10-K

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                            For the Fiscal Year Ended
                                December 31, 1999

                         Commission file number 0-19903

                                 METRICOM, INC.
             (Exact name of Registrant as specified in its charter)

            DELAWARE                                      77-0294597
(State or other jurisdiction of                (IRS Employer Identification No.)
  incorporation or organization)

                 980 UNIVERSITY AVENUE, LOS GATOS, CA 95032-2375
          (Address of principal executive offices, including zip code)

                                 (408) 399-8200
              (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act: NONE

           Securities registered pursuant to Section 12(g) of the Act:
                     COMMON STOCK, $.001 PAR VALUE PER SHARE


           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 ____

           Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____

           The approximate aggregate market value of the Common Stock held by
non-affiliates of the Registrant, based upon the last sale price of the Common
Stock reported on the Nasdaq National Market on March 1, 2000 was
$1,626,983,000. Shares of Common Stock held by persons who hold more than 5% of
the outstanding shares of Common Stock and shares held by officers and directors
of the registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.

           The number of shares of Common Stock outstanding as of March 1, 2000
was 30,590,903.

                       DOCUMENTS INCORPORATED BY REFERENCE
           Certain portions of the Metricom, Inc. Proxy Statement relating to
the 2000 Annual Meeting of Stockholders (the "Proxy Statement") are incorporated
by reference into Part III of this Form 10-K.

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                   SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, that are based on our current expectations about our company and our
industry. We use words such as "plan," "expect," "intend," "believe,"
"anticipate," "estimate" and other similar expressions to identify some
forward-looking statements, but not all forward-looking statements include these
words. Some of these forward-looking statements relate to the timing and
coverage of our planned network deployment, the launch of our high-speed
service, our market opportunities, our strategy, our anticipated revenues from
MCI WorldCom, our ability to enter into agreements with new channel partners,
our competitive position, our management's discussion and analysis of our
financial condition and results of operations and the timing and extent of our
funding needs. All of our forward-looking statements involve risks and
uncertainties. Our actual results may differ significantly from our expectations
and from the results expressed in or implied by these forward-looking
statements. The section captioned "Risk Factors" appearing in this Annual Report
on Form 10-K describes those factors that we currently consider material and
that could cause these differences. We urge you to consider these cautionary
statements carefully in evaluating our forward-looking statements. Except as
required by law, we undertake no obligation to publicly update any
forward-looking statements to reflect subsequent events and circumstances.

                                     PART I

ITEM 1 - BUSINESS.

      Metricom, Inc. was incorporated in California in December 1985 and
reincorporated in Delaware in April 1992. Unless the context otherwise requires,
references in this Form 10-K to "we," "us," "Metricom" or the "Company" refer to
Metricom, Inc. and its subsidiaries. Our principal executive offices are located
at 980 University Avenue, Los Gatos, California 95032-2375, and our telephone
number is (408) 399-8200.

OVERVIEW

      We are a leading provider of mobile wireless data access to corporate
networks and the Internet. We began offering our commercial service, marketed
under the Ricochet brand name, in September 1995. Ricochet service is now
available in the San Francisco Bay Area, in the Seattle and Washington D.C.
metropolitan areas; parts of Los Angeles and New York; and in certain airports
and corporate and university campuses. Ricochet's customers include individuals,
corporations, educational institutions and federal, state and local governments.
As of January 31, 2000, there were approximately 29,500 Ricochet subscribers.
Our current networks use unlicensed spectrum and provide end users with speeds
comparable to commonly used wired modems and, to our knowledge, faster than
other mobile wireless wide area data communications networks.

      During 1999, while we continued to operate our existing Ricochet service,
we have focused our efforts on designing and developing our new high-speed
service. We plan to launch our new high-speed service, marketed under the
Ricochet brand name, during the late summer of 2000. We have designed our new
service to meet the needs of the growing number of professionals who require
full access to their corporate networks and the Internet while away from the
office. Our service will provide these mobile professionals with higher speed
access to data than any other mobile wireless technology commercially available
today. Our service will also appeal to consumers who desire high-speed mobile
access to the Internet. Our technology enables users to replicate wirelessly the
look and feel of their desktop computers, providing them with features
customarily associated with working on a desktop computer at the office. Simply
by connecting a wireless modem to a laptop computer or other portable electronic
device, our users can access their corporate networks and the Internet whenever
they want and wherever they are within our service areas, just as they would
with a wired modem. Our users pay only a flat fee for our service, unlike many
other remote access services.



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      In November 1999, MCI WorldCom, Inc., and Vulcan Ventures Incorporated,
the private investment vehicle of Microsoft Corporation co-founder Paul Allen,
each purchased shares of our preferred stock for $300 million in cash, providing
us with funds to commence the deployment of our high-speed network. In addition,
MCI WorldCom has entered into an agreement with us to sell subscriptions to our
service and has agreed to pay us at least $388 million in revenue over the five
years following the launch of our service, subject to the timely deployment of
our network, our ability to meet agreed performance standards and our ability to
attract a significant number of subscribers through other channel partners. This
relationship provides us with immediate access to a large and sophisticated
sales force that has experience selling products and services to businesses and
consumers in our target market.

      We plan to deploy our high-speed network in three phases. We plan to
launch our high-speed service during the late summer of 2000, and we expect that
our initial service areas will cover a total population of approximately 62
million. After the third phase of our deployment, which we plan to complete by
the end of the summer of 2001, we expect our service areas to cover a cumulative
population of at least 100 million.

      When we launch our service, we plan to use channel partners to sell
subscriptions to our service, bill our users and provide the first level of
customer support. Currently, we have entered into an agreement with one channel
partner, MCI WorldCom. We intend to co-brand our service with MCI WorldCom at
our expense. We believe that co-branding our service with MCI WorldCom, together
with our own independent promotional activities, will help us significantly
increase user awareness of our brand and will make us a more attractive service
for other potential channel partners. We are seeking to enter into agreements
with other channel partners that, like MCI WorldCom, have experience selling
products and services to businesses and consumers in our target market.
Potential channel partners include local telephone companies, wireless carriers,
digital subscriber line or other high-speed Internet access providers, laptop
computer and other portable electronic device manufacturers and system
integrators or networking consulting firms that recommend large-scale purchases
of access services such as ours to their customers.

      In February 2000, we completed concurrent public offerings of 5,750,000
shares of our common stock and $300 million aggregate principal amount of our
13% senior notes due 2010, together with warrants to purchase an aggregate of
1,425,000 shares of our common stock at an initial exercise price of $87.00 per
share. The estimated aggregate available net proceeds of these offerings was
approximately $692 million, after deducting underwriting discounts and
commissions and estimated offering expenses, and after establishing the required
interest reserve to secure the first four interest payments on the notes.


                                  RISK FACTORS

      An investment in our securities involves a high degree of risk. The risks
and uncertainties described below are not the only ones we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial also may impair our business operations. If any of the following
risks actually occurs, our business could be harmed substantially and our stock
price could decline.

                          RISKS RELATED TO OUR BUSINESS

WE ARE REFOCUSING OUR BUSINESS ON A NEW SERVICE FOR WHICH CONSUMER DEMAND IS
UNCERTAIN AND WHICH WE HAVE LIMITED EXPERIENCE OPERATING.

      We have not yet placed our high-speed mobile wireless data network into
commercial operation. We began offering commercial wireless data access services
in 1995 with our current Ricochet service. However, we have limited experience
marketing our current Ricochet service and have not yet tested our new business
strategy, which will utilize channel partners to sell our high-speed service. In
addition, the market for mobile wireless data access services is in the early
stages of development. Critical issues concerning wireless communications and
data access, including security, reliability, cost, regulatory issues, ease of
use and quality of service, remain unresolved and are likely to affect the
market for our high-speed service. We expect that a substantial marketing effort
will be necessary to stimulate initial demand for our



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high-speed service. We cannot reliably project potential demand for our
high-speed service, particularly whether there will be sufficient demand at the
volume and prices we need to be profitable.

      The success of our business ultimately will depend upon the acceptance of
our high-speed service by users to whom our channel partners will seek to sell
subscriptions to our high-speed service. To date, we have signed only one
agreement with a channel partner, MCI WorldCom. Because we are offering a
service for which there is only a limited market today, we bear the risk that
our channel partners will not generate sufficient revenue for us to recoup the
substantial expenditures we will make to deploy and commercially launch our
network. Moreover, if the user base for our high-speed service does not expand
at the rate required to support the planned deployment of our network, our
revenue and business will suffer, and we may be unable to complete our national
deployment. In addition, competition to provide wireless data access services of
the type we offer could result in a high turnover rate among our users, which
could have an adverse effect on our business and results of operations.

WE MUST DEPLOY OUR HIGH-SPEED NETWORK IN A LIMITED TIME IN ORDER TO COMPETE
EFFECTIVELY.

      Our business plan contemplates rapid and widespread deployment of our
high-speed network in major metropolitan markets throughout the U.S. We believe
that the rapid introduction of our service will be crucial to our success in
light of competition from other data access providers. However, we do not
believe that a nationwide network deployment of the magnitude, and at the rate,
contemplated in our deployment schedule has ever been attempted. If we are
unable to deploy our high-speed network in accordance with our aggressive
deployment schedule, we could be forced to incur substantial unanticipated costs
or to revise our business plan.

      In order to complete our network, commence our sales and marketing efforts
and offer our service to users in our targeted metropolitan markets, we must
successfully:

      o     obtain agreements from local municipalities and other third parties
            to deploy our network;

      o     design the network configuration; and

      o     acquire, install and test the network equipment.

     These events may not occur on a timely basis or at the cost that we have
assumed, or at all. Deployment of the network involves various risks and
contingencies, many of which are not within our control, including:

      o     delays or refusals by local governments or other third parties to
            enter into the agreements we need to deploy our network;

      o     inability of third parties on whom we depend to meet delivery
            schedules;

      o     failure of our network to perform as expected;

      o     hardware reliability and performance problems;

      o     failure to receive Federal Communications Commission certification;
            and

      o     changes in existing laws and regulations.

      We currently plan to launch our high-speed service in 12 markets during
the late summer of 2000. Following our initial deployment, we will continue to
need to deploy network radios and wired access points to maintain performance
levels. If we cannot deploy our network on a timely basis and are forced to
delay our commercial launch or to reduce the number of markets in which we
initially launch operations or, if after we have launched our service, we are
unable to meet continuing deployment needs, our business would suffer and the
trading prices for our securities could decline, perhaps substantially.



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WE DEPEND SUBSTANTIALLY ON THIRD PARTIES TO DEPLOY OUR HIGH-SPEED NETWORK ON A
TIMELY AND COST-EFFECTIVE BASIS.

      We depend heavily on third parties to meet our deployment schedule. If any
of these third parties has difficulty performing, or is unable to perform, its
obligations in accordance with our schedule and projected costs, the deployment
of our high-speed network could be delayed, and we could be forced to incur
substantial unanticipated costs.

      RIGHTS-OF-WAY. The development, expansion and operation of our network
depend to a significant degree on our ability to obtain and maintain
rights-of-way for the location of our poletop radios from local municipalities,
public utilities or other local government entities. We have faced delays and
may face future delays or rejections in attempting to obtain the approvals and
agreements necessary to deploy our network and commercially launch our service.
For example, variations in local regulations, including zoning and franchise fee
regulations, could delay us in obtaining agreements we need in order to begin
installing our poletop radios in areas where we propose to offer our service. If
we are unable to negotiate, renew or extend site agreements in a timely manner
and on commercially reasonable terms, or at all, we would be required to seek
alternative sites, such as commercial buildings, residential dwellings or
similar structures, from which to deploy network radios. Deploying a large area
in this manner could be time-consuming and significantly more expensive than
installing poletop radios on street lights and may be restricted or prohibited
by one or more municipalities.

      WIRED ACCESS POINT LEASES. The deployment of our service also depends on
our ability to lease space for our wired access points on building rooftops or
on transmission towers owned by third parties. There is substantial competition
from a variety of communications companies for these sites. We employ third
parties to locate appropriate sites and negotiate leases on our behalf. If these
third parties were unable to identify and negotiate these leases on terms
favorable or acceptable to us, the deployment of our network would be impaired.
The rate at which we are acquiring these leases has been slower and the cost has
been higher than we anticipated. Consequently, we must commit more time, effort
and capital resources to acquiring these leases in order to meet our deployment
plans.

      NETWORK EQUIPMENT. We depend on sole or limited source suppliers for many
of the principal components of our network, including our network radios and
wired access points. Some of our suppliers have experienced shipment delays,
either as a result of capacity limitations at their production facilities or
because they were unable to obtain raw materials or parts necessary for the
network components they manufacture. Some of these supply shortages are ongoing.
If we continue to experience these or future supply problems and are unable to
develop alternative sources of supply quickly and on a cost-effective basis, our
ability to obtain and install the equipment we need to implement our service
will be impaired. This would cause delays in our network deployment.

      NETWORK CONSTRUCTION. We have outsourced the physical construction of our
high-speed network to a small number of contractors. We rely on these third
parties, among other things, to install our poletop radios and wired access
points, deliver and install circuits at our wired access points and network
interface facilities, establish and maintain our connection to corporate
networks and the Internet and provide radio frequency engineering. Our reliance
on these contractors will reduce our control over deployment schedules, quality
assurance and costs. The successful and timely deployment of our network by
these parties will be subject to numerous factors, including the supply of
labor, materials and equipment, as well as prevailing weather conditions. The
failure of these contractors to complete the installation of our network on a
timely, cost-effective basis could delay the deployment of our network, which
would damage our business and prospects.

WE DEPEND ON THIRD PARTIES TO DEVELOP, ASSEMBLE AND MANUFACTURE THE MODEMS
THROUGH WHICH OUR USERS ACCESS OUR SERVICE.

      We depend on a limited number of third-party manufacturers to assemble our
modems. We currently obtain the majority of our modems from a single
manufacturer. If this manufacturer were unable to keep



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pace with production schedules, our operations would be disrupted. Additionally,
under agreements with our existing modem supplier and three new modem suppliers,
we have committed to purchase a minimum number of units in the first year of
deliveries and to reimburse these suppliers for a portion of their development
costs. Consequently, if consumer demand for our service is less than we
anticipate, we could owe a substantial amount, up to approximately $90 million
in the aggregate, to these modem suppliers.

      We will need to arrange for an additional supply of modems to meet
forecast demand for subsequent periods. If we cannot secure arrangements for the
manufacture of additional modems beyond the initial period, our channel partners
may be unable to secure new subscribers to our service, which would harm our
business. If any of our modem suppliers were to experience financial,
operational, production or quality assurance difficulties, allocate resources to
others in lieu of us or experience a catastrophic event that results in a
reduction or interruption in supply of modems, our business would be impaired.
In addition, if our channel partners sell more subscriptions than we anticipate
or if we decide to accelerate deployment of our high-speed network, our
presently anticipated supplies may prove inadequate. We cannot assure you that,
if any of these events occurs, modems from alternate suppliers will be available
at favorable prices, if at all.

ONE OF OUR MANUFACTURERS IS EXPERIENCING SHORTAGES OF SUPPLY OF COMPONENTS FOR
OUR POLETOP AND NETWORK RADIOS AND OUR OTHER MANUFACTURERS MAY EXPERIENCE
SHORTAGES OF SUPPLY OF COMPONENTS FOR OUR MODEMS OR OTHER PRODUCTS, WHICH COULD
INVOLVE SUBSTANTIAL COST AND DELAY AND REDUCE AVAILABILITY OF OUR SERVICE.

      Some of the component parts that our manufacturers use in our products,
including our modems and network radios, are available only from sole or limited
source vendors. Our manufacturers' reliance on these sole or limited source
vendors involves risks, including the possibility of a shortage of key component
parts and reduced control over delivery schedules, manufacturing capability,
quality and costs. In addition, some key component parts require long delivery
times. We have in the past experienced delays because key component parts have
been unavailable to our manufacturers. In January 2000, we reported that we have
been affected by industry-wide component shortages, causing delays to production
of our poletop and network radios assembled under contract by Sanmina
Corporation. While we may experience some delays in deployment of our high-speed
network, based on currently projected component delivery dates, we expect to
launch the first phase of our high-speed service during the late summer of 2000.
However, if the global supply shortage continues longer than expected, we may
experience further delays, which could have an adverse effect on our business
and results of operations. In addition, if our manufacturers are unable to
obtain components, we may need to reconfigure our modems or radios, which could
involve substantial cost and delay and limit availability of our modems or
radios necessary for the deployment of our network. This could delay our
deployment, which would reduce the availability of our service to users and harm
our business.

WE MAY DEPEND ON MCI WORLDCOM TO PROVIDE SUBSCRIPTION SALES AND CUSTOMER SUPPORT
CRITICAL TO OUR SUCCESS.

      Currently, we have only one agreement with a channel partner, MCI
WorldCom. When we launch our high-speed network, we may depend entirely on MCI
WorldCom to sell subscriptions to our service. Our agreement with MCI WorldCom
is non-exclusive, allowing it to market and sell the services of our
competitors, and MCI WorldCom may terminate the agreement without penalty if we
breach our material obligations under the agreement. We believe that the extent
to which MCI WorldCom devotes resources to marketing our service will
substantially affect the development of our user base. We cannot predict whether
MCI WorldCom will decide to support future competing technologies in preference
to ours. MCI WorldCom's termination of its agreement with us, now or in the
future, would disrupt our operations and harm our business.

      We are seeking to enter into non-exclusive agreements with other channel
partners. However, our agreement with MCI WorldCom contains a "most favored
nation" clause, which assures MCI WorldCom no less favorable terms than we grant
any other channel partner. The agreement also restricts us and other channel
partners, if any, from marketing our service to three specified entities to
which MCI WorldCom



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may seek to resell our service. These provisions could deter other potential
channel partners from entering into agreements with us or limit the number of
potential users to which our service is marketed. In addition, our standard
agreement with channel partners will require them to offer our service at a flat
rate that each channel partner will determine. This provision could allow a
single channel partner to undercut our other channel partners, which could deter
potential channel partners from entering into agreements with us. If we are
unable to establish additional agreements with appropriate channel partners at
the rate needed to keep pace with the growth of our network, or at all, the
growth of our customer base and revenues would be reduced.

      We cannot be certain that either we or the users of our service will be
satisfied with the performance of any channel partner with which we enter into
an agreement. When we launch our high-speed network, we will rely on our channel
partners to provide the initial level of customer support, which we will
supplement with higher level technical support. If we or our channel partners
are unable to provide adequate customer service, our business and results of
operations could be adversely affected.

MCI WORLDCOM MAY REDUCE OR CANCEL ITS OBLIGATIONS TO US IF WE FAIL TO MEET
CERTAIN PERFORMANCE THRESHOLDS.

      Although MCI WorldCom has agreed to pay us at least $388 million in
revenue over the five years following the launch of our service, if our
deployment schedule is delayed or if we fail to meet deployment schedule
deadlines or fail to comply with quality-of-service standards relating to data
transmission performance, network availability, coverage and latency, ease of
use and size of modems, all as specified in our agreement with MCI WorldCom, MCI
WorldCom may delay or reduce its minimum payments to us or, in the case of a
deployment delay in excess of 12 months, may terminate the contract. In
addition, in the event that, in any agreement year, subscribers provided by MCI
WorldCom represent more than a specified percentage of our total subscribers,
then MCI WorldCom's guaranteed revenue commitment for that agreement year could
be reduced. If we fail to correct any deficiency for sustained periods of time,
MCI WorldCom may suspend its obligations to us or terminate the agreement. Any
reduction in or termination of these fees or any suspension or termination of
any sales and marketing services we receive under our agreement with MCI
WorldCom will impair the growth of our user base and adversely affect our
business and results of operations.

WE WILL REQUIRE SIGNIFICANT ADDITIONAL CAPITAL IN THE FUTURE TO FUND OUR
CONTINUING DEVELOPMENT, DEPLOYMENT AND MARKETING OF OUR HIGH-SPEED NETWORK AND
SERVICE.

      Our principal uses of cash for the foreseeable future will be to fund the
deployment of our high-speed network, to fund operating losses and to pay
interest on our debt securities issued in February 2000, and dividends on our
preferred stock. Based on our current projections, we believe that, in addition
to the funds on hand at December 31, 1999, we will require additional cash
resources of approximately $1 billion to enable us to complete the three-phase
deployment of our network, as well as for other general corporate purposes.
Approximately $692 million of these required resources, after deducting
underwriting discounts and commissions and estimated offering expenses, and
after establishing the required interest reserve to secure the first four
interest payments on the notes, were funded from the net proceeds of the
February 2000 common stock, notes and warrants offerings. Accordingly, based on
our current projections, we believe that our cash, cash equivalents and
short-term investments of approximately $499.3 million as of December 31, 1999,
together with the net proceeds from the common stock, notes and warrants
offerings in February 2000, will be sufficient to fund the first two phases of
our network deployment. We will need additional funds to complete the third
phase of our network deployment, and the funds we may actually require to
complete any phase of the deployment may vary materially from our estimates. For
example, we could incur unanticipated costs or be required to alter our plans to
respond to changes in competition or other market conditions, which could
require us to raise additional capital sooner than we expect. We could also
require additional funds if we decide to depart from our current business plan
or if we experience unforeseen delays, regulatory changes, cost overruns or
other unanticipated expenses or if we elect to pursue possible acquisitions of
complementary businesses or technologies, none of which is provided for in our
current budget.




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      Any of the foregoing events could require us to raise additional capital
through the sale of equity or the incurrence of additional indebtedness in
private or public financings. We cannot assure you that additional financing
will be available on terms favorable to us, if at all. In addition, Vulcan
Ventures' control position and MCI WorldCom's large investment in us may deter
investors who otherwise might have provided financing to us. Furthermore,
neither Vulcan Ventures nor MCI WorldCom is obligated to provide us with
additional funds. If we are unable to secure additional financing, we may be
required to delay or abandon our expansion plans, which could limit or prevent
the implementation of our business strategy. Moreover, the sale of additional
equity or equity-linked securities could be dilutive to holders of our common
stock.

