Edgar Filing: AETHER SYSTEMS INC

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12

AETHER SYSTEMS, INC.
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(Name of Registrant as Specified In Its Charter)

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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

AETHER SYSTEMS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------
(5) Total fee paid:

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

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------
(3) Filing Party:

------------------------------------------------------------------------
(4) Date Filed:

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[AETHER LOGO]

May 25, 2001

Dear Stockholder:

You are cordially invited to attend the Annual Meeting of Stockholders of
Aether Systems, Inc. We will be holding the Annual Meeting on June 22, 2001 at
the BWI Airport Marriott Hotel, 1743 West Nursery Road, Baltimore, Maryland
21240, at 10:00 a.m., local time.

At the 2001 Annual Meeting, we will ask you to:

- Elect seven members to the Board of Directors;

- Ratify the selection of KPMG LLP as independent accountants for the
fiscal year ending December 31, 2001;

- Consider and vote upon a proposal to amend Aether's 1999 Equity Incentive
Plan to: (i) provide that Aether can issue shares of common stock as
restricted stock or in exchange for outstanding options; and (ii)
increase the number of shares that can be granted upon exercise of
incentive stock options from 3,000,000 to 8,000,000 shares; and

- Transact such other business as properly comes before the meeting.

We have enclosed with this letter a Notice of the Annual Meeting of
Stockholders, a Proxy Statement, a proxy card and a return envelope. We have
also enclosed Aether Systems, Inc.'s Annual Report for the fiscal year ended
December 31, 2000.

THE BOARD OF DIRECTORS OF AETHER RECOMMENDS THAT STOCKHOLDERS VOTE FOR
ELECTION OF THE BOARD'S NOMINEES FOR DIRECTOR AND FOR APPROVAL OF EACH OF THE
OTHER PROPOSALS.

Whether or not you plan to attend the Annual Meeting, please sign and
promptly return your proxy card in the enclosed postage paid envelope. If you
attend the meeting, you may vote in person if you wish, even though you have
previously returned your proxy.

Sincerely,

/s/ David S. Oros
David S. Oros
Chairman of the Board
and Chief Executive Officer

YOUR VOTE IS IMPORTANT

PLEASE EXECUTE AND RETURN THE ENCLOSED PROXY PROMPTLY,
WHETHER OR NOT YOU PLAN TO ATTEND THE AETHER SYSTEMS, INC. ANNUAL MEETING.
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AETHER SYSTEMS, INC.
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

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DATE: June 22, 2001
TIME: 10 a.m. local time
PLACE: BWI Airport Marriott Hotel
1743 West Nursery Road,
Baltimore, Maryland 21240

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YOUR VOTE AT THE ANNUAL MEETING IS VERY IMPORTANT TO US.

Dear Stockholder:

At the 2001 Annual Meeting, we will ask you to:

1. Elect seven directors, each for a one-year term;

2. Ratify the appointment by the Board of Directors of the firm of KPMG LLP
as independent public accountants of Aether for the fiscal year ending
December 31, 2001;

3. Consider and vote upon a proposal to amend Aether's 1999 Equity
Incentive Plan to: (i) provide that Aether can issue shares of common
stock as restricted stock or in exchange for outstanding options; and
(ii) increase the number of shares that can be granted upon exercise of
incentive stock options from 3,000,000 to 8,000,000 shares; and

4. Transact such other business as may properly come before the Annual
Meeting.

You will be able to vote your shares at the Annual Meeting if you were a
stockholder of record at the close of business on May 11, 2001.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Susan M. Golden
Susan M. Golden
Secretary

Owings Mills, Maryland
May 25, 2001
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TABLE OF CONTENTS

PAGE
----

Information About the 2001 Annual Meeting and Voting........ 2
Proposals to be Presented at the Annual Meeting
Proposal 1: Election of Directors...................... 4
Proposal 2: Ratification of Independent Auditors....... 5
Proposal 3: Amendment to 1999 Equity Incentive Plan.... 6
Security Ownership of Certain Beneficial Owners and
Management................................................ 10
Directors and Executive Officers............................ 12
Certain Relationships and Related Transactions.............. 22
Report of the Audit Committee............................... 23
Additional Information...................................... 24
Stockholder Proposals....................................... 24
Appendix A: 1999 Equity Incentive Plan as Amended........... A-1
Appendix B: Audit Committee Charter......................... B-1

AETHER SYSTEMS, INC.
11460 CRONRIDGE DRIVE
OWINGS MILLS, MARYLAND 21117

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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 22, 2001

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This Proxy Statement provides information that you should read before you
vote on the proposals that will be presented to you at the 2001 Annual Meeting
of Aether Systems, Inc. ("Aether" or the "Company"). The 2001 Annual Meeting
will be held on June 22, 2001 at the BWI Airport Marriott, 1743 West Nursery
Road, Baltimore, Maryland, 21240.

This Proxy Statement provides detailed information about the Annual
Meeting, the proposals you will be asked to vote on at the Annual Meeting, and
other relevant information. The Board of Directors ("Board") of Aether is
soliciting these proxies.

At the Annual Meeting, you will be asked to vote on the following
proposals:

1. Elect seven directors, each for a one-year term;

2. Ratify the appointment by the Board of Directors of the firm of KPMG LLP
as independent public accountants of Aether for the fiscal year ending
December 31, 2001;

4. Such other matters as may properly come before the meeting.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR EACH OF
THESE PROPOSALS.

On May 25, 2001, we began mailing this proxy statement to people who,
according to our records, owned common shares of Aether as of the close of
business on May 11, 2001. We have mailed with this proxy statement a copy of
Aether's Annual Report.
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INFORMATION ABOUT THE 2001 ANNUAL MEETING AND VOTING

THE ANNUAL MEETING

The Annual Meeting will be held on June 22, 2001 at the BWI Airport
Marriott, 1743 West Nursery Road, Baltimore, Maryland 21240, at 10:00 a.m. local
time.

THIS PROXY SOLICITATION

We are sending you this proxy statement because Aether's Board of Directors
is seeking a proxy to vote your shares at the Annual Meeting. This proxy
statement is intended to assist you in deciding how to vote your shares. On May
25, 2001, we began mailing this proxy statement to all people who, according to
our stockholder records, owned shares at the close of business on May 11, 2001.

Aether is paying the cost of requesting these proxies. Aether's directors,
officers and employees may request proxies in person or by telephone, mail,
telecopy or letter. Aether will reimburse brokers and other nominees their
reasonable out-of-pocket expenses for forwarding proxy materials to beneficial
owners of our shares.

VOTING YOUR SHARES

You may vote your shares at the Annual Meeting either in person or by
proxy. To vote in person, you must attend the Annual Meeting and obtain and
submit a ballot. Ballots for voting in person will be available at the Annual
Meeting. To vote by proxy, you must complete and return the enclosed proxy card
in time to be received by us before the Annual Meeting. By completing and
returning the proxy card, you will be directing the persons designated on the
proxy card to vote your shares at the Annual Meeting in accordance with the
instructions you give on the proxy card.

If you hold your shares with a broker and do not tell your broker how to
vote, your broker has the authority to vote on all proposals.

IF YOU DECIDE TO VOTE BY PROXY, YOUR PROXY CARD WILL BE VALID ONLY IF YOU
SIGN, DATE AND RETURN IT BEFORE THE ANNUAL MEETING, TO BE HELD ON JUNE 22, 2001.

In the election of directors, the seven nominees for director who receive
the most votes will be elected. If you do not vote for a particular nominee, or
you indicate "WITHHELD" on your proxy card, your vote will not count either for
or against the nominee. For the other proposals, you may vote "FOR," "AGAINST"
or "ABSTAIN." If you "ABSTAIN" as to any proposal, it has the same effect as a
vote "AGAINST" that proposal.

If you are a beneficial owner and do not provide the shareowner of record
with voting instructions, your shares may constitute broker non-votes. If you
hold your shares with a broker and you do not tell your broker how to vote, your
broker has the authority to vote on all of the proposals scheduled to be
presented at this year's meeting. If there nevertheless are broker non-votes, in
tabulating the voting result for any particular proposal, shares that constitute
broker non-votes are not considered entitled to vote on that proposal and will
not be considered votes cast for the foregoing purposes. Thus, broker non-votes
will not affect the outcome of any of the matters being voted upon at the
meeting.

Failure to return a proxy or vote in person will not affect the outcome of
the proposals as long as a quorum is achieved. If you sign your proxy card or
broker voting instruction card with no further instructions, your shares will be
voted in accordance with the recommendations of the Board ("FOR" all of the
Company's nominees to the Board, and "FOR" all other items described in this
proxy statement and in the discretion of the proxy holders on any other matters
that properly come before the meeting).

We have described in this proxy statement all the proposals that we expect
will be made at the Annual Meeting. If we or a stockholder properly present any
other proposal to the meeting, the proxies have discretion to vote your shares
on the proposal as they see fit.

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REVOKING YOUR PROXY

If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in one of three ways:

- You may notify the Secretary of Aether in writing that you wish to revoke
your proxy. Please contact: Aether Systems, Inc., 11460 Cronridge Drive,
Owings Mills, Maryland 21117, Attention: Susan M. Golden, General Counsel
and Secretary. We must receive your notice before the time of the Annual
Meeting.

- You may submit a proxy dated later than your original proxy.

- You may attend the Annual Meeting and vote. Merely attending the Annual
Meeting will not by itself revoke a proxy; you must obtain a ballot and
vote your shares to revoke the proxy.

VOTE REQUIRED BY APPROVAL

SHARES ENTITLED TO VOTE. On May 11, 2001 (the "Record Date"), 40,561,969
shares of common stock were issued and outstanding. Each share issued and
outstanding on the Record Date will be entitled to one vote on each of the
proposals.

QUORUM. The quorum requirement for holding the meeting and transacting
business is that a majority of the shares issued and outstanding on the Record
Date be present in person or represented by proxy and entitled to be voted.
Accordingly, 20,280,985 shares must be present in person or by proxy for a
quorum to be present. If a quorum is not present, a vote cannot occur. Both
abstentions and broker non-votes are counted as present for the purposes of
determining the presence of a quorum.

VOTES REQUIRED. In the election of directors, the seven persons receiving
the highest number of "FOR" votes will be elected. All other proposals require
the affirmative "FOR" vote of a majority of those shares present and entitled to
vote.

ADDITIONAL INFORMATION

We are mailing our Annual Report for the fiscal year ended December 31,
2000, including consolidated financial statements, to all shareholders entitled
to vote at the Annual Meeting, together with this proxy statement. The Annual
Report does not constitute a part of the proxy solicitation material. The Annual
Report tells you how to get additional information about Aether.

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PROPOSAL 1:
ELECTION OF DIRECTORS

Nominees for election to the Board of Directors are:

J. Carter Beese
Frank A. Bonsal
George M. Davis
David S. Oros
George P. Stamas
Devin N. Wenig
Thomas E. Wheeler

The Board of Directors has decided to reduce the size of the Board from 12
members to seven. As Aether has evolved from a development stage company to a
company further along the execution of its business plan, the Board believes
that its optimum composition has changed. A number of our current directors were
venture capital investors or associated with acquired companies, and these
directors and the Board have determined that a change in the size and
composition of the Board are appropriate at this time. Accordingly, a number of
our directors have recently resigned or are not standing for re-election. We
thank these members for their service. We may expand the size of the board in
the future and appoint new directors if appropriate candidates are identified
and agree to serve.

Each director will be elected to serve for a one-year term, unless he or
she resigns or is removed before his or her term expires, or until his or her
replacement is elected and qualified. Six of the seven nominees are currently
members of the Board of Directors and have consented to serve as directors if
re-elected. George M. Davis is president and vice chair of the Company. More
detailed information about each of the nominees is available in the section of
this proxy statement titled "Directors and Executive Officers," which begins on
page 12.

NexGen Technologies, L.L.C. ("NexGen"), Telcom-ATI Investors, L.L.C.
("Telcom-ATI") and Reuters America, Inc. ("Reuters"), who together hold
approximately 24.2% of the shares of our common stock, are parties to a
stockholders agreement that governs voting for our directors. The agreement
requires each party to vote all its shares for one director named by NexGen, two
directors named by Telcom-ATI, one director named jointly by NexGen and
Telcom-ATI, and one director named by Reuters. Pursuant to this agreement,
NexGen has named Mr. Oros as its designee, Telcom-ATI has waived its right to
designate directors, and Reuters has named Mr. Wenig as its designee.

If any of the nominees cannot serve for any reason (which is not
anticipated), the Board of Directors may designate a substitute nominee or
nominees; however, if the nominee is a designee of a party to the stockholders
agreement, then the Board of Directors will designate a substitute nominee named
by the respective entity who designated the vacating representative. If a
substitute is nominated, we will vote all valid proxies for the election of the
substitute nominee or nominees. Alternatively, the Board of Directors may also
decide to leave the board seat or seats open until a suitable candidate or
candidates are located, or it may decide to reduce the size of the Board.

The Board of Directors of the Company has established the size of the board
at seven members. Proxies for the Annual Meeting may not be voted for more than
the seven nominees named.

RECOMMENDATION

The Board of Directors recommends a vote "FOR" each of the nominees to the
Board of Directors.

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PROPOSAL 2:
RATIFICATION OF INDEPENDENT AUDITORS

The Board of Directors has appointed KPMG LLP, an international accounting
firm of independent certified public accountants, to act as independent
accountants for Aether and its consolidated subsidiaries for 2001. The Board
believes that KPMG's experience with and knowledge of Aether are important, and
would like to continue this relationship. KPMG has advised Aether that the firm
does not have any direct or indirect financial interest in Aether or any of its
subsidiaries, nor has KPMG had any such interest since Aether's inception in
1996 other than its capacity as our independent certified public accountants.

