-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WOONqEwOQq1keG4wre+Zmdmdn9mJgUMvoqL8FmX81m+HjEcVIFa7VICo7s6TKniE ye8F2HQUsVolg41NZrd5hA== 0000891618-98-002458.txt : 19980518 0000891618-98-002458.hdr.sgml : 19980518 ACCESSION NUMBER: 0000891618-98-002458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: METRICOM INC / DE CENTRAL INDEX KEY: 0000884318 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 770294597 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19903 FILM NUMBER: 98623860 BUSINESS ADDRESS: STREET 1: 980 UNIVERSITY AVE CITY: LOS GRATOS STATE: CA ZIP: 95030 BUSINESS PHONE: 4083998200 MAIL ADDRESS: STREET 1: 980 UNIVERSITY AVE CITY: LOS GATOS STATE: CA ZIP: 95030 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 1998 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to _______ Commission file number 0-19903 METRICOM, INC. (A Delaware Corporation) I.R.S. Employer Identification #77-0294597 980 University Avenue Los Gatos, CA 95032-2375 (408) 399-8200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares of common stock outstanding as of May 4, 1998 was 18,507,702. 2 TABLE OF CONTENTS
PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 9 Liquidity and Capital Resources 10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURE PAGE 15 EXHIBIT INDEX 16
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
MARCH 31, DECEMBER 31, 1998 1997 --------- --------- ASSETS CURRENT ASSETS: Cash and cash equivalents .............................. $ 49,863 $ 9,784 Short-term investments ................................. 1,879 4,390 Accounts receivable, net ............................... 2,455 2,278 Inventories ............................................ 3,830 3,011 Prepaid expenses and other ............................. 2,277 1,124 --------- --------- Total current assets ............................... 60,304 20,587 PROPERTY AND EQUIPMENT, net .............................. 23,795 25,875 LONG-TERM INVESTMENTS .................................... -- 300 OTHER ASSETS, NET......................................... 3,542 4,341 --------- --------- Total assets ....................................... $ 87,641 $ 51,103 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable ....................................... $ 2,498 $ 3,143 Accrued liabilities .................................... 4,776 5,464 Note payable ........................................... -- 5,000 --------- --------- Total current liabilities .......................... 7,274 13,607 --------- --------- LONG-TERM DEBT ........................................... 45,000 45,000 --------- --------- OTHER LIABILITIES ........................................ 1,038 1,129 --------- --------- MINORITY INTEREST ........................................ 5,770 5,184 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT): Common stock ........................................... 19 14 Additional paid-in capital ............................. 189,544 135,466 Unrealized holding gain on investments ................. 1 1 Accumulated deficit .................................... (161,005) (149,298) --------- --------- Total stockholders' equity (deficit)................ 28,559 (13,817) --------- --------- Total liabilities and stockholders' equity (deficit) $ 87,641 $ 51,103 ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 3 4 METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 1998 MARCH 31, 1997 -------------- -------------- REVENUES: Service revenues .......... $ 1,974 $ 1,164 Product revenues .......... 1,629 630 -------- -------- Total revenues ........ 3,603 1,794 -------- -------- COSTS AND EXPENSES: Cost of service revenues .. 6,158 6,882 Cost of product revenues .. 1,375 275 Research and development .. 3,057 3,021 Selling, general and administrative ......... 4,261 5,377 -------- -------- Total costs and expenses .. 14,851 15,555 -------- -------- Loss from operations .... (11,248) (13,761) INTEREST EXPENSE ............ 1,012 959 INTEREST INCOME ............. 553 761 -------- -------- Net loss ................ $(11,707) $(13,959) ======== ======== BASIC & DILUTED NET LOSS PER SHARE ........ $ (0.69) $ (1.03) ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING ..... 16,944 13,595 ======== ========
The accompanying notes are an integral part of these condensed consolidated statements. 4 5 METRICOM, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED ------------------ MARCH 31, MARCH 31, --------- --------- 1998 1997 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ........................................................ $ (11,707) $ (13,959) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization ............................... 2,231 1,831 (Increase) decrease in accounts receivable, prepaid expenses and other current assets ................ (1,330) 294 Increase in inventories ..................................... (819) (752) (Decrease) increase in accounts payable, accrued liabilities, customer deposits and other .............................. (1,424) 306 --------- --------- Net cash used in operating activities ........................................... (13,049) (12,892) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ............................. (93) (5,664) Other ........................................................... (85) (1,042) Purchases of investments ........................................ (111,403) (36,020) Proceeds from the sale of investments ........................... 114,214 53,357 --------- --------- Net cash provided by investing activities .............. 2,633 10,631 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock .......................... 54,909 442 Cash used to retire short-term debt, net ........................ (5,000) -- Contributions from minority interest ............................ 586 -- --------- --------- Net cash provided by financing activities .............. 50,495 442 --------- --------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS .................................................... 40,079 (1,819) CASH AND EQUIVALENTS, BEGINNING OF PERIOD ......................... 9,784 15,246 --------- --------- CASH AND EQUIVALENTS, END OF PERIOD ............................... $ 49,863 $ 13,427 ========= =========
The accompanying notes are an integral part of these condensed consolidated statements. 5 6 METRICOM, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The condensed consolidated financial statements of Metricom, Inc. (the "Company") presented in this Form 10-Q are unaudited. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) which are necessary for a fair presentation of operations for the three month periods ended March 31, 1998 and March 31, 1997. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 1997, as filed with the Securities and Exchange Commission. Certain amounts have been restated from the previously reported balances to conform to the 1997 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three-month periods ended March 31, 1998 and March 31, 1997 are not necessarily indicative of the results expected for the full fiscal year or for any other fiscal period. NOTE 2. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and include purchased parts, labor and manufacturing overhead. Inventories consisted of the following (in thousands):
MARCH 31, DECEMBER 31, 1998 1997 ------ ------ Raw materials $2,104 $1,660 Work-in-progress 5 28 Finished goods 1,721 1,323 ------ ------ Total $3,830 $3,011 ====== ======
6 7 NOTE 3. COMPREHENSIVE INCOME The Company adopted Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130") effective for fiscal years beginning after December 15, 1997 and has restated information for all prior periods reported below to conform to this standard.
Three Months Ended March 31, 1998 1997 -------- -------- NET LOSS ............................ $(11,707) $(13,959) OTHER COMPREHENSIVE INCOME Unrealized holding losses on available-for-sale securities .. -- (32) COMPREHENSIVE INCOME ................ $(11,707) $(13,991) ======== ========
NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE Basic and diluted net loss per share has been computed using the weighted average number of shares of common stock outstanding. Potential common equivalent shares from options and warrants to purchase common stock and from conversion of the convertible subordinated notes have been excluded from the calculation of diluted net loss per share as their effect would be anti-dilutive. NOTE 5. VULCAN TRANSACTION On January 30, 1998, the stockholders of the Company approved the sale of 4,650,000 shares of Common Stock to Vulcan Ventures Incorporated ("Vulcan") at a per share price of $12.00. Upon closing of the transaction, Vulcan's ownership interest in the Company was increased to approximately 49.5% of the outstanding shares of Common Stock. The net proceeds from the transaction were $53.7 million. NOTE 6. OVERALL WIRELESS In February 1996, the Company purchased an option to acquire Overall Wireless Communications Corporation ("Overall Wireless"), a company that holds a nationwide, wireless communications license in the 220 to 222 MHz frequency band. The Company paid $700,000 for the option and agreed to loan Overall Wireless up to $2.0 million for the construction of a system utilizing the license, of which approximately $1.9 million had been loaned as of December 31, 1997. In January 1997, the Company paid $500,000 to extend the option from January 1997 to July 1997. The option was subsequently extended to December 31, 2000 for no additional cash consideration. In June 1997, the Company recorded a charge of $3.6 million to fully reserve its investment in Overall Wireless due to uncertainties regarding its realization. In January 1998, 7 8 Overall Wireless canceled the option and the Company paid a termination fee of $1.9 million through cancellation of the indebtedness of Overall Wireless. NOTE 7. NEW ACCOUNTING STANDARD In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS No. 131"), which established standards for the way public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports to shareholders. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for annual reports on fiscal years beginning after December 15, 1997, although earlier application is encouraged. The Company believes the pronouncement will not have a material effect on its financial statements. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Except for historical information contained herein, this Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, the completion of development of the Company's high-speed network, uncertainty of market acceptance of the Company's products and services, availability of sufficient financial, management, technical and marketing resources, performance and availability of the Company's Ricochet(R) radios and modems, the ability of the Company to lease or acquire sites for the location of its network infrastructure, the ability of the Company to enter into partnerships to deploy Ricochet networks and those factors discussed in the section entitled "Risk Factors" and elsewhere in the Company's Form 10-K, as amended, for the year ended December 31, 1997, as well as those elsewhere in this Form 10-Q. RESULTS OF OPERATIONS Revenues Revenues consist of service and product revenues. Service revenues are derived from the subscriber fees and modem rentals for Ricochet and fees for UtiliNet(R) customer support and are recognized ratably over the service period. Product revenues are derived from the sale of UtiliNet products and Ricochet modems and are recognized upon shipment. Total revenues increased to $3.6 million in 1998 from $1.8 million in 1997 due to a $800,000 increase in service revenues and a $1.0 million increase in product revenues. Service revenues increased to $2.0 million in 1998 from $1.2 million in 1997. The increase in service revenues is primarily due to increased Ricochet subscriber fees and modem rentals resulting from a larger Ricochet subscriber base. Product revenues increased to $1.6 million in 1998 from $600,000 in 1997. The increase in product revenues was primarily due to the timing of shipments of UtiliNet products and increased sales of Ricochet modems in 1998 compared to 1997. Cost of Revenues Cost of service revenues consists primarily of costs incurred to deploy and operate Ricochet networks, the cost to obtain site agreements for the Company's network infrastructure, the cost 9 10 of providing customer support, certain costs associated with manufacturing the Company's network components and depreciation of modems rented to Ricochet subscribers. Cost of service revenues decreased to $6.2 million in 1998 from $6.9 million in 1997. The decrease is primarily due to lower Ricochet network operating expenses resulting from decreased deployment efforts in the Ricochet service territory during the first quarter of 1998. The decrease was partially attributed to a reduced level of activity to obtain site agreements in the first quarter of 1998 as compared to the same period in 1997. Cost of service revenues is expected to increase in the future primarily due to increased efforts to obtain site agreements for the Company's network infrastructure. Cost of product revenues increased to $1.4 million in 1998 from $275,000 in 1997. Cost of product revenues as a percentage of product revenues increased to 84% for the first quarter of 1998 from 44% in the first quarter of 1997. The increase was primarily due to a higher percentage of product revenues in the first quarter of 1998 derived from the sale of lower margin Ricochet modems versus UtiliNet products. Research and Development Research and development expenses increased to $3.1 million in 1998 from $3.0 million in 1997. Research and development activities include the development of high-speed network and subscriber device and enhancements to the technology employed by the Company's current networks. The Company plans to significantly increase the level of investment in research and development in the foreseeable future. Selling, General and Administrative Selling, general and administrative expenses decreased to $4.3 million for the first quarter of 1998 from $5.4 million for the first quarter of 1997. Selling expenses decreased $500,000 and general and administrative expenses decreased $600,000. The decrease in selling expenses is attributable to a lower level of advertising activity. The decline in general and administrative expenses resulted from decreased legal professional fees associated with regulatory matters and pursuing financing relationships. Selling, general and administrative expenses are expected to continue at the current level or increase for the foreseeable future. Interest Income and Expense Interest expense remained constant at $1.0 million in 1998 as compared to the same period in 1997. Interest income decreased to $553,000 for the first quarter of 1998 from $761,000 in 1997 due to a lower level of cash and investments in 1998 as compared to 1997. LIQUIDITY AND CAPITAL RESOURCES The design, development, deployment and commercialization of the Company's 10 11 wireless products and services has required and will continue to require substantial capital investment. To date, the Company has raised over $217 million through the sale of equity, convertible debt securities, to meet those requirements and to provide for additional capital and liquidity. Expenditures related to the development of the Company's products and services have resulted in cumulative net losses totaling $161.0 million. On January 30, 1998, the Stockholders of the Company approved the sale of 4,650,000 shares of Company's common stock to Vulcan Ventures, Incorporated at a per share price of $12.00. The investment by Vulcan raises their total cumulative investment in the Company's securities to $109 million, of which $90 million was a direct