WE EXPECT TO CONTINUE TO GENERATE LOSSES.

      We have a history of losses and expect to incur additional losses in the
future. Expenditures associated with developing our high-speed service have
contributed substantially to our cumulative net losses of approximately $338
million through December 31, 1999. We expect to incur significant operating
losses and to generate negative cash flow from operating activities during the
next several years while we continue to develop and deploy our network, market
our high-speed service and build our user base. If we are unable to achieve or
sustain profitability or positive cash flow from operating activities, we may be
unable to develop our network or conduct our business effectively or
competitively. We cannot assure you that we will be able to achieve or sustain
profitability.

OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY.

      We are unable to forecast our revenues with certainty because of the
unknown demand for our high-speed service and the emerging nature of the mobile
wireless data access industry. Our revenues could fall short of our expectations
if we experience delays in building out our network or entering into agreements
with additional channel partners. Our future operating results will be subject
to annual and quarterly fluctuations due to several factors, some of which are
outside our control. These factors include:

     o   unanticipated costs of building our network;

     o   delays in the introduction of our service;

     o   rate of market acceptance of our high-speed service;

     o   new offerings of, and pricing strategies for, competitive services;

     o   changes in the regulatory environment; and

     o   general economic conditions.

As a result, it is likely that in some future quarters our operating results
will be below the expectations of securities analysts and investors, which could
cause the trading prices of our securities to decline, perhaps substantially.

WE OPERATE IN A HIGHLY COMPETITIVE INDUSTRY.

      Competition in the market for communications and data access services is
intense. A number of privately and publicly held communications and data access
companies have developed or are developing new wireless and wired communications
and data access services and products using technologies that compete with our
own. Many of these companies have significantly greater resources, more
established brand names and larger customer bases than we do. In addition,
several companies in various other industries are expected to enter the market
in the future. Further, we may face competition from Internet service providers
that could offer Internet, online or data access services at prices lower than
those offered by our channel partners, which could limit our ability to increase
our user base and cause us to incur additional selling, marketing and product
development expenses. If we are unable to compete effectively, our business and
results of operations would be impaired.




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WE OPERATE IN AN INDUSTRY WITH RAPIDLY CHANGING TECHNOLOGY, AND OUR SUCCESS WILL
DEPEND ON OUR ABILITY TO DEVELOP PRODUCTS AND SERVICES THAT KEEP PACE WITH
TECHNOLOGICAL ADVANCEMENTS.

      The market for data access and communications services is characterized by
rapidly changing technology and evolving industry standards in both the wireless
and wireline industries. Our success will depend to a substantial degree on our
ability to develop and introduce, in a timely and cost-effective manner,
enhancements to our high-speed service and new products that meet changing
customer requirements and evolving industry standards. For example, increased
data rates provided by wired data access technologies, such as digital
subscriber lines, may affect customer perceptions as to the adequacy of our
service and may also result in the widespread development and acceptance of
applications that require a higher data transfer rate than our high-speed
service provides. Our technology or systems may become obsolete upon the
introduction of alternative technologies. If we do not develop and introduce new
products and services in a timely manner, we may lose users to competing service
providers, which would adversely affect our business and results of operations.

WE DEPEND ON A NETWORK INFRASTRUCTURE LARGELY MAINTAINED BY THIRD PARTIES AND
SUBJECT TO DISRUPTION BY EVENTS OUTSIDE OUR CONTROL.

      Our success will depend upon the adequacy, reliability and security of the
networks used to carry data between our network and corporate networks and the
Internet. Because those networks are owned or controlled by third parties, we
have no control over their quality and maintenance. Currently, we have
agreements with UUNet, a subsidiary of MCI WorldCom, and others to support the
exchange of traffic between our wired access points, our network interface
facilities, the telecommunications infrastructure and corporate networks and the
Internet. Our operations also depend on our ability to avoid damages from fires,
earthquakes, floods, power losses, communications failures, network software
flaws, transmission cable cuts and similar events. The occurrence of any of
these events could disrupt our service. Any failure of the Internet backbone,
our network interface facilities or any other link in the delivery chain,
whether from operational disruption, natural disaster or otherwise, resulting in
an interruption in our operations, could harm our business and results of
operations.

IF WE ARE UNABLE TO EFFECTIVELY MANAGE OUR PLANNED RAPID GROWTH, OUR OPERATIONS
COULD BE ADVERSELY AFFECTED.

      We expect to experience rapid growth in the future. Our plans call for us
to manage a number of operations in geographically dispersed locations that we
have little or no prior experience managing, including:

      o     the design, deployment and installation of a nationwide mobile
            wireless data access network;

      o     coordination and support of our channel partners; and

      o     maintenance and support of our high-speed network.

In addition, management of our growth will require, among other things:

      o     continued development of our financial and management controls and
            management information systems, including our fixed asset management
            and billing systems;

      o     accurate assessment of potential markets;

      o     stringent cost controls;

      o     increased marketing activities; and



                                       9.
   10

      o     retention of qualified personnel and training of personnel and third
            parties on whom we depend to deploy and maintain our service.

If we are unable to effectively manage our expected rapid growth and development
or if we experience any difficulties in managing the deployment of our network,
our business and results of operations could be harmed.

TO BE COMPETITIVE, WE NEED TO ACHIEVE COST REDUCTIONS.

      If we are to become profitable, our products and components must be
manufactured in large quantities at competitive cost and quality. As a result,
we will need to achieve significant product and component cost reductions. We
are currently working with several companies to develop low-cost personal
computer card modems, as well as smaller and lower cost external modems. If we
are unable to develop these modems at a low cost, we may be unable to achieve
the cost structure we anticipate in our business plan. Even if we achieve
low-cost production, we must have adequate lead times and production capacity to
meet user demand for our service if we are to increase revenues and achieve
profitability. If we do not achieve product and component cost reductions, our
competitive position and our ability to achieve profitability could be impaired.

OUR INTELLECTUAL PROPERTY PROTECTION MAY BE INADEQUATE TO PROTECT OUR
PROPRIETARY RIGHTS, AND WE MAY NOT BE ABLE TO OBTAIN ALL OF THE INTELLECTUAL
PROPERTY RIGHTS NECESSARY TO PROTECT OUR TECHNOLOGY.

      We rely on a combination of patent, copyright, trademark and trade secret
protection laws and non-disclosure agreements to establish and protect our
proprietary rights. We cannot assure you that patents will issue from any
pending applications or, if patents do issue, that claims allowed will be
sufficiently broad to protect our technology. Further, any of our current or
future patents or trademarks may be challenged, invalidated, circumvented or
rendered unenforceable, and the rights granted under those patents or trademarks
may not provide us with significant proprietary protection or commercial
advantage. Moreover, our patents may not preclude competitors from developing
equivalent or superior products and technology.

      We also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive
position. Others may independently develop equivalent proprietary information or
otherwise gain access to or disclose our information. We cannot assure you that
the confidentiality agreements upon which we rely will provide meaningful
protection of our trade secrets or adequate remedies in the event of
unauthorized use or disclosure of confidential information or prevent our trade
secrets from otherwise becoming known to or independently discovered by our
competitors.

      Our commercial success may also depend in part on our not infringing the
proprietary rights of others or not breaching technology licenses that cover
technology we use in our products. Third-party patents may require us to develop
alternative technology or to alter our products or processes, obtain licenses or
cease some of our activities. If these licenses are required, we may be unable
to obtain them on commercially favorable terms, if at all. If we are unable to
obtain licenses to any technology that we may require to effectively deploy or
market our products and service, our business could be harmed.

WE ARE SUBJECT TO TELECOMMUNICATIONS INDUSTRY REGULATIONS, WHICH COULD ADVERSELY
AFFECT THE NATURE AND EXTENT OF THE SERVICE WE OFFER.

      Many aspects of the telecommunications industry are subject to regulation
at the federal, state and local levels. From time to time, the regulatory
entities that have jurisdiction over our business adopt new or modified
regulations or take other actions as a result of their own regulatory processes
or as directed by other governmental bodies. This changing regulatory
environment could adversely affect the nature and extent of the service we are
able to offer.

      On the federal level, the FCC regulates our license-free equipment and
operations, as well as the licensed operations and equipment that we deploy as
part of our network. We cannot assure you that we



                                      10.
   11

will be able to secure the necessary FCC approvals for the equipment that we
intend to deploy in 2000 and thereafter. The need to obtain these approvals
could result in delays or additional costs. Our equipment shares the
license-free frequency bands with other users. Licensed users in the band have
priority over our license-free use, and the FCC requires that we not cause
harmful interference to those users. In our licensed frequencies, we are subject
to an FCC requirement that we not cause interference to certain services
operating in nearby bands. Satisfying these requirements could involve
substantial time and expense and, if we fail to satisfy them, could lead us to
curtail our operations in the affected locations.

      In addition, the FCC requires that we accept interference to our
operations. In the license-free spectrum, we operate on a co-equal basis with
other license-free users and must accept any interference present in the bands.
Even in our exclusive, licensed frequency bands, our operations may be subject
to interference. For example, Mexico is currently in negotiations with the U.S.
to use some of our licensed frequencies for a satellite service in Mexico. If
implemented, this service could interfere with our licensed operations in
certain markets. Excessive harmful interference in either the licensed or
license-free frequency bands could discourage users from subscribing to or
retaining our service, which would impair our business and results of
operations.

      We may desire or, as a result of changes in regulations, be required to
seek to operate in other license-free or licensed frequency bands. We cannot
assure you that, if needed, we could obtain appropriate licensed or unlicensed
spectrum on commercially acceptable terms, if at all. In addition, redesigning
our products to operate in other frequency bands could be expensive and
time-consuming, and we cannot assure you that any redesign would result in
commercially viable products.

      On the state and local levels, some jurisdictions may attempt to impose
additional regulatory requirements, including regulating the terms and
conditions of our service. This regulation could hinder or limit the flexibility
that we have to respond to changes in the markets we serve and otherwise
adversely affect our business and results of operations.

OUR SUCCESS DEPENDS ON OUR RETENTION OF KEY PERSONNEL AND OUR ABILITY TO ATTRACT
ADDITIONAL KEY EMPLOYEES.

      We believe our success will depend largely on our ability to attract and
retain highly skilled engineering and managerial personnel. The industry in
which we operate is characterized by intense competition for these personnel and
a high level of employee mobility. Many of our key employees hold stock options
that are vested or may be fully vested before we achieve significant revenues or
profitability. We intend to grant additional options and provide other forms of
incentive compensation to attract and retain our key personnel, but we cannot
guarantee these efforts will be successful. If we are unable to retain our
management and engineering staff or if we fail to attract additional key
personnel, we may have difficulty implementing our business plan, which would
have an adverse effect on our business and results of operations.

WE MAY BECOME SUBJECT TO RISKS RELATED TO INTERNATIONAL OPERATIONS.

      We are currently at the early stages of evaluating international expansion
opportunities. Any international expansion plans we pursue could fail if we are
unable to locate qualified local suppliers and other third parties to deploy our
network or if we cannot establish agreements with channel partners to promote
our service in foreign markets. In addition, international expansion could
subject us to burdens of complying with a variety of foreign laws and trade
standards, including regulatory requirements affecting wireless data and
Internet access services, foreign taxes and tariffs, as well as financial risks,
such as those related to foreign currency fluctuations. In addition, there is
greater uncertainty regarding protection and enforcement of intellectual
property rights in certain foreign countries. If we expand internationally, we
also will be subject to general geopolitical risks, such as political and
economic instability and changes in diplomatic and trade relationships. The
risks associated with any international operations that we may pursue could
adversely affect our business and results of operations.


                                      11.
   12


WE FACE RISKS IN CONNECTION WITH THE YEAR 2000.

      Many installed computer systems and software products were programmed to
accept only two digits in the date code field. As of January 1, 2000, it became
necessary for these code fields to accept four digit entries to distinguish
years beginning with "19" from those beginning with "20."

      We have assessed all of our internal computer systems and software
products, tested those systems and products and remedied any known problems. We
have upgraded our business and financial systems to a version that our vendors
have certified to be year 2000 compliant and also communicated with our key
suppliers to assess whether or not the products, services, networks and
technologies of these suppliers are year 2000 compliant. We have also completed
an assessment of whether our networks that depend upon third parties for
telecommunications services and power are year 2000 compliant. In the fourth
quarter of 1999, we completed our year 2000 assessment, testing and remediation
efforts.

      Because we have not yet launched our high-speed service and because many
systems, whether or not they are information-technology systems, may contain
embedded technology, we cannot assure you that we have identified and remedied
all potential year 2000 problems that could arise in connection with our
high-speed service. We have a contingency plan for handling year 2000 problems
that were not detected and corrected prior to their occurrence, and we are
continuing to assess any exposure areas in order to determine what additional
steps are advisable. We are prepared to use backup systems and have developed
other alternative contingency plans for other critical functions where computer
systems are essential. To date, we have not experienced any material year 2000
problems. However, if all of our potential year 2000 problems were not properly
identified or if adequate assessment and remediation are not timely effected
with respect to any year 2000 problems, our business could be impaired
significantly. Moreover, any year 2000 compliance problem facing our customers
or third parties who provide our networks with telecommunications services and
power could also harm our business.


                     RISKS RELATING TO OUR CAPITAL STRUCTURE

OUR PRINCIPAL STOCKHOLDERS CAN CONTROL OR MAY BE ABLE TO EXERT SUBSTANTIAL
INFLUENCE OVER US, AND WE MAY EXPERIENCE SIGNIFICANT CONFLICTS OF INTEREST WITH
THEM.

      After assuming conversion of all of our outstanding preferred into common
stock, Vulcan Ventures would hold approximately 43% of our common stock and MCI
WorldCom would hold approximately 33% of our common stock, based on capital
stock outstanding after the closing of our common stock offering in February
2000. In addition, as holders of our preferred stock, Vulcan Ventures and MCI
WorldCom each has the right to elect one director. Vulcan Ventures, by reason of
its large common stock holdings, will continue to have the ability to control
most matters submitted to a vote of our stockholders, including significant
corporate transactions and the election of a majority of our board of directors.
Moreover, in light of MCI WorldCom's substantial preferred stock holdings and
right to elect one director, MCI WorldCom may be able to substantially influence
actions we take.

      Conflicts of interest may arise as a consequence of the positions of
control and influence of Vulcan Ventures and MCI WorldCom. For example,
conflicts of interest may arise when Vulcan Ventures or MCI WorldCom is faced
with decisions that could have different implications for us, on the one hand,
as compared with Vulcan Ventures or MCI WorldCom or their various affiliates, on
the other hand. These decisions may relate to matters such as the following:

      o     corporate opportunities that we or Vulcan Ventures or MCI WorldCom,
            or any of their affiliates, could pursue;

      o     our strategic direction;

      o     offers to acquire us;



                                      12.
   13

      o     potential acquisitions by us of other businesses;

      o     contractual relationships between us and Vulcan Ventures or MCI
            WorldCom, or any of their affiliates;

      o     network deployment priorities;

      o     businesses that compete or potentially compete with us;

      o     the issuance or disposition of our securities; and

      o     the election of new or additional directors or officers.

      In particular, MCI WorldCom is currently our sole channel partner and has
discretion to determine the extent of the marketing resources it devotes to help
develop our user base. Moreover, MCI WorldCom has announced an agreement to
acquire Sprint Corporation, which may offer a competing service. MCI WorldCom
can terminate its agreement with us without penalty if we breach our material
obligations under the agreement and fail to cure that breach. Although one of
our agreements with Vulcan Ventures contains measures designed for the
protection of our public stockholders with respect to Vulcan Ventures, such as
requiring approval of three directors not affiliated with Vulcan Ventures for
certain matters involving Vulcan Ventures, these stockholder protection measures
may not be effective in any particular case.

CONCENTRATION OF OUR OWNERSHIP BY VULCAN VENTURES AND MCI WORLDCOM COULD DETER,
DELAY OR PREVENT CHANGE OF CONTROL OR OTHER TRANSACTIONS THAT COULD BE
BENEFICIAL TO OUR STOCKHOLDERS.

      The concentration of our ownership by Vulcan Ventures and MCI WorldCom, as
well as other rights of Vulcan Ventures and MCI WorldCom, could deter, delay or
prevent third parties, particularly other data access or communications
companies, from investing in us, reselling our service, or initiating or
completing a potential merger with us, a tender offer for our shares, a proxy
contest or other transaction intended to change control or management. These
transactions could involve premium prices or other benefits to our stockholders.
Concentration of ownership could also depress the market price of our common
stock or otherwise adversely affect stockholders, or deter potential channel
partners from entering into agreements with us.

THE MARKET PRICE OF OUR STOCK MAY BE HIGHLY VOLATILE.

      The market prices for securities of companies engaged in emerging
industries, such as ours, have been highly volatile. Announcements we or others
make could have a significant impact on the market price of our securities.
These announcements may include:

      o     technological innovations or new commercial services by us or our
            competitors;

      o     comments made by securities analysts, including changes in
            securities analysts' estimates of our financial performance;

      o     delays in deployment of our high-speed network or launch of our
            high-speed service;

      o     quarterly fluctuations in our revenues and financial results;

      o     regulatory developments in both the U.S. and foreign countries;

      o     developments concerning proprietary rights, including patents;

      o     litigation matters;




                                      13.
   14

      o     general market conditions; or

      o     changes in key personnel.

      The stock market has from time to time experienced extreme price and
volume fluctuations that have particularly affected the market prices for stocks
of companies such as ours. These fluctuations have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of our common stock. In the past, following
periods of volatility in the market price of a company's stock, securities class
action litigation has been initiated against the issuing company. This type of
litigation could result in substantial cost and a diversion of management's
attention and resources, which could have an adverse effect on our revenues and
earnings. Any adverse determination in this type of litigation could also
subject us to significant liabilities.

WE HAVE A SUBSTANTIAL AMOUNT OF DEBT, WHICH COULD ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

      As a result of our February 2000 issuance of 13% senior notes due 2010, we
have substantial indebtedness. On a pro forma basis adjusted for the completion
of the offering of the notes and warrants issued in February 2000, we would have
had approximately $237.0 million of long-term indebtedness outstanding at
December 31, 1999. Of this amount, $236.4 million represents notes that will
accrete to an aggregate principal amount at maturity of $300 million. We will
need to raise more capital to finance our expansion and continued network
deployment, which may be in the form of substantial additional indebtedness.

      The indenture and the supplemental indentures governing the notes permit
us to incur additional debt to fund the development, construction, expansion or
operation of, or acquisition of assets used in or the majority of the voting
stock of, communications and data access businesses and up to $275 million under
one or more credit facilities. We can also incur additional indebtedness based
on our financial performance and the amount of equity capital that we raise in
the future. If we incur debt in addition to the notes, the related risks could
intensify.

     This large amount of indebtedness could, for example:

      o     make it more difficult for us to satisfy our obligations under the
            notes or other indebtedness and, if we fail to comply with the
            requirements of the indebtedness, could result in an event of
            default;

      o     require us to dedicate a substantial portion of our cash flow from
            operations to required payments on indebtedness, thereby reducing
            the availability of cash flow for working capital, capital
            expenditures and other general corporate purposes;

      o     limit our ability to obtain additional financing in the future for
            working capital, capital expenditures and other general corporate
            purposes;

      o     limit our flexibility in planning for, or reacting to, changes in
            our business and the industry in which we operate;

      o     detract from our ability to successfully withstand a downturn in our
            business or the economy generally; and

      o     place us at a competitive disadvantage against other less leveraged
            competitors.

      The occurrence of any one of these events could adversely affect our
business, financial condition and results of operations.



                                      14.
   15

WE MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET OUR EXPECTED DEBT
SERVICE OBLIGATIONS.

      We cannot assure you that our future cash flow will be sufficient to meet
the payment obligations under the senior notes when those payments become due.
Our ability to generate cash flow from operations to make scheduled payments on
our debt obligations as they become due will depend on our future financial
performance, which will be affected by a range of economic, competitive and
business factors, many of which are outside of our control.

      If we do not generate sufficient cash flow from operations to satisfy our
debt obligations, we may have to undertake alternative financing plans, such as
refinancing or restructuring our debt, selling assets, reducing or delaying
capital investments or seeking to raise additional capital. We cannot assure you
that any refinancing would be possible, that any assets could be sold or, if
sold, of the timing of the sales and the amount of proceeds realized from those
sales or that additional financing could be obtained on acceptable terms, if at
all. If we are unable to generate sufficient cash flow to satisfy our debt
obligations or to refinance our indebtedness on commercially reasonable terms,
there could be an adverse effect on our business, financial condition and
results of operations.

THE TERMS OF THE SENIOR NOTES WILL IMPOSE RESTRICTIONS ON US THAT MAY AFFECT OUR
ABILITY TO SUCCESSFULLY OPERATE OUR BUSINESS.

      We are restricted by the terms of the senior notes from taking various
actions, such as incurring additional indebtedness, paying dividends,
repurchasing junior indebtedness, making investments, entering into transactions
with affiliates, merging or consolidating with other entities and selling all or
substantially all of our assets. These restrictions could also limit our ability
to obtain future financings, make needed capital expenditures, withstand a
future downturn in our business or the economy in general or otherwise conduct
corporate activities. We may also be prevented from taking advantage of business
opportunities that arise because of the limitations imposed on us by the
restrictive covenants under the indenture and supplemental indentures. A breach
of any of these provisions will result in a default under the indenture and
supplemental indentures governing the notes and could result in a default under
agreements relating to other indebtedness that we may have in the future that
would allow those lenders to declare that indebtedness immediately due and
payable. If we were unable to pay those amounts because we did not have
sufficient cash on hand or were unable to obtain alternative financing on
acceptable terms, the lenders could initiate a bankruptcy or liquidation
proceeding or proceed against any assets that serve as collateral to secure that
indebtedness. We cannot assure you that our assets would be sufficient to repay
that amount and the amounts due under the notes in full. In addition, upon the
occurrence of certain events specified in the notes, including in connection
with certain types of changes in control, we will be required to make an offer
to purchase all the outstanding notes at a premium, in which case we may not
have sufficient funds to pay for all the notes that are tendered, which also
would constitute an event of default.