In addition to rendering audit services during 2000, KPMG performed various
and other non-audit related services for Aether and its subsidiaries. During
2000, we paid the following fees to KPMG:

Audit Fees.................................................. $ 463,000
Financial Systems Design and Implementation Fees............ $ -0-
All Other Fees.............................................. $2,168,000

In making the recommendation for KPMG to continue as independent
accountants for the year ended December 31, 2001, the Audit Committee reviewed
past audit results and the non-audit services performed during 2000 and proposed
to be performed during 2001. In selecting KPMG, the Audit Committee and the
Board of Directors carefully considered KPMG's independence. The Audit Committee
has determined that the performance of the non-audit services performed by KPMG
did not impair the independence of KPMG.

KPMG has confirmed to Aether that it is in compliance with all rules,
standards and policies of the Independent Standards Board and the Securities and
Exchange Commission ("SEC") governing auditor independence.

A representative of KPMG is expected to attend the Annual Meeting. The KPMG
representative will have the opportunity to make a statement if he or she
desires to do so and will be able to respond to appropriate questions from
stockholders.

RECOMMENDATION

The Board of Directors recommends a vote "FOR" ratification of the
appointment of KPMG.

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PROPOSAL 3:
AMENDMENT TO 1999 EQUITY INCENTIVE PLAN

In 1999, Aether adopted, and our stockholders approved, an equity incentive
plan to promote our long-term growth and profitability, improve stockholder
value, and attract, retain, and reward highly motivated and qualified employees
and directors. We propose to have you approve amendments to the plan that: (1)
provide that Aether can issue shares of common stock as restricted stock or in
exchange for outstanding options; and (2) increase the number of shares that can
be granted upon exercise of incentive stock options from 3,000,000 to 8,000,000
shares. Our Board of Directors has approved a proposal to amend the equity
incentive plan. None of the changes increase the total number of shares provided
by the plan. The plan as amended is attached as Appendix A to this proxy.

Issuance of Shares. Aether has determined it is appropriate in some
circumstances to issue restricted stock directly to employees. In addition,
changing the plan to provide for issuance of shares facilitates an exchange of
such stock for outstanding options that Aether offered to all of its employees
in late 1999. Before amendment, the plan allowed Aether to issue options but not
restricted stock. As a result of the substantial decline in overall market
prices in the technology sector that began last year, many of the options issued
to Aether's employees had exercise prices that substantially exceeded the
prevailing market price of Aether's common stock. The Compensation Committee and
the Board believed that this situation failed to present employees with the kind
of incentives the plan was designed to provide. Accordingly, the Board and the
Committee offered all option holders the opportunity to exchange options whose
exercise prices were then above the market price for shares of common stock. The
exchange provided for the issuance of 0.3 shares of restricted common stock for
each exchanged option. The shares were restricted and the restrictions would
lapse on substantially the same schedule as the options to be replaced would
have become exercisable. Pursuant to this offer, Aether exchanged options for
all employees other than its executive officers pursuant to a separate stock
option plan that allows for issuance of shares in exchange for options, but did
not include executive officers. Executive officers were given the opportunity to
elect to exchange options for shares and our executive officers did elect to
make this exchange. However, the exchange cannot become effective until the
stockholders approve the amendment to permit the issuance of shares. The
amendment will permit this exchange to be completed if so approved.

The following table shows the number of options that will be exchanged if
the amendment is approved, the exercise price of the options exchanged and the
number of shares that will be received by our chief executive officer, each of
the four other most highly compensated executive officers and all current
executive officers as a group:

EXERCISE RESTRICTED
OPTIONS PRICES SHARES
------- -------- ----------

David Oros............................................... 350,000 $ 90.00 105,000
George Davis............................................. 80,000 $152.06 24,000
65,000 $ 90.00 19,500
Brian Keane.............................................. 20,000 $152.06 6,000
30,000 $ 91.25 9,000
David Reymann............................................ 50,000 $152.06 15,000
30,000 $ 90.00 9,000
Dale Shelton............................................. 40,000 $152.06 12,000
60,000 $ 91.25 18,000
All executive officers as a group (8 persons)............ 100,000 $ 75.38 30,000
445,000 $ 90.00 33,500
90,000 $ 91.25 27,000
25,000 $137.25 7,500
190,000 $152.06 57,000

Increase of Shares Underlying Incentive Stock Options. The plan permits
Aether to issue options in the form of either nonqualified or incentive stock
options. Aether has primarily issued its options to

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employees in the form of incentive stock options. The tax laws require
stockholder approval to increase the number of shares available for such grants.
Because the size of Aether's option plan floats with the outstanding number of
shares but the tax laws do not allow floating numbers for incentive stock
options, Aether is asking you to approve, as part of approving the amended plan,
an increase in the number of shares available for incentive stock options from
3,000,000 to 8,000,000.

SUMMARY OF PLAN AS AMENDED

Under the equity incentive plan, as revised, we can have outstanding as
options and can grant stock as bonuses or in lieu of deferred compensation or
options, for 20% of the shares of common stock issued and outstanding. This
means that at any one time we can have options or restricted stock grants
outstanding that are exercisable for or otherwise equal to an amount of shares
equal to 20% of shares of common stock then issued and outstanding. As amended,
we can grant options to employees in the form of ISOs for up to 8,000,000
shares, but may choose not to do so. (Last year, the Board of Directors adopted
a broad-based plan covering persons who are neither directors or officers. This
plan permits grants of stock or options to covered persons for up to 1,900,000
shares of common stock). Any options we grant that are not ISOs will be
nonqualified stock options. The compensation committee of our Board administers
the equity incentive plan unless the Board specifies another committee of the
Board or chooses to act itself as administrator.

All of our employees, directors, and certain service providers are eligible
to receive options or stock under the equity incentive plan. For tax reasons,
the equity incentive plan limits the number of shares covered by options that an
individual can receive in a calendar year to 10% of the original pool, or
approximately 5.2 million shares (although we have no expectation of granting
that amount). The administrator determines the prices, exercise schedules,
expiration dates, method of payment (including through promissory notes, under
the revised plan), and other material conditions under which individuals may
exercise their options. Except with respect to replacement awards, which we
grant to replace options at companies we acquire, the exercise price of these
options may not be less than 50% of the fair market value of the common stock on
the date of grant, (increased to 100-110% for ISOs).

All awards granted before May 22, 2000 will become exercisable if we have a
change of control, except as option agreements provide otherwise or as necessary
to allow pooling of interest accounting. Replacement awards and other selected
awards may also become fully exercisable on a change of control. In general, we
will have a change of control if:

- anyone acquires or holds more than 80% of our voting securities,
excluding holdings by our benefit plans and some other related parties;

- we complete a merger or consolidation, unless, in general, our pre-merger
shareholders own at least 50% of the voting securities of the merged
companies;

- our Board changes in specified ways in connection with proxy contents or
as a result of adding new directors who are not approved by existing
directors; or

- if we complete a liquidation or dissolution or sell or otherwise dispose
of all or substantially all of our assets.

In addition, unless we provide otherwise, or as necessary to allow pooling
of interest accounting, the equity incentive plan and all options and unvested
or unexercised awards will terminate in defined circumstances if:

- we are not the surviving company in a merger, consolidation, or
reorganization;

- we complete a liquidation or dissolution or sell substantially all our
assets; or

- our Board approves and we complete a transaction that results in a person
or entity's owning all of our stock, unless the person or entity is
related to us in specified ways.

However, before the equity incentive plan would terminate for one of those
reasons, we would either agree that our successor would assume the options
and/or the equity incentive plan, allow optionees to exercise
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the options if these options were in-the-money, or cancel the options by paying
the amount, if any, by which the value determined with respect to that
transaction exceeds the exercise price of the options.

The equity incentive plan limits the time during which an optionee can
exercise an option to no more than 10 years. In addition, an optionee who leaves
employment will generally have no more than 90 days to exercise the previously
exercisable portions of an option, reduced to no days after employment in
terminations for cause. Additional rules apply to death and disability. The
compensation committee may, however, override the plan's rules, other than the
10 year limit. We cannot grant additional options under the equity incentive
plan after the 10th anniversary of its adoption.

TAX CONSEQUENCES

Nonqualified Stock Options. An optionee will not be taxed when he or she
receives a non-qualified stock option ("NQSO"). When an employee exercises an
NQSO, he or she will generally owe taxes on ordinary income on the difference
between the value of the shares received and the price paid, with the "spread"
treated like additional salary for an employee. He or she may then owe taxes
again if and when the shares are sold. That tax would be on the difference
between the price received for the share and the "basis," which is the sum of
the price originally paid plus the value of the shares on which he or she
originally paid income taxes.

Depending upon how long he or she held the shares before selling, an
employee may be eligible for favorable tax rates for certain kinds of capital
gains. In addition, Aether will receive an income tax deduction for any amounts
of "ordinary income".

Incentive Stock Options. An optionee will not be taxed when he or she
receives an ISO and will not be taxed when he or she exercises the ISO, unless
the optionee is subject to the alternative minimum tax ("AMT"). If he or she
holds the shares purchased upon exercise of the ISO ("ISO Shares") for more than
one year after the date he or she exercised the option and for more than two
years after the option grant date, the optionee generally will realize long-term
capital gain or loss (rather than ordinary income or loss) when he or she sells
or otherwise disposes of the ISO Shares. This gain or loss will equal the
difference between the amount realized upon such disposition and the amount paid
for the ISO Shares. If the optionee sells the ISO Shares in a "disqualifying
disposition" (that is, within one year from the date he or she exercises the ISO
or within two years from the date of the ISO grant) he or she generally will
recognize ordinary compensation income equal to the lesser of (1) the fair
market value of the shares on the date of exercise minus the price he or she
paid or (2) the amount he or she realized on the sale. For a gift or another
disqualifying disposition where a loss, if sustained, would not usually be
recognized, he or she will recognize ordinary income equal to the fair market
value of the shares on the date of exercise minus the price paid. Any amount
realized on a disqualifying disposition that exceeds the amount treated as
ordinary compensation income (or any loss realized) will be a long-term or a
short-term capital gain (or loss), depending, under current law, on whether the
shares were held for at least 12 months. Aether can generally take a tax
deduction on a disqualifying disposition corresponding to the ordinary
compensation income the optionee recognized, but cannot deduct the amount of the
capital gains.

Alternative Minimum Tax. The difference between the exercise price and the
fair market value of the ISO Shares on the date of exercise is an adjustment to
income for purposes of the AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is a certain percentage of an individual taxpayer's
alternative minimum taxable income that is lower than the regular tax rates, but
covers more income. Taxpayers determine their alternative minimum taxable income
by adjusting regular taxable income for certain items, increasing that income by
certain tax preference items, and reducing this amount by the applicable
exemption amount. If a disqualifying disposition of the ISO Shares occurs in the
same calendar year as exercise of the ISO, there is no AMT adjustment with
respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced when
the optionee sells by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.

8
14

Stock Grants. When a participant receives a stock grant under the plan,
the participant will have ordinary income and the company will generally be
eligible to take a corresponding tax deduction when and to the extent the grant
is vested (nonforfeitable).

Potential Limitation On Company Deductions. Internal Revenue Code Section
162(m) denies a deduction to any publicly held corporation for compensation it
pays to certain employees in a taxable year to the extent that compensation
exceeds $1 million for a covered employee. The tax rules disregard certain kinds
of compensation, including qualified "performance-based compensation," for
purposes of the deduction limitation. Compensation attributable to share options
qualifies as performance-based compensation, provided that: (1) the plan
contains a per-employee limitation on the number of shares for which options may
be granted during a specified period; (2) the stockholders approve that
per-employee limitation; (3) the option is granted by a compensation committee
with voting members comprised solely of "outside directors"; and (4) either the
exercise price of the option is at least equal to the fair market value of the
shares on the date of grant, or the option is granted (or exercisable) only upon
the achievement (as certified by the compensation committee) of an objective
performance goal established by the compensation committee while the outcome is
substantially uncertain. Aether intends and expects the option grants to be
exempt from section 162(m) as performance-based.

This is a summary of the general principles of current Federal income tax
law that apply to the purchase of shares under the amended plan. While we
believe that the description accurately summarizes existing provisions of the
Internal Revenue Code of 1986, as amended, and its legislative history and
regulations, and the applicable administrative and judicial interpretations,
these statements are only summaries, and the rules in question are quite
detailed and complicated. Moreover, legislative, administrative, regulatory or
judicial changes or interpretations may occur that would modify such statements.
Individual financial situations may vary, and state and local tax consequences
may be significant. Therefore, no one should act based on this description
without consulting his or her own tax advisors concerning the tax consequences
of purchasing shares under the Plan and the disposing of those shares. In
addition, different rules may apply if the optionee is subject to foreign tax
laws or pays the exercise price using shares he already owns.

RECOMMENDATION

The Board of Directors recommends a vote "FOR" approval of the amendment to
the 1999 Equity Incentive Plan.

9
15

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information with respect to
beneficial ownership of our common stock as of May 11, 2001, as to:

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

- each of our directors, our chief executive officer and the four other
most highly paid executive officers; and

- all our directors and executive officers as a group.

For the purposes of calculating percentage ownership as of May 11, 2001,
40,561,969 shares were issued and outstanding and, for any individual who
beneficially owns shares represented by options exercisable on or before July
11, 2001, these shares are treated as if outstanding for that person, but not
for any other person. Unless otherwise indicated, the address of each of the
individuals and entities named below is: c/o Aether Systems, Inc., 11460
Cronridge Drive, Owings Mills, Maryland 21117.