investment in the Company . As a result of these investments and the substantial ownership, Vulcan has the ability to nominate 4 out of 7 directors and has significant influence over the management and direction of the Company. The net proceeds of the transaction were $53.7 million. The Company's operations have required substantial capital investments for the purchase of Ricochet network equipment, Ricochet modems, and computer and office equipment. Capital expenditures were $100,000 and $5.7 million in the first quarter of 1998 and 1997, respectively. The $5.6 million decrease is primarily due to minimal deployment efforts in the Ricochet service territory during the first quarter of 1998. The Company expects to make significant capital expenditures in connection with the development, deployment and commercialization of its high-speed networks including the costs associated with renting modems to Ricochet subscribers. The amount and timing of expenditures, however, may vary significantly depending on numerous factors including the completion of development of the Company's high-speed network, market acceptance of the Company's products and services, availability of sufficient financial, management, technical and marketing resources, performance and availability of the Company's Ricochet radios and modems, the ability of the Company to lease or acquire sites for the location of its network infrastructure, the ability of the Company to enter into partnerships to deploy high-speed networks and those factors discussed in the section entitled "Risk Factors" and elsewhere in the Company's Form 10-K, as amended, for the year ended December 31, 1997, as well as those elsewhere in this Form 10-Q. The Company believes that significant additional capital will be required in the future to fund further development, deployment and commercialization of its Ricochet networks. The Company anticipates raising additional capital through the public or private sale of debt or equity securities. The Company may also seek to raise additional capital through the sale of securities to a strategic party or by entering into joint ventures or other relationships with relevant parties. There can be no assurance that such additional funds will be available on commercially reasonable terms or at all. The Company anticipates that its existing available cash and investments, interest income from investments, and contributions received from its existing joint venture partner will be adequate to satisfy its capital expenditure, operating loss, interest expense and working capital requirements at least through 1998. The Company believes that substantial additional capital will be required in the future to fund further deployment and operating activities of Ricochet. There can be no assurance that such funds would be available on commercially reasonable terms or at all. As of March 31, 1998, the Company had cash and cash equivalents and short-term and 11 12 long-term investments of $51.7 million and working capital of $53.0 million. Accounts receivable increased to $2.5 million as of March 31, 1998, from $2.3 million as of December 31, 1997. Inventories increased to $3.8 million as of March 31, 1998, from $3.0 million as of December 31, 1997 primarily due to an increase in Ricochet subscriber devices and UtiliNet products. The Company believes that both accounts receivable and inventories will increase in the future in order to support the commercialization of Ricochet. The Company is in the process of identifying anticipated costs, problems and uncertainties associated with making the Company's internal-use software applications Year 2000 compliant. In general, the Company expects to resolve the Year 2000 issues through planned replacement or upgrades of its third party software applications including updating its financial management system to Oracle 10.7. Although management does not expected Year 2000 issues to have a material impact on its business or future results of operations, there can be no assurance that there will not be interruptions or operations or other limitations of system functionality or that the Company will not incur significant costs to avoid such interruptions or limitations 12 13 PART II. OTHER INFORMATION ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A Special Meeting of Stockholders of Metricom, Inc. was held on January 30, 1998. The matters voted upon at the meeting and the voting of stockholders with respect thereto are as follows: 1. Approval of the Common Stock Purchase Agreement, dated as of October 10, 1997, between Metricom, Inc. and Vulcan Ventures Incorporated, and the transactions contemplated thereby. For: 9,092,671 Against: 66,205 Abstain: 64,853 2. Election of one Class III director to hold office until the 1998 Annual Meeting of Stockholders, two Class I directors to hold office until the 1999 Annual Meeting of Stockholders and two Class II directors to hold office until the 2000 Annual Meeting of Stockholders. Robert P. Dilworth (Class III): For: 13,073,327 Against: 55,750 Justin L. Jaschke (Class I): For: 13,077,073 Against: 52,004 Robert S. Cline (Class I): For: 13,078,003 Against: 51,074 William D. Savoy (Class II): For: 13,079,594 Against: 49,483 David E. Liddle (Class II): For: 13,078,324 Against: 50,753 3. Approval of the Company's Restated Certificate of Incorporation. For: 9,202,253 Against: 76,250 Abstain: 69,142 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 10.1 Executive Compensation Agreement 27.1 Financial Data Schedule b. Reports on Form 8-K: On October 17, 1997, the Company filed a Form 8-K regarding the proposed sale of 4,650,000 shares of the Company's Common Stock to Vulcan Ventures Incorporated for $12.00 per share in cash. On February 12, 1998, the Company filed a Form 8-K regarding the completion of the sale of 4,650,000 shares of the Company's Common Stock to Vulcan Ventures Incorporated for $12.00 per share in cash. 