OUR SOLUTION AND COMPETITIVE ADVANTAGES

      Our new high-speed service, which we expect to launch during the late
summer of 2000, will provide users with secure and reliable high-speed mobile
access to corporate networks and the Internet for a flat fee, regardless of the
level of usage. We believe our competitive strengths effectively address the
growing demand for high-speed mobile wireless data access through the following
combination of benefits:

      HIGHER SPEED ACCESS TO DATA THAN ANY OTHER REMOTE MOBILE WIRELESS
TECHNOLOGY COMMERCIALLY AVAILABLE TODAY. When we launch our high-speed service,
expected during the late summer of 2000, we believe our network will provide
higher effective data transfer rates than any other remote mobile wireless data
access service commercially available today. We will provide users with an
average downstream data transfer rate greater than 128 kilobits per second,
which is faster than today's high-speed integrated service digital network, or
ISDN, telephone lines. Our high-speed service will provide users with an average
upstream data transfer rate of more than 50 kilobits per second, which is faster
than the average data transmission rate of 33 kilobits per second typical of
commonly available "56k" wired modems.



                                      15.
   16

      LOOK AND FEEL OF A DESKTOP COMPUTER. Our target users are mobile workers
who require full access to corporate resources from remote locations. Because of
our fast data transfer speeds, we believe that a user working on a laptop
computer connected to our network will perceive a substantial advantage over any
other remote mobile wireless data access technology commercially available
today. Moreover, we will offer mobile workers the ability to connect to their
corporate networks and the Internet from any place within our service area,
without the inconvenience of having first to locate a telephone modem dataport
to establish a remote, and generally slower, connection to e-mail, databases and
file and facsimile transmission servers. Furthermore, we have designed our
service for laptop computers and other portable electronic devices with
relatively large screen areas and relatively large storage capacities to enable
our users to better emulate the look, feel and functionality of their desktop
computers. By contrast, although data-enabled wireless telephones may offer a
convenient means of engaging in simple tasks, such as checking stock prices or
sports scores, they are not suitable for displaying data-rich graphics or
creating and editing documents, functions frequently performed at desktop
computers. Accordingly, we believe that we offer a service that is complementary
to, rather than competitive with, data-enabled wireless telephones.

      PACKET-SWITCHED TECHNOLOGY. We believe that data networks, such as ours,
that utilize packet-switched technology offer a number of advantages over
circuit-switched networks. In a packet-switched network, data is transmitted in
discrete units called packets, rather than in a continuous stream, as with a
telephone modem using a circuit-switched telephone line. The network software
sends each discrete packet through the network via a uniquely selected path,
with the software reassembling the packets into their proper order when they
arrive at their destination. By allowing multiple users to share our network
capacity, this technology can reduce network congestion and virtually eliminate
busy signals. In addition, because our network does not require a dedicated
connection between modems at each end of a circuit, users utilize our network
capacity only when the network actually transmits data packets. A
circuit-switched network, in contrast, requires a dedicated connection between
modems at each end of a circuit, thus limiting network capacity to the number of
circuits available and modems installed. Moreover, in a circuit-switched
network, once the user establishes a connection, neither the modem nor the
circuit in use is available to other users even when data is not being
transmitted. Because of these factors, busy signals occur in circuit-switched
networks when the number of users exceeds the number of connections available.
Further, many circuit-switched networks will "time out" a connection after the
user has been connected for a specified time in order to create capacity for
other users. Because our network uses packet-switched technology, our users can
remain online indefinitely. In addition, the equipment required to construct our
network is less expensive than circuit-switched technology employed by
traditional wireless carriers.

      SECURITY AND RELIABILITY. In addition to the reliability benefits that
result from using packet-switched technology, our network's use of
frequency-hopping, spread spectrum technology, combined with optional
encryption, makes unauthorized interception of data packets extremely difficult
and provides greater security than is generally available from other wired and
wireless data communications services. Our very low equipment failure rate of
only 0.2% contributes to the reliability of our service. Moreover, if a network
radio is busy or not functioning properly, our network routes data along a
different path to its destination within the network, minimizing apparent
network disruption or reduced data transfer rates to our users. By providing
secure and reliable access to corporate networks, our service should appeal to
many organizations with mobile workforces.

      ACCESS TO MCI WORLDCOM'S LARGE AND SOPHISTICATED SALES FORCE. Under our
agreement with MCI WorldCom, MCI WorldCom has agreed to market and sell
subscriptions to our high-speed service. This relationship provides us with the
immediate benefit of support from a large and sophisticated sales force that has
experience selling products and services to businesses and consumers in our
target market. Moreover, MCI WorldCom has indicated its intent to market and
sell our high-speed service through multiple sales channels that have
substantial experience with the needs of network and Internet users and users of
other mobile access technologies. In addition, MCI WorldCom has committed to
provide customer support to the users of our service.

      SCALABLE AND COST-EFFECTIVE NETWORK. Our network architecture will
allow us to react quickly to expand our network to respond to positive
consumer demand for our service. We can increase network coverage


                                      16.
   17

and capacity and reduce system congestion quickly and inexpensively by
installing additional network or wired access point radios in areas of high use.
Moreover, our network relies primarily on unlicensed radio frequency spectrum
that we are able to use without paying any license fee or other similar
acquisition cost.

OUR STRATEGY

      Our objective is to be the leading provider of high-speed mobile wireless
data access to users of laptop computers and other portable electronic devices.
The key elements of our strategy are as follows:

      RAPIDLY DEPLOY A NATIONAL NETWORK. We intend to deploy our network in
three phases. We plan to launch our high-speed service during the late summer of
2000, and we expect that our initial service areas will cover a total population
of approximately 62 million. After the third phase of our deployment, which we
plan to complete by the end of the summer of 2001, we expect our network to
cover a cumulative population of at least 100 million in the U.S. Understanding
that time-to-market is a critical competitive advantage, we have already
obtained a substantial portion of the approvals for municipal rights-of-way
necessary to meet our network deployment objectives for 2000.

      TARGET MOBILE PROFESSIONALS. Our advertising and marketing will focus on
mobile professionals, particularly those who already use laptop computers or
other portable electronic devices, and other people and businesses that are
likely to require mobile access to information. Mobile workers, such as
salespeople, consultants, lawyers and accountants, often require the flexibility
to work outside of their offices and desire to maintain access to corporate
networks and the Internet.

      CAPITALIZE ON THE DISTRIBUTION STRENGTH OF A SELECT GROUP OF CHANNEL
PARTNERS. We intend to increase the number of users of our service through sales
efforts by MCI WorldCom and other potential channel partners. We do not intend
to sell our high-speed service or provide customer support directly to users.
Instead, we will rely on our channel partners, which we expect will be
organizations like MCI WorldCom with significant marketing and customer support
experience, to generate demand for our service. These partners will market and
sell subscriptions to our service to their customers on a co-branded basis. In
selecting channel partners, we will focus on organizations with experience
selling products and services to businesses and consumers in our target market.
Potential channel partners include local telephone companies, wireless carriers,
digital subscriber line or other high-speed Internet access providers, laptop
computer and other portable electronic device manufacturers and system
integrators or networking consulting firms that recommend large-scale purchases
of access services such as ours to their customers. We currently are in
discussions with a number of potential channel partners, with a goal of entering
into agreements with additional channel partners in mid-2000.

      BUILD EQUITY IN THE RICOCHET BRAND. We intend to promote the Ricochet
brand aggressively, seeking to gain widespread business and consumer recognition
of our brand, thereby building significant commercial value for our company. Our
brand awareness and brand identity strategy will focus on the mobile access
benefits of our high-speed network, with the objective of making the Ricochet
brand synonymous with speed, reliability and security. We plan to promote the
Ricochet brand through co-branding arrangements that will require our channel
partners to display the Ricochet name and logo in addition to their own in
promotional and other materials they use to offer our service, and to display
our name on the Ricochet modem. We also intend to engage in corporate
promotional activity, including advertising in traditional media and on the
Internet, designed to increase business and consumer awareness of the Ricochet
brand and our service. We expect to spend over $50 million on sales and
marketing efforts in 2000 and substantially more in 2001.

      MAINTAIN NETWORK PERFORMANCE AND COST ADVANTAGES. We intend to continue
our commitment to research and development so that we can continue to offer our
users faster data transmission rates on a more cost-effective basis than
competing remote mobile wireless data access services. We believe our core
technologies -- and particularly our utilization of packet-switched
communications and unlicensed portions of the radio frequency spectrum -- will
enable us to maintain performance and cost advantages over competing services in
the future, as technological advancements increase the standard for data
transmission speeds and network performance. Outsourcing some business functions
is a key part of our strategy to



                                      17.
   18

maintain network performance and cost advantages for our users. We have
contracted with several companies to fulfill our manufacturing and network
deployment needs, and we plan to continue to utilize other companies to perform
these functions in the future. The functions that we have outsourced include
manufacturing network radios designed by us, manufacturing the modems used by
our users, acquiring municipal rights-of-way and other similar rights necessary
to deploy our network, physically installing our network equipment and
provisioning the circuits required for our network to connect to the Internet or
other corporate networks. We believe that, by outsourcing these functions to
organizations for which they are core competencies, we can free our own
resources to concentrate on developing positive recognition of the Ricochet
brand, recruiting and managing channel partners, managing our network and
advancing our core technologies to enhance our network's performance and
cost-effectiveness in the future.

      PURSUE INTERNATIONAL OPPORTUNITIES. To date, we have concentrated almost
exclusively on domestic opportunities and have engaged in only limited
exploration of international opportunities. However, we intend to pursue
opportunities to offer service based on our technologies in markets outside the
U.S. We believe that the advantages of our core technologies, and particularly
the relatively low deployment cost of our network, should enable us to provide a
service that is attractive to customers in other countries that have large
populations of knowledge workers. We plan to place greater emphasis on these
opportunities after we have launched our domestic high-speed service and are
satisfied with its performance.

OUR NETWORK AND TECHNOLOGY

      When we launch our high-speed network, users will be able to connect to
our network through wireless modems attached to laptop computers or other
portable electronic devices. In the future, we also expect that users will be
able to connect to our network through personal computer card modems and
eventually through advanced integrated circuits built-in to end-user devices.
Our high-speed network architecture consists of four basic elements:

      o     compact, inexpensive network radios, called poletop radios, which we
            deploy on streetlights, utility poles and building rooftops in a
            geographical mesh pattern and which communicate with our users'
            laptop computers or other portable electronic devices through
            wireless modems;

      o     wired access points, which we deploy on building rooftops or other
            locations, many of which also serve as the sites for existing
            cellular or other wireless base stations and which connect our
            poletop radios with one of our network interface facilities via
            high-speed dedicated wired connections;

      o     network interface facilities, which aggregate traffic to and from
            all wired access points in a market and provide connections to the
            Internet and other networks; and

      o     our network operations centers, which provide central management of
            our entire network.

      Our network utilizes a hardware and software platform based on spread
spectrum, frequency-hopping, packet-switched digital radio technology. In a
packet-switched network such as ours and the Internet, data are communicated in
discrete units, called packets, rather than in a continuous stream. With
frequency-hopping radios such as our poletop and wired access point radios, the
radios communicate with each other on multiple frequencies, or channels. Each
radio changes the channel on which it is communicating frequently in a pattern
that is known to the surrounding radios but difficult for outside parties to
predict. This unpredictability results in a high level of security by making
interception of data by unauthorized users difficult. It also provides high
network reliability, because if a radio encounters interference on any given
channel, it automatically switches to another channel. We will incorporate an
optional encryption capability for users desiring an additional level of
security.

      Poletop radios are the primary component of our hardware platform, and we
deploy them in a geographically dispersed pattern referred to as "mesh"
architecture. Our mesh network architecture and proprietary technology for
routing data packets across the network enable us to move the data packets along
a number of alternative paths, thus allowing packets to be routed around busy or
non-functioning radios. We believe that our mesh architecture provides
advantages over the more typical network topology,


                                      18.
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known as the star topology, in which all communications are required to pass
through one or more central base stations, or hubs. In a star topology system,
congestion and impaired signal communications resulting from weak signal
strength must generally be addressed by installing another hub, typically a
costly and time-consuming process. With our network, we can reduce system
congestion and increase network coverage and capacity by installing one or more
relatively inexpensive poletop or wired access point radios where needed.

      Upstream data transmitted from a user's wireless modem travels through one
or more poletop radios wirelessly to a wired access point, from which the data
is routed over high-speed dedicated wired connections to a network interface
facility, where we connect our network directly to the Internet or another
network, which in turn delivers the data packet to its destination. Downstream
data travels to the user along a similar return route. We typically install our
poletop radios at an average density of five radios per square mile and we
generally install a wired access point approximately every 11.5 square miles. We
have designed our network so that a data packet transmitted by a user typically
requires no more than one or two transmissions, if any, from one poletop radio
to another before reaching a wired access point. Each wired access point is
connected by high-speed dedicated wired connections to one of our network
interface facilities. Each network interface facility aggregates traffic to and
from all wired access points in a market and connects to the Internet and other
networks. Currently, we have agreements with UUNet, a subsidiary of MCI
WorldCom, and others to support the exchange of traffic between our wired access
points, our network interface facilities, the telecommunications infrastructure
and corporate networks and the Internet.

      Our network's performance will be monitored and controlled by our network
operations center located in Houston, Texas. We have recently opened an
additional network operations center in Plano, Texas. Even though we intend to
have each of the two network operations centers monitor and control only fifty
percent of our network, each center will have the capability to monitor and
control our entire network.

      Our network will operate in the unlicensed 900 megahertz and 2.4 gigahertz
frequency bands of spectrum. We also will operate in the 2.3 gigahertz frequency
band pursuant to licenses purchased from the FCC in 1997. These licenses permit
us to use the 2.3 gigahertz band in the Northeastern, Central and Western United
States Regional Economic Areas, and in the St. Louis, Missouri, Portland, Oregon
and Seattle, Washington Major Economic Areas. This licensed spectrum provides us
with the ability to transmit at higher power in those regions and thus attain
greater network coverage with fewer wired access points. In areas not covered by
our licensed spectrum, we can achieve the same coverage results by deploying
additional wired access points. We will use the 900 megahertz band primarily for
transmissions to and from a user's modem to a poletop radio and from a poletop
radio to a network radio or wired access point, and the 2.4 gigahertz band
primarily for communication between network radios and between poletop radios
and wired access points. Wired access points that use the 900 megahertz band and
the 2.4 gigahertz band are referred to as industrial, scientific and medical
band wired access points, called ISM WAPs. Wired access points that use the 2.3
gigahertz band are referred to as wireless communication service wired access
points, or WCS WAPs. We intend to use the 2.3 gigahertz band only for downstream
(toward the subscriber) traffic from wired access points to poletop radios and
only where we have licenses to use 2.3 gigahertz spectrum and when we cannot
route the downstream traffic to the user in one radio hop using the 2.4
gigahertz band. We do not currently intend to use the 2.3 gigahertz band for
upstream traffic.

      Finally, we also provide a traditional dial-in service to enable users
travelling outside our service areas to access their corporate networks or the
Internet through standard telephone modems.

NETWORK DEPLOYMENT

      We plan to deploy our high-speed network in three phases. We have chosen
to deploy our network in areas based on numerous criteria, including the number
of laptop computers, population density, Internet usage and other factors. The
planned deployment of our network is set forth in the table below. We may,
however, modify our deployment plans based on our initial experience with our
high-speed service or other factors, such as our relative success in obtaining
agreements necessary to deploy our network.


                                      19.
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                           RICOCHET NETWORK DEPLOYMENT



                                       PHASE I                   PHASE II          PHASE III             PHASE III continued
                                                                                             
METROPOLITAN MARKETS...................Atlanta                   Baltimore         Albany, NY            Omaha, NE
                                       Chicago                   Boston            Albuquerque, NM       Orlando, FL
                                       Dallas/Fort Worth         Denver            Austin, TX            Pittsburgh, PA
                                       Houston                   Detroit           Buffalo, NY           Portland, OR
                                       Los Angeles               Kansas City       Charlotte, NC         Providence, RI
                                       New York City             Miami             Cincinnati, OH        Raleigh/Durham, NC
                                       Philadelphia              Minneapolis       Cleveland, OH         Richmond/Petersburg, VA
                                       Phoenix                   St. Louis         Colorado Springs, CO  Rochester, NY
                                       San Diego                 Salt Lake City    Columbus, OH          Sacramento, CA
                                       San Francisco                               Indianapolis, IN      Santa Fe, NM
                                       Seattle                                     Las Vegas, NV         Tulsa, OK
                                       Washington, D.C.                            Memphis, TN           Virginia Beach, VA
                                                                                   Milwaukee, WI

EXPECTED LAUNCH DATE...................Late Summer 2000          Early 2001        Summer 2001
CUMULATIVE COVERED
  POPULATION AFTER COMPLETION..........62 million                80 million        100+ million


     The deployment process for our network involves:

      o     obtaining agreements permitting us to deploy our poletop radios and
            wired access points, which include:

                  agreements with municipalities, known as right-of-way use
                  agreements, which grant us the right to enter and utilize a
                  municipal right-of-way to deploy our poletop radios, the right
                  to attach our poletop radios to municipally owned property, if
                  any, in the public way and the right to attach our poletop
                  radios to third-party owned property in the public way, such
                  as utility property;

            --    pole attachment agreements with utility companies or
                  municipalities governing the use of utility poles for the
                  deployment of our poletop radios;

            --    supply agreements with utility companies governing the supply
                  of electricity to our poletop radios; and

            --    lease agreements with the owners of buildings or radio towers
                  governing the lease of space for the deployment of our wired
                  access points;

      o     designing the network configuration;

      o     to the extent necessary, acquiring zoning and construction approvals
            to build or locate wired access points on radio towers or building
            rooftops; and

      o     acquiring, installing and testing the network.

      Once we have obtained the necessary agreements and approvals, we expect to
be able to install and test the network infrastructure in a market in two to
three months. As of February 29, 2000, we have obtained right-of-way approvals
covering approximately 80% of the population included in the first phase of the
deployment of our network.

      We install most of our poletop radios on street light arms or distribution
poles owned by electric utilities, municipalities or other local government
entities. In addition, we are required to enter into agreements with
municipalities as owners of the rights-of-way in which street lights and
distribution poles are located and supply agreements with providers of
electricity to power our radios. Typically, the right-of-way agreements have
terms of five to 10 years with three five-year renewal options. Many agreements
require us to pay an annual right-of-way use fee, sometimes referred to as a
franchise fee, to the


                                      20.
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municipality or other governmental agency that controls the right-of-way.
Currently, these franchise fees, where permitted, typically average about 5% of
the adjusted gross revenues collected from subscribers with billing addresses
located in the municipality covered by the right-of-way agreement. The
electrical supply agreements for our poletop radios typically have a term of 10
years and require us to pay an annual fee for electricity, which is determined
by tariff, if appropriate, or by a private rate agreement and typically averages
$25 for our poletop radios. In addition, we are typically required to pay an
annual fee of about $60 for the use of each street light or other pole to which
a poletop radio has been directly attached.

      In the event we are unable to negotiate site agreements in a timely manner
and on commercially reasonable terms or at all, we will seek to obtain sites to
deploy radios on commercial buildings or similar structures. While deploying a
large area in this manner could be significantly more expensive than installing
radios on street lights, we did use this technique on a limited basis in
connection with the deployment of our original service to reduce the delays
experienced in the deployment process.

      We are sometimes required to obtain zoning approvals from local
municipalities or other governmental entities to build or locate wired access
points on radio towers or building rooftops. Zoning restrictions may impose
limitations on the amount of electrical load on a rooftop, radio frequency
emissions or aesthetic characteristics of our network radios. The zoning process
and length of time involved in obtaining approval varies from city to city. We
also must negotiate leases for our wired access points, which can take a
substantial amount of time. The rate at which we are acquiring these leases has
been slower and the cost has been higher than we anticipated. Consequently, we
must commit more time, effort and capital resources to acquiring these leases in
order to meet our deployment plans.

      We have entered into several agreements regarding the deployment of our
network interface facilities. These agreements have been negotiated with private
carriers housing large telecommunications facilities. These agreements typically
have five-year terms.

      In October 1999, we entered into agreements with Wireless Facilities,
Inc., General Dynamics Worldwide Telecommunications Systems and Whalen & Company
to provide us with expertise and personnel to assist us with the deployment of
our network. Wireless Facilities has agreed to assist us with radio frequency
engineering related to the physical deployment of the wired access point
components of our network. All three companies will be responsible for many of
the tasks involved in the deployment of our network wired access points,
including assisting us with acquiring sites for our wired access points,
obtaining necessary zoning approvals, network architectural and engineering
management, construction management and the installation of wired access point
services.

      Our aggressive deployment schedule is critical to the success of our
business and involves a number of risks. See "Risk Factors -- We must deploy our
high-speed network in a limited time in order to compete effectively," "-- We
depend substantially on third parties to deploy our high-speed network on a
timely and cost-effective basis," "-- We depend on third parties to develop,
assemble and manufacture the modems through which our users access our service"
and "-- One of our manufacturers is experiencing shortages in the supply of
components for our poletop and network radios and our other manufacturers may
experience shortages of supply of components for our modems or other products,
which could involve substantial cost and delay and reduce availability of our
service."

MARKETING, SALES AND CUSTOMER SUPPORT

      Unless we sign new channel partners by the time we launch our new
high-speed service, expected during the late summer of 2000, our service will be
available exclusively through our channel partner, MCI WorldCom. MCI WorldCom
will market and sell subscriptions to our service and will bill and provide the
initial level of customer support for users. We intend to capitalize on the
distribution strength, customer support expertise and experience of MCI WorldCom
and any other channel partners we may have in selling multiple services, such as
long-distance, mobile voice or Internet services, to organizations and
individuals. We do not plan to sell subscriptions or provide customer support
directly to users. Instead, we will sell subscriptions to, and receive payment
from, channel partners on a wholesale basis at flat monthly rates.