BENEFICIAL OWNERSHIP
OF SHARES
-----------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- --------- -------

DIRECTORS AND EXECUTIVE OFFICERS:
David S. Oros(1)............................... 4,139,257 10.0%
George M. Davis(2)............................. 53,000 *
Dale R. Shelton(3)............................. 46,500 *
David C. Reymann(4)............................ 31,250 *
Brian W. Keane(5).............................. 28,334 *
Frank A. Bonsal, Jr.(6)........................ 74,818 *
1119 St. Paul Street
Baltimore, MD 21202
J. Carter Beese(7)............................. 50,814 *
Rahul C. Prakash(8)............................ 2,000 *
c/o Telcom Venture, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
Dr. Rajendra Singh(9).......................... 3,678,848 9.1%
c/o Telcom Ventures, L.L.C.
211 N. Union St., Suite 300
Alexandria, VA 22314
George P. Stamas(10)........................... 12,550 *
c/o Deutsche Banc Alex. Brown
One South Street
Baltimore, MD 21202
Devin N. Wenig(11)............................. 6,300 *
c/o Reuters America, Inc.
1700 Broadway, 2nd Floor
New York, NY 10019
Thomas E. Wheeler(12).......................... 46,250 *
All directors and officers as a group
(16 persons)(13)............................. 8,213,778 19.7%

10
16

BENEFICIAL OWNERSHIP
OF SHARES
-----------------------
NAME AND ADDRESS NUMBER PERCENT
---------------- --------- -------

5% STOCKHOLDERS:
NexGen Technologies, L.L.C. ................... 3,326,757 8.2%
Reuters MarketClip Holdings Sarl(14)........... 2,828,055 7.0%
c/o Reuters America, Inc.
1700 Broad, 2nd Floor
New York, NY 10019
Telcom-ATI Investors, L.L.C. .................. 3,678,848 9.1%
211 N. Union St., Suite 300
Alexandria, VA 22314
Janus Capital Corporation(15).................. 2,779,409 6.9%
100 Fillmore Street
Denver, CO 80206
FMR Corporation(15)............................ 4,195,258 10.3%
82 Devonshire Street
Boston, MA 02109

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

(1) Includes 3,326,757 shares of common stock owned by NexGen Technologies,
L.L.C. over which Mr. Oros exercises voting and investment control by
virtue of his position as managing member of NexGen. Also includes warrants
to purchase 812,500 shares of common stock.

(2) Includes exercisable warrants to purchase 53,000 shares of common stock.

(3) Includes exercisable options to purchase 16,500 shares of common stock and
warrants to purchase 30,000 shares of common stock.

(4) Includes exercisable options to purchase 25,834 shares of common stock and
warrants to purchase 5,416 shares of common stock.

(5) Includes exercisable options to purchase 28,334 shares of common stock.

(6) Includes exercisable options to purchase 45,800 shares of common stock.

(7) Excludes approximately 100,188 shares of common stock in which Mr. Beese
has an indirect interest as a result of his non-voting limited liability
company membership interest in Telcom-ATI. The amount includes exercisable
options to purchase 10,300 shares of common stock.

(8) Mr. Prakash, the president of Telcom-ATI, (which is controlled by Telcom
Ventures, LLC), disclaims beneficial ownership of the 3,678,848 shares of
common stock owned by Telcom-ATI, including shares in which he has an
indirect interest as a result of his option to acquire a non-voting limited
liability company membership interest in Telcom-ATI. The amount shown
includes exercisable options to acquire 2,000 shares of common stock.

(9) Includes 3,678,848 shares of common stock owned by Telcom-ATI and entities
it controls, over which Dr. Singh exercises voting and investment control
by virtue of his position as chairman and chief executive officer of
Telcom-ATI.

(10) Includes exercisable options to purchase 12,550 shares of common stock. The
amount shown excludes approximately 15,018 shares in which Mr. Stamas has
an indirect interest as a result of his nonvoting limited liability company
membership interest in Telcom-ATI Investors. Mr. Stamas also disclaims
beneficial ownership of the 1,945,442 shares beneficially owned by Pyramid
Ventures, Inc., an affiliate of Deutsche Banc AG.

(11) Includes exercisable options to purchase 6,300 shares of common stock.

(12) Includes exercisable options to purchase 41,525 shares of common stock.
Also includes 5,000 shares owned by the Carol and Tom Wheeler Foundation of
which Mr. Wheeler is the trustee.

(13) Includes options and warrants to purchase 1,168,741 shares of common stock.

11
17

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

(15) Based solely on reports filed by these person with the Securities and
Exchange Commission as of May 11, 2001.

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information relating to the Company's executive
officers and directors as of May 11, 2001.

NAME AGE POSITION
---- --- --------

David S. Oros........................ 41 Chairman of the Board and Chief Executive
Officer
George M. Davis...................... 45 President and Vice Chairman
David C. Reymann..................... 42 Chief Financial Officer
Dale R. Shelton...................... 39 Chief Technology Officer
Brian W. Keane....................... 42 Executive Vice President, Corporate Development
Michael S. Mancuso................... 55 Executive Vice President, Vertical Markets
Business Segment
Thomas A. Lupica..................... 44 Senior Vice President, Wireless Solutions
Larry M. Roshfeld.................... 42 Senior Vice President, Software Products
Business Segment
J. Carter Beese, Jr.(1)(2)........... 44 Director
Frank A. Bonsal, Jr.(2).............. 64 Director
Rahul C. Prakash(1).................. 39 Director
Dr. Rajendra Singh................... 44 Director
George P. Stamas..................... 50 Director
Devin N. Wenig....................... 34 Director
Thomas E. Wheeler(1)................. 55 Director

---------------
(1) Member of the compensation committee.

(2) Member of the audit committee.

David S. Oros founded Aether in 1996, and currently serves as our chairman
and chief executive officer. Prior to the closing of our acquisition of Riverbed
Technologies, he also served as president from Aether's inception. Mr. Oros also
serves on the board of directors of OmniSky. From 1994 until 1996, Mr. Oros was
president of NexGen Technologies, L.L.C., a wireless software development
company that contributed all of its assets to Aether. From 1992 until 1994, he
was president of the Wireless Data Group at Westinghouse Electric
("Westinghouse"). Prior to that, Mr. Oros spent from 1982 until 1992 at
Westinghouse directing internal research and managing large programs in advanced
airborne radar design and development. Mr. Oros received a B.S. in mathematics
and physics from the University of Maryland, and holds a U.S. patent for a
multi-function radar system.

George M. Davis is our president and vice chairman. He previously served
as our chief operating officer and president of our enterprise solutions and
services group. He joined us in September 1996, as vice president, business
development, to lead initiatives required to launch, maintain and develop
business opportunities for our services. From September 1994 until September
1996, Mr. Davis was director of enterprise management systems at Northrop
Grumman Corp. ("Northrop"). Prior to that time, Mr. Davis

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18

spent more than 14 years at Westinghouse where he managed advanced military
electronic development and production projects. He received a B.S. in business
and economics from Bethany College.

David C. Reymann has served as our chief financial officer since joining us
in June 1998. Mr. Reymann is also responsible for our treasury management
services, investor relations and human resources. Before joining us, Mr. Reymann
was director of finance and accounting for The Sweetheart Cup Company from June
1996 until May 1998, where he managed the financial analysis department and the
accounting operations for 11 North American manufacturing plants. Prior to that,
Mr. Reymann spent 12 years with Procter & Gamble, serving in several key
finance, accounting and operations positions. Prior to that, Mr. Reymann spent
five years at Ernst & Young, where he most recently specialized in emerging
growth companies. Mr. Reymann received a B.S. in accounting from the University
of Baltimore, and is a certified public accountant.

Dale R. Shelton has served as our chief technology officer since February
2000. From June 1996 to February 2000, he served as our senior vice president,
engineering, during which time he directed the development of Aether Instant
Messaging ("AIM")(TM) and our wireless data services. From January 1994 until
June 1996, Mr. Shelton served as the systems development leader for flash-flood
prediction systems at the National Weather Service. From June 1992 until January
1994, Mr. Shelton was principal engineer for ARINC, Inc., where he led the
development of aviation tracking and maintenance systems. He received a B.S. in
computer science from the University of Maryland.

Brian W. Keane has served as executive vice president, corporate
development since November 2000. Mr. Keane was senior vice president, business
affairs since joining us in August 1999. Mr. Keane is responsible for mergers
and acquisitions, strategic investments, joint ventures and new strategic
business initiatives. From February 1998 until August 1999, Mr. Keane was chief
financial officer for Management Information Consulting, Inc., a technology
consulting company. Prior to that, Mr. Keane spent ten years as an investment
banker with Smith Barney Inc. Mr. Keane received a B.A. in history and
mathematics from Cornell University and an M.B.A. from Harvard Business School.

Michael S. Mancuso has served as our executive vice-president, vertical
business unit operations, engineering services group and sales organization
since the closing of our Cerulean Technology Inc. ("Cerulean") acquisition. From
December 1999 to September 2000, Mr. Mancuso was the president and chief
operating officer (COO) at Cerulean. Mr. Mancuso served as vice president of
U.S. sales and services at the Data General division of EMC Corporation and as
vice president of Data General's original equipment manufacturers (OEM) division
from June 1997 to December 1999. He also served as general manager within
Hewlett-Packard Company's Healthcare Information Systems Division from February
1995 to June 1997. Previously, Mr. Mancuso was at Digital Equipment
Corporation/Compaq where he held leadership positions in sales and marketing.
Mr. Mancuso holds an M.B.A. from Babson College and B.S. in Finance/Accounting
from the University of Massachusetts.

Larry M. Roshfeld has served as our senior vice president, software
products, since July 2000. Mr. Roshfeld is responsible for product strategy,
development, marketing and professional services for Aether's comprehensive
software product line. Previously, Mr. Roshfeld was senior vice president,
products, for Riverbed prior to the closing of our Riverbed acquisition. During
1999, Mr. Roshfeld was vice president, product marketing for E-Certify. From
1997 to 1998, Mr. Roshfeld was vice president of product development at
Manugistics Group. In addition, from 1984 to 1997, he served in a number of key
roles at Lotus Development Corporation and IBM, including Director of Lotus
1-2-3, General Manager of SmartSuite and General Manager of Internet
Applications. Mr. Roshfeld holds a B.A. degree in chemistry from Clark
University and a Master's degree in consulting psychology from Harvard
University.

Thomas A. Lupica has served as our senior vice president of wireless
services since November 2000. From September 1999 until November 2000, Mr.
Lupica was our vice president of systems development. Prior to that, Mr. Lupica
spent 19 years at Westinghouse/Northrop Grumman, where his responsibilities
included domestic and international marketing, sales, manufacturing, engineering
development, production and logistics support. Mr. Lupica holds a B.S. in math
and physics from Hobart College, where he graduated magna cum laude, and an
M.S.E. from the University of Virginia.
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19

J. Carter Beese, Jr. was elected a director of Aether on October 20, 1999.
Since July 1998, Mr. Beese has served as president of Riggs Capital Partners, a
division of Riggs National Corp., where he oversees a $100 million venture
capital fund. From September 1997 until July 1998, he served as vice chairman of
the Global Banking Group of BT Alex. Brown. Prior to the merger of Bankers Trust
and Alex. Brown, Mr. Beese was chairman of Alex. Brown International from
November 1994 until September 1997. From February 1992 until November 1994, Mr.
Beese served as a commissioner of the SEC. Mr. Beese serves as a senior advisor
to the Center for Strategic and International Studies, a non-partisan public
policy think tank and is involved in the World Economic Forum. He serves as a
director on the boards of China.com; Internet Securities, Inc., a company
majority owned by Euromoney Institutional Investor, Inc.; and Natural Solutions,
Inc. Mr. Beese received a B.S. in economics and political science from Rollins
College.

Frank A. Bonsal, Jr. was elected a director of Aether on October 20, 1999.
Since 1978, Mr. Bonsal has been a founding partner of New Enterprise Associates,
one of the largest venture capital firms in the United States. Mr. Bonsal
focuses on the development of early stage companies. He currently serves as a
director on the boards of Codeon Corp., Viewgate Networks, Versient Corp., and
Brown Investment Advisors Trust Co. In addition, he is a special limited partner
of Amadeus Capital Partners, Boulder Venture, Novak Biddle, Trellis Ventures and
Windward Ventures. Mr. Bonsal received a B.A. in economics from Princeton
University.

Rahul C. Prakash was elected a director of Aether on October 20, 1999.
Since January 1997, Mr. Prakash has served as president of Telcom Ventures,
L.L.C., a wireless communications investment company. From January 1994 until
December 1996, Mr. Prakash served as vice president, business development of
Telcom Ventures. Prior to that time, he served as a director of business
development at LCC International, Inc., a worldwide provider of wireless
engineering and design services. From 1993 until 1994, Mr. Prakash was the
director of business development for Telemate, a joint venture he helped
establish between LCC and France Telecom. Mr. Prakash is also a director of
several private telecommunications companies controlled by Telcom Ventures. He
received an M.B.A. in international finance from American University and an
M.B.A. from the University of New Delhi, Faculty of Management Studies.

Dr. Rajendra Singh was elected a director of Aether on October 20, 1999.
Since December 1993, Dr. Singh has served as chairman of the board of directors
and chief executive officer of Telcom Ventures, L.L.C. From 1983 until June
1996, Dr. Singh served as chairman of the board of directors of LCC
International, Inc., which he co-founded with his wife in 1983. Dr. Singh has
played an instrumental role in the cellular industry by developing key standards
used today in wireless system design and methodology. Dr. Singh is a member of
the board of directors of Teligent, Inc., XM Satellite Radio Holdings, Inc. and
LCC International, Inc. He received a Ph.D. in electrical engineering from
Southern Methodist University.