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. METRICOM, INC. (Registrant) /s/ Vanessa A. Wittman -------------------------------- Date: May 11, 1998 By: Vanessa A. Wittman Chief Financial Officer and Duly Authorized Officer 15 15 EXHIBIT INDEX 10.1 Executive Compensation Agreement 27.1 Financial Data Schedule 16 EX-10.1 2 EXECUTIVE COMPENSATION AGREEMENT 1 EXECUTIVE COMPENSATION AGREEMENT AGREEMENT, made as of May 8, 1998 by and between Metricom, Inc., a Delaware corporation having its principal place of business at 980 University Avenue, Los Gatos, California 95030 (the "Company"), and Timothy A. Dreisbach (the "Executive"). WHEREAS, the Company desires to retain the Executive as its President and Chief Executive Officer to advance the business and interests of the Company on the terms and conditions set forth herein; and WHEREAS, the Executive desires to provide his services to the Company in such capacities, on and subject to the terms and conditions hereof; and NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Employment. Subject to all of the terms and conditions hereof, the Company does hereby employ the Executive, effective as of May 8, 1998 (the "Effective Date") as its President and Chief Executive Officer, and the Executive does hereby accept such employment. The term of employment contemplated hereby shall commence on the Effective Date and shall continue until terminated by the Company or the Executive pursuant to the terms hereof. The Company and the Executive acknowledge and agree that no fixed term of employment is created hereby. 2. Duties of Executive. The Executive shall, during the term of employment hereunder, perform the leadership, executive and administrative duties and functions of the President and Chief Executive Officer of the Company, as such duties and functions are defined by the Board of Directors of the Company from time to time. The Executive shall report to the Board of Directors of the Company. The Company agrees to cause the Executive to be elected as a Class III director of the Company at the next meeting of the Board of Directors of the Company and agrees to use its best efforts to cause the Executive to be elected as a Class III director at the next annual meeting of stockholders of the Company. The Executive agrees to devote substantially all of his business time and effort to the business and affairs of the Company (and, if requested by the Board of Directors, any subsidiary or affiliate of the Company) and to perform his duties faithfully, diligently and competently, and to use his best efforts to promote the profit, benefit and advantage of the Company and, if applicable, any subsidiaries or affiliates of the Company. The Executive agrees to accept the payments to be made to him under this Agreement, and the stock options and stock to be issued to him under this Agreement, as full and complete compensation for the services required to be performed by, and the covenants of, the Executive under this Agreement. 3. COMPENSATION. 3.1 Base Compensation. Until May 1, 1999, the Company agrees to pay the Executive an annual base salary at the rate of $240,000 per annum (the "Base Compensation") payable in substantially equal installments semi-monthly or in such other manner as the 17 2 Company may generally pay its employees and subject to required withholdings and normal payroll deductions. The Company agrees to review and set the Base Compensation of the Executive on an annual basis for periods after May 1, 1999. 18 3 3.2 Benefits. The Executive shall be entitled to participate in any health insurance, accident insurance, hospitalization insurance, life insurance, dental insurance, vision insurance, 401(k), ESPP, or any other similar plan or benefit afforded by the Company to its senior executives generally, if and to the extent that the Executive is eligible to participate in accordance with the provisions of any such insurance, plan or benefit generally. The Company shall reimburse the Executive for up to $2,500 of legal fees and expenses in connection with the negotiation of this Agreement. 3.3 Vacation. The Executive shall be entitled to the same number of weeks of paid vacation per year as are provided to other senior executives of the Company, such vacations to be taken at times mutually agreeable to the Executive and the Company. 4. BONUS. 