                                      21.
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     Under our agreement with MCI WorldCom, MCI WorldCom has agreed to pay us a
per-subscriber fee, subject to an agreed minimum revenue level of at least $388
million over the five years following the launch of our service, assuming that
we deploy our network on a timely basis and meet quality-of-service and network
performance standards. However, in the event that, in any agreement year, MCI
WorldCom's sales efforts result in fewer subscribers than MCI WorldCom has
agreed contractually to provide, but subscribers provided by MCI WorldCom and
its authorized resellers nevertheless represent more than a threshold percentage
of our total users, then MCI WorldCom will pay us only the greater of a
per-subscriber rate for each of its users or the subscription fees we receive
from all of our other channel partners, which could be substantially less than
the minimum revenues we currently expect from MCI WorldCom. Accordingly, our
ability to achieve the minimum revenue levels we expect from our agreement with
MCI WorldCom may depend on our ability to enter into channel agreements with one
or more large channel partners that can successfully sell subscriptions to our
service so that subscribers provided by MCI WorldCom and its resellers represent
less than the threshold percentage of our total users. Further, if our
deployment schedule is delayed or if we fail to meet deployment schedule
deadlines or fail to comply with quality-of-service standards relating to data
transmission performance, network availability, coverage and latency, ease of
use and size of modems, all as specified in our agreement, MCI WorldCom may
delay or reduce its minimum payments to us or, in the case of a deployment delay
in excess of 12 months, may terminate the contract. If we fail to correct any
deficiency for sustained periods of time, MCI WorldCom may suspend its
obligations to us under the agreement or terminate the agreement. Additionally,
under this agreement, we have the right, at our expense, to co-brand our service
with MCI WorldCom. With our consent, MCI WorldCom has agreed to display the
Ricochet name and logo in all of the promotional and other materials it will use
to offer our service to subscribers and to provide us with a six-month rolling
forecast of projected new subscribers. In addition, we have agreed to provide
sales support to MCI WorldCom's direct sales team. This agreement also contains
a "most favored nation" clause, which assures MCI WorldCom no less favorable
terms than we grant any other channel partner. The agreement also precludes us
and any other channel partners that we may have from marketing our service to
three specified entities with which MCI WorldCom may enter into reselling
arrangements. Our agreement with MCI WorldCom can be canceled by either party
upon 30 days written notice in the event the other party has failed to fulfill
its material obligations under the agreement. MCI WorldCom and its affiliates
are not prevented under the agreement from supporting competing technologies.

      We anticipate entering into other non-exclusive agreements containing
similar terms with other channel partners, focusing on organizations that have
demonstrated skills and experience selling products and services to businesses
and consumers in our target market. We are currently in discussions with a
number of potential channel partners and are seeking to establish relationships
with additional channel partners during the second quarter of 2000. Our ability
to achieve commercial success will depend upon the ability of our channel
partners to sell subscriptions effectively and to support the users of our
service.

      When we launch our high-speed service, we intend to rely on our channel
partners to provide all first level customer support to the users of our
service. This level of support requires our channel partners to receive and
attempt to fulfill a subscriber's request for customer support. Typically, the
provider of this level of customer support would handle all non-network related
questions, such as those regarding features of our service, installation or
formatting, how the service works or billing questions. We intend to provide all
second and third level customer support to the users of our service. Second
level customer support would include responding to network-related questions,
directed to us by our channel partners' customer support personnel, not by the
subscriber directly. Third level customer support would include repairing or
modifying our network in response to customer problems. We intend to provide
this second and third level support 24 hours a day, seven days a week.

      In addition to promoting the Ricochet brand through co-branding
arrangements with our channel partners, we intend to aggressively promote the
Ricochet brand independently. We have recently developed a new Ricochet logo and
brand identity focusing on the mobile benefits of our high-speed service, with
the objective of making the Ricochet brand synonymous with speed, reliability
and security. We have hired an advertising firm, Kirshenbaum Bond & Partners
West, Inc., and plan to conduct market tests in the second quarter of 2000 and
begin an aggressive marketing campaign in the third quarter of 2000. We intend
to engage in corporate promotional activity, including advertising in
traditional media and on the Internet,


                                      22.
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designed to increase consumer awareness of the Ricochet brand and our service.
We plan to spend more than $50 million on sales and marketing efforts in 2000
and substantially more in 2001.

      Although we have substantially curtailed our marketing and sales
activities with respect to our current Ricochet service, that service continues
to be available directly to subscribers through our web site, inbound telesales
and one reseller. Backlog for Ricochet product and service orders at December
31, 1999 and 1998 was not material.

      We provide customer support to our current Ricochet subscribers Monday
through Saturday through an inbound toll-free customer service line. When we
have launched our high-speed service in metropolitan markets in which these
subscribers are located, we plan to sell these subscriptions to one or more of
our channel partners.

COMPETITION

      We face intense competition in the market for mobile wireless data access
services targeted at users of laptop computers and other portable electronic
devices. The mobile wireless data access market has received increased attention
in recent years, and a number of companies have developed or are developing
mobile wireless data access services and products using competing technologies.
In addition, a large number of companies in diverse industries are expected to
enter the market in the future. We believe the principal factors on which
companies compete in this market are effective data transmission rate,
reliability, network coverage, ease of use and price. Except for our currently
limited network coverage, we believe our existing Ricochet service compares
favorably to available alternatives with respect to these competitive factors.
We believe our high-speed service will compare favorably to available
alternatives with respect to all of these competitive factors when our network
has been deployed in sufficient metropolitan markets to cover a cumulative
population of at least 100 million, as contemplated by our current deployment
plan. However, the pace of innovation in the wireless communications industry is
rapid, and we cannot be sure that our service will achieve or maintain
competitiveness with available alternatives in the future.

      Our current and anticipated future competitors can be categorized based on
the types of communications networks they use to transmit data. These networks
include: terrestrial networks that are dedicated to data communications;
terrestrial networks designed for cellular telephone service or personal
communications services, or PCS; satellite communications networks; and
traditional communications networks using wired fixed-point access, as well as
future enhancements of other wireless technologies.

      SERVICES UTILIZING DEDICATED DATA COMMUNICATIONS NETWORKS. Two companies
currently offer their subscribers general mobile data access services like ours
utilizing terrestrial networks dedicated to data communications that have been
operating for many years and are broadly deployed in major metropolitan markets.
BellSouth Wireless Data LP offers a service utilizing a network formerly
operated under the name RAM Mobile Data, and American Mobile Satellite
Corporation offers a service utilizing the ARDIS network. In addition to these
general services, 3Com Corporation in 1999 began offering mobile data access
services to users of its Palm VII personal digital assistant utilizing the RAM
network. Further, two-way paging companies have begun to offer limited
information access services, such as headline news and stock quotes. Based on
published reports, we believe the effective data transmission rates available to
customers of these services are limited to approximately eight kilobits per
second. This limitation constrains the ability of users of these services to
engage in relatively data-intensive applications, such as web browsing, file
transfers and exchanging e-mail involving graphical or other large attachments.
For example, web access for users of the Palm VII product is limited to those
web sites that support the "web clipping" software application provided with the
Palm VII device. This application permits a Palm VII user to download selected
portions of the information available on participating Web sites but does not
permit full access to the participating sites or any access to non-participating
sites.

      We believe our high-speed service will be complementary to relatively
low-speed services, such as those utilizing the RAM and ARDIS networks, and that
many users of wireless data access services will find it valuable to have access
to both types of service. Lower-speed services are ideally suited for


                                      23.
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providing rapid access to limited amounts of data, such as stock quotes, while a
higher-speed service such as Ricochet is required for effective access to larger
amounts of data, such as full web browsing or transmitting e-mail with
attachments.

      SERVICES UTILIZING CELLULAR TELEPHONE AND PCS NETWORKS. Many
telecommunications companies that operate terrestrial networks designed to
provide cellular telephone or PCS services are offering or have announced plans
to offer their customers data communications services utilizing those networks.
Subscribers to these services can transmit and receive data using a variety of
electronic devices, including conventional mobile telephones functioning as
modems and connected to laptop computers or other portable electronic devices,
as well as newer mobile telephones with built-in Internet browsing capabilities.
These services are or will be based on a number of different communications
technologies that vary by network, including cellular digital packet data, or
CDPD; code division multiple access, or CDMA; time division multiple access, or
TDMA; and global system for mobile communications, or GSM.

      Cellular telephone and PCS networks have the advantage of being widely
deployed in major metropolitan markets and elsewhere, which enables network
operators to offer services that are widely available geographically. To date,
however, based on published reports, we believe the effective data transmission
rates available to customers of these services have been limited to an average
data transmission rate approximately 10 kilobits per second. For this reason,
these services are subject to the same limitations as the services based on
existing dedicated data communications networks. In addition, the providers of
cellular telephone and PCS services have available only a finite amount of
licensed radio spectrum and must allocate this spectrum among the various voice
and data communications services they elect to make available to their
subscribers. The amount of spectrum these service providers will allocate to
data communications services is uncertain.

      SERVICES UTILIZING SATELLITE COMMUNICATIONS NETWORKS. Many companies offer
one-way and two-way paging or other data communications services utilizing
satellite communications networks alone or in conjunction with terrestrial
networks. In addition, Iridium LLC in 1998 began offering voice and paging
services on a global basis utilizing its proprietary network of low earth
orbiting, or LEO, satellites. Based on published reports, we believe the average
data transmission rates offered by these systems are five kilobits per second or
less. Due to the power and other requirements associated with transmitting data
from the earth to an orbiting satellite and the difficulty of transmitting data
directly between a satellite and a user working with a small, mobile device
inside a building, we believe it will not be practicable in the foreseeable
future for satellite system operators to offer commercial two-way mobile data
access service at a competitive price.

      SERVICES UTILIZING WIRED FIXED-POINT ACCESS. Although not providing
wireless mobility, wired fixed-point access to traditional communications
networks offers virtually universal geographic coverage and very high potential
data transmission rates. For example, commonly available "56k" wired modems that
can be used to access the Internet through the public telephone network offer
users average effective downstream data transmission rates of up to
approximately 40 kilobits per second. In recent years, fixed-point network
connections have been made available at an increasing number of locations
frequented by visitors using laptop computers or other portable electronic
devices. These locations include airports and other transportation hubs, hotels,
business office conference rooms, government buildings, and eating and other
retail establishments. If this trend toward increasing availability of
fixed-point access to traditional communications networks continues, the
mobility offered by wireless services such as ours could become less important
to users, which would negatively affect our business. This could be true at
current effective data transmission rates and would be particularly true if the
effective data transmission rates available through fixed-point connections were
to increase significantly. This could happen if, for example, it became easy for
users at a wide range of commonly-visited locations to gain access to and
communicate using services based on digital subscriber line, or DSL, technology.
DSL technology enables service providers to offer users effective data
transmission rates of 384 kilobits per second and higher.

      FUTURE ENHANCEMENT OF OTHER WIRELESS TECHNOLOGIES. In addition to
Metricom, many other companies are aggressively seeking to develop or enhance
the capabilities of their wireless communications technologies with the
objective of providing increasingly high-speed wireless data access services.
For



                                      24.
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example, it is widely believed that over the next several years there will be a
worldwide evolution of cellular telephone and PCS networks -- whether currently
based on GSM, TDMA or CDMA technology -- toward "third generation," or 3G,
technologies. These 3G networks, utilizing approaches known as wideband CDMA, or
WCDMA, and CDMA2000-3xRTT, are predicted to allow theoretical peak data
transmission rates of 384 kilobits per second and average data transmission
rates of 128 kilobits per second in many mobile applications and up to 2
megabits per second in some other applications in limited areas. We believe the
commercialization of some of these emerging technologies will require access to
radio spectrum that has not been allocated to date by the FCC.

      Prior to deployment of 3G network infrastructure, many networks are
anticipated to evolve through intermediate stages involving escalating data
transmission rates, including approaches known as high-speed circuit switched
data, or HSCSD; general packet radio service, or GPRS; enhanced data rates for
GSM evolution, or EDGE; and CDMA2000-1xRTT. In addition, QUALCOMM Incorporated
has developed a CDMA variant known as high data rate, or HDR, which it claims
will provide effective data transmission rates comparable to 3G networks and
will be commercially deployed as early as 2001. HDR requires the carrier to
dedicate a separate channel to data transmission, which could require the
carrier to carry fewer voice channels.

      Based on published information about the way multiple users are expected
to share the available data and voice communications capacity of networks based
on these technologies, we believe our technology is better designed to provide
users with high effective data transmission rates in typical mobile data access
applications at a lower cost per bit delivered. Further, we are pursuing various
improvements in our data transmission speeds in an attempt to retain our current
speed advantages.

      In addition to services based on terrestrial networks, Teledesic LLC has
announced plans to offer, beginning in 2004, a very high-speed wireless
"Internet-in-the-sky" service utilizing a proprietary network of LEO satellites.
However, Teledesic has stated that handheld mobile service will not be available
with this network. Moreover, Teledesic's laptop-sized terminals with large
antennae, although transportable, are fixed-point devices that are unlikely to
provide service inside buildings. For that reason, we do not believe the
Teledesic service is intended to meet the wireless data access needs of mobile
professionals.

      If network equipment based on 3G or other technologies were to succeed in
cost-effectively providing users with higher effective data transmission rates
than those available with our service or if Teledesic or others were to provide
a satellite-based service with increased mobility or higher speeds, our business
could be seriously harmed. Many of our present and future competitors have
greater financial, marketing, technical and management resources than we have,
and it is possible that our competitors will succeed in developing new
technologies, products and services that achieve broader market acceptance or
that render our high-speed service noncompetitive. Information on third-party
systems under development that we have described in this Form 10K is based on
available information and may be incomplete or inaccurate and is subject to
change.

RESEARCH AND DEVELOPMENT

      We intend to maintain a technology leadership position by continuing to
invest heavily in research and development of our networking products to reduce
the cost of our system components, to increase speed and performance of our
services, to develop additional applications for our services and to continue to
improve and upgrade our network and service to meet the emerging demands for
mobile data access services. As of December 31, 1999, we had 60 design and radio
frequency engineers, with 56 of those engineers in research and development and
four in operations. Research and development expense was approximately $35.7
million, $27.3 million and $13.2 million in 1999, 1998 and 1997, respectively.
Because the markets in which we participate and intend to participate are
characterized by rapid technological change, we expect that for the foreseeable
future, we will be required to make significant investments of resources in
research and development. See "Risk Factors -- We operate in an industry with
rapidly changing technology, and our success will depend on our ability to
develop products and services that keep pace with technological advancements."



                                      25.
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MANUFACTURING

      We currently outsource all manufacturing of our subscriber modems and
network components. The proprietary external modem that our current Ricochet
subscribers use is manufactured by Alps Electric (USA), Inc. We have entered
into a two-year agreement with Alps to custom manufacture external modems to be
used in our high-speed service. We have committed to Alps to purchase a minimum
of 47,700 units in 2000. We anticipate receiving the first delivery of modems
under this agreement in the second quarter of 2000. We have recently entered
into a two-year agreement with NatSteel Electronics, Ltd. for the purchase of
additional modems.

      We intend to develop a low-cost (less than $250) personal computer card
modem for use with our high-speed service. We have recently entered into
two-year agreements with Sierra Wireless and Novatel to custom develop and
manufacture personal computer card modems for our high-speed service. We have
committed to purchase a minimum of 150,000 units from each of these suppliers in
the first year of deliveries and to reimburse these suppliers for a portion of
their development costs. We anticipate receiving the first delivery of modems
under these agreements by early 2001. Further, under these agreements, we have
agreed to license to Sierra Wireless and Novatel our technology to build other
modems or devices. We will receive royalty payments for any devices
incorporating our technology that Sierra Wireless and Novatel sell to third
parties.

      We will need to arrange for additional modems to meet forecast demand for
subsequent periods. If we cannot secure arrangements for the manufacture of
additional modems beyond the initial period, users would be unable to subscribe
to our service, which would harm our business. If any of our modem suppliers
were to experience financial, operational, production or quality assurance
difficulties, allocate resources to others in lieu of us or experience a
catastrophic event that results in a reduction or interruption in supply of
modems, our business would be impaired. In addition, if our channel partner
sells more subscriptions than we anticipate or if we decide to accelerate
deployment of our high-speed network, presently anticipated modem supplies may
prove inadequate. If any of the foregoing events occurs, we cannot assure you
that we will be able to obtain the modems we require from alternate suppliers at
favorable prices, or at all.

      In July 1999, we entered into a two-year agreement with Sanmina
Corporation to custom manufacture the poletop radios and network radios
installed at our wired access points. Sanmina made the first delivery of radios
under this agreement in November 1999. We will require more than 130,000 poletop
radios and 36,000 ethernet radios to complete all three phases of our network
deployment as planned. In January 2000, we reported that we have been affected
by industry-wide component shortages, causing delays to production of these
radios. See "Risk Factors -- One of our manufacturers is experiencing shortages
of supply of components for our poletop and network radios and our other
manufacturers may experience shortages of supply of components for our modems or
other products, which could involve substantial cost and delay and reduce
availability of our service."

      If we are to become profitable, our products and components must continue
to be manufactured in large commercial quantities at competitive cost and
quality. As a result, we will be required to achieve significant product and
component cost reductions. We are currently working with several companies to
develop efficient, low-cost personal computer card modems; smaller, lower cost
external modems; and micro integrated circuits that can be built-in to end-user
devices. If we are unable to develop these modems at a low cost, we may be
unable to achieve the cost structure we anticipate in our business plan. Even if
we achieve low-cost production, we must have adequate lead times and production
capacity to meet user demand for our service if we are to increase revenues and
achieve profitability. If we do not achieve product and component cost
reductions, our competitive position and our ability to achieve profitability
could be impaired.

      Some of the component parts that our manufacturers use in our products,
including our modems and poletop and network radios, are available only from
sole or limited source vendors. Our manufacturers' reliance on these sole or
limited source vendors involves risks, including the possibility of a shortage
of key component parts and reduced control over delivery schedules,
manufacturing capability, quality and costs.



                                      26.
   27
In addition, some key component parts require long delivery times. We have
in the past experienced, and are currently experiencing, delays because key
component parts have been unavailable from suppliers. If we were unable to
obtain components, we may need to reconfigure our modems or radios, which
could involve substantial cost and delay and reduce availability of our
modems or radios necessary for the deployment of our network. This could
delay our deployment, which would reduce the availability of our service to
users.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

      We rely on a combination of patent, copyright, trademark and trade secret
protection laws and non-disclosure agreements to establish and protect our
proprietary rights. We have been issued 28 patents in the U.S., and patents
corresponding to some of our domestic patents have been granted in five foreign
countries. Further patents are pending in the U.S. and foreign countries. Our
patents expire in various years ranging from 2009 to 2016. We cannot assure you
that patents will issue from any pending applications or, if patents do issue,
that claims allowed will be sufficiently broad to protect our technology. We
also own 16 U.S. trademark registrations and have registered trademarks in at
least 20 foreign countries. Any of our current or future patents or trademarks
may be challenged, invalidated, circumvented or rendered unenforceable, and the
rights granted under the patents and trademarks may not provide significant
proprietary protection or commercial advantage to us. Moreover, our patents may
not preclude competitors from developing equivalent or superior products and
technology.

      We also rely upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain our competitive
position. Others may independently develop equivalent proprietary information or
otherwise gain access to or disclose our information. It is our policy to
require our employees, some contractors, consultants, directors and parties to
collaborative agreements to execute confidentiality agreements upon the
commencement of such relationships with us. However, we cannot assure you that
these agreements will provide meaningful protection of our trade secrets or
adequate remedies in the event of unauthorized use or disclosure of such
information. In addition, our trade secrets could otherwise become known or be
independently discovered by our competitors.

      Our commercial success may also depend in part on our not infringing the
proprietary rights of others or not breaching technology licenses that cover
technology we use in our products. Third-party patents may require us to develop
alternative technology or to alter our products or processes, obtain licenses or
cease some of our activities. If any such licenses are required, we may be
unable to obtain these licenses on commercially favorable terms, if at all. Our
inability to obtain licenses to any technology that we may require to
effectively deploy or market our products and services could have an adverse
effect on our business. We may have to resort to potentially costly litigation
to enforce any patents issued or licensed to us or to determine the scope and
validity of third-party proprietary rights.

GOVERNMENT REGULATION OF COMMUNICATIONS ACTIVITIES

      FEDERAL REGULATION. Many aspects of the telecommunications industry are
subject to various regulations at the federal, state and local levels. This
regulatory environment, which is subject to constant change, directly affects
the breadth and quality of services we are able to offer, as well as the rates
for, and terms and conditions of, those services. Any of the regulatory entities
that have jurisdiction over our business may adopt regulations or take other
actions as a result of its own regulatory process or as directed by legislation,
the courts or executive directive, which could have an adverse affect on our
business.

      The FCC regulates non-governmental use of the electromagnetic spectrum in
the U.S., including the license-free frequency bands currently used by our radio
products and the licensed bands on which we are proposing commercial operations
in the near future. Operations are subject to specific FCC rules for particular
services. Part 15 of the FCC's rules governs operations in license-free
frequency bands, so-called because transmitters may be operated in these bands
without a license. The rules require that only FCC-approved equipment may be
operated. We also have licenses for, and will operate in, a licensed band, the
Wireless Communications Service, or WCS, governed by Part 27 of the FCC's rules.
FCC-approved equipment is also necessary for operation in this frequency band.
We design our products to conform with,



                                      27.
   28

and be approved under, applicable FCC rules. We cannot assure you that we will
be able to secure the necessary FCC approvals for the equipment that we intend
to deploy in 2000 and thereafter. The need to obtain these approvals could
result in delays or additional costs.

      In the license-free frequency bands, there are also various other uses by
industrial, scientific and medical equipment, the U.S. government, amateur radio
services and other licensed services. These other uses are governed by different
rule provisions, and they have priority over the license-free operation of our
products. Under applicable FCC rules, our products must not cause harmful
interference to any authorized equipment operating in the band, and must accept
interference from all authorized equipment operating in the band. If we are
unable to eliminate harmful interference caused by our products through
technical or other means or if interference to our service caused by others
causes the performance of our service to be unattractive to users, we or our
users could be required to cease operations in the band in the affected
locations. Additionally, while we design our equipment to operate in the
presence of other users, in the event the license-free bands become unacceptably
crowded, our business could be adversely affected.

