITIES> 0
<RECEIVABLES> 5,124,714
<ALLOWANCES> 1,515,100
<INVENTORY> 7,970,018
<CURRENT-ASSETS> 21,483,127
<PP&E> 10,305,978
<DEPRECIATION> 7,018,882
<TOTAL-ASSETS> 24,917,785
<CURRENT-LIABILITIES> 12,747,604
<BONDS> 5,986,754
0
8,554,402
<COMMON> 28,145
<OTHER-SE> (2,399,120)
<TOTAL-LIABILITY-AND-EQUITY> 24,917,785
<SALES> 4,373,227
<TOTAL-REVENUES> 4,373,227
<CGS> 2,912,271
<TOTAL-COSTS> 10,091,504
<OTHER-EXPENSES> 93,078
<LOSS-PROVISION> 10,100
<INTEREST-EXPENSE> 32,577
<INCOME-PRETAX> (8,537,470)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,537,470)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,537,470)
<EPS-BASIC> (.48)
<EPS-DILUTED> (.48)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 7,580,482
<SECURITIES> 0
<RECEIVABLES> 4,515,106
<ALLOWANCES> 1,505,000
<INVENTORY> 7,806,876
<CURRENT-ASSETS> 235,722
<PP&E> 9,420,197
<DEPRECIATION> 6,161,388
<TOTAL-ASSETS> 22,016,587
<CURRENT-LIABILITIES> 7,394,159
<BONDS> 0
0
8,554,402
<COMMON> 24,274
<OTHER-SE> 5,884,337
<TOTAL-LIABILITY-AND-EQUITY> 22,016,587
<SALES> 4,462,001
<TOTAL-REVENUES> 4,462,001
<CGS> 2,867,076
<TOTAL-COSTS> 19,588,699
<OTHER-EXPENSES> (76,819)
<LOSS-PROVISION> 1,490,500
<INTEREST-EXPENSE> 373,242
<INCOME-PRETAX> (17,916,955)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,916,955)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,916,955)
<EPS-BASIC> (1.19)
<EPS-DILUTED> (1.19)
</TABLE>