4.1 Annual Bonus. In order to provide performance-based incentive compensation to the Executive, the Company hereby agrees to pay the Executive, in addition to the Base Compensation, a bonus payable in shares of the Company's Common Stock on or about May 1, 1999, provided that the Performance Goals, as defined below, have been met in the reasonable discretion of the Board of Directors (or a subcommittee thereof), and, subject to Section 5.2, provided the Executive is employed by the Company on May 1, 1999. The "Performance Goals" are certain objectives specified by the Board of Directors after consultation with the Executive, and may consist of financial, business, strategic or other criteria. The Company will endeavor to specify the Performance Goals and the method of allocating the bonus amount among the respective Performance Goals by June 30, 1998. Future bonus arrangements, if any, will be established by the Board of Directors or a committee thereof, in its sole discretion. 4.2 1998 Minimum Bonus Amount. If the Executive is employed by the Company on May 1, 1999, the Company agrees to pay the Executive a bonus of not less than 6,000 shares of Common Stock (subject to adjustment for any stock splits, stock dividends or recapitalizations after the date hereof). 4.3 1998 Bonus Calculation. If Executive achieves 100% of the Performance Goals, he will be entitled to receive 12,000 shares of Common Stock. If Executive achieves less than 75% of the Performance Goals, only the minimum bonus shall be payable. If Executive achieves more than 100% of the Performance Goals, he will be entitled to receive additional shares of Common Stock as determined under a plan established by the Board of Directors or a committee thereof. The actual number of shares to be issued for achievement of between 75% and 100% of the Performance Goals will be prorated based on the actual percentage of the Performance Goals achieved. 5. CHANGE OF CONTROL AND SEVERANCE ARRANGEMENT. 5.1 Option Vesting in Event of Change of Control. In the event that this Agreement or the Executive's employment hereunder shall terminate voluntarily for Good Reason by the Executive or by the Company without Cause (as defined below), within ninety (90) days prior to or one hundred eighty (180) days after the occurrence of a Change of Control (as defined below) 19 4 all unvested options granted pursuant to the stock option agreements referred to in Section 6 of this Agreement shall vest immediately in accordance with the provisions of Section 6.1. For purposes hereof a "Change of Control" shall be deemed to have occurred if and only if (a) an entity, or one or more entities acting as a "Group" within the meaning of Section 13(g) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than Vulcan Ventures, Incorporated ("Vulcan"), shall have the then-effective right to vote, or the then-effective right to control the vote, of in excess of 50% of the voting power of the Company or (b) Vulcan shall have the then effective right to vote, or the effective right to control the vote of in excess of either (X) 80% of the voting power of the Company or (Y) 50% of the voting power of the Company if the Company is no longer required to file reports under Section 13 of the Exchange Act. Executive's voluntary termination of employment with the Company shall be deemed for "Good Reason" if it occurs within one hundred eighty (180) days of any of the following without Executive's express written consent: (i) the assignment to Executive of duties substantially inconsistent with, or a substantial alteration in the nature or status of, Executive's responsibilities immediately prior to a Change in Control of the Company; (ii) a reduction in the Executive's salary or bonus compensation as in effect on the date of a Change in Control of the Company or as in effect thereafter if such compensation has been increased, except as a result of a percentage reduction in the compensation of all executives of the Company; (iii) any failure by the Company to continue in effect without substantial change any material compensation, incentive, welfare or benefit plan or arrangement in which Executive is participating at the time of a Change in Control of the Company (or any other plans providing Executive with substantially similar benefits) (hereinafter referred to as "Benefit Plans"), or the taking of any action by the Company which would adversely affect Executive's participation in or materially reduce Executive's benefits under any such Benefit Plan at the time of a Change in Control of the Company; unless an equitable substitute arrangement (embodied in an ongoing substitute or alternative Benefit Plan) has been made for the benefit of Executive with respect to the Benefit Plan in question; (iv) termination of the Company's requirement to file reports under the Securities Exchange Act of 1934, as amended; (v) relocation to any place more than 50 miles from the present home of Executive, except for required travel by Executive on the Company's business to an extent substantially consistent with Executive's business travel obligations at the time of a Change in Control of the Company; (vi) any material breach by the Company of this Agreement. 