      We intend to operate in the WCS frequency band pursuant to licenses we
purchased at an FCC spectrum auction. These licenses authorize the provision of
service only in the Northeastern, Central and Western United States Regional
Economic Areas, and in the St. Louis, Missouri, Portland Oregon and Seattle,
Washington Major Economic Areas. While we believe we can obtain authority to
operate WCS facilities in additional geographic areas, we cannot assure you that
we will obtain such authorization. The WCS licenses have certain conditions
associated with them. For example, we are required to provide protection for
users of Wireless Cable and Instructional Television Fixed services in areas
where we are providing WCS. While we believe we can provide the requisite
protection, we cannot assure you that we can provide this protection in a
technically or economically feasible manner. In addition, the WCS licenses, like
all FCC licenses, are subject to subsequent Acts of Congress and international
treaties and agreements to which the U.S. is a signatory. There are currently
negotiations underway between the U.S. and Mexico concerning the use of WCS
spectrum by Mexico to provide a satellite service for Mexican citizens. If
Mexico provides this satellite service, certain areas in the U.S. where we hold
WCS licenses could receive harmful interference from the satellite signal. While
we will attempt to mitigate harmful interference to our WCS operations, the
operation of our WCS facilities at particular locations could be adversely
affected by Mexican satellite operations, which could have an adverse effect on
our business, financial condition or operating results.

      On an ongoing basis, the FCC proposes and issues new policies, rules and
amendments to existing rules that affect our business. We closely monitor the
FCC's activities and, when appropriate, actively participate in policy and
rulemaking proceedings. We are currently monitoring and participating in
selected proceedings at the FCC that could potentially have an adverse impact on
our business. For example, the FCC has issued a Notice of Proposed Rulemaking
encouraging the further use of radio frequency lighting devices in one of the
license-free frequency bands. While these industrial, scientific and medical
devices would be accorded a higher priority than our use of the band, we have
argued that the FCC must limit the high-powered emissions from radio frequency
lighting devices in the band so that these devices and license-free devices can
co-exist in the band as intended by the FCC.

      Changes in the regulations affecting our operations by the FCC, including
changes in the allocation or availability of frequency spectrum, could require
or prompt us to move to another of the license-free bands or to obtain the right
to operate in additional licensed spectrum. Redesigning products to operate in
other frequency bands could be expensive and time consuming, and we cannot
assure you that redesign would result in commercially viable products. In
addition, we cannot assure you that, if needed, we could obtain appropriate
licensed or unlicensed spectrum on commercially acceptable terms, if at all.

      STATE AND LOCAL REGULATION. We often require the siting of our network
radios and wired access points on public rights-of-way and other public
property. Due to state and local right-of-way, zoning and franchising issues, we
are not always able to place our radios in the most desirable locations, on an
optimal schedule or in the most cost-effective manner. It is possible that state
and local processes associated with radio location will harm our business.


                                      28.
   29

      As a result of amendments to the Communications Act of 1934, some states
may attempt to regulate us with respect to the terms and conditions of service
offerings. While we believe that state regulations, if any, will be minimal,
these regulations, if enacted, could harm our business.


UTILINET BUSINESS

      Our UtiliNet business provides customer-owned wireless data communications
for industrial control and monitoring primarily in the electric utility, waste
water and natural gas industries. Our UtiliNet operations share the same
facilities and labor resources with our other operations. We develop and
manufacture UtiliNet products and sell them both to resellers and to end-users,
which are typically utility companies. We had backlog of approximately $1.5
million and $0.5 million of UtiliNet product orders as of December 31, 1999 and
1998, respectively. Substantially all of the orders in backlog are expected to
be shipped in 2000. Historically, a significant portion of our revenues has been
generated from sales of UtiliNet products. In February 2000, in order to focus
our operations on deployment of our high-speed network, we entered into an
agreement to license our UtiliNet technology to Schlumberger Resources
Management Services, Inc. The agreement grants Schlumberger Resources the
exclusive right to design, manufacture and sell UtiliNet products in return for
license and royalty fees. We do not expect UtiliNet to be a significant source
of revenues in the future. For additional segment information, see "Part II.
Item 8. Financial Statements and Supplementary Financial Data - Note 12 of Notes
to Consolidated Financial Statements."


EMPLOYEES

      As of December 31, 1999, we employed approximately 438 people, all of whom
were based in the U.S. Of our employees, 208 were in network operations and
deployment and network real estate and customer support, 70 were in research and
development, 74 were in administration, 42 were in sales and marketing and 44
were in manufacturing. The number of employees included in research and
development reflects a combination of engineers, technicians and designers. We
are highly dependent on some members of our management and engineering staff,
the loss of the services of one or more of whom may impede the achievement of
our development, deployment and commercialization of our products and services.
With the exception of our chief executive officer, none of these individuals has
an employment contract with us. None of our employees is represented by a labor
union. We have not experienced any work stoppage and consider our relations with
our employees to be good.



EXECUTIVE OFFICERS

      The names, ages and positions held by executive officers are as follows:



             NAME        AGE                 POSITION
                          
Timothy A. Dreisbach...  50     President, Chief Executive Officer and Chairman of the Board of Directors
Dale W. Marquart.......  41     General Counsel, Senior Vice President of Administration and Secretary
Robert W. Mott.........  40     Senior Vice President of Engineering
Robert H. Schellman....  49     Senior Vice President of Network Operations and Services
James E. Wall..........  52     Chief Financial Officer
John G. Wernke.........  41     Senior Vice President of Sales and Marketing


- ----------

      Timothy A. Dreisbach has served as our President and Chief Executive
Officer and one of our directors since May 1998 and was named Chairman in
February 2000. From January 1997 through January 1998, Mr. Dreisbach served as
President and Chief Executive Officer of Premenos Technology Corporation, an
electronic commerce software company that merged with Harbinger Corp. in
December 1997. From April 1992 to December 1996, Mr. Dreisbach served as Senior
Vice President, North American Sales and Service, for Boole & Babbage Inc., an
enterprise management software company.



                                      29.
   30

      Dale W. Marquart has served as our General Counsel, Senior Vice President
of Administration and Secretary since June 1998. Prior to joining us, he served
as General Counsel and Vice President of International Sales at Premenos
Technology Corporation, an electronic commerce software company from June 1997
to June 1998. Previously, Mr. Marquart served as the Senior Director of Business
Development and Field Operations at Boole & Babbage, an enterprise management
software company, from April 1993 to June 1997.

      Robert W. Mott has served as our Senior Vice President of Engineering from
August 1998 until December 1998, when he became Senior Vice President of
Engineering and Manufacturing. Prior to joining us, he was the Vice President of
Engineering for CSI ZeitNet, a subsidiary of Cabletron Systems, a network
equipment company, from February 1997 to August 1998. Previously, Mr. Mott was a
Manager with Pittiglio Rabin Todd & McGrath, a technology consulting company,
from January 1996 to February 1997 and from April 1992 to March 1995; and Vice
President of Engineering of KENETECH Windpower, a utility-grade wind turbine
company, from April 1995 to January 1996. Mr. Mott has also held positions with
KPMG Consulting, Booz-Allen & Hamilton, Inc. Consulting, as well as Hughes
Aircraft Company.

      Robert H. Schellman has served as our Senior Vice President of Network
Operations and Services since July 1999. Prior to joining us, Mr. Schellman was
a Vice President of Operations of Telocity, Inc., a company that provides DSL
and high-speed Internet services, from August 1998 to July 1999. Previously, Mr.
Schellman was a Director for UUNET/MCI WorldCom, a telecommunications company,
from May 1996 to July 1998; a Division Chief for the Department of the Army from
September 1994 to May 1996; General Manager of Sandwell, Inc.'s DATAP Systems
Division, a software and systems integration company, from September 1987 to
August 1994; a Senior Manager at Sprint Corp. from May 1984 to September 1987;
and a Manager at MCI Telecommunications from August 1981 to May 1984.

      James E. Wall has served as our Chief Financial Officer since August 1999.
Prior to joining us, Mr. Wall served as Treasurer and Controller for AirTouch
Communications, a multinational wireless telecommunications company, from
September 1995 to August 1999. Previously, Mr. Wall served as Corporate Vice
President and Treasurer for ICN Pharmaceuticals, Inc., a multinational
pharmaceutical research, manufacturing and marketing company, from June 1994 to
June 1995, and held senior executive positions for Ultramar Corporation, a
multinational petroleum exploration, production, refining, marketing and
shipping company, including Chief Financial Officer for Ultramar PLC Group
international exploration and production subsidiaries and Vice President and
Treasurer for Ultramar Corporation, from September 1976 to August 1993. Mr. Wall
began his career with the Internal Revenue Service and is also a certified
public accountant in the State of California.

      John G. Wernke has served as our Senior Vice President of Sales and
Marketing since August 1998. Prior to joining us, Mr. Wernke was the Vice
President of Enterprise Product Marketing for Harbinger Corporation, a
business-to-business electronic commerce company, from March 1997 to August
1998. Previously, Mr. Wernke served as a Product Marketing Manager for
OpenVision Technologies, Inc., a supplier of client/server systems management
solutions, from September 1993 to March 1997.


ITEM 2 - PROPERTIES.

      The largest part of our operations and headquarters, including all of our
UtiliNet operations, are located in approximately 75,400 square-feet of leased
office, manufacturing and warehouse space located in Los Gatos, California. The
leases on this space expire on various dates from 2001 to 2004. In November
1999, we entered into a 10-year agreement to lease approximately 145,000 square
feet of office space in San Jose, California, beginning in June 2000. We lease
two facilities for our network operations centers: a 17,000 square-foot facility
in Houston, Texas under a lease that expires in 2001, and a 24,000 square foot
facility in Plano, Texas under a lease that expires in 2004. We also lease small
offices and warehouse space in seventeen other metropolitan areas in the United
States. We believe this space, along with additional regional offices in areas
where we plan to deploy our networks, will be adequate to


                                      30.
   31
provide the office space that will be required for increases in our planned
business activity over the next year.

ITEM 3 - LEGAL PROCEEDINGS.

      We are not a party to any material legal proceedings.

           .
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

      Subsequent to our Annual Meeting of Stockholders held on October 15, 1999,
there were no matters submitted to a vote of security holders in the fourth
quarter of 1999. The voting results from the Annual Meeting of Stockholders were
included in our Quarterly Report on Form 10-Q for the quarter ended September
30, 1999.

                                     PART II


ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      Our common stock is quoted on the Nasdaq National Market under the symbol
"MCOM." The following table shows the intraday high and low sale prices per
share of our common stock as reported on the Nasdaq National Market for the
periods indicated:


                                                                   HIGH        LOW
                                                                ---------   --------
                   FISCAL YEAR 1998
                                                                      
                   First Quarter.............................   $   13.25   $   8.19
                   Second Quarter............................       12.63       8.25
                   Third Quarter.............................       10.50       4.78
                   Fourth Quarter............................        8.75       3.00
                   FISCAL YEAR 1999
                   First Quarter.............................   $    9.44   $   5.00
                   Second Quarter............................       20.19       6.50
                   Third Quarter.............................       56.50      19.38
                   Fourth Quarter............................      104.50      21.88


      On March 1, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $75.88 per share. As of March 1, 2000, there were 405
holders of record of our common stock.

      DIVIDEND POLICY. The holders of the 60,000,000 shares of our outstanding
preferred stock, which were originally issued on November 15, 1999, have the
right to receive cumulative dividends payable, at our option, in cash or
additional shares of preferred stock, at the annual rate of $.65 per share,
until November 15, 2002. To date we have paid, and expect to continue to pay the
dividends in cash. We have not declared or paid any cash dividends on our common
stock. Other than the payment of dividends on the shares of preferred stock, we
currently intend to retain any future earnings to finance the growth and
development of our business, and we do not intend to pay any cash dividends on
our common stock in the foreseeable future. Moreover, the terms of our
outstanding preferred stock and the covenants contained in the senior notes
issued in February 2000 restrict our ability to pay cash dividends on our common
stock. Subject to these restrictions, future dividends, if any, will be
determined by our board of directors.


                                      31.
   32

RECENT SALES OF UNREGISTERED SECURITIES

      On November 15, 1999, we completed the sale of 30,000,000 shares of Series
A1 preferred stock to MCI WorldCom, Inc. at a price of $10 per share and
30,000,000 shares of Series A2 preferred stock to Vulcan Ventures Incorporated
at a price of $10 per share, both of which were below $11.06, the per share
closing price of our common stock on the date immediately prior to our execution
of the preferred stock purchase agreement. The aggregate placement agent fee was
approximately $27 million. The shares were sold pursuant to the exemption from
registration under the Securities Act of 1933 provided by Regulation D
promulgated thereunder. The purchasers made representations with respect to
their intentions to acquire the securities for investment purposes only and not
with a view toward distribution, their status as "accredited investors" within
the meaning of Regulation D and their sophistication and business experience.
The purchasers also represented that they had received and reviewed all
information they deemed relevant in making informed decisions to purchase the
shares. Appropriate legends were affixed to the stock certificates issued.

      The Series A1 preferred stock becomes convertible into common stock at the
rate of 25% every six months, commencing two and one-half years after the
initial issuance of the shares, except in the event of a change in control of
Metricom or a major acquisition by Metricom, in which event the shares become
convertible at the option of the holder. The Series A2 preferred stock is fully
convertible at the option of the holder. Both series of preferred shares are
automatically converted into common stock in the event of any transfer of the
shares other than to MCI WorldCom, Vulcan or one of their affiliates. Each
preferred share is convertible into one share of common stock, subject to
adjustment for stock splits, stock dividends, reclassifications, certain
reorganizations, mergers, sales of assets and the like.



                                      32.
   33

ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                                            YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------------------------
                                                     1999            1998            1997           1996             1995
                                                  ---------       ---------       ---------       ---------       ----------
                                                                                                    
STATEMENT OF OPERATIONS DATA:
Revenues:
  Service revenues                                $  10,088       $   8,419       $   6,642       $   2,158       $     789
  Product revenues                                    8,437           7,440           6,797           4,996           4,995
                                                  ---------       ---------       ---------       ---------       ---------
    Total revenues                                   18,525          15,859          13,439           7,154           5,784
                                                  ---------       ---------       ---------       ---------       ---------
Costs and expenses:
  Cost of  service revenues                          21,319          28,310          27,866          14,334           8,192
  Provision for network replacement                     ---          14,392             ---             ---             ---
  Cost of product revenues                            6,014           5,050           4,558           2,528           3,134
  Research and development                           35,681          27,313          13,212          13,920          10,627
  Selling, general and administrative                20,737          22,934          21,189          17,724          11,715
  Provision for Overall Wireless                        ---             ---           3,611             ---             ---
                                                  ---------       ---------       ---------       ---------        --------
    Total costs and expenses                         83,751          97,999          70,436          48,506          33,668
                                                  ---------       ---------       ---------       ---------        --------

    Loss from operations                            (65,226)        (82,140)        (56,997)        (41,352)        (27,884)
Interest expense                                     (5,884)         (3,939)         (4,151)         (1,310)            ---
Interest income                                       4,818           1,915           1,820           3,317           4,363
                                                  ---------       ---------       ---------       ---------        --------
    Net loss                                      $ (66,292)      $ (84,164)      $ (59,328)      $ (39,345)       $(23,521)

Preferred stock dividends                           (38,234)            ---             ---             ---             ---
                                                  ---------       ---------       ---------       ---------        --------
Net loss attributable to common
  stockholders                                    $(104,526)      $ (84,164)      $ (59,328)      $ (39,345)      $ (23,521)
Basic and diluted net loss attributable to
 common stockholders per share                    $   (5.13)      $   (4.63)      $   (4.35)      $   (2.93)      $   (1.79)
                                                  =========       =========       =========       =========       ==========
Weighted average shares outstanding                  20,375          18,195          13,641          13,413          13,140





                                                                              AS OF DECEMBER 31,
                                                  --------------------------------------------------------------------------
                                                     1999            1998            1997           1996             1995
                                                  ---------       ---------       ---------       ---------       ----------
                                                                                                    
BALANCE SHEET DATA:
  Cash and investments                            $ 499,341       $  19,141       $  14,474       $  65,221       $  64,415
  Working capital                                   478,618           9,396           6,980          57,738          46,771
  Property and equipment                             48,515          42,345          40,301          33,606          17,717
  Total assets                                      546,647          34,466          51,103         101,799          86,076
  Long-term debt                                        385          55,098          45,000          45,000             ---
  Stockholders' equity (deficit)                    (54,200)        (42,259)        (13,817)         43,306          80,374




                                      33.
   34

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

      OVERVIEW. We currently derive substantially all of our revenues from
subscriptions paid to us by users of our current Ricochet service, which we
offer in a limited number of markets, and from the sale of customer-owned
networks and related products to companies primarily engaged in utility
businesses. Since 1998, we have concentrated our efforts primarily on completing
the development and testing of the technology necessary to deliver our
high-speed service, acquiring rights-of-way and other rights necessary for us to
deploy our high-speed network, establishing manufacturing relationships for
network components and wireless modems and supporting the subscribers to our
current Ricochet service. After we launch our high-speed service, planned to
occur during the late summer of 2000, we expect to derive substantially all of
our revenues from subscription fees paid to us by channel partners, which will
resell our service directly to their customers. In connection with the launch of
our high-speed service, we expect to sell our existing subscriber accounts to
one or more of our channel partners, and we will curtail our business operations
related to our current Ricochet service. As we deploy our high-speed network and
launch our high-speed service, we expect our operating expenses to increase
significantly from historical levels and to exceed revenues for the foreseeable
future. We expect to generate substantial net losses to common stockholders for
the foreseeable future.

      Historically, we have generated a significant portion of our
revenues from sales of customer-owned networks and related products, known as
UtiliNet, to utility companies. In February 2000, in order to focus our
operations on deployment of our high-speed network, we entered into an agreement
to license our UtiliNet technology to Schlumberger Resources Management
Services, Inc. The agreement grants Schlumberger Resources the exclusive right
to design, manufacture and sell UtiliNet products in return for license and
royalty fees. We do not expect UtiliNet to be a significant source of revenues
in the future.



                                      34.
   35

RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, certain
operational data as a percentage of total revenues:



                                                                            YEAR ENDED DECEMBER 31,
                                                                        -------------------------------
                                                                         1999         1998         1997
                                                                        -----        -----        -----
REVENUES:
                                                                                          
    Service revenues...............................................        54%          53%          49%
    Product revenues...............................................        46%          47%          51%
                                                                        -----        -----        -----
        Total revenues.............................................       100%         100%         100%

COSTS AND EXPENSES:
    Cost of service revenues.......................................       115%         179%         207%
    Provision for network replacement..............................        --           91%          --
    Cost of product revenues.......................................        32%          32%          34%
    Research and development.......................................       193%         172%          98%
    Selling, general and administrative............................       112%         145%         158%
    Provision for Overall Wireless.................................       ---          ---           27%
                                                                        -----        -----        -----
Total costs and expenses...........................................       452%         618%         524%
                                                                        -----        -----        -----

Loss from operations...............................................     (352)%        (518)%       (424)%
Interest expense...................................................      (32)%         (25)%        (31)%
Interest income, net...............................................        26%          12%          14%
                                                                        -----        -----        -----
Net loss...........................................................     (358)%        (531)%       (441)%
Preferred dividends................................................     (206)%         ---          ---
                                                                        -----        -----        -----
Net loss attributable to common stockholders.......................     (564)%        (531)%       (441)%
                                                                        ======       ======       ======


YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

      Currently, we derive revenues from the sale of our services and products.
We derive service revenues from Ricochet subscriber fees, Ricochet modem rentals
and UtiliNet customer support fees, and we recognize these revenues ratably over
the service period. We derive product revenues from the sale of UtiliNet
products and Ricochet modems, and we recognize these revenues upon shipment.
Total revenues increased to $18.5 million in 1999 from $15.9 million in 1998,
primarily due to an increase in service revenues. Service revenues increased to
$10.1 million in 1999 from $8.4 million in 1998, reflecting an increase in
Ricochet service revenues to $9.1 million in 1999 from $7.5 million in 1998.
This increase was primarily attributable to higher aggregate subscriber fees
resulting from an approximate 15% increase in the number of Ricochet subscribers
in 1999. Product revenues increased to $8.4 million in 1999 from $7.4 million in
1998, principally as a result of increased shipments of UtiliNet products. This
increase was offset in part by a decline in Ricochet product revenues to $3.0
million in 1999 from $3.3 million in 1998, reflecting reductions in shipments of
Ricochet modems in the second half of 1999 compared with the second half of
1998. A significant portion of UtiliNet product revenues was derived from sales
to Southern California Edison, which accounted for 13% and 10% of total product
revenues in 1999 and 1998, respectively. UtiliNet revenues in total increased to
$6.5 million in 1999 from $5.1 million in 1998 as a result of increased
shipments of UtiliNet products. We expect UtiliNet revenues to decline
significantly in the future as a result of our focus on the launch of our
high-speed service.

      In the future, in connection with the launch of our high-speed service, we
expect to sell our existing subscriber accounts to one or more of our channel
partners, and we will curtail our business operations related to our current
Ricochet service. We expect to derive substantially all of our future revenues
from subscription fees paid to us by channel partners. We anticipate that our
channel partners will


                                      35.
   36

pay us subscription fees based on flat rates for each user they enroll for our
service. We will require each of our channel partners to charge its subscribers
a flat rate for use of our service, although each channel partner will set the
particular rate it charges its customers.