George P. Stamas was elected a director of Aether on October 20, 1999.
Since January 2000, Mr. Stamas has served as the vice chairman of the board and
managing director of Deutsche Banc Alex. Brown. From April 1996 until December
1999, Mr. Stamas was a partner with the law firm of Wilmer, Cutler & Pickering.
From 1983 until April 1996, Mr. Stamas was a partner at Piper & Marbury L.L.P.
Mr. Stamas is counsel to, and a limited partner of, the Baltimore Orioles
baseball team. Mr. Stamas also serves on the board of directors of FTI
Consulting, Inc., a provider of litigation support services, Luminant Worldwide
Corporation, a provider of Internet consulting services and Metrocall, a paging
company. He received a B.S. in economics from the Wharton School of the
University of Pennsylvania and a J.D. from University of Maryland Law School.

Devin N. Wenig was elected a director of Aether on October 20, 1999. In
April 1994, Mr. Wenig joined Reuters America, Inc. and was promoted to managing
director, marketing, of Reuters Information in February 2000, and was appointed
President, Reuters Information in January 2001. Mr. Wenig serves as a director
on the boards of Loan Pricing Corp., Intralinks, Inc., Sila Communications and
Multex.com. He received a B.S. from Union College and a J.D. from Columbia
University.

Thomas E. Wheeler was elected a director of Aether on October 20, 1999.
Since 1992, Mr. Wheeler has served as president and chief executive officer of
the Cellular Telecommunications Industry
14
20

Association. In 1994 and 2000, Mr. Wheeler was appointed by President Clinton to
a six-year term as a member of the board of trustees of the John F. Kennedy
Center for the Performing Arts. Mr. Wheeler is a director on the boards of the
Public Broadcasting System and OmniSky Corporation. He is the author of "Take
Command! Leadership Lessons from the Civil War." He received a B.S. in business
administration from Ohio State University.

Directors serve for a one year term.

Our executive officers are appointed by, and serve at the discretion of,
our Board of Directors. We expect that each of our officers will devote
substantially full time to our affairs. We expect that our non-employee
directors will devote such time to our affairs as is necessary to discharge
their duties. There are no family relationships among any of our executive
officers, directors or key employees.

MEETINGS OF THE BOARD OF DIRECTORS AND STANDING COMMITTEES

The Board of Directors currently consists of eleven members. The Board of
Directors held a total of 15 meetings during 2000, and executed one unanimous
consents in lieu of a meeting. Each of the directors attended at least 75% of
the meetings of the Board except for Messrs. Bonsal, Prakash, Singh, Vasan and
Wenig.

The standing committees of the Board of Directors include an Audit
Committee and a Compensation Committee. The Compensation Committee consists of
Messrs. Beese, Prakash and Wheeler, with Mr. Beese as its chairman. The
Compensation Committee determines the compensation of senior executive officers
(such as the chief executive officer and chief financial officer), subject, if
the Board so directs, to the Board's further ratification of the compensation;
determines the compensation for other officers or delegates such determinations
to the chief executive officer; grants options, stock or other equity interests
under our stock option or other equity- based incentive plans; and administers
those plans and, where such plans specify, our other employee benefit plans. The
Compensation Committee held a total of 3 meetings, which were attended by all
Compensation Committee members, except that Mr. Wheeler missed one meeting.

The Audit Committee consists of Messrs. Beese and Bonsal, with Mr. Beese as
its chairman. The Audit Committee's responsibilities are described in a written
charter adopted by the Board of Directors, which is attached as Appendix B to
this proxy statement. The Audit Committee makes recommendations to the Board
concerning the engagement of independent accountants; reviews with the
independent accountants the plans and results of the audit engagement; approves
professional services provided by the independent accountants; considers the
range of audit and non-audit fees; verifies that auditors are independent of
management and are objective in their findings; reviews annual CPA audit and
recommendations of internal controls and related management response; reviews
the audit reports with management and the auditor; oversees the internal audit
function; and monitors management's efforts to correct deficiencies described in
any audit examination. A report of the Audit Committee can be found on page 23
of this proxy statement.

The Audit Committee held a total of 3 meetings during 2000, which were
attended by both Audit Committee members.

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COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation. The following table sets forth compensation for
1998, 1999 and 2000 awarded to, earned by or paid to our chief executive officer
and the five other most highly paid executive officers. We refer to these six
officers as the "named executive officers."

LONG-TERM
COMPENSATION AWARDS
-------------------------
SHARES
ANNUAL COMPENSATION OTHER ANNUAL UNDERLYING ALL OTHER
----------------------------- COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (#) ($)
--------------------------- ---- ---------- --------- ------------ ---------- ------------

David S. Oros....................... 2000 $200,000 -- -- 350,000
Chairman and Chief Executive 1999 $200,000 $250,000 -- 945,100 --
Officer 1998 $200,000 $150,000 -- -- --
George M. Davis..................... 2000 $200,000 $ 40,000 -- 145,000 $6,096
President and Vice Chair 1999 $157,292 $ 24,504 -- 55,000 $7,750(1)
1998 $133,333 $ 52,895 $2,420 75,000 --
David C. Reymann.................... 2000 $150,000 $ 30,000 -- 80,000
Chief Financial Officer 1999 $126,042 -- -- 51,250 --
1998 $ 56,200 -- -- 37,500 --
Dale R. Shelton..................... 2000 $150,000 $ 30,000 -- 100,000
Chief Technology Officer 1999 $129,167 $ 20,000 -- 42,500 --
1998 $109,200 $ 4,000 -- 50,000 --
Brian W. Keane...................... 2000 $150,000 $ 30,000 -- 50,000 --
Executive Vice President 1999 $ 56,817 $ 50,000 -- 125,000 --
1998 -- -- -- -- --
E. Wayne Jackson III................ 2000 $160,423 $ 29,100 -- -- --
President, Software
Products Group (2)

---------------
(1) Allowance for automobile.

(2) Mr. Jackson became Chief Strategist, Software Products Group in November
2000 and was not an executive officer as of December 31, 2000.

Option Grants. The following table shows information regarding stock
options granted to the named executive officers during the year ended December
31, 2000. No stock appreciation rights were granted to these individuals during
the year. All options were granted under the Company's 1999 Equity Incentive
Plan.

POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SHARES PERCENTAGE OF EXERCISE APPRECIATION FOR
UNDERLYING TOTAL OPTIONS PRICE PER OPTION TERM ($)
OPTIONS GRANTED GRANTED TO SHARE EXPIRATION ---------------------------
NAME (#)(*) EMPLOYEES ($) DATE (1) 5% (2) 10% (2)
---- ---------------- ------------- --------- ---------- ------------ ------------

David S. Oros............... 350,000 6.6% $ 90.00 10/05/2010 $19,810,181 $50,202,887
George M. Davis............. 80,000 2.7% $152.06 7/28/2010 $ 7,650,377 $19,387,558
65,000 $ 90.00 10/05/2010 $ 3,679,034 $ 9,323,393
David C. Reymann............ 50,000 1.5% $152.06 7/28/2010 $ 4,781,486 $12,117,224
30,000 $ 90.00 10/05/2010 $ 1,698,015 $ 4,303,105
Dale R. Shelton............. 40,000 1.9% $152.06 7/28/2010 $ 3,825,189 $ 9,693,779
60,000 $ 91.25 11/02/2010 $ 3,443,198 $ 8,725,740

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22

Brian W. Keane.............. 20,000 0.9% $152.06 7/28/2010 $ 1,912,594 $ 4,846,890
30,000 $ 91.25 11/02/2010 $ 1,721,599 $ 4,362,870
E. Wayne Jackson............ (3) (3) (3) (3) (3) (3)

---------------
(1) Options expire 90 days after the termination of employment of the option
holder.

(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the SEC and are based on the assumption that the exercise
price was the fair market value of the shares on the date of grant. There is
no assurance provided to any executive officer or any other holder of our
securities that the actual price appreciation over the ten-year option term
will be at the assumed 5% and 10% levels or at any other defined level.

(3) Mr. Jackson received options to acquire 92,862 shares at an exercise price
of $2.014 in connection with Aether's acquisition of Riverbed Technologies.
The options were issued to Mr. Jackson in exchange for options in Riverbed
Technologies awarded to Mr. Jackson in 1999. The options expire October 7,
2009 and the potential realizable value is $117,618 at a 5% appreciation
rate and $298,068 at a 10% appreciation rate.

Aggregate Option Exercises and Holdings. The following table provides
information concerning option exercises during the year ended December 31, 2000,
and the shares represented by outstanding options held by each of the named
executive officers as of December 31, 2000.

NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DEC. 31, 2000 IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED (#) (1) DEC. 31, 2000 ($) (2)
ON EXERCISE VALUE REALIZED --------------------------- ---------------------------
NAME (NUMBER OF SHARES) (DOLLARS) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------------ -------------- ----------- ------------- ----------- -------------

David S. Oros......... 60,000 $ 5,936,250 812,500 362,600 $30,115,125 $ 291,438
60,000 $11,650,800
George M. Davis....... 22,500 $ 2,253,094 45,000 225,000 $ 1,688,850 $2,978,650
65,000 $12,699,700
37,500 $ 3,755,156
5,000 $ 494,688
David C. Reymann...... 20,833 $ 2,063,457 5,416 133,334 $ 203,262 $1,795,916
20,833 $ 4,047,643
9,167 $ 906,960
4,167 $ 809,148
Dale R. Shelton....... 2,500 $ 250,344 42,500 155,000 $ 1,610,025 $1,992,150
60,000 $11,722,800
10,000 $ 1,001,375
27,500 $ 2,753,781
12,500 $ 1,251,719
7,500 $ 742,031
Brian W. Keane........ 30,000 $ 2,872,125 28,334 91,666 $ 972,706 $1,430,393
25,000 $ 4,774,500
E. Wayne Jackson...... 32,888 $ 6,410,858 11,548 20,982 $ 428,616 $ 778,768
27,444 $ 2,730,879

---------------
(1) On December 31, 2000, each of the eligible named executive officers elected
to exchange options they held for restricted shares of Aether common stock,
with the exchange to be effective upon shareholder approval of amendments to
the 1999 Equity Incentive Plan. The number and exercise prices of options
each of the eligible named executive officers elected to exchange and the
number of restricted

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shares of Aether common stock that the officer will receive when the exchange is
completed are set forth below.

NUMBER OF OPTIONS EXERCISE PRICES NUMBER OF SHARES
----------------- --------------- ----------------

David Oros...................... 350,000 $ 90.00 105,000
George Davis.................... 80,000 $152.06 24,000
65,000 $ 90.00 19,500
Brian Keane..................... 20,000 $152.06 6,000
30,000 $ 91.25 9,000
David Reymann................... 50,000 $152.06 15,000
30,000 $ 90.00 9,000
Dale Shelton.................... 40,000 $152.06 12,000
60,000 $ 91.25 18,000

(2) Options were "in the money" to the extent the closing price of Aether's
common stock on December 31, 2000 exceeded the exercise price of the
options. The value of unexercised options represents the difference between
the exercise price of net options and $39.125, which was the last reported
sale price of Aether common stock on December 29, 2000.

DIRECTOR COMPENSATION

Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and discretionary grants of stock options,
directors are not compensated for their services as directors. Directors who are
employees are eligible to participate in our equity incentive plan. In 1999, we
granted options to purchase 12,600 shares to each director and options to
purchase 4,000 shares to each member of the Audit and Compensation Committees.
The exercise price of these options is $16.00 per share. Mr. Wenig holds his
options in trust for the benefit of Reuters; he currently has no beneficial
interest in the options.

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

NUMBER OF
SHARES UNDERLYING EXERCISE
NON-EMPLOYEE DIRECTOR OPTIONS(#) PRICE($)
--------------------- ----------------- --------

J. Carter Beese, Jr................. 75,000 $ 0.40
20,600 $16.00
Frank A. Bonsal, Jr................. 37,500 $ 1.77
16,600 $16.00
Rahul C. Prakash.................... 16,600 $16.00
Dr. Rajendra Singh.................. 12,600 $16.00
George P. Stamas.................... 6,250 $ 0.40
5,000 $ 2.40
12,600 $16.00
Devin N. Wenig...................... 12,600 $16.00
Thomas E. Wheeler................... 37,500 $ 1.77
16,600 $16.00

EMPLOYMENT AGREEMENT

We have entered into an employment contract with Mr. Oros, which became
effective June 22, 1999, and provides for a salary of $200,000 per year, a
performance bonus of up to $100,000 per year, and additional bonuses based on
annual revenue targets and proceeds raised from private placements of our equity
securities in 1999. The contract has an initial term expiring in June 2002, and
automatically extends for additional one month increments until terminated by
Aether or Mr. Oros on 15 days notice. Pursuant to the contract, we granted Mr.
Oros a warrant to acquire 875,000 shares of our common stock. The warrant
currently has an exercise price of $1.60 per share of common stock. We also gave
Mr. Oros the

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right to allocate to key employees of his choosing warrants to acquire 125,000
shares of common stock having the same terms and conditions. Mr. Oros has
awarded warrants for 50,000 shares of our common stock to Mr. Davis, 37,500
shares of our common stock to Mr. Shelton, and 18,750 shares of our common stock
to Mr. Reymann. Mr. Oros subsequently received our permission to assign part of
his warrant, leaving him with a warrant to acquire 775,000 shares. In September
1999, Mr. Oros received a warrant to acquire 175,000 shares of our common stock
at an exercise price of $4 per share. From this grant, Mr. Oros subsequently
assigned a warrant exercisable for 17,500 shares of our common stock. Each of
these warrants became exercisable upon completion of our initial public
offering. If we terminate Mr. Oros without cause, he is entitled to receive from
us an amount equal to the salary he would have received during the balance of
the term of the employment contract. Under the contract, "cause" means
committing an act of gross negligence or other willful act that materially
adversely affects Aether, refusing to comply in any respect with specific
directions of our Board of Directors, or being convicted or pleading no contest
to any felony or any misdemeanor involving fraud, breach of trust or
misappropriation.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The Compensation Committee of Aether's Board of Directors consists solely
of three non-employee directors. The Compensation Committee determines all
compensation paid or awarded to Aether's key executive officers, except that
Aether's Board has delegated to Mr. Oros, as a Board Committee of one, the
ability to grant options to new hires for up to 40,000 shares, subject to his
duty to report periodically to the Compensation Committee.