5.2 Severance Pay. In the event that the Company at any time terminates the employment of the Executive other than for Cause, or if the Executive voluntarily terminates his employment for Good Reason within ninety (90) days prior to or one hundred eighty (180) days after a Change of Control, the Company shall, notwithstanding such termination, in consideration of all of the undertakings and covenants of the Executive contained herein, continue to pay to the Executive the Base Compensation and the health benefits enjoyed by the Executive on the date of termination for a period of twelve (12) months from the date of such termination. In addition, if such termination occurs within one hundred eighty (180) days of the Effective Date, (a) the Company shall pay to the Executive, 50% of the bonus described in Section 4.2 that would have been payable for 1998 and (b) 137,500 shares of the stock options granted to the Executive shall become vested (unless such termination is in connection with a Change of Control, in which event all stock options would become vested). If such termination occurs within the period of one hundred eighty one (181) days through three hundred sixty five (365) days from the 20 5 Effective Date, (a) no bonus shall be payable, and (b) a percentage of the stock options granted to the Executive shall become vested (unless such termination is in connection with a Change of Control, in which event all stock options would become vested) equal to 137,500 multiplied by a fraction, the numerator of which is the number of days Executive has been employed and the denominator of which is 365. The payment of the severance compensation provided herein shall be conditioned upon the Executive and the Company signing a customary mutual release of claims, provided that payment shall not be withheld once the Executive has executed the mutual release. No severance compensation shall be payable if the Company terminates Executive's Employment for Cause. For purposes hereof "Cause" shall mean: (a) the commission by the Executive of any felony; (b) the commission by the Executive of any misdemeanor involving theft, fraud, dishonesty or misrepresentation; (c) any misappropriation, embezzlement or conversion of the Company's or its affiliates' property by the Executive (whether or not constituting a felony or misdemeanor); (d) continuing failure by the Executive to substantially perform the material duties or obligations of the Executive under this Agreement; (e) the material failure by the Executive to follow the reasonable policies or directives of the Board of Directors of the Company; (f) the engagement by the Executive in bad faith conduct or professionally inappropriate conduct which is materially detrimental to the Company or its business reputation; (g) the voluntary filing of a bankruptcy petition by the Executive or the adjudication of the Executive as a bankrupt; or (h) the adjudication of the Executive as insane or incompetent. 6. STOCK OPTIONS. 6.1 Stock Options. The Company hereby agrees to issue to the Executive, effective as of the Effective Date, stock options (the "Stock Options") covering 550,000 shares of Common Stock of the Company some of which shall be granted under the Company's 1997 Equity Incentive Plan ( the "Plan") and some of which will be granted outside the Plan but will have the same terms and conditions as the options granted under the Plan. The Stock Options shall be incentive stock options to the maximum extent permitted under the Internal Revenue Code. The Stock Options will become exercisable to the extent of 25% of the shares subject to the option on the first anniversary of the Effective Date, and thereafter to the extent of 1/36th of the remaining shares subject to the option on the first day of each month for 36 months; provided, however, that the Stock Options, to the extent not already exercisable, shall become exercisable in their entirety in the event that (a) there occurs a Change of Control, or (b) the Company concludes a sale of substantially all of its assets other than in a transaction which is intended primarily to effect a corporate reorganization without material change in beneficial ownership of the material business of the Company. The Stock Options will be effective for a term of ten (10) years and may be exercised (to the extent exercisable) within ninety (90) days of a termination of employment if such termination is by the Executive voluntarily without Good Reason and within two (2) years of a termination of employment if such termination is by the Company without Cause or by the Executive voluntarily for Good Reason. The exercise price per share of the Stock Options will be 100% of the average of the high and low bid prices of the Common Stock of the Company on May 8, 1998. The Stock Options will be governed by the Plan and separate stock option agreements, consistent with the above terms, to be entered into by the Executive and the 21 6 Company. 6.2 Recapitalization Adjustment. If any subdivision or combination of shares of Common Stock of the Company or any stock dividend, capital reorganization, recapitalization, consolidation or merger in which the Company is the surviving corporation occurs after the grant of the Stock Options, the Board of Directors of the Company shall make such proportional adjustments as it determines appropriate in the number of shares of Common Stock subject to the Stock Options. 