           We currently have one channel partner relationship. In June 1999, MCI
WorldCom entered into an agreement with us to sell our high-speed service to its
customers. Under that agreement, MCI WorldCom has agreed to pay us a
per-subscriber fee, subject to an agreed minimum revenue level of at least $388
million over the five years following the launch of our service, assuming that
our deployment schedule is not delayed, that we place our network into service
on schedule and that we meet quality-of-service and network performance
standards. Subject to these limitations, we currently expect MCI WorldCom to pay
us the following minimum amounts during the first five years after we launch our
service:

                                    
          First year........................     $    5.6 million
          Second year.......................         40.6 million
          Third year........................         83.6 million
          Fourth year.......................        117.4 million
          Fifth year........................        141.0 million

          

      Notwithstanding the foregoing, if MCI WorldCom's sales efforts result in
fewer subscribers than MCI WorldCom has agreed contractually to provide, but the
number of subscribers provided by MCI WorldCom and its authorized resellers
nevertheless represent more than a specified percentage of our total users, MCI
WorldCom will pay us only the greater of a per-subscriber rate for each of its
subscribers or the subscription fees we receive from all of our other channel
partners, which could be substantially less than the minimum revenues we
currently expect from MCI WorldCom. Accordingly, our ability to achieve the
minimum revenue levels we expect from our agreement with MCI WorldCom may depend
on our ability to enter into channel agreements with one or more large channel
partners that can successfully sell subscriptions to our service so that
subscribers provided by MCI WorldCom and its resellers represent less than the
threshold percentage of our total users. In addition, if our deployment schedule
is delayed or if we fail to meet deployment schedule deadlines or fail to comply
with quality-of-service standards relating to data transmission performance,
network availability, coverage and latency, ease of use and size of modems, all
as specified in our agreement, MCI WorldCom may delay or reduce its minimum
payments to us or, in the case of a deployment delay in excess of 12 months, may
terminate the contract.

      COST OF SERVICE REVENUES. Cost of service revenues consists primarily of
network operations costs, real estate management costs and depreciation expense
on network equipment. Network operations costs include the costs associated with
the field managers, engineers and technicians who operate and maintain our
high-speed network, as well as the costs associated with field offices we
maintain, including our network operations centers. Network operations costs
also include the telecommunications costs we incur to transmit data between our
wired access points and network interface facilities and the Internet. Real
estate management costs include the costs associated with the maintenance of
lease agreements for our poletop radios, wired access points and network
interface facilities and the ongoing rental payments for these sites. Real
estate management costs also consist of the internal and external labor costs
associated with maintaining right-of-way and other real estate-related
agreements in the markets where our network is currently deployed.

      Cost of service revenues was $21.3 million in 1999 compared with $28.3
million in 1998. The decrease in 1999 was primarily due to reduced depreciation
expense on network equipment resulting from our 1998 write-down of Ricochet
network equipment to fair value. In the fourth quarter of 1998, as a result of
our plans to replace the current Ricochet networks with new, higher speed
Ricochet equipment, we recorded a $14.4 million charge to write down the
carrying value of Ricochet network equipment to fair value.

      We expect our cost of service revenues to increase significantly and
rapidly as the scope of our operations increases through the deployment of our
high-speed network. At December 31, 1999, we had future minimum rental
commitments under network equipment lease agreements of approximately $2.7
million per year. Our current lease agreements represent only a small portion of
the lease agreements we


                                      36.
   37

will require to deploy our network. We expect rental payments to increase
significantly as we enter into additional leases in the first half of 2000 and
thereafter to support the widespread deployment of our high-speed network.

      As we commercially launch our high-speed service in each market, we will
begin depreciating the network equipment and other capitalized costs associated
with building our network infrastructure. Our capitalized costs represent costs
incurred in designing the network, site acquisition, zoning, construction and
installation of equipment. We will depreciate our capitalized network costs over
a useful life of three to five years, depending on the particular asset being
depreciated. We expect our capitalized costs to increase significantly in 2000
and 2001 as we complete the deployment of our network. Accordingly, we expect
that depreciation expense will increase rapidly over the next several years.

      COST OF PRODUCT REVENUES. Cost of product revenues consists primarily of
the inventory and manufacturing costs associated with modem and UtiliNet product
sales. Cost of product revenues increased to $6.0 million in 1999 from $5.0
million in 1998. Ricochet cost of product revenues increased to $3.0 million in
1999 from $2.7 million in 1998. Ricochet cost of product revenues as a
percentage of Ricochet product revenues increased to 102% in 1999 from 84% in
1998. The increase over 1998 was primarily due to an increase in product
revenues derived from the sale of higher cost Ricochet SX modems at lower
average selling prices. We expect Ricochet cost of product revenues to increase
in 2000 as we sell modem inventory directly to MCI WorldCom or other channel
partners for resale to new subscribers to our high-speed service. In subsequent
years, we anticipate that our channel partners may begin to purchase modems
directly from our licensed third-party manufacturers. UtiliNet cost of product
revenues increased to $3.0 million in 1999 from $2.3 million in 1998 as a result
of increased shipments of UtiliNet products. UtiliNet cost of product revenues
as a percentage of product revenues decreased slightly to 54% in 1999 from 55%
in 1998.

      RESEARCH AND DEVELOPMENT. Research and development costs include the costs
incurred to develop our network technology and subscriber modems, as well as to
obtain rights-of-way and related site agreements in markets where we plan to
offer service. Research and development expenses increased to $35.7 million in
1999 from $27.3 million in 1998. Substantially all of the increase in 1999 was
due to an increase in costs incurred in 1999 to obtain right-of-way and site
agreements in metropolitan areas we currently plan to offer service. The
remainder of the increase was due to costs incurred to deploy a high-speed
Ricochet test network in the first half of 1999. At December 31, 1999, we had
outstanding commitments of approximately $5.2 million to third parties
performing services associated with acquiring rights-of-way and related
interests in real estate in new markets, the substantial majority of which we
expect to spend in 2000. We plan to continue to spend a substantial amount on
the development of our networking products to reduce the cost of our system
components, increase the speed and performance of our services, develop
additional applications for our services and to continue to improve and upgrade
our network and service to address the emerging demands for mobile data access.
As a result, we expect that research and development costs will continue to
increase significantly in absolute dollars for the foreseeable future.

      SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses include our corporate overhead and the costs associated with our
efforts to obtain and support our channel partners, promote the Ricochet brand
and our high-speed service, and develop and implement our marketing strategy for
our service and modems. Selling, general and administrative expenses decreased
to $20.7 million in 1999 from $22.9 million in 1998 primarily due to charges of
approximately $3.5 million in severance to employees terminated in the third and
fourth quarters of 1998. Partially offsetting this decrease was an increase in
marketing expenditures related to commercialization of our new high-speed
network. We expect selling, general and administrative costs to increase
significantly from historical levels as we implement our planned advertising
campaign related to the launch of the various phases of our high-speed service.
We expect to spend more than $50 million on sales and marketing efforts in 2000
and substantially more in 2001. We also expect to continue to expand our
corporate and administrative infrastructure to support our planned growth.



                                      37.
   38

      INTEREST INCOME. Interest income increased to $4.8 million in 1999 from
$1.9 million in 1998 due to a significantly higher average balance of cash, cash
equivalents and investments in the last two months of 1999. As a result of the
November 1999 sale of our preferred stock for net proceeds of $573.2 million,
and the February 2000 sale of common stock, 13% senior notes due 2010 and
warrants to purchase common stock, we have substantial cash on hand. We expect
to use these cash resources to fund the deployment of our network and to fund
operating losses and working capital requirements through the first two phases
of our network deployment. Pending these uses, we will invest this cash in
high-quality, short-term, interest-bearing securities. Accordingly, we initially
expect to generate a substantial amount of interest income, although this
interest income will decline rapidly over time as we use this cash.

      INTEREST EXPENSE. Interest expense increased to $5.9 million in 1999 from
$3.9 million in 1998 due to the increase in debt outstanding from Vulcan through
the first ten months of 1999, as well as the amortization of approximately $1
million in debt issuance costs as a result of the call for redemption of our 8%
Convertible Subordinated Notes due 2003. As a result of our senior notes and
warrants offering in February 2000, we have approximately $300 million in
outstanding debt. The senior notes will require semi-annual cash interest
payments commencing August 15, 2000. We have deposited approximately $73.1
million of the net proceeds from the sale of the senior notes in a pledge
account to secure the first four interest payments on these securities. We will
record a substantial expense, a portion of which will be non-cash, for interest
on these obligations. If we incur additional debt in the future to fund our
expansion plans, our interest costs will increase.

      PREFERRED STOCK DIVIDENDS. In November 1999, we issued 60,000,000 shares
of preferred stock to Vulcan Ventures and MCI WorldCom for gross proceeds of
$600 million. Each share of preferred stock bears a cumulative dividend at the
rate of $.65 per year for the first three years after issuance, which we may pay
in cash or in additional shares of preferred stock. We currently expect to pay
dividends on the preferred stock in cash. Because the preferred stock sold to
Vulcan Ventures is immediately convertible into common stock at the holder's
option at a conversion price of $10.00 per share, which was below $11.06, the
per share closing price of our common stock on the date immediately prior to our
execution of the preferred stock purchase agreement, we recorded an additional
dividend of $31.8 million in the fourth quarter of 1999 to reflect the
beneficial conversion privilege associated with this series of preferred stock.
The preferred stock issued to MCI WorldCom is also deemed to have been issued
with a beneficial conversion privilege. However, that series of preferred stock
does not begin to become convertible into common stock at the holder's option
until May 2002. As a result, we will amortize that discount, beginning in 1999,
over the 48-month period during which this series of preferred stock becomes
convertible into common stock at the holder's option. Accordingly, for both
series of preferred stock in the aggregate, we will record preferred stock
dividends in addition to our cash dividend on the preferred stock as follows:
                            
          1999................           $ 33.2 million
          2000................             10.1 million
          2001................             10.1 million
          2002................              7.8 million
          2003................              2.6 million

          


      Both series of preferred stock will accrete at approximately $2.7 million
per year in total over the ten year period from the beginning aggregate net book
value of $573 million up to its aggregate face value of $600 million. This
accretion will be charged against retained earnings (accumulated deficit).

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

      REVENUES. Total revenues increased to $15.9 million in 1998 from $13.4
million in 1997 primarily due to increased shipments of Ricochet modems.
Ricochet product revenues totaled $3.3 million in 1998 compared with $1.7
million in 1997. Product revenues in total increased to $7.4 million in 1998
from $6.8 million in 1997. UtiliNet product revenues decreased to $4.1 million
in 1998 from $5.1 million in 1997 due to a decrease in shipments of UtiliNet
products. We derived a significant portion of UtiliNet product revenue from
Southern California Edison ("SCE"). Product revenues from SCE accounted for 10%
and 17% of total


                                      38.
   39

product revenues in 1998 and 1997, respectively. Service revenues increased to
$8.4 million in 1998 compared with $6.6 million in 1997. This increase was due
primarily to an increase in Ricochet subscribers of approximately 36% in 1998.
Ricochet service revenue increased to $7.5 million in 1998 from $6.6 million in
1997.

      COST OF REVENUES. Cost of service revenues increased to $28.3 million in
1998 from $27.8 million in 1997. This increase reflects an increase in costs
incurred to add Ricochet infrastructure and increase performance in commercial
service areas was partially offset by reductions in inventory costs associated
with a decrease in modems rented to customers in 1998. Cost of service revenues
is expected to increase significantly as a result of the continued operation of
Ricochet networks and planned future deployment of our high-speed service. Cost
of product revenues increased to $5.0 million in 1998 from $4.6 million in 1997.
Ricochet cost of product revenues as a percentage of Ricochet product revenues
decreased to 84% in 1998 from 130% in 1997 as a result of an increase in the
sale of modems in 1998 for which an obsolescence provision was established in
1997. UtiliNet cost of product revenues as a percentage of UtiliNet product
revenues increased to 55% in 1998 from 47% in 1997 as a result of higher
inventory procurement costs.

      PROVISION FOR NETWORK REPLACEMENT. In the fourth quarter of 1998, we
recorded a one-time charge of $14.4 million to write down the carrying value of
the Ricochet network equipment that is currently in operation in three
metropolitan areas. This charge was recorded as a result of our plans to replace
this equipment with our high-speed network equipment in the near future.

      RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$27.3 million in 1998 from $13.2 million in 1997. Approximately two-thirds of
the increase in 1998 was due to development of our high-speed network technology
and subscriber devices. The increase was also due in part to an increase in
costs incurred in 1998 to obtain right-of-way and site agreements in
metropolitan areas where we currently plan to offer service.

      SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $22.9 million in 1998 from $21.2 million in 1997 primarily
due to charges of approximately $3.5 million in severance to employees
terminated in the third and fourth quarters of 1998. Partially offsetting this
increase was a reduction of $2.3 million in costs associated with our reduced
Ricochet sales and marketing efforts in 1998 compared with 1997.

      INTEREST INCOME AND EXPENSE. Interest expense decreased to $3.9 million in
1998 from $4.2 million in 1997. Interest expense in 1997 included a one-time
charge for the interest paid against short-term borrowings incurred to
participate in the FCC auction in April 1997. Interest income increased to $1.9
million in 1998 from $1.8 million in 1997 primarily due to a slightly higher
average balance of cash, cash equivalents and investments in 1998 as compared
with 1997.


LIQUIDITY AND CAPITAL RESOURCES

      We have financed our operations and capital expenditures primarily through
the public and private sale of equity and debt securities. In 1996, we completed
a private placement of 8% Convertible Subordinated Notes due 2003 with net
proceeds of approximately $43.4 million. In January 1998, we completed a private
placement of common stock with Vulcan Ventures with net proceeds of
approximately $53.7 million. In November 1999, we completed a private placement
of redeemable convertible preferred stock with Vulcan Ventures and MCI WorldCom
with net proceeds of approximately $573 million. In February 2000, we completed
a public offering of common stock with net proceeds of approximately $473
million and a public offering of 13% senior notes due 2010 and warrants to
purchase common stock with available net proceeds of approximately $219 million,
after establishing the required reserve to secure the first four interest
payments on the notes.

      Since inception, we have devoted significant resources to the development,
deployment and commercialization of wireless network products and services. As a
result, as of December 31, 1999, we had



                                      39.
   40

incurred $338.0 million of cumulative net losses. Our operations have required
substantial capital investments for the purchase of network equipment, modems
and computer and office equipment. As of December 31, 1999, we had cash, cash
equivalents and investments of approximately $499.3 million and working capital
of approximately $478.6 million. Our accounts receivable increased to $2.4
million as of December 31, 1999 from $1.5 million at December 31, 1998 due to a
higher Ricochet subscriber base and an increase in UtiliNet product shipments in
the fourth quarter of 1999 over the fourth quarter of 1998. Inventories
decreased to $0.6 million in 1999 from $3.0 million in 1998 due primarily to
shipments of current generation Ricochet modems. Including network construction
in progress, capital expenditures were $33.1 million, $5.0 million and $10.6
million in 1999, 1998 and 1997, respectively. We expect that accounts
receivable, inventories and capital expenditures will significantly increase in
the future as a result of our ongoing deployment and commercialization of the
high-speed network.

      Our principal uses of cash for the foreseeable future will be to fund the
deployment of our high-speed network, to fund operating losses and to pay
interest on our debt securities issued in February 2000, and dividends on our
preferred stock. Based on our current projections, we believe that, in addition
to the funds on hand at December 31, 1999, we will require additional cash
resources of approximately $1 billion to enable us to complete the three-phase
deployment of our network, as well as for the other purposes described above.
Approximately $692 million of these required resources, after deducting
underwriting discounts and commissions and estimated offering expenses, and
after establishing the required interest reserve to secure the first four
interest payments on the notes, were funded from the net proceeds of the
February 2000 common stock, notes and warrants offerings. Accordingly, based on
our current projections, we believe that our cash, cash equivalents and
short-term investments of approximately $499.3 million as of December 31, 1999,
together with the net proceeds from the common stock, notes and warrants
offerings in February 2000, will be sufficient to fund the first two phases of
our network deployment. We will need additional funds to complete the third
phase of our network deployment, and the funds we may actually require to
complete any phase of the deployment may vary materially from our estimates. In
addition, we could incur unanticipated costs or be required to alter our plans
in order to respond to changes in competitive or other market conditions, which
could require us to raise additional capital sooner than we expect. Further,
although it is not our current intention to do so, we may decide to use a
portion of our cash resources to acquire licensed spectrum or to license,
acquire or invest in new products, technologies or businesses that we consider
complementary to our business. We cannot assure you that the additional capital
we will require to complete the third phase of our network deployment or for
these other purposes will be available on commercially reasonable terms or at
all. If we are unable to secure additional financing as necessary, we may need
to delay or curtail our expansion plans. See "Risk Factors -- We will require
significant additional capital in the future to fund our continuing development,
deployment and marketing of our high-speed network and service" and "-- We have
a substantial amount of debt, which could adversely affect our business,
financial condition and results of operations."

      Our current and future operations will require substantial capital
investments for the purchase of our network equipment, which consists primarily
of network radios, wired access points and network interface facilities.
Significant labor costs associated with deploying our network equipment include
design of the network, site acquisition, zoning, construction and installation
of equipment. In July 1999, we entered into an agreement with Sanmina
Corporation to manufacture our poletop radios and network radios installed at
wired access points. In October 1999, we entered into agreements with Wireless
Facilities, Inc., General Dynamics Worldwide Telecommunications Systems and
Whalen & Company to provide us with expertise and personnel to assist with the
deployment of our network. At December 31, 1999, we had outstanding commitments
to purchase approximately $219 million of network equipment and related labor
from these suppliers.

      Effective January 1, 1999, we changed our capitalization policy for
network equipment. In the construction of the first generation Ricochet network,
costs incurred for site acquisition and radio frequency engineering were
expensed as incurred due to the network's early stage of development. We believe
that our new high-speed network currently being deployed is no longer in the
early stages of development. Because site acquisition and radio frequency
engineering are integral steps in the design and construction of the high-speed
network, these costs are now being capitalized as part of the total cost of the
assets. We believe the changed policy is preferable. The effect of the change in
accounting principle in 1999 was to reduce the net loss available to common
stockholders by approximately $15.9 million or $0.78 per share in 1999. The
effect was also to reduce net loss by $1.3 million, or $0.10 per share in 1997
and to increase net loss by $1.3 million, or $0.07 per share in 1998. There was
no effect as of January 1, 1999.

      We expect to incur significant expenditures to procure high-speed modems
in the future. We have agreed to purchase 47,700 modems from our current modem
supplier, Alps Electric (USA), Inc., in 2000, representing a commitment of
approximately $20 million. We have recently entered into a two-year agreement
with NatSteel Electronics, Ltd. for the purchase of additional modems. We have
also recently entered into agreements with Sierra Wireless and Novatel to
develop and manufacture custom personal computer card modems. We have agreed
with both Sierra Wireless and Novatel to purchase a minimum of 150,000 units in
the first year of deliveries from each, representing a total commitment of
approximately


                                      40.
   41

$68 million. We anticipate that deliveries from Alps will begin during the
second quarter of 2000 and deliveries from Sierra Wireless and Novatel will
begin in early 2001.

      In December 1999, we called our $45 million aggregate principal amount of
convertible notes due 2003 for redemption on January 10, 2000. As of December
31, 1999, $40.7 million of the Notes had been converted into approximately 2.8
million shares of common stock. As of the redemption date, all of the note
holders had converted their notes into shares of our common stock at a
conversion price of $14.55 per share. As a result of the conversion, we issued
an aggregate of 3,064,963 shares of our common stock to the former convertible
note holders.

      The preferred stock we issued to MCI WorldCom and Vulcan Ventures in
November 1999 carries a 6.5% dividend payable annually for three years and no
dividend thereafter. As a result, in December 1999, we paid to the preferred
stockholders cash dividends totaling $3.3 million, representing the pro rata
portion of the annual dividend accrued since the date of initial issuance of the
shares. We expect to pay cash dividends of approximately $39.0 million in both
2000 and 2001 and $35.7 million in 2002 on our preferred stock.

      As a result of our completion of our notes and warrants offering in
February 2000, we will have outstanding $300 million aggregate principal amount
of 13% senior notes due 2010, which will require semi-annual cash interest
payments of $19.5 million, commencing August 15, 2000. We have deposited
approximately $73.1 million of the net proceeds from the sale of the senior
notes in a pledge account to fund an interest reserve to secure the payment of
the first four semi-annual cash interest payments on these notes.

      In June 1995, Metricom Investments, Inc., our subsidiary, and PepData,
Inc., a subsidiary of Potomac Electric Power Company, formed Metricom DC, L.L.C.
to own and operate a Ricochet network in the Washington D.C. metropolitan area.
Metricom Investments contributed $1,000 and rights to use proprietary technology
employed by our Ricochet networks in exchange for an 80% interest in Metricom
DC. PepData committed to contributing up to $7.0 million in exchange for a 20%
interest in Metricom DC and certain preferential rights to available cash
distributions. As of December 31, 1998, PepData had contributed approximately
$5.9 million to the joint venture, $5.2 million of which is reflected as a
minority interest in the accompanying consolidated financial statements at
December 31, 1998. In November 1999, we paid $5.0 million to PepData to acquire
the minority interest of Metricom DC from PepData.




      YEAR 2000 COMPLIANCE. Many installed computer systems and software
products were programmed to accept only two digits in the date code field. As of
January 1, 2000, it became necessary for these code fields to accept four digit
entries to distinguish years beginning with "19" from those beginning with "20."


      We have assessed all of our internal computer systems and software
products, tested those systems and products and remedied any known problems. We
have upgraded our business and financial systems to a version that our vendors
have certified to be year 2000 compliant and also communicated with our key
suppliers to assess whether or not the products, services, networks and
technologies of these suppliers are year 2000 compliant. We have also completed
an assessment of whether our networks that depend upon third parties for
telecommunications services and power are year 2000 compliant. In the fourth
quarter of 1999, we completed our year 2000 assessment, testing and remediation
efforts.

      Because we have not yet launched our high-speed service and because many
systems, whether or not they are information-technology systems, may contain
embedded technology, we cannot assure you that we have identified and remedied
all potential year 2000 problems that could arise in connection with our
high-speed service. We have a contingency plan for handling year 2000 problems
that were not detected and corrected prior to their occurrence, and we are
continuing to assess any exposure areas in order to

                                      41.
   42
determine what additional steps are advisable. We are prepared to use backup
systems and have developed other alternative contingency plans for other
critical functions where computer systems are essential. To date, we have not
experienced any material year 2000 problems. However, if all of our potential
year 2000 problems were not properly identified or if adequate assessment and
remediation are not timely effected with respect to any year 2000 problems,
our business could be impaired significantly. Moreover, any year 2000
compliance problem facing our customers or third parties who provide our
networks with telecommunications services and power could also harm our
business.