PHILOSOPHY. The Compensation Committee's goal is to recruit and retain an
executive team of superior talent. To do so, the Committee attempts to offer
competitive and fair compensation that rewards executives for exceptional
performance and holds them accountable for Aether's performance. Particular
objective factors that the Committee believes are important in assessing
performance include growth in the number of subscribers to Aether's systems, the
development of new products and products for new industries, an increase in
Aether's customer base in the financial services field and in new fields, and
growth in revenue, earnings before interest expense, taxes, depreciation, and
amortization, and earnings per share. More subjective factors the Committee
believes are important in evaluating performance include success in undertaking
joint ventures and acquisitions and integrating newly acquired companies and
hiring and retention of key employees.

In establishing appropriate levels for base salary, the Compensation
Committee considers the market for senior executives of public companies in
businesses comparable to Aether's, based on their own business experience. The
Committee also considers the particular officer's overall contributions to
Aether over the past year and previously. Annual performance bonuses are based
on the Compensation Committee's evaluation of the executive's performance in
achieving several specified annual goals. Option grants are designed to reward
an executive officer for his overall contribution to Aether and to serve as an
incentive to achieve Aether's goal of increasing shareholder value.

Executive officers' compensation consists primarily of three components:
(i) base salary, (ii) cash bonus, and (iii) stock options.

BASE SALARY. The Committee establishes base salaries after considering a
variety of factors that determine an executive's value to Aether, including the
individual's knowledge, experience, and accomplishments and the level of
responsibility assumed. The Committee also sets base salaries at levels it
considers necessary to retain key employees. Senior executives at Aether were
granted base salary increases for 2001 averaging 7 percent, based on performance
and current market conditions.

CASH BONUS. The Committee determined each individual's cash bonus for the
fiscal year ended December 31, 2000. Cash bonuses are based on the Committee's
overall evaluation of the performance and accomplishments of each executive
officer in achieving various specified goals for the year. Senior executives of
Aether, exclusive of the CEO, were generally granted cash bonuses of twenty
percent of their year 2000 salaries, based on performance and current market
conditions.

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STOCK OPTIONS. The Committee believes achievement of Aether's goals may be
fostered by a stock option program that is tailored to employees who
significantly enhance Aether's value. The Compensation Committee determined each
individual's grant of stock options. Stock option grants are based on the
Committee's overall evaluation of the performance and accomplishments of each
executive officer in achieving various specified goals for the year. In
addition, the Compensation Committee determined to offer all employees,
including executive officers, the opportunity to exchange options for restricted
shares of Aether common stock. Information regarding options exchanged by
executive officers is set forth on page 6 of this proxy statement. The
Compensation Committee offered employees this opportunity because it determined
that many of the stock options issued to employees no longer acted as a
meaningful incentive in light of the significant change in general stock market
conditions in the technology sector which resulted in a decline in the market
price of Aether's common stock.

CHIEF EXECUTIVE OFFICER'S COMPENSATION. David S. Oros is one of Aether's
largest stockholders. His financial well-being is therefore directly tied to
Aether's performance as reflected in the price per share of common stock. For
his services as Aether's chairman of the Board of Directors and chief executive
officer, Mr. Oros received an amount of compensation for 2000 determined in
accordance with the employment contract entered into in 1999, and did not
receive an increase for 2001. In determining whether to award Mr. Oros a bonus
for 2000, the Compensation Committee reviewed Mr. Oros' employment agreement
from before the public offering, considered the successful follow-on offering in
March 2000, considered the successful integration of Aether's acquisitions
during 2000, and the continuing progress in developing new opportunities for
Aether and in recruiting and market development. However, based on current
market conditions and the current value of Aether stock, Mr. Oros proposed, and
the Compensation Committee agreed, to defer the decision on whether to grant Mr.
Oros a cash bonus until later in the year 2001.

COMPENSATION DEDUCTION LIMIT. The SEC requires that this report comment on
Aether's policy with respect to a special rule under the tax laws, section
162(m) of the Internal Revenue Code. That section limits, with exceptions
described below, the compensation that a corporation can deduct for payments to
a chief executive officer and the four other most highly compensated executive
officers to $1 million per officer per year. A company can deduct compensation
(including from exercising options) in excess of $1 million if it pays the
compensation under a plan that its shareholders approve and that is performance-
related. Option exercises are typically deductible under such a plan if granted
with exercise prices at or above the market price when granted or if
grandfathered because granted before the public offering. The Committee's policy
with respect to the compensation deduction limit is to make every reasonable
effort to ensure that compensation likely to be received by a senior executive
is deductible under section 162(m), while at the same time giving Company
executives incentives to stay with and enhance Aether's value. The Committee
believes, however, that compensation exceeding the $1 million deduction limit
should not be ruled out where such compensation is justified based on the
executive's value to Aether and its shareholders. The Committee believes that no
executive compensation expenses paid in 2000 will be non-deductible under
section 162(m).

This Report shall not be deemed incorporated by reference in any document
previously or subsequently filed with the SEC that incorporates by reference all
or any portion of this proxy statement, unless the report is specifically
incorporated by reference.

J. Carter Beese (Chairman)
Rahul C. Prakash
Thomas E. Wheeler

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of our Compensation Committee is an officer or employee
of Aether. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving on our Board of Directors or Compensation Committee, except
that Messrs. Beese, Oros and Keane serve on the board of directors of Sila
Communications, Limited, of which Mr. Oros is an executive officer.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act") requires our officers (as defined in regulations issued by the SEC) and
directors, and persons who own more than ten percent of a registered class of
Aether's equity securities, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file.

Based solely on a review of copies of such reports of ownership furnished
to us and certifications from executive officers and directors, we believe that
during the past fiscal year all filing requirements applicable to our officers,
directors and greater than ten percent beneficial owners were complied with
except as follows: a Form 4 for NexGen Technologies due October 10, 2000
relating to one transaction was filed on October 19, 2000; a Form 4 for Thomas
Wheeler due October 10, 2000 relating to two transactions was filed April 9,
2001; Messrs. Mancuso, Lupica and Roshfeld each failed to file a Form 3 due in
November 2000 and Mr. Lupica failed to file a Form 4 relating to one transaction
due in December 2000.

STOCK PERFORMANCE CHART

As part of proxy statement disclosure requirements mandated by the SEC, we
are required to provide a comparison of the cumulative total shareholder return
on our common stock with that of a broad equity market index and either a
published industry index or a peer group index. This graph is not deemed to be
"soliciting material" or to be "filed" with the SEC or subject to the SEC's
proxy rules or to the liabilities of Section 18 of the 1934 Act, and the graph
shall not be deemed to be incorporated by reference into any prior or subsequent
filing by the corporation under the Securities Act of 1933 or the 1934 Act.

The following chart compares the yearly percentage change in the cumulative
total shareholder return in Aether's common stock since our initial public
offering on October 26, 1999 with the cumulative total return on the S&P 500
Index (the equity index) and the Business Software Services Index prepared by
Media General Financial Services (the peer index). The comparison assumes $100
was invested on October 21, 1999 in Aether's Common Stock and in each of the
above indices with reinvestment of dividends.

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COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG AETHER SYSTEMS
S&P 500 INDEX AND BUSINESS SOFTWARE SERVICES
[PERFORMANCE CHART]

AETHER SYSTEMS BUSINESS SOFTWARE SERVICES S&P 500 INDEX
-------------- -------------------------- -------------

10/26/99 100.00 100.00 100.00
12/31/99 147.87 149.35 108.04
12/31/00 80.77 105.93 98.21

---------------
Assumes $100 invested on Oct. 21, 1999. Assumes dividend reinvested fiscal year
ending Dec. 31, 2000.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since January 1, 2000, we have engaged in the following transactions with
the following persons:

- directors, nominees for election as directors, or executive officers;

- beneficial owners of 5% or more of the Company's common stock;

- immediate family members of the above, and

- entities in which the above persons have substantial interests.

OMNISKY

In 1999, we acquired shares of preferred stock of OmniSky Corporation. In
January 2000, we exercised a right of first refusal to maintain our percentage
interest in OmniSky by acquiring 1,439,809 shares of Series B Preferred Stock
for $6.7 million, including cancellation of approximately $613,000 of
indebtedness owed by OmniSky to us. In connection with OmniSky's initial public
offering in September 2000, all of our preferred stock was converted into common
stock and our interest decreased to approximately 25.7%. OmniSky's board of
directors currently includes: David S. Oros, our Chairman and Chief Executive
Officer, and Janice M. Roberts and Thomas E. Wheeler, who were at the time
directors of Aether. We had also entered into a voting agreement with 3Com and
OmniSky's management in which each of the parties agreed to vote in favor of
each of the directors named by Aether, 3Com and OmniSky's management. This
voting agreement recently expired upon completion of OmniSky's initial public
offering. As part of our investment with 3Com in OmniSky, we each received
registration rights, including two demand registration rights that we can use
beginning on the first anniversary of the completion of OmniSky's initial public
offering.

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RIVERBED TECHNOLOGIES, INC.

On March 6, 2000, we acquired Riverbed for an aggregate of 5.4 million
shares of our common stock. We issued 4,537,281 shares in exchange for the
outstanding shares of Riverbed capital stock, and reserved an additional 862,480
shares of our common stock for issuance upon exercise of options issued to
Riverbed employees. At the closing, E. Wayne Jackson, the chairman and chief
executive officer of Riverbed, became the president of our software products
group and (until his resignation as a director in November 2000) a director of
Aether and Robin T. Vasan, a director of Riverbed, became (until his resignation
in April 2001) a director of Aether. In addition, Mr. Jackson entered into an
employment agreement, which includes a provision restricting him from competing
with us or Riverbed, for one year following the termination of his employment
with us. As part of the closing, licensing fees for our AIM software platform
that had been incurred by Riverbed are no longer payable.

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

REUTERS

On May 6, 2000, Aether and Reuters formed Sila. Reuters was one of our
original investors and continues to hold approximately 7.5% of our common stock.
In addition, under the terms of a voting agreement among some of our
stockholders Reuters has the right to appoint one director, who is currently
Devin Wenig. We own 60.0% of Sila, and Reuters owns the remaining 40.0%. David
S. Oros, our Chairman and Chief Executive Officer, serves as chairman of Sila,
and one of our directors, J. Carter Beese, Jr., and one of our executive
officers, Brian Keane, also serve on the board of Sila. Our investment in Sila
was funded with $13.5 million in cash and our contribution of IFX, a company
which we purchased in April 2000 for $85 million. Reuters contributed $22
million in cash and its wireless applications business, Futures Pager.

Reuters also provided financial data services to Aether during 2000 and
received $250,373 in payment for these services. Aether provided Reuters'
employees MarketClip services during 2000 and Aether received compensation of
$22,106 for these services.

REPORT OF THE AUDIT COMMITTEE

In accordance with its charter, a copy of which is attached to this proxy
statement as Appendix B, the Audit Committee has reviewed and discussed with
Aether's management and KPMG, Aether's independent auditors, the consolidated
financial statements of Aether and its subsidiaries set forth in Aether's 2000
Annual Report to Stockholders and at Item 8 of the Company's Annual Report on
Form 10-K for the year-ended December 31, 2000.

The Audit Committee has discussed with KPMG the matters required to be
discussed by Statement on Auditing Standards No. 61, "Communication with Audit
Committees," as amended, which includes, among other items, matters relating to
the conduct of an audit of Aether's financial statements.

The Audit Committee has received the written disclosure and the letter from
KPMG required by Independence Standards Board Standard No. 1 and has discussed
with KPMG their independence from Aether.

Based on its review and discussions with management of Aether and KPMG, the
Audit Committee has recommended to the Board of Directors that Aether include
the consolidated financial statements of

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Aether and its subsidiaries for the year ended December 31, 2000 in Aether's
Annual Report to Stockholders and in Aether's Annual Report on Form 10-K.

The members of the Audit Committee are not professionally engaged in the
practice of auditing or accounting and are not experts in the fields of
accounting or auditing, including in respect of auditor independence. Members of
the Audit Committee rely without independent verification on the information
provided to them and on the representations made by management and the
independent accountants. Accordingly, the Audit Committee's oversight does not
provide an independent basis to determine that management had maintained
appropriate accounting and financial reporting principles or appropriate
internal control procedures designed to ensure compliance with accounting
standards and applicable laws and regulations.