7. CONFIDENTIALITY AGREEMENT. The Executive hereby agrees to execute, on the Effective Date, the Company's standard Confidential Information and Intellectual Property Non-Disclosure Agreement, in substantially the form attached hereto as EXHIBIT A. 8. TERMINATION. Executive's employment is at will. Notwithstanding any provision of this Agreement to the contrary, the Executive's employment hereunder may be terminated at any time by the Company, whether or not for Cause, by written notice to the Executive. The Executive acknowledges that the possibility of termination of employment by the Company at any time with or without cause is an integral part of the economic bargain negotiated between the Company and the Executive, and has been considered by the Company and the Executive in structuring the economic relationship between the Executive and the Company. The Executive acknowledges that he has no "protected interest" or legally enforceable expectations of continued employment by the Company, or of employment by the Company for any particular period of time. Upon any termination by the Company the Executive shall have such rights as are specified herein, if any, to receive severance payments and to exercise otherwise exercisable but then-unexercised stock options. No termination of employment hereunder by the Company shall be deemed to relieve the Executive of his obligations with respect to confidentiality, non-solicitation and similar matters, as specified herein. The Executive may terminate his employment hereunder at any time by written notice to the Company; provided, however, that the Executive shall endeavor to provide such reasonable advance notice to the Company as may be practical under the circumstances. In the event of such termination by the Executive, the Executive shall nonetheless have such rights with respect to severance payments, if any, as are specified herein and such rights to exercise otherwise exercisable, but then-unexercised, stock options as provided herein. 9. GENERAL. 9.1 Applicable Law. This document shall, in all respects, be governed by the laws of the State of California. 9.2 Survival. The parties hereto agree that the covenants contained in Section 7 hereof shall survive any termination of employment by the Executive and any termination of this agreement. 9.3 Independent Representation. The Executive acknowledges that he has had the opportunity to seek independent counsel and tax advice in connection with the execution of this Agreement, and the Executive represents and warrants to the Company (a) that he has sought 22 7 such counsel and advice as he has deemed appropriate in connection with the execution hereof and the transactions contemplated hereby; and (b) that he has not relied on any representation of the Company as to tax matters or as to the consequences of the execution hereof. 9.4 Notices. Any and all notices required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party if delivered either personally, by facsimile transmission, same day delivery service, overnight delivery service, or if deposited in the United States Mail, certified or registered, postage prepaid, return receipt requested. In all instances, notice shall be sent to the parties at the following addresses: If to the Company: Metricom, Inc. 980 University Avenue Los Gatos, CA 95030 23 8 If to the Executive: Timothy A. Dreisbach Any party may change its address for the purpose of receiving notices by a written notice given to the other party. 9.5 Waiver. No reliance upon or waiver of one or more provisions of this Agreement shall constitute a waiver of any other provisions hereof. 9.6 Successors and Assigns. All of the terms and provisions contained herein shall inure to the benefit of and shall be binding upon the parties hereto and their respective heirs, personal representatives, successors and assigns. However, no party shall voluntarily assign any rights hereunder, or delegate any duties hereunder, except upon the prior written consent of the other. 9.7 Specific Performance; Attorneys' Fees. It is agreed that the rights granted to the parties hereunder are of a special and unique kind and character and that, if there is a breach by any party of any material provision of this document, the other party would not have an adequate remedy at law. It is expressly agreed, therefore, that the rights of the parties hereunder may be enforced by an action for specific performance and other equitable relief. If legal proceedings are required to enforce this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees. 9.8 Entire Agreement. This Agreement and the Stock Options referenced herein constitute the entire understanding and agreement of the parties with respect to the subject matter hereof, and any and all prior agreements, understandings or representations are hereby terminated and canceled in their entirety. This Agreement may not be modified, except by written instrument duly executed by each party. 24 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. METRICOM, INC. EXECUTIVE By: By: /s/ Timothy A. Dreisbach ----------------------------- ------------------------------ William D. Savoy Timothy A. Dreisbach 25 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) QUARTERLY REPORT. 1,000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 49,863 1,879 2,455 0 3,830 60,304 23,795 0 87,641 7,274 45,000 0 0 19 0 87,641 1,629 3,603 1,375 7,533 7,318 0 1,012 (11,707) 0 (11,707) 0 0 0 (11,707) (0.69) (0.69)
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