      NEW ACCOUNTING STANDARDS. In June 1998, FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
hedging activities, and exposure definition. The pronouncement is effective for
fiscal years beginning after June 15, 2000. We believe the pronouncement will
not have a material effect on our financial statements.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. We will adopt
SAB 101 as required in the first quarter of 2000. We have not yet evaluated the
effect SAB101 will have on our consolidated results of operations and financial
position.


ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

      Our exposure to financial market risk, including changes in interest rates
and marketable securities prices, relates primarily to our investment portfolio
and redeemable convertible preferred stock outstanding at December 31, 1999. Our
cash equivalents and short-term investments subject to interest rate risk are
primarily highly liquid corporate debt securities from high credit quality
issuers. We do not have any significant investments in foreign currencies and we
do not have any foreign exchange contracts or derivative instruments. The fair
value of our investment portfolio would not be significantly impacted by either
a 100 basis point increase or decrease in interest rates due primarily to the
fixed rate, short-term nature of our investment portfolio. In addition, the fair
value of our redeemable convertible preferred stock would not change materially
in the event of a 100 basis point increase or decrease in interest rates, due
primarily to the fixed and relatively short-term nature of its three-year 6.5%
coupon rate.



                                      42.
   43

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                 METRICOM, INC.
                           CONSOLIDATED BALANCE SHEETS
           (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)



                                                                                               DECEMBER 31,
                                                                                         --------------------------
                                                                                           1999            1998
                                                                                         ---------       ---------
                                                                                                   
ASSETS
Current assets:
      Cash and cash equivalents ...................................................      $ 354,820       $  19,141
      Short-term investments ......................................................        144,521             ---
      Accounts receivable, net ....................................................          2,387           1,450
      Inventories .................................................................            586           3,046
      Prepaid expenses and other ..................................................          3,116           1,522
                                                                                         ---------       ---------
           Total current assets ...................................................        505,430          25,159
Property and equipment, net .......................................................         12,233           5,555
Network construction in progress ..................................................         22,034             ---
Other assets, net .................................................................          6,950           3,752
                                                                                         ---------       ---------
           Total assets ...........................................................      $ 546,647       $  34,466
                                                                                         =========       =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable ............................................................      $   9,649       $   5,061
      Accrued liabilities .........................................................         12,642          10,662
      Notes payable ...............................................................          4,521              40
                                                                                         ---------       ---------
                Total current liabilities .........................................         26,812          15,763
                                                                                         ---------       ---------

Long-term debt ....................................................................            385          55,098
                                                                                         ---------       ---------
Other liabilities .................................................................            321             680
                                                                                         ---------       ---------
Minority interest .................................................................            ---           5,184
                                                                                         ---------       ---------
Redeemable convertible preferred stock, $0.001 par value per share:
      authorized - 72,000,000 shares; issued and outstanding -
      60,000,000 shares in 1999....................................................        573,329             ---
                                                                                         ---------       ---------

Commitments (Note 5)

Stockholders' equity (deficit):
Preferred stock, $0.001 par value per share, 8,000,000 shares authorized; no shares
      issued or outstanding .......................................................            ---             ---
Common stock, $0.001 par value per share: authorized - 150,000,000 shares;
      issued and outstanding - 24,344,697 shares in 1999 and 18,793,055
      shares in 1998...............................................................             25              19
Additional paid-in capital ........................................................        283,763         191,184
Accumulated deficit ...............................................................       (337,988)       (233,462)
                                                                                         ---------       ---------
             Total stockholders' equity (deficit) .................................        (54,200)        (42,259)
                                                                                         ---------       ---------
Total liabilities and stockholders' equity (deficit) ..............................      $ 546,647       $  34,466
                                                                                         =========       =========

The accompanying notes are an integral part of these consolidated statements.






                                      43.
   44

                                 METRICOM, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)



                                                                       YEAR ENDED DECEMBER 31,
                                                              -----------------------------------------
                                                                1999            1998            1997
                                                              ---------       ---------       ---------
                                                                                     
Revenues:
  Service revenues .....................................      $  10,088       $   8,419       $   6,642
  Product revenues .....................................          8,437           7,440           6,797
                                                              ---------       ---------       ---------
  Total revenues .......................................         18,525          15,859          13,439
                                                              ---------       ---------       ---------
Costs and expenses:
  Cost of service revenues .............................         21,319          28,310          27,866
  Provision for network replacement ....................            ---          14,392             ---
  Cost of product revenues .............................          6,014           5,050           4,558
  Research and development .............................         35,681          27,313          13,212
  Selling, general and administrative ..................         20,737          22,934          21,189
  Provision for Overall Wireless .......................             --             ---           3,611
                                                              ---------       ---------       ---------
  Total costs and expenses .............................         83,751          97,999          70,436
                                                              ---------       ---------       ---------
     Loss from operations ..............................        (65,226)        (82,140)        (56,997)
  Interest expense .....................................         (5,884)         (3,939)         (4,151)
  Interest income ......................................          4,818           1,915           1,820
                                                              ---------       ---------       ---------
     Net loss ..........................................        (66,292)        (84,164)        (59,328)
  Preferred stock dividends ............................         38,234             ---             ---
                                                              ---------       ---------       ---------
     Net loss attributable to common stockholders ......      $(104,526)      $ (84,164)      $ (59,328)
                                                              =========       =========       =========
  Basic and diluted net loss attributable to common
    stockholders per share .............................      $   (5.13)      $   (4.63)      $   (4.35)
                                                              =========       =========       =========
  Weighted average shares outstanding ..................         20,375          18,195          13,641
                                                              =========       =========       =========

Pro forma amounts assuming the new capitalization policy
  for network equipment is applied retroactively -
  Net loss attributable to common stockholders .........      $(104,526)      $ (85,456)      $ (58,036)
                                                              =========       =========       =========
  Basic and diluted net loss attributable to common
    stockholders per share .............................      $   (5.13)      $   (4.70)      $   (4.25)
                                                              =========       =========       =========
  Weighted average shares outstanding ..................         20,375          18,195          13,641
                                                              =========       =========       =========


  The accompanying notes are an integral part of these consolidated statements.


                                      44.
   45

                                 METRICOM, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                             (DOLLARS IN THOUSANDS)


                                                                            UNREALIZED
                                                                             HOLDING
                                             COMMON STOCK       ADDITIONAL GAIN/(LOSS)
                                        ---------------------    PAID-IN       ON       ACCUMULATED
                                          SHARES      AMOUNT     CAPITAL   INVESTMENTS     DEFICIT      TOTAL
                                        ----------  ----------  ---------- -----------  -----------   ----------
                                                                                    
BALANCE, DECEMBER 31, 1996 ...........  13,555,445  $       14  $  133,298  $      (36)  $  (89,970)  $   43,306
                                        ----------  ----------  ----------  ----------   ----------   ----------

Exercise of options to purchase common
  stock ..............................      98,386          --         674          --           --          674
Common stock issued to employees......     165,445          --       1,494          --           --        1,494
Unrealized gain on investments .......          --          --          --          37           --           37
Net loss .............................          --          --          --          --      (59,328)     (59,328)
                                        ----------  ----------  ----------  ----------   ----------   ----------
BALANCE, DECEMBER 31, 1997 ...........  13,819,276  $       14  $  135,466  $        1   $ (149,298)  $  (13,817)
                                        ----------  ----------  ----------  ----------   ----------   ----------

Exercise of options to purchase common
  stock ..............................     187,053          --         911          --           --          911
Common stock issued to employees......     136,726          --       1,094          --           --        1,094
Private placement of common stock.....   4,650,000           5      53,713                                53,718
Net loss .............................          --          --          --          (1)     (84,164)     (84,165)
                                        ----------  ----------  ----------  ----------   ----------   ----------
BALANCE, DECEMBER 31, 1998 ...........  18,793,055  $       19  $  191,184       $  --   $ (233,462)  $  (42,259)
                                        ----------  ----------  ----------  ----------   ----------   ----------

Exercise of options to purchase common
  stock ..............................   2,537,677           3      18,109          --           --       18,112
Common stock issued to employees......     100,156          --         622          --           --          622
Common stock issued upon the exercise
  of warrants ........................     118,197          --          --          --           --           --
Conversion of 8% Convertible
  Subordinated Notes due 2003 to
  common stock .......................   2,795,612           3      40,693          --           --       40,696
Preferred dividends ..................          --          --      33,155          --      (38,234)      (5,079)
Net loss .............................          --          --          --          --      (66,292)     (66,292)
                                        ----------  ----------  ----------  ----------   ----------   ----------
BALANCE, DECEMBER 31, 1999 ...........  24,344,697  $       25  $  283,763       $  --   $ (337,988)  $  (54,200)
                                        ==========  ==========  ==========  ==========   ==========   ==========




The accompanying notes are an integral part of these consolidated statements.



                                      45.
   46
                                 METRICOM, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)


                                                                             YEAR ENDED DECEMBER 31,
                                                                         ----------------------------------
                                                                           1999        1998        1997
                                                                         ---------   ---------   ---------
                                                                                        
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss .........................................................  $ (66,292)  $ (84,164)  $ (59,328)
Adjustments to reconcile net loss to net cash used in operating
     activities -
 Depreciation and amortization ........................................      4,717       9,205       8,366
 Loss on retirement of property and equipment .........................      1,301         ---         ---
 Provision for Overall Wireless .......................................        ---         ---       3,611
 Gain on purchase of minority interest ................................       (184)        ---         ---

 Provision for network replacement ....................................        ---      14,392         ---
 (Increase) decrease in accounts receivable, prepaid expenses and other
     current assets ...................................................     (2,531)        430         (93)
 Decrease in inventories ..............................................      2,460       1,970       3,055
     Increase (decrease) in accounts payable, accrued liabilities and
        other liabilities .............................................      4,710       6,667      (1,350)
                                                                         ---------   ---------   ---------
     Net cash used in operating activities ............................    (55,819)    (51,500)    (45,739)
                                                                         ---------   ---------   ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment ...................................    (11,085)     (4,994)    (10,584)
 Network construction in progress .....................................    (22,034)        ---         ---
 Increase in other assets .............................................     (4,249)       (226)     (3,580)
 Purchase of short-term investments ...................................   (144,521)        ---     (18,941)
 Proceeds from the sale of short-term investments .....................        ---       4,390      64,263
                                                                         ---------   ---------   ---------
     Net cash provided by (used in) investing activities ..............   (181,889)       (830)     31,158
                                                                         ---------   ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock ...............................     18,734      56,549       2,168
 Proceeds from issuance of preferred stock, net of issuance costs......    573,000         ---         ---
 Proceeds from issuance of notes payable and long-term debt ...........     49,835      10,138       5,000
 Reduction of notes payable and long-term debt ........................    (59,932)     (5,000)        ---
 Payment of preferred dividends .......................................     (3,250)        ---         ---
 Financing costs ......................................................        ---         ---        (826)
 (Purchase of) contribution from minority interest ....................     (5,000)        ---       2,777
                                                                         ---------   ---------   ---------
     Net cash provided by financing activities ........................    573,387      61,687       9,119
                                                                         ---------   ---------   ---------
 Net increase (decrease) in cash and cash equivalents .................    335,679       9,357      (5,462)

 Cash and cash equivalents, beginning of year .........................     19,141       9,784      15,246
                                                                         ---------   ---------   ---------
 Cash and cash equivalents, end of year ...............................  $ 354,820   $  19,141   $   9,784
                                                                         =========   =========   =========

Summary of non-cash transactions:
 Property and equipment acquired under capital lease ..................        561         ---         ---
 Common stock issued upon conversion of long-term debt ................     40,690         ---         ---
 Preferred dividends ..................................................     34,984         ---         ---
 Transfer of property and equipment in exchange for R&D services.......        ---         ---         439
Cash paid during the year for:
 Interest .............................................................      5,339       3,657       3,603




The accompanying notes are an integral part of these consolidated statements.



                                      46.
   47

                                 METRICOM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         ORGANIZATION.

           Metricom, Inc. (the "Company") designs, develops and markets low
cost, high performance, easy to use, mobile wireless data access products and
services. The Company's primary service, Ricochet, provides subscriber-based,
wireless data communications for users of portable and desktop computers and
hand-held computing devices. Ricochet service is currently available in the San
Francisco Bay Area, in the Seattle and Washington, D.C. metropolitan areas,
parts of Los Angeles and New York City, and in a number of airports across the
United States. In 2000, the Company plans to launch its high-speed service in
certain major metropolitan areas throughout the United States. The Company's
UtiliNet products provide customer-owned wireless data communications for
industrial control and monitoring primarily in the electric utility, waste water
and natural gas industries. The Company's UtiliNet products are sold throughout
the United States.

           Since its inception, the Company has incurred significant operating
losses. These losses resulted primarily from expenditures associated with the
development, deployment and commercialization of the Company's wireless network
products and services. The Company expects to incur significant operating losses
and to generate negative cash flows from operating activities during the next
few years while it continues to develop and deploy networks and build its
customer base. The ability of the Company to achieve profitability will depend
upon the successful and timely deployment and marketing of its new high-speed
service in major metropolitan areas of the United States. The market for mobile
wireless data access services is in the early stages of development. As a
result, the Company cannot reliably project potential demand for its high-speed
service, particularly whether there will be sufficient demand at the volume and
prices needed for the Company to be profitable. In addition, the Company is
subject to additional risks, including the risks of developing technology,
competition from companies with substantially greater financial, technical,
marketing and management resources than the Company and potential changes in the
regulatory environment.

2.         SIGNIFICANT ACCOUNTING POLICIES

           CONSOLIDATION. The accompanying consolidated financial statements
include the accounts of the Company and all subsidiaries after elimination of
significant intercompany accounts and transactions. Certain amounts have been
restated from the previously reported balance to conform to the 1999
presentation.

           USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities 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.

           LIMITED NUMBER OF SUPPLIERS. In 1999, the Company purchased all of
its modems from one supplier. During 1999, the Company entered into contracts
with additional suppliers that will provide high-speed modems in the
future. Additional changes in suppliers could cause a delay in manufacturing and
a possible loss of sales, which would affect operating results adversely.

           CASH AND CASH EQUIVALENTS. For the purposes of the Statement of Cash
Flows, all highly liquid monetary instruments with an original maturity of 90
days or less from the date of purchase are considered to be cash equivalents.

           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):


                                      47.
   48



                                                                         DECEMBER 31,
                                                                     -------------------
                                                                      1999       1998
                                                                     ------     -------
                                                                          
           Raw materials and component parts.....................     $ 207     $  680
           Work-in-process.......................................       139          3
           Finished goods and consigned inventory................       240      2,363
                                                                      -----     -------
           TOTAL.................................................     $ 586     $3,046
                                                                      =====     ======


           PROPERTY AND EQUIPMENT. Property and equipment are stated at cost and
are depreciated using the straight-line method over the shorter of their
estimated useful lives of three to five years or the lease term. In 1998, a
charge of $14.4 million was recorded to write down the carrying value of
Ricochet network equipment to fair value. Ricochet network equipment includes
poletop radios and wired access points deployed, and raw materials,
work-in-process and finished goods not yet deployed. This provision for network
replacement was recorded as a result of the Company's plans to replace this
equipment with its new high-speed equipment in the near future. The fair market
value was determined based on the present value of estimated future cash flows.
This charge is included in Accumulated Depreciation on the Consolidated Balance
Sheet at December 31, 1998. As of December 31, 1999 and 1998, network equipment
included approximately $900,000 and $1.3 million, respectively, of raw
materials, work-in-process and finished goods related to network equipment that
is manufactured by the Company for its Ricochet networks. Property and equipment
consisted of the following (in thousands):



                                                                                     DECEMBER 31,
                                                                            -------------------------------
                                                                              1999                    1998
                                                                            ---------              ---------
                                                                                             
           Machinery and equipment..............................            $  21,264              $  13,017
           Network equipment....................................               22,256                 22,752
           Ricochet modems......................................                1,007                  3,229
           Furniture and fixtures...............................                2,453                  1,964
           Leasehold improvements...............................                1,535                  1,383
                                                                            ---------              ---------
                                                                               48,515                 42,345
           Less--Accumulated depreciation and amortization......              (36,282)               (36,790)
                                                                            ---------              ---------
           TOTAL................................................            $  12,233              $   5,555
                                                                            =========              =========



           ACCOUNTING CHANGE. Effective January 1, 1999, the Company changed its
capitalization policy for network equipment. In the construction of the first
generation Ricochet network, costs incurred for site acquisition and radio
frequency engineering were expensed as incurred due to the network's early stage
of development. The Company believes that its new high-speed network currently
being deployed is no longer in the early stages of development. Because site
acquisition and radio frequency engineering are integral steps in the design and
construction of the high-speed network, these costs are now being capitalized as
part of the total cost of the assets. Management believes the changed policy is
preferable. The effect of the change in accounting principle in 1999 was to
reduce the net loss available to common stockholders by approximately $15.9
million or $0.78 per share in 1999. The effect was also to reduce net loss by
$1.3 million, or $0.10 per share in 1997 and to increase net loss by $1.3
million, or $0.07 per share in 1998. There was no effect as of January 1, 1999.

           NETWORK CONSTRUCTION IN PROGRESS. In 1999, the Company began
deployment of its high-speed Ricochet networks in a number of markets in the
United States. As of December 31, 1999, the Company had incurred and capitalized
$22.0 million of deployment costs. Deployment costs include site acquisition,
radio frequency engineering, zoning and construction management. As commercial
service is launched in each market, the capitalized costs associated with the
network equipment assets in each market will be transferred to Property and
Equipment and depreciated over an estimated useful life of four years.




                                      48.
   49

           ACCRUED LIABILITIES.  Accrued liabilities consisted of the following
(in thousands):


                                                                            DECEMBER 31,
                                                                    ------------------------------
                                                                     1999                  1998
                                                                    -------               -------
                                                                                     
           Interest...........................................       $  ---                $1,075
           Employee stock purchase plan.......................          658                   210
           Deferred revenue...................................        3,122                 2,691
           Payroll and related................................        6,147                 5,477
           Royalties..........................................          236                   185
           State and local taxes..............................          235                   275
           Warranty...........................................          256                   256
           Preferred dividends................................        1,500                   ---
           Other..............................................          488                   493
                                                                    -------               -------
           TOTAL..............................................      $12,642               $10,662
                                                                    =======               =======



           DEBT ISSUANCE COSTS. Debt issuance costs of approximately $1.0
million at December 31, 1998 are included in other assets in the accompanying
consolidated balance sheet. In connection with the conversion of debt to equity
(Note 7), the Company amortized all remaining debt issuance costs in 1999. The
amortization expense is reflected as a component of interest expense.

           LICENSED SPECTRUM. In fiscal 1997, the Company paid $1.45 million for
licensed spectrum in the Wireless Communication Services auction. This spectrum
will be used by the Company's new high-speed Ricochet network. This amount is
included in other assets in the accompanying balance sheet and will be amortized
over its life commencing with commercial use.

           REVENUE RECOGNITION. Product revenues are recognized upon shipment.
Service revenues consist of subscriber fees and equipment rentals from Ricochet
and fees for UtiliNet customer support and are recognized ratably over the
service period. Cash received from customers in advance of providing services is
deferred and is included in accrued liabilities in the accompanying consolidated
balance sheets.

           RESEARCH AND DEVELOPMENT EXPENDITURES.  Research and development
expenditures are charged to operations as incurred.

           NEW ACCOUNTING STANDARDS. In June 1998, FASB issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
hedging activities and exposure definition. The pronouncement is effective for
fiscal years beginning after June 15, 2000. The Company believes the
pronouncement will not have a material effect on its financial statements.

           In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
will adopt SAB 101 as required in the first quarter of 2000. Management has not
yet evaluated the effect SAB101 will have on the Company's consolidated results
of operations and financial position.


3.         INVESTMENTS.

           The Company's investments in securities are considered
available-for-sale and are recorded at their fair values as determined by quoted
market prices with any unrealized holding gains or losses classified as a
separate component of stockholders' equity. Upon sale of the investments, any
previously unrealized gains or losses are recognized in results of operations.
As of December 31, 1999, the aggregate fair value equaled the cost basis of the
Company's investments. In 1998 and 1997, the difference between aggregate fair
value and



                                      49.
   50

cost basis was not material. The value of the Company's investments by major
security type is as follows (in thousands):




                                                       DECEMBER 31,
                                                 ----------------------
                                                  1999            1998
                                                 --------      --------
     SECURITY TYPE
                                                            
     United States Treasury and Agencies...      $ 76,140      $     --
     Corporate debt and money market ......       423,201        15,408
                                                 --------      --------
     Total ...............................       $499,341      $ 15,408
                                                 ========      ========



      As of December 31, 1999, investments in obligations of the United States
Treasury and Agencies and corporate debt and money market securities had
maturities of 0 to 18 months. Approximately $354.8 million and $16.4 million of
the total investments as of December 31, 1999 and 1998, respectively, are
included in cash and cash equivalents.

      In June 1995, Metricom Investments, Inc. ("Metricom Investments"), a
subsidiary of the Company, and PepData, Inc. ("PepData"), a subsidiary of
Potomac Electric Power Company, formed Metricom DC, L.L.C. ("Metricom DC") to
own and operate a Ricochet network in the Washington D.C. metropolitan area.
Metricom Investments contributed $1,000 and rights to use proprietary technology
employed by the Company's Ricochet networks in exchange for an 80% interest in
Metricom DC. PepData committed to contributing up to $7.0 million in exchange
for a 20% interest in Metricom DC and certain preferential rights to available
cash distributions. As of September 30, 1999, PepData had contributed
approximately $6.0 million to the joint venture, $5.2 million of which is
reflected as a minority interest in the accompanying consolidated financial
statements. In November 1999, the Company paid $5.0 million to PepData to
acquire the minority interest of Metricom DC from PepData.