May 25, 2001

J. Carter Beese, Jr. (Chairman)
Frank A. Bonsal, Jr.

ADDITIONAL INFORMATION

COPIES OF AETHER'S THE ANNUAL REPORT ON FORM 10-K, EXCEPT FOR EXHIBITS, ARE
AVAILABLE AT NO CHARGE UPON REQUEST. TO OBTAIN COPIES OF THE ANNUAL REPORT ON
FORM 10-K, PLEASE CONTACT GREGG LAMPF, DIRECTOR, INVESTOR RELATIONS, AT 11460
CRONRIDGE DRIVE, OWINGS MILLS, MARYLAND 21117, OR AT TELEPHONE NUMBER (410)
654-6400.

STOCKHOLDER PROPOSALS

If you intend to propose any matter for action at our 2002 Annual Meeting
of Stockholders and wish to have the proposal included in our proxy statement,
you must submit your proposal to the Secretary of Aether at 11460 Cronridge
Drive, Owings Mills, Maryland 21117, not later than January 25, 2002 at 5:00
p.m. Eastern Standard Time. Please note that proposals must comply with all of
the requirements of Rule 14a-8 under the Exchange Act of 1934 as well as the
requirements of our certificate of incorporation and bylaws. Only then can we
consider your proposal for inclusion in our proxy statement and proxy relating
to the 2002 Annual Meeting. We will be able to use proxies you give us for the
next year's meeting to vote for or against any shareholder proposal that is not
included in the proxy statement at our discretion unless the proposal is
submitted to us on or before April 10, 2002.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Susan M. Golden
Susan M. Golden
Secretary

Owings Mills, Maryland
May 25, 2001

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APPENDIX A

AETHER SYSTEMS, INC.
1999 EQUITY INCENTIVE PLAN
REVISED

DECEMBER 20, 2000

PURPOSE Aether Systems, Inc., a Delaware corporation (the
"Company"), wishes to recruit, reward, and retain
employees, outside directors, and other service
providers. To further these objectives, the Company
hereby sets forth the Aether Systems, Inc. 1999 Equity
Incentive Plan (the "Plan"), effective as of October 1,
1999 (the "Effective Date") and amended as of December
20, 2000, to provide options ("Options") or direct
grants ("Stock Grants" and, together with the Options,
"Awards") to employees, outside directors, and other
service providers of the Company and its Related
Companies with respect to purchase shares of the
Company's common stock (the "Common Stock").

PARTICIPANTS All Employees of the Company and any Eligible Affiliates
are eligible for Awards under this Plan. Eligible
employees become "optionees" when the Administrator
grants them an option under this Plan or "recipients"
when they receive a Stock Grant. (Optionees and
recipients are together referred to as "participants.")
The Administrator may also grant Awards to consultants
and certain other service providers. The term
participant also includes, where appropriate, a person
authorized to exercise or retain an Award in place of
the original recipient.

Employee means any person employed as a common law
employee of the Company or a Related Company.

ADMINISTRATOR The Administrator will be the Compensation Committee of
the Board of Directors, unless the Board either
specifies another committee of the Board, or acts under
the Plan as though it were the Compensation Committee.

The Administrator is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion in
interpreting and administering the provisions of the
Plan. Subject to the express provisions of the Plan, the
Administrator may exercise such powers and authority of
the Board as the Administrator may find necessary or
appropriate to carry out its functions. The
Administrator may delegate its functions (other than
those described in the GRANTING OF AWARDS section) to
officers or other employees of the Company.

The Administrator's powers will include, but not be
limited to, the power to amend, waive, or extend any
provision or limitation of any Option. The Administrator
may act through meetings of a majority of its members or
by unanimous consent.

The Administrator may also make Stock Grants (with any
or no restrictions) as a bonus or other incentive or to
grant such stock or other awards in lieu of Company
obligations to pay cash under other plans or
compensatory arrangements, including any deferred
compensation plans or as a replacement for other awards.
The shareholders must approve the provisions of the Plan
relating to stock grants before the Administrator can
make such Awards to director and officers.

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31

GRANTING OF AWARDS Subject to the terms of the Plan, the Administrator
will, in its sole discretion, determine

the participants who receive Awards,

the terms of such Awards,

the schedule for exercisability or nonforfeitability
(including any requirements that the participant or
the Company satisfy performance criteria),

the time and conditions for expiration of the Awards,
and

the form of payment due upon exercise, if any.

The Administrator's determinations under the Plan need
not be uniform and need not consider whether possible
participants are similarly situated.

Options granted to employees may be "incentive stock
options" ("ISOs") within the meaning of Section 422 of
the Internal Revenue Code of 1986 (the "Code"), or the
corresponding provision of any subsequently enacted tax
statute or nonqualified stock options ("NQSOs"), and the
Administrator will specify which form of option it is
granting. (If the Administrator fails to specify the
form, it will be an ISO.) Any options granted to outside
directors must be nonqualified stock options.

The Administrator may impose such conditions on or
charge such price for the Stock Grants as it considers
appropriate.

Substitutions The Administrator will grant Options in replacement for
any outstanding options with respect to Aether
Technologies International, L.L.C. held by persons
eligible to receive Options under this Plan. The
Administrator may also grant Awards in substitution for
options or other equity interests held by individuals
who become Employees of the Company or of a Related
Company as a result of the Company's or Related
Company's acquiring or merging with the individual's
employer or acquiring its assets. In addition, the
Administrator may provide for the Plan's assumption of
awards granted outside the Plan to persons who would
have been eligible under the terms of the Plan to
receive an Award, including both persons who provided
services to any acquired company or business and persons
who provided services to the Company or any Related
Company. If appropriate to conform the Awards to the
interests for which they are substitutes, the
Administrator may grant substitute Awards under terms
and conditions (including Exercise Price) that vary from
those the Plan otherwise requires.

DATE OF GRANT The Date of Grant will be the date as of which the
Administrator grants an Award to a participant, as
specified in the Plan or in the Administrator's minutes
or other written evidence of action.

EXERCISE PRICE The Exercise Price is the value of the consideration
that a participant must provide in exchange for one
share of Common Stock. The Administrator will determine
the Exercise Price under each Award and may set the
Exercise Price without regard to the Exercise Price of
any other Awards granted at the same or any other time.
The Company may use the consideration it receives from
the participant for general corporate purposes.

The Exercise Price per share for NQSOs may not be less
than 50% of the Fair Market Value of a share on the Date
of Grant for grants made after the IPO Effective Date.
For ISOs, the Exercise Price per share must be at least
100% of the Fair Market Value (on the Date of Grant) of
a share of
A-2
32

Common Stock covered by the Option; provided, however,
that if the Administrator decides to grant an ISO to
someone covered by Code Sections 422(b)(6) and 424(d)
(as a more-than-10%-stock-owner), the Exercise Price
must be at least 110% of the Fair Market Value.

The Administrator may satisfy any state law requirements
regarding adequate consideration for Restricted Stock
Grants by (i) issuing Common Stock held as treasury
stock or (ii) charging the recipients at least the par
value for the shares covered by the Restricted Stock
Grant. The Administrator may designate that a recipient
may satisfy (ii) either by direct payments or by the
Administrator's withholding from other payments due to
the recipient.

Fair Market Value Fair Market Value (on the date of Grant) of a share of
Common Stock for purposes of the Plan will be determined
as follows:

if the Common Stock trades on a national securities
exchange, the closing sale price on that date;

if the Common Stock does not trade on any such
exchange, the closing sale price as reported by the
National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq") for such
date;

if no such closing sale price information is
available, the average of the closing bid and asked
prices that Nasdaq reports for such date; or

if there are no such closing bid and asked prices,
the average of the closing bid and asked prices as
reported by any other commercial service for such
date; or

if the Company has no publicly-traded stock, the
Administrator will determine the Fair Market Value
for purposes of the Plan using any measure of value
it determines in good faith to be appropriate;

For any date that is not a trading day, the Fair Market
Value of a share of Common Stock for such date will be
determined by using the closing sale price or the
average of the closing bid and asked prices, as
appropriate, for the immediately preceding trading day.
The Administrator can substitute a particular time of
day or other measure of "closing sale price" or "bid and
asked prices" if appropriate because of changes in
exchange or market procedures.

The Fair Market Value will be treated as equal to the
price established in an IPO for any Options granted as
of the IPO if they are granted on or before the date on
which the IPO's underwriters price the IPO or granted on
the following day before trading opens in the Common
Stock.

The Administrator has sole discretion to determine the
Fair Market Value for purposes of this Plan, and all
Awards are conditioned on the participants' agreement
that the Administrator's determination is conclusive and
binding even though others might make a different and
also reasonable determination.

EXERCISABILITY The Administrator will determine the times and
conditions for exercise or retention of each Award.

Awards will become exercisable or nonforfeitable at such
times and in such manner as the Administrator determines
and the Award Agreement, if any, indicates; provided,
however, that the Administrator may, on such terms and

A-3
33

conditions as it determines appropriate, accelerate the
time at which the participant may exercise any portion
of an Award or at which restrictions on Stock Grants
lapse. For Stock Grants, "exercise" refers to acceptance
of the Award or lapse of restrictions, as appropriate in
context.

If the Administrator does not specify otherwise, Options
will become exercisable and restrictions on Stock Grants
will lapse as to 25% per year on each anniversary of the
Date of Grant, so long as the participant remains
employed or continues his relationship as a service
provider, and will expire as of the tenth anniversary of
the Date of Grant (unless they expire earlier under the
Plan or the Award Agreement). The Administrator has the
sole discretion to determine that a change in
service-providing relationship eliminates any further
service credit on the exercise schedule.

No portion of an Award that is unexercisable at a
participant's termination of employment or
service-providing relationship (for any reason) will
thereafter become exercisable (and the participant will
immediately forfeit any unexercisable portions at his
termination of service-providing relationship), unless
the Award Agreement provides otherwise, either initially
or by amendment.

Change of Control Upon a Change of Control (as defined below), all Awards
granted before May 22, 2000 will become fully
exercisable, unless the participant's Award Agreement
provides otherwise. Any Awards granted to a participant
in replacement of other awards not under this Plan will
not become fully exercisable upon a Change of Control
unless the plan under which the Awards were originally
granted specifically provided for such acceleration or
unless the Administrator provided for such acceleration
in replacing the Awards. Awards granted on or after May
22, 2000 will only become fully exercisable upon a
Change of Control if the participant's Award Agreement
provides for such acceleration. A Change of Control for
this purpose means the occurrence of any one or more of
the following events after the Company's IPO:

(i) sale of all or substantially all of the assets
of the Company to one or more individuals,
entities, or groups (other than an "Excluded
Owner" as defined below);

(ii) complete or substantially complete
dissolution or liquidation of the Company;

(iii) a person, entity, or group (other than an
Excluded Owner) acquires or attains ownership
of at least 80% of the undiluted total voting
power of the Company's then-outstanding
securities eligible to vote to elect members
of the Board ("Company Voting Securities");

(iv) completion of a merger or consolidation of
the Company with or into any other entity
(other than an Excluded Owner) unless the
holders of the Company Voting Securities
outstanding immediately before such
completion, together with any trustee or
other fiduciary holding securities under a
Company benefit plan, retain control because
they hold securities that represent
immediately after such merger or
consolidation more than 20% of the combined
voting power of the then outstanding voting
securities of

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34

either the Company or the other surviving
entity or its ultimate parent

(v) the individuals who constitute the Board
immediately before a proxy contest cease to
constitute at least a majority of the Board
(excluding any Board seat that is vacant or
otherwise unoccupied) immediately following
the proxy contest; or

(vi) during any two year period, the individuals
who constitute the Board at the beginning of
the period (the "Incumbent Directors") cease
for any reason to constitute at least a
majority of the Board (excluding any Board
seat that is vacant or otherwise unoccupied),
provided that any individuals that a majority
of Incumbent Directors approve for service on
the Board are treated as Incumbent Directors.

An "Excluded Owner" consists of the Company, any
Related Company, any Company benefit plan, or any
underwriter temporarily holding securities for an
offering of such securities.

Even if other tests are met, a Change of Control has
not occurred under any circumstance in which the
Company files for bankruptcy protection or is
reorganized following a bankruptcy filing. The
Administrator may determine that a particular
participant's Awards will not become fully exercisable
as a result of what the Administrator, in its sole
discretion, determines is the participant's
insufficient cooperation with the Company with respect
to a Change of Control. In addition, the acceleration
will not occur if it would prevent use of "pooling of
interest" accounting for a reorganization, merger, or
consolidation of the Company that the Board approves.

The Administrator may allow conditional exercises in
advance of the completion of a Change of Control that
are then rescinded if no Change of Control occurs. The
Administrator may also provide that the accelerations
under the Change of Control occur automatically up to
six months after the Change of Control.

Substantial
Corporate
Change Upon a Change of Control that is also a Substantial
Corporate Change, the Awards will become exercisable
only as provided under the Change of Control section
and the Plan and any unexercised or unvested Awards
will terminate (after the occurrence of one of the
alternatives set forth in the next full paragraph)
unless either (i) such termination would prevent use
of "pooling of interest" accounting for a
reorganization, merger, or consolidation of the
Company that the Board approves, or (ii) an agreement
with a participant provides otherwise, or (iii)
provision is made in writing in connection with such
transaction for

the assumption or continuation of outstanding
Awards, or

the substitution for such options or grants of any
options or grants covering the stock or securities
of a successor employer entity, or a parent or
subsidiary of such successor, with appropriate
adjustments as to the number and kind of shares of
stock and prices, in which event the Awards will
continue in the manner and under the terms so
provided.

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35

If an Option would otherwise terminate under the
preceding sentence and the Administrator considers
that the Fair Market Value of the Common Stock as a
result of the Substantial Corporate Change exceeds or
is likely to exceed the Exercise Price, the
Administrator will either provide that

optionees will have the right, at such time before
the completion of the transaction causing such
termination as the Board or the Administrator
reasonably designates, to exercise any unexercised
portions of the Option, including those portions
that the Change of Control will make exercisable,
or

cause the Company, or agree to allow the successor,
to cancel each Option after payment to the optionee
of an amount in cash, cash equivalents, or
successor equity interests substantially equal to
the Fair Market Value under the transaction minus
the Exercise Price for the shares covered by the
Option (and, where the Board or the Administrator
determines it is appropriate, any required tax
withholdings).

The Administrator may allow conditional exercises in
advance of the completion of a Substantial Corporate
Change that are then rescinded if no Substantial
Corporate Change occurs.

The Board or other Administrator may take any actions
described in the Substantial Corporate Changes
section, without any requirement to seek optionee
consent.

A Substantial Corporate Change means any of the
following events:

a sale as described in clause (i) under CHANGE OF
CONTROL,

a dissolution or liquidation as described in clause
(ii),

an ownership change as described in clause (iii),
but with the percentage ownership increased to 100%
merger, consolidation, or reorganization of the
Company with or into one or more corporations or
other entities in which the Company is not the
surviving entity, other than a transaction intended
primarily to change the Company's state of
incorporation or that satisfies clause (iv) under
Change of Control, or

any other transaction (including a merger or
reorganization in which the Company survives)
approved by the Board that results in any person or
entity (other than an Excluded Owner) owning 100%
of Company Voting Securities.

LIMITATION ON ISOS An Option granted to an employee will be an ISO only to
the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the stock with
respect to which ISOs are exercisable for the first time
by the optionee during any calendar year (under the Plan
and all other plans of the Company and its subsidiary
corporations, within the meaning of Code Section
422(d)), does not exceed $100,000. This limitation
applies to Options in the order in which such Options
were granted. If, by design or operation, the Option
exceeds this limit, the excess will be treated as an
NQSO.

METHOD OF EXERCISE To exercise any exercisable portion of an Option, the
optionee must:

Deliver notice of exercise to the Secretary of the
Company (or to whomever the Administrator designates),
in a form complying with any

A-6
36

rules the Administrator may issue, signed or
otherwise authenticated by the optionee, and
specifying the number of shares of Common Stock
underlying the portion of the Option the optionee is
exercising;

Pay the full Exercise Price by cash or a cashier's or
certified check for the shares of Common Stock with
respect to which the Option is being exercised, unless
the Administrator consents to another form of payment
(which could include loans from the Company or the use
of Common Stock); and

Deliver to the Administrator such representations and
documents as the Administrator, in its sole
discretion, may consider necessary or advisable.

Payment in full of the Exercise Price need not accompany
the written notice of exercise if the exercise complies
with a previously-approved cashless exercise method,
including, for example, that the notice directs that the
stock certificates (or other indicia of ownership) for
the shares issued upon the exercise be delivered to a
licensed broker acceptable to the Company as the agent
for the individual exercising the Option and at the time
the stock certificates (or other indicia) are delivered
to the broker, the broker will tender to the Company
cash or cash equivalents acceptable to the Company and
equal to the Exercise Price and any required withholding
taxes.

If the Administrator agrees to allow an optionee to pay
through tendering shares of Common Stock to the Company,
the individual can only tender stock he has held for at
least six months at the time of surrender. Shares of
stock offered as payment will be valued, for purposes of
determining the extent to which the optionee has paid
the Exercise Price, at their Fair Market Value on the
date of exercise. The Administrator may also, in its
discretion, accept attestation of ownership of Common
Stock and issue a net number of shares upon Option
exercise, or by having a broker tender to the Company
cash equal to the exercise price and any withholding
taxes.

AWARD EXPIRATION No one may exercise an Option more than ten years after
its Date of Grant (or five years for ISOs granted to 10%
owners covered by Code Sections 422(b)(6) and 424(d)). A
participant will immediately forfeit and can never
exercise or retain any portion of an Award that is
unexercisable or nonforfeitable at his termination of
service-providing relationship (for any reason), unless
the Award Agreement provides otherwise, either initially
or by amendment. Unless the Award Agreement provides
otherwise, either initially or by amendment, no one may
exercise otherwise exercisable portions of an Option
after the first to occur of:

Employment
Termination The 90th day after the date of termination of
service-providing relationship (other than for death or
Disability), where termination of service-providing
relationship means the time when the employer-employee
or other service-providing relationship between the
individual and the Company (and all Related Companies)
ends for any reason. The Administrator may provide that
Options terminate immediately upon termination of
service-providing relationship for "cause" under an
employee's employment or consultant's services agreement
or under another definition specified in the Award
Agreement. Unless the Award Agreement or the
Administrator provides otherwise, termination of
employment does not include instances in which the
Company immediately rehires a common law employee as an
independent contractor. The Administrator, in its sole
discretion, will

A-7
37

determine all questions of whether particular
terminations or leaves of absence are terminations of
employment and may decide to suspend the exercise or
forfeiture schedule during a leave rather than to
terminate the Award. Unless the Award Agreement or the
Administrator provides otherwise, terminations of
service-providing relationship include situations in
which the optionee's employer ceases to be related to
the Company closely enough to be a Related Company for
new grants.

Gross Misconduct For the Company's termination of the participant's
service-providing relationship as a result of the
participant's Gross Misconduct, the time of such
termination. For purposes of this Plan, "Gross
Misconduct" means the participant has

committed fraud, misappropriation, embezzlement, or
willful misconduct that has resulted or is likely
to result in material harm to the Company or a
Related Company;

committed or been indicted for or convicted of, or
pled guilty or no contest to, any misdemeanor
(other than for minor infractions or traffic
violations) involving fraud, breach of trust,
misappropriation, or other similar activity or
otherwise relating to the Company or any Related
Company, or any felony; or

committed an act of gross negligence or otherwise
acted with willful disregard for the Company's or a
Related Company's best interests in a manner that
has resulted or is likely to result in material
harm to the Company or a Related Company.

If the participant has a written employment or other
agreement in effect at the time of his termination that
specifies "cause" for termination, "Gross Misconduct"
for purposes of his termination will refer to "cause"
under the employment or other agreement, rather than to
the foregoing definition.

Disability For disability, the earlier of (i) the first anniversary
of the participant's termination of employment for
disability and (ii) 60 days after the participant no
longer has a disability, where "disability" means the
inability to engage in any substantial gainful activity
because of any medically determinable physical or mental
impairment that can be expected to result in death or
that has lasted or can be expected to last for a
continuous period of not less than 12 months; or

Death The date 12 months after the participant's death.

If exercise is permitted after termination of
service-providing relationship, the Award will
nevertheless expire as of the date that the former
service provider violates any covenant not to compete or
other post-employment covenant in effect between the
Company or a Related Company and the former employee or
other service provider. In addition, an optionee who
exercises an Option more than 90 days after termination
of employment with the Company and/or Eligible
Affiliates will only receive ISO treatment to the extent
the law permits, and becoming or remaining an employee
of another related company (that is not an Eligible
Affiliate) or an independent contractor will not prevent
loss of ISO status because of the formal termination of
employment.

Nothing in this Plan extends the term of an Option
beyond the tenth anniversary of its Date of Grant, nor
does anything in this AWARD EXPIRATION

A-8
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section make an Option exercisable or Stock Grant
nonforfeitable that has not otherwise become exercisable
or nonforfeitable, unless the Administrator specifies
otherwise.

AWARD AGREEMENT Award Agreements (which could be certificates) will set
forth the terms of each Award and will include such
terms and conditions, consistent with the Plan, as the
Administrator may determine are necessary or advisable.
To the extent the agreement is inconsistent with the
Plan, the Plan will govern. The Award Agreements may
contain special rules.

PUT AND CALL RIGHTS The Administrator may provide in Award Agreements or
other agreements that the Company has the right (or
obligation) to purchase outstanding Awards, or the
shares received from exercising an Option, under certain
circumstances, including termination of employment or
service-providing relationship for any reason or death
and may provide for rights of first refusal. The
Administrator may distinguish between unexercisable and
exercisable Awards.

STOCK SUBJECT TO
PLAN Except as adjusted below under CORPORATE CHANGES,

the aggregate number of shares of Common Stock that
may be subject to outstanding Awards may not exceed
20% of the shares of Common Stock issued and
outstanding as of the date on which the Administrator
seeks to make an additional grant (provided that a
decrease in shares outstanding will not invalidate any
previously issued Award),

the maximum number of shares that may be granted under
Options for a single individual in a calendar year may
not exceed 10% of the shares of Common Stock
outstanding at the closing of the IPO, and

the aggregate number of shares of Common Stock that
may be issued under ISOs may not exceed 3,000,000.

The Common Stock will come from either authorized but
unissued shares or from previously issued shares that
the Company reacquires, including shares it purchases on
the open market or holds as treasury shares. If any
Award expires, is canceled, or terminates for any other
reason, the shares of Common Stock available under that
Award will again be available for the granting of new
Awards (but will be counted against that calendar year's
limit for a given individual).

No adjustment will be made for a dividend or other right
for which the record date precedes the date of exercise.

The optionee will have no rights of a stockholder with
respect to the shares of stock subject to an Option
except to the extent that the Company has issued
certificates for, or otherwise confirmed ownership of,
such shares upon the exercise of the Option.

The Company will not issue fractional shares pursuant to
the exercise of an Option, unless the Administrator
determines otherwise, but the Administrator may, in its
discretion, direct the Company to make a cash payment in
lieu of fractional shares.

PERSON WHO MAY
EXERCISE During the participant's lifetime and except as provided
under TRANSFERS, ASSIGNMENTS, AND PLEDGES, only the
participant or his duly appointed guardian or personal
representative may exercise the Options or hold the
forfeitable Stock Grants. After his death, his personal
representative or any

A-9
39

other person authorized under a will or under the laws
of descent and distribution may exercise any then
exercisable portion of an Option. If someone other than
the original recipient seeks to exercise any portion of
an Option, the Administrator may request such proof as
it may consider necessary or appropriate of the person's
right to exercise the Option.

ADJUSTMENTS UPON
CHANGES IN CAPITAL Subject to any required action by the Company (which it
agrees to promptly take) or its stockholders, and
subject to the provisions of applicable corporate law,
if, after the Date of Grant of an Option, Stock

the outstanding shares of Common Stock increase or
decrease or change into or are exchanged for a
different number or kind of security because of any
recapitalization, reclassification, stock split,
reverse stock split, combination of shares, exchange
of shares, stock dividend, or other distribution
payable in capital stock, or

some other increase or decrease in such Common Stock
occurs without the Company's receiving consideration
(excluding, unless the Administrator determines
otherwise, stock repurchases),

the Administrator must make a proportionate and
appropriate adjustment in the number of shares of Common
Stock underlying each Option, so that the proportionate
interest of the participant immediately following such
event will, to the extent practicable, be the same as
immediately before such event. (This adjustment does not
apply to Common Stock that the optionee has already
purchased, nor to Stock Grants, each of which are
subject to the adjustment applicable to Common Stock.)
Unless the Administrator determines another method would
be appropriate, any such adjustment to an Option will
not change the total price with respect to shares of
Common Stock underlying the unexercised portion of the
Option but will include a corresponding proportionate
adjustment in the Option's Exercise Price. The Board or
other Administrator may take any actions described in
this section without any requirement to seek optionee
consent.

The Administrator will make a commensurate change to the
maximum number and kind of shares provided in the STOCK
SUBJECT TO PLAN section.

All references to numbers of shares of Common Stock in
the Plan and in any Option grants made on or before the
IPO Effective Date assume the IPO is or will be
completed and thus relate to post-IPO numbers of shares.

Any issue by the Company of any class of preferred
stock, or securities convertible into shares of common
or preferred stock of any class, will not affect, and no
adjustment by reason thereof will be made with respect
to, the number of shares of Common Stock subject to any
Award or the Exercise Price except as this ADJUSTMENTS
section specifically provides. The grant of an Award
under the Plan will not affect in any way the right or
power of the Company to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structure, or to merge or to
consolidate, or to dissolve, liquidate, sell, or
transfer all or any part of its business or assets.

RELATED COMPANY
EMPLOYEES Employees of Eligible Affiliates will be entitled to
participate in the Plan, except as otherwise designated
by the Board or the Administrator.

Eligible Affiliate means each of the Related Companies,
except as the Administrator otherwise specifies. For ISO
grants, "Related Company"

A-10
40

means any corporation (other than the Company) in an
unbroken chain of corporations including the Company if,
at the time an Option is granted to a Participant under
the Plan, each corporation (other than the last
corporation in the unbroken chain) owns stock possessing
50% or more of the total combined voting power of all
classes of stock in another corporation in such chain.
For ISOs, Related Company also includes a single-member
limited liability company included within the chain
described in the preceding sentence. The Board or the
Administrator may use a different definition of Related
Company for NQSOs and may include other forms of entity
at the same level of equity relationship (or such other
level as the Board or the Administrator specifies).

LEGAL COMPLIANCE The Company will not issue any shares of Common Stock
under an Award until all applicable requirements imposed
by Federal and state securities and other laws, rules,
and regulations, and by any applicable regulatory
agencies or stock exchanges, have been fully met. To
that end, the Company may require the participant to
take any reasonable action to comply with such
requirements before issuing such shares, including
compliance with any Company black-out periods or trading
restrictions. No provision in the Plan or action taken
under it authorizes any action that Federal or state
laws otherwise prohibit.

The Plan is intended to conform to the extent necessary
with all provisions of the Securities Act of 1933
("Securities Act") and the Securities Exchange Act of
1934 and all regulations and rules the Securities and
Exchange Commission issues under those laws.
Notwithstanding anything in the Plan to the contrary,
the Administrator must administer the Plan, and Awards
may be granted and exercised, only in a way that
conforms to such laws, rules, and regulations. To the
extent permitted by applicable law, the Plan and any
Awards will be treated as amended to the extent
necessary to conform to such laws, rules, and
regulations.

PURCHASE FOR INVESTMENT
AND OTHER RESTRICTIONS Unless a registration statement under the Securities Act
covers the share of Common Stock a participant receives
upon exercising his Award, the Administrator may
require, at the time of such exercise, that the
participant agree in writing to acquire such shares for
investment and not for public resale or distribution,
unless and until the shares subject to the Award are
registered under the Securities Act. Unless the shares
are registered under the Securities Act, the participant
must acknowledge:

that the shares purchased on exercise of the Award are
not so registered,

that the participant may not sell or otherwise
transfer the shares unless

such sale or transfer complies with all applicable
laws, rules, and regulations, including all
applicable Federal and state securities laws,
rules, and regulations, and either

the shares have been registered under the
Securities Act in connection with the sale or
transfer thereof, or

counsel satisfactory to the Company has issued an
opinion satisfactory to the Company that the sale
or other transfer of such shares is exempt from
registration under the Securities Act.

Additionally, the Common Stock, when issued upon the
exercise of an Award, will be subject to any other
transfer restrictions, rights of first

A-11
41

refusal, and rights of repurchase set forth in or
incorporated by reference into other applicable
documents, including the Award Agreements, or the
Company's articles or certificate of incorporation,
by-laws, or generally applicable stockholders'
agreements.

The Administrator may, in its sole discretion, take
whatever additional actions it deems appropriate to
comply with such restrictions and applicable laws,
including placing legends on certificates and issuing
stop- transfer orders to transfer agents and registrars.

TAX WITHHOLDING The participant must satisfy all applicable Federal,
state, and local income and employment tax withholding
requirements before the Company will deliver stock
certificates or otherwise recognize ownership upon the
exercise of an Award. The Company may decide to satisfy
the withholding obligations through additional
withholding on salary or wages. If the Company does not
or cannot withhold from other compensation, the
participant must pay the Company, with a cashier's check
or certified check, the full amounts, if any, required
for withholding. Payment of withholding obligations is
due before the Company will issue any share on exercise,
or, if the Administrator so requires, at the same time
as is payment of the Exercise Price. If the
Administrator so determines, the participant may instead
satisfy the withholding obligations by directing the
Company to retain shares from the Award exercise, by
tendering previously owned shares, or by attesting to
his ownership of shares (with the distribution of net
shares), or, after and IPO, by having a broker tender to
the Company cash equal to the withholding taxes.

TRANSFERS, ASSIGNMENTS,
AND PLEDGES Unless the Administrator otherwise approves in advance
in writing for estate planning or other purposes, an
Award may not be assigned, pledged or otherwise
transferred in any way, whether by operation of law or
otherwise or through any legal or equitable proceedings
(including bankruptcy), by the participant to any
person, except by will or by operation of applicable
laws of descent and distribution. If necessary to comply
with Rule 16b-3, the participant may not transfer or
pledge shares of Common Stock acquired upon exercise of
an Award until at least six months have elapsed from
(but excluding) the Date of Grant, unless the
Administrator approves otherwise in advance in writing.
The Administrator may, in its discretion, expressly
provide that a participant may transfer his Award,
without receiving consideration, to (i) members of his
immediate family (children, grandchildren, or spouse),
(ii) trusts for the benefit of such family members, or
(iii) partnerships whose only partners are such family
members.

AMENDMENT OR
TERMINATION OF PLAN
AND OPTIONS The Board may amend, suspend, or, terminate the Plan at
any time, without the consent of the participants; or
their beneficiaries; provided, however, that such
actions are consistent with this section. Except as
required by law or by the Substantial Corporate Changes
section, the Administrator may not, without the
participant's or beneficiary's consent, modify the terms
and conditions of an Award so as to materially adversely
affect the participant. No amendment, suspension, or
termination of the Plan will, without the participant's
or beneficiary's consent, terminate or materially
adversely affect any right or obligations under any
outstanding Awards, except as provided in the
Substantial Corporate Changes Section.

PRIVILEGES OF STOCK
OWNERSHIP No participant and no beneficiary or other person
claiming under or through such optionee will have any
right, title, or interest in or to any shares of

A-12
42

Common Stock allocated or reserved under the Plan or
subject to any Award except as to such shares of Common
Stock, if any, already issued to such participant.

EFFECT ON OTHER
PLANS Whether receiving or exercising an Award causes the
participant to accrue or receive additional benefits
under any pension or other plan is governed solely by
the terms of such other plan.

LIMITATIONS ON
LIABILITY Notwithstanding any other provisions of the Plan, no
individual acting as a director, officer, other
employee, or agent of the Company will be liable to any
participant, former participant, spouse, beneficiary, or
any other person for any claim, loss, liability, or
expense incurred in connection with the Plan, nor will
such individual be personally liable because of any
contract or other instrument he executes in such other
capacity. The Company will indemnify and hold harmless
each director, officer, other employee, or agent of the
Company to whom any duty or power relating to the
administration or interpretation of the Plan has been or
will be delegated, against any cost or expense
(including attorneys' fees) or liability (including any
sum paid in settlement of a claim with the Board's
approval) arising out of any act or omission to act
concerning this Plan unless arising out of such person's
own fraud or bad faith.

NO EMPLOYMENT
CONTRACT Nothing contained in this Plan constitutes an employment
contract between the Company and the optionees. The Plan
does not give any participant any right to be retained
in the Company's employ, nor does it enlarge or diminish
the Company's right to end the participant's employment
or other relationship with the Company.

APPLICABLE LAW The laws of the State of Delaware (other than its choice
of law provisions) govern this Plan and its
interpretation.

DURATION OF PLAN Unless the Board extends the Plan's term, the
Administrator may not grant Options after September 20,
2009. The Plan will then terminate but will continue to
govern unexercised and unexpired Options.

APPROVAL OF PLAN The Plan must be submitted to Company stockholders for
their The approval within 12 months before or after the
Board adopts the Plan to qualify any Options designated
as ISOs for treatment as such. If the stockholders do
not so approve the Plan, the Plan and any outstanding
ISOs will be treated as void and of no effect.

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43

APPENDIX B
AUDIT COMMITTEE CHARTER

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

CHARTER

I. PURPOSE

The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:

- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance.

- Monitor the independence and performance of the Company's independent
auditors.

- Provide an avenue of communication among the independent auditors,
management and the Board of Directors.

The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting
or other consultants or experts it deems necessary in the performance of its
duties.

While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditors. Nor is it
the duty of the Audit Committee to conduct general investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's compliance
policies.

II. COMPOSITION

Effective no later than June 14, 2001, the Audit Committee shall have at
least three members but no more than six members, comprised solely of
independent directors (as defined in the applicable rules of the Nasdaq National
Market or any securities exchange on which the common stock of the Company is
listed), each of whom is able to read and understand fundamental financial
statements, including a company's balance sheet, income statement and cash flow
statement, or will become able to do so within a reasonable period of time after
his or her appointment to the Audit Committee. Additionally, the Audit Committee
shall have at least one member that has past employment experience in finance or
accounting, requisite professional certification in accounting or any other
comparable experience or background which results in the individual's
sophistication, including being or having been a chief executive officer, chief
financial officer or other senior officer with financial oversight
responsibilities. The Audit Committee may have one member who is not independent
if the conditions set forth in Nasdaq National Market Rule 4310(c)(26)(B) are
satisfied.

The members of the Audit Committee shall be appointed by the Board at least
annually at a meeting of the Board or until their successors shall be duly
appointed and qualified. Unless a Chair is elected by the full Board, the
members of the Audit Committee may designate a Chair by Majority vote of the
full Audit Committee membership.

III. MEETINGS

The Audit Committee shall meet at least twice annually, or more frequently
as circumstances dictate, including at the request of the independent auditors.
As part of its responsibility to foster open communication, the Audit Committee
should meet at least annually with management and the

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44

independent auditor in separate sessions to discuss any matters that the Audit
Committee or either of these groups believe should be discussed privately. When
deemed appropriate, meetings may be held in person or by telephone. Minutes or
other records of meetings and activities of the Audit Committee shall be
maintained and reported to the full Board.

IV. RESPONSIBILITIES AND DUTIES

To fulfill its responsibilities and duties, the Audit Committee shall:

Review Procedures

1. Review and reassess the adequacy of the Charter at least annually.
Submit the Charter to the Board for approval and have the document
published at least every three years in accordance with regulations
promulgated by the Securities and Exchange Commission ("SEC").

2. Review the Company's annual audited financial statements prior to filing
with the SEC or distribution to shareholders and the public. Review
should include discussion with management and independent auditors of
significant issues regarding accounting principles, practices and
judgments. Based on review and discussions, make recommendations to the
Board whether the Company's annual audited financial statements should
be included in the Company's Annual Report on Form 10-K.

3. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of earnings
and/or prior to filing with the SEC or distribution to shareholders or
the public. Discuss any significant changes to the Company's accounting
principles and any items required to be communicated by the independent
auditors in accordance with Statement on Auditing Standards (SAS) 61.

Independent Auditors

1. The independent auditors are ultimately accountable to the Audit
Committee and the Board. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to
the Board, subject to approval by the stockholders, the appointment of
the independent auditors or approve any discharge of auditors when
circumstances warrant.

2. Approve the fees and other significant compensation to be paid to the
independent auditors.

3. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence, consistent with
Independence Standards Board Standard 1.

4. Review the independent auditors audit plan. Discuss scope, staffing,
locations, reliance upon management and general audit approach.

Financial Reporting Process

1. Prior to releasing year-end earnings, discuss the results of the audit
with the independent auditors. Discuss certain matters required to be
communicated to audit committees in accordance with SAS No. 61,
including such things as management judgments and accounting estimates,
significant audit adjustments, disagreements with management and
difficulties encountered in performing the audit.

2. Consider the independent auditors' judgments about the quality (not just
the acceptability) and appropriateness of the Company's accounting
principles as applied in financial accounting. Inquire as to the
independent auditors' views about whether management's choices of
accounting principles appear reasonable from the perspective of income,
asset and liability recognition, and whether those principles are common
practices or are minority practices.

B-2
45

3. In consultation with management and the independent auditors, consider
the integrity of the Company's financial reporting processes and
controls, both external and internal. Discuss significant financial risk
exposures and the steps management has taken to monitor, control and
report such exposures. Review significant findings prepared by the
independent auditors together with management's responses, including the
status of previous recommendations.

Internal Controls and Legal Compliance

1. Review the budget, plan, changes in plan, activities, organizational
structure and qualifications of the controller's office, as needed.
Review significant reports prepared by the controller's office together
with management's response and follow-up to these reports.

2. Review the appointment, performance and replacement of the controller
and any other senior personnel responsible for financial reporting.

3. Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of internal control and ensuring that
all individuals' possess an understanding of their roles and
responsibilities.

4. Consider and review with management and the independent auditors the
effectiveness or weakness in the Company's internal controls. Develop in
consultation with management a timetable for implementing
recommendations to correct identified weaknesses.

5. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the organization's
financial statements, the Company's compliance with applicable laws and
regulations, and inquiries received from regulators or governmental
agencies.

6. Review management's monitoring of the Company's compliance with laws and
management's exercise of ethical practices and ensure that management
has the proper review systems in place to ensure that the Company's
financial statements, reports and other information disseminated to
governmental organizations, and the public, satisfy legal requirements.

Reports of the Audit Committee

1. Annually prepare a report to shareholders as required by the SEC in the
Company's annual proxy statement.

Miscellaneous

1. The Audit Committee shall perform any other activities consistent with
this Charter, the Company's Bylaws and governing law, as the Audit
Committee or the Board deems appropriate or necessary.

B-3
46

PROXY
AETHER SYSTEMS, INC.
PROXY FOR ANNUAL MEETING OF JUNE 22, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints David S. Oros and David C. Reymann, or
either of them, as attorneys-in-fact, with full power of substitution, to vote
in the manner indicated on the reverse side, and with discretionary authority as
to any other matters that may properly come before the meeting, all shares of
common stock of Aether Systems, Inc. which the undersigned is entitled to vote
at the annual meeting of stockholders of Aether Systems, Inc. to be held on June
22, 2001 at the BWI Airport Marriott, 1743 West Nursery Road, Baltimore, MD
21240 at 10:00 a.m. or any adjournment thereof.

NOT VALID UNLESS DATED AND SIGNED ON THE REVERSE SIDE

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL PROPOSALS

1. Election of directors. Nominees: For Against Abstain

(01) J. Carter Beese, Jr., (02) Frank A.
Bonsal, Jr., (03) Mark D. Ein,
(05) David S. Oros, 2. The appointment of KPMG [ ] [ ] [ ]
(06) Rahul C. Prakash, (07), LLP as Independent Auditors
Dr. Rajendra Singh, (08)
George P. Stamas,
(09) Devin N. Wenig, (10) Thomas E. Wheeler

3. Amendment to the 1999 [ ] [ ] [ ]
Equity Incentive Plan
For Withheld
the [ ] from all [ ]
Nominees Nominees

--------------------------
[ ] For all nominees except as
noted above

IN THEIR DISCRETION, UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.

MARK HERE FOR ADDRESS CHANGE AND NOTE [ ]
AT LEFT

MARK HERE IF YOU PLAN TO ATTEND THE
MEETING [ ]

NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When assigning as attorney,
executor, administrator, trustee or guardian, give full
name and title as such.

Please sign, date and return promptly in the accompanying
envelope.

Signature: Date: Signature: Date:
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