      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 $1.8 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, Overall Wireless
canceled the option and the Company paid a termination fee of $1.8 million
through cancellation of the indebtedness of Overall Wireless.


4.    SIGNIFICANT CUSTOMER.

      For the years ended December 31, 1999, 1998 and 1997, combined product and
service revenues from Southern California Edison accounted for 8%, 7% and 12%,
respectively, of total revenues. No other customers accounted for more than 10%
of revenues.


5.    COMMITMENTS.

      The Company has entered into contracts with various suppliers in order to
deploy its new high-speed network. At December 31, 1999, the Company had
commitments to purchase network equipment and network design, construction and
related services totaling approximately $219 million, the substantial majority
of which the Company expects to spend in 2000. The Company also has entered into
contracts with high-speed modem suppliers. At December 31, 1999, the Company had
commitments to purchase

                                      50.
   51
modems totaling approximately $90 million, and expects to take delivery of
the modems under these agreements in 2000 and 2001.

      The Company leases various facilities and equipment under operating lease
agreements. Rent expense under these agreements for the years ended December 31,
1999, 1998 and 1997, was approximately $1.6 million, $1.9 million and $1.8
million, respectively. The lease agreement for the Company's current primary
facility provides for escalating rent payments over a 12-year term ending
February 2004; however, rent expense is recognized ratably over the lease term.
As of December 31, 1999 and 1998, the Company had accrued approximately $321,000
and $388,000, respectively, of deferred rental payments under this agreement,
which are included in other liabilities in the accompanying consolidated balance
sheets. In November 1999, the Company entered into a 10-year agreement to lease
approximately 145,000 square feet of office space beginning in June 2000.
Approximate future minimum rental payments under operating lease agreements are
as follows (in thousands):

                                                               
    YEARS ENDING DECEMBER 31,
    2000.................................................        $ 4,079
    2001.................................................          5,379
    2002.................................................          5,013
    2003.................................................          5,086
    2004.................................................          4,569
    Thereafter...........................................         25,304
                                                                 -------
       Total.............................................        $49,430
                                                                 =======



      The Company has also entered into various agreements with electric
utilities, municipalities and building owners for the use of utility poles and
building rooftops on which network equipment is installed. Payment under
agreements for use of utility poles is generally contingent upon the number of
network radios installed during the year. Rent expense under these agreements
for the years ended December 31, 1999, 1998 and 1997 was approximately $2.7
million, $1.1 million and $1.1 million, respectively. Future minimum rental
payments under these agreements as of December 31, 1999 are approximately $2.7
million per year.

6.    CAPITALIZED LEASES

      The Company has leased equipment under various capital lease agreements.
As of December 31, 1999, the cost of the leased assets was $793,000 and the
related accumulated depreciation was $118,000. The weighted average interest
rate on the outstanding leases is 10.9%. The following is a schedule of future
minimum payments under the equipment leases together with the present value of
the net minimum lease payments at December 31, 1999:


                                      51.
   52
                                                          
     YEARS ENDING DECEMBER 31,
     2000................................................     $ 259
     2001................................................       169
     2002................................................        89
     2003................................................        89
     2004................................................        75
     Thereafter..........................................       ---
                                                              -----
        Total net minimum lease payments.................       681
     Less amount representing interest...................       (79)
                                                              -----
     Present value of net minimum lease payments.........       602
     Less current portion................................       217
                                                              -----
     Long-term portion...................................     $ 385
                                                              =====






7.    LONG-TERM DEBT.

      In August 1996, the Company issued $45 million principal amount of
unsecured, 8% Convertible Subordinated Notes (the "Convertible Notes") due
September 15, 2003, with interest payments due semi-annually on March 15 and
September 15, commencing March 15, 1997. The Convertible Notes are convertible
into shares of the Company's common stock at a conversion price of $14.55 per
share, subject to adjustment in certain events. In December 1999, the Company
called for redemption of the Convertible Notes on January 10, 2000. As of
December 31, 1999, $40.7 million of the Convertible Notes had been converted
into approximately 2.8 million shares of common stock. In January 2000, all
remaining Convertible Notes were converted to common stock.

      In October 1998 and June 1999, the Company entered into line of credit and
loan agreements, respectively, with Vulcan Ventures Incorporated, a significant
shareholder of the Company. A total of $60 million was drawn by the Company
against these loans with interest at the prime rate due quarterly on the
outstanding balances. All amounts outstanding under these agreements were paid
in full in November 1999.

      In February 2000, the Company, together with its wholly owned finance
subsidiary, Metricom Finance, Inc., as co-issuers and co-obligors, issued $300
million aggregate principal amount of 13% Senior Notes due 2010. Metricom
Finance has no independent assets or operations. The Company has fully and
unconditionally guaranteed the obligations of Metricom Finance, Inc. under the
notes. Interest on the notes will be payable on February 15 and August 15 of
each year, beginning August 15, 2000. The notes will mature on February 15,
2010. The notes were offered together with warrants to purchase 1,425,000 shares
of common stock of the Company at an initial exercise price of $87.00 per share.
Each warrant enables the holder to purchase 4.75 shares of common stock and is
exercisable on or after August 15, 2000. Each warrant was sold for $212.06 per
each associated $1,000 principal amount of notes, and each note was sold for
$787.94. The warrants will expire on February 15, 2010. Net proceeds to the
Company from the notes and warrants offering was approximately $291.8 million,
$73.1 million of which was deposited in a restricted pledge account to secure
the payment of the first four scheduled interest payments on the notes.

8.    STOCKHOLDERS' EQUITY

      In January 1998 the Company completed a private placement for the sale of
4,650,000 shares of common stock to Vulcan at $12.00 per share for net proceeds
of approximately $53.7 million.



                                      52.
   53

      In February 2000, the Company issued 5,750,000 shares of common stock at
$87.00 per share in a public offering. Net proceeds to the Company were
approximately $473.2 million, after deducting underwriting discounts,
commissions and estimated offering expenses.

      REDEEMABLE CONVERTIBLE PREFERRED STOCK. In November 1999, the Company
issued and sold to MCI WorldCom, Inc. 30 million shares of newly-designated
Series A1 preferred stock at a price of $10 per share, and the Company issued
and sold to Vulcan Ventures 30 million shares of newly-designated Series A2
preferred stock at a price of $10 per share, for gross aggregate proceeds to the
Company of $600 million. Both series of preferred stock bear cumulative
dividends at the rate of 6.5% per annum for three years, payable in cash or
additional shares of preferred stock. In addition, each series has the right to
elect one director to the Company's Board of Directors, although voting rights
otherwise will be generally limited to specified matters. The preferred stock is
subject to mandatory redemption by the Company at the original issuance price in
10 years following initial issuance and to redemption at the option of the
holder upon the occurrence of specified changes in control or major
acquisitions. Both series of preferred stock will accrete at approximately $2.7
million per year over the ten year period from the beginning aggregate net book
value of $573 million up to its redemption value of $600 million. This accretion
will be charged against retained earnings (accumulated deficit).

      Because the Series A2 preferred stock is immediately convertible into
common stock at the holder's option at a conversion price of $10.00 per share,
which was below $11.06, the per share closing price of the Company's common
stock on the date immediately prior to execution of the preferred stock purchase
agreement, the Company recorded an additional dividend of $31.8 million in the
fourth quarter of 1999 to reflect the beneficial conversion privilege associated
with this series of preferred stock. The Series A1 preferred stock was also
issued with a beneficial conversion privilege. However, Series A1 preferred
stock does not begin to become convertible into common stock at the holder's
option until May 2002. As a result, that discount will be amortized, beginning
in 1999, over the 48-month period during which this series of preferred stock
becomes convertible into common stock at the holder's option. Accordingly, for
both series of preferred stock in the aggregate, preferred stock dividends in
addition to cash dividends, as discussed above, will be recorded on the
preferred stock as follows:

                                    
          1999................         $ 33.2 million
          2000................           10.1 million
          2001................           10.1 million
          2002................            7.8 million
          2003................            2.6 million





      COMMON STOCK WARRANTS. In September 1994, the Company issued warrants to
purchase 200,000 shares of common stock at $13.75 per share in exchange for
certain investment banking services. In June 1997, the Company repurchased
100,000 of these warrants for $1,000. The remaining warrants expired in
September 1998.

      In July 1997, the Company issued a warrant to purchase 150,000 shares of
common stock at $7.50 per share in exchange for certain strategic and financial
advisory services. In November 1999, 118,198 shares of common stock were issued
upon net exercise of the warrant.


      STOCK OPTIONS. In March 1988, the Company adopted the 1988 Stock Option
Plan. Under the plan, as amended, the Company is authorized to grant up to
4,119,500 incentive or non-qualified stock options to purchase shares of common
stock. Incentive stock options may be granted to employees at prices not lower
than the market value of the stock at the date of grant. Non-qualified stock
options may be granted to employees, officers, directors and consultants at
prices not lower than 85% of the market value of the stock at the date of the
grant. Options granted under the plan are exercisable as determined by the Board
of Directors and will expire no later than ten years from the date of grant.
Options generally vest 25% after the first year and ratably over the following
three years. In August 1997, the Board of Directors approved the replacement



                                      53.
   54

of each outstanding option held by non-officer employees with a per share
exercise price of $7.00 or greater, upon the request of the optionee, with a
stock option having an exercise price of $4.53 per share and certain delayed
exercise provisions. Options to purchase a total of 1,423,650 shares with
exercise prices ranging from $7.81 to $19.63 per share were replaced. In
September 1997, the Board of Directors approved the replacement of each
outstanding option held by executive officers with a per share exercise price of
$11.00 or greater, upon the request of the optionee, with a stock option having
an exercise price of $6.75 per share and certain delayed exercise provisions.
Options to purchase a total of 568,000 shares with exercise prices ranging from
$11.88 to $13.50 per share were replaced. In 1998, options to purchase 501,857
shares expired without exercise. In 1999, 243,109 shares expired without
exercise.

      In February 1993, the Company adopted the 1993 Non-Employee Directors'
Stock Option Plan. Under the plan, as amended, the Company is authorized to
grant up to 575,000 non-qualified stock options to purchase shares of common
stock at the market value at the date of grant. Options granted under the plan
are exercisable in three equal annual installments commencing one year from the
date of grant and will expire no later than 10 years from the date of grant.

      In May 1997, the Company adopted the 1997 Equity Incentive Plan. Under the
plan, as amended, the Company is authorized to grant up to 2,275,000 incentive
stock options, non-qualified stock options, restricted stock purchase awards,
and stock bonuses (collectively "Stock Awards") to employees, directors and
consultants. Incentive stock options may be granted to employees at prices not
lower than the market value of the stock at the date of grant. Other Stock
Awards may be granted to employees, officers, directors and consultants at
prices not lower than 85% of the market value of the stock at the date of the
grant. Options granted under the plan are exercisable as determined by the Board
of Directors and typically vest 25% after the first year and ratably over the
following three years. Options granted will expire no later than ten years from
the date of grant.

      In May 1997, the Company adopted the 1997 Non-Officers Equity Incentive
Plan. Under the plan, the Company is authorized to grant up to 1,850,000
incentive stock options, non-qualified stock options, restricted stock purchase
awards, and stock bonuses (collectively "Stock Awards") to employees and
consultants. Incentive stock options may be granted to employees at prices not
lower than the market value of the stock at the date of grant. Other Stock
Awards may be granted to employees and consultants at prices not lower than 85%
of the market value of the stock at the date of the grant. Options granted under
the plan are exercisable as determined by the Board of Directors and typically
vest 25% after the first year and ratably over the following three years.
Options granted will expire no later than ten years from the date of grant.

      During 1999, 1998 and 1997, the Company granted to members of the Board of
Directors and Advisory Board options to purchase an aggregate of 35,000, 63,000
and 42,000 shares, respectively, of common stock at fair market value of the
stock at the date of grant. These options vest 25% after the first year and
ratably over the following three years and will expire no later than ten years
from the date of grant.

      Stock option activity under the 1988 Stock Option Plan, the 1993
Non-Employee Directors' Stock Option Plan, the 1997 Equity Incentive Plan, the
1997 Non-Officers Equity Incentive Plan and options issued to members of the
Board of Directors and Advisory Board for the fiscal years ended December 31,
1997, 1998 and 1999 was as follows:



                                      54.
   55





                                SHARES                 WEIGHTED
                              AVAILABLE                 AVERAGE
                             FOR FUTURE    OPTIONS     EXERCISE
                               GRANT     OUTSTANDING    PRICE
                            ----------   ----------   ---------
                                             
Balance, December 31, 1996     344,390    3,367,869   $   12.45
           Authorized ....   1,350,000           --          --
           Grants ........  (3,213,650)   3,213,650   $    6.01
           Exercises .....          --      (98,386)  $    6.85
           Cancellations .   2,509,455   (2,509,455)  $   13.11
                            ----------   ----------   ---------
Balance, December 31, 1997     990,195    3,973,678   $    6.99
                            ----------   ----------   ---------
          Authorized .....   1,150,000           --          --
          Grants .........  (2,334,301)   2,334,301   $    9.24
          Exercises ......          --     (187,053)  $    4.90
          Cancellations ..     872,132     (872,132)  $    7.84
          Expired ........    (501,857)          --          --
                            ----------   ----------   ---------
Balance, December 31, 1998     176,169    5,248,794   $    7.89
                            ----------   ----------   ---------
          Authorized .....   1,400,000           --          --
          Grants .........  (1,969,270)   1,969,270   $   30.01
          Exercises ......          --   (2,537,677)  $    7.14
          Cancellations ..     689,481     (689,481)  $    7.75
          Expired ........    (243,109)          --          --
                            ----------   ----------   ---------
Balance, December 31, 1999      53,271    3,990,906   $   19.21
                            ==========   ==========   =========


      The following table summarizes information concerning stock options
outstanding and exercisable as of December 31, 1999:




                                                         OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                                                      --------------------------         ------------------------------
                                                      WEIGHTED          WEIGHTED                               WEIGHTED
          RANGE OF                                     AVERAGE           AVERAGE                               AVERAGE
          EXERCISE                SHARES              REMAINING         EXERCISE            SHARES             EXERCISE
            PRICE              OUTSTANDING              LIFE            PRICE            EXERCISABLE           PRICE
          --------             -----------            --------          --------          -----------          --------
                                                                                             
         $3.00 - $ 6.31           662,401                6.82             $5.18             363,781             $5.06
         $6.36 - $10.25           583,128                8.64             $8.02             111,633             $8.20
        $10.30 - $13.75           870,467                8.32            $10.48             313,400            $10.49
        $14.38 - $22.56           264,860                8.29            $19.71              77,896            $15.58
        $22.59 - $26.34           338,000                8.96            $24.78              41,000            $22.88
        $26.88 - $40.06           960,050                9.78            $29.41                  --               $--
        $42.84 - $64.00           246,000                9.88            $50.04                  --               $--
        $69.81 - $93.95            66,000                9.95            $80.48                  --               $--
                                ---------                                                   -------             ------
                                3,990,906                8.64            $19.21             907,710             $9.03
                                =========                ====            ======             =======             =====


      STOCK PURCHASE PLAN. In 1991, the Board of Directors adopted the 1991
Employee Stock Purchase Plan (the "Purchase Plan"). An aggregate of 750,000
shares of common stock have been authorized for issuance under the Purchase
Plan. Employees may designate up to 15% of their earnings, as defined, to
purchase shares at 85% of the lesser of the fair market value of the common
stock at the beginning of the offering period or on any purchase date during the
offering period, as defined. In 1999, 1998 and 1997, the Company issued 88,156,
84,650 and 103,056 shares, respectively, under this plan. In January 2000 the
Company issued 125,424 shares under this plan.


                                      55.
   56

      STOCK-BASED COMPENSATION. In January 1996, the Company adopted the
disclosure provision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"). Statement 123 defines a fair value method of
accounting for stock-based compensation plans. Under the fair value method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period. As permitted under Statement 123, the
Company continues to apply the provisions of Accounting Principals Board Opinion
No. 25 and related interpretations in accounting for its stock-based
compensation plans and, accordingly, does not recognize compensation cost. If
the Company had elected to recognize compensation cost based on the fair value
of the stock options and employee stock purchase rights under the Purchase Plan
at the grant date as prescribed by Statement 123, net income and earnings per
share would have been as follows (in thousands, except per share amounts):




                                                                     1999        1998           1997
                                                                     ----        ----           ----
                                                                                      
          Net loss - As reported                                    $104,526      $84,164      $59,328
          Net loss - Pro forma                                      $112,800      $89,309      $65,436
          Basic and diluted net loss per share - As reported        $   5.13      $  4.63      $  4.35
          Basic and diluted net loss per share - Pro forma          $   5.54      $  4.91      $  4.80


      The weighted average fair value of stock options granted during 1999, 1998
and 1997 was $26.42, $3.20 and $2.02 per share, respectively. The fair value of
these options was estimated at the date of grant using a Black-Scholes option
pricing model using the following assumptions:



                                                                1999        1998        1997
                                                                ----        ----        ----
                                                                               
          Risk-free interest rate                                5.6%        5.2%        5.5%
          Dividend Yield                                         0.0%        0.0%        0.0%
          Volatility factor of expected market price
              of the Company's stock                            1.60        0.50        0.50
          Weighted average expected option life from
               Vest date (in years)                             1.38        1.03        1.11


      The weighted average fair value of employee stock purchase rights granted
during 1999, 1998 and 1997 was $5.58, $3.75 and $1.04 per share, respectively.
The fair value of these purchase rights was estimated at the date of grant using
a Black-Scholes option pricing model using the following assumptions:




                                                                 1999       1998       1997
                                                                 ----       ----       ----
                                                                               
          Risk-free interest rate                                 5.6%       5.2%       5.2%
          Dividend Yield                                          0.0%       0.0%       0.0%
          Volatility factor of expected market price
               of the company's stock                            1.60       0.50       0.50
          Weighted average expected option life from
               Vest date (in years)                              1.38        .70       0.50



      COMMON STOCK EQUIVALENTS. At December 31, 1999, the Company had the
following common stock equivalents outstanding:

                                                                               
          Redeemable convertible preferred stock...............................   60,000,000
          Common stock outstanding.............................................   24,344,697
          Outstanding options to purchase common stock.........................    3,990,906
          Remaining common stock issuable upon conversion of notes payable.....      296,456
                                                                                  ----------
            Total..............................................................   88,632,059
                                                                                  ==========





                                      56.
   57

      COMMON STOCK RESERVED FOR FUTURE ISSUANCE. As of December 31, 1999 the
Company had reserved the following shares of common stock for future issuance:

                                                                             
           Exercise of stock options..........................................  4,044,177
           Conversion of 8% Convertible Subordinated Notes due 2003...........    296,456
           Exercise of common stock warrants..................................     81,803
           Employee stock purchase plan.......................................    317,184
                                                                                ---------
             Total............................................................  4,739,620
                                                                                =========




9.    401(k) PLAN.

      In November 1987, the Company adopted a tax-qualified savings and
retirement plan (the "401(k) Plan"). Pursuant to the terms of the 401(k) Plan,
employees may elect to contribute up to 15% of their gross compensation. The
Company matches employee contributions annually in cash at the rate of 50% for
the first $2,400 contributed. Contributions by the Company to date have not been
material.

10.   INCOME TAXES.

      Deferred taxes are provided to reflect the net tax effects of temporary
differences between the financial reporting and income tax bases of assets and
liabilities using the currently enacted tax rate. The tax effect of temporary
differences and carryforwards, which give rise to a significant portion of
deferred tax assets, consisted of the following (in thousands):



                                                             DECEMBER 31,
                                                    -------------------------------
                                                      1999                 1998
                                                    ---------            ---------
                                                                   
Reserves and other                                 $     (812)          $  11,755
Capitalized research and development                   34,853               3,659
                                                    ---------           ---------
  Total                                                34,041              15,414
NOL and other credit carryforwards                     83,574              74,745
Valuation allowance                                  (117,615)            (90,159)
                                                   ---------            ---------
  Total                                            $      --            $      --
                                                   ==========           =========


      As of December 31, 1998 and 1999, a valuation allowance was provided for
the net deferred tax assets as a result of uncertainties regarding their
realization. During 1999, the valuation allowance increased by approximately
$27.4 million due to increases in temporary differences and additional losses
incurred during the year. Approximately $17.8 million of the valuation allowance
relates to disqualifying dispositions on employee stock options and accordingly
will be credited directly to stockholders' equity and will not be available to
reduce the provision for income taxes in future years.

      As of December 31, 1999, the Company had net operating loss carryforwards
for Federal and California income tax purposes of approximately $209 million and
$82 million, respectively, and research and development tax credit carryforwards
of approximately $7.3 million. To the extent not used, these carryforwards
expire at various times through 2019. The Company's ability to utilize the net
operating loss carryforwards in any given year may be limited upon the
occurrence of certain events, including significant changes in ownership
interests.


11.        EARNINGS PER SHARE.

      In 1997, the Company adopted Statement of Financial Accounting Standard
("SFAS") No.128, "Earnings per Share." Basic and diluted net loss per share data
has been computed using the weighted


                                      57.
   58

average number of shares of common stock outstanding. Common shares issuable
upon exercise of options, conversion of the redeemable convertible preferred
stock and conversion of convertible subordinated notes have been excluded from
the calculation as their effect would be anti-dilutive. The reconciliation of
the numerators and denominators of the basic and diluted earnings per share
computation are as follows:



                                                 INCOME              SHARES
                                               (NUMERATOR)        (DENOMINATOR)         AMOUNT
                                                ---------          -----------          ------
                                                                               
   FOR THE YEAR 1999
   BASIC LOSS PER SHARE
   Income available to common stockholders     $(104,526)           20,375              $(5.13)

   DILUTED EARNINGS PER SHARE
   Income available to common stockholders     $(104,526)           20,375              $(5.13)

   FOR THE YEAR 1998
   BASIC LOSS PER SHARE
   Income available to common stockholders     $(84,164)            18,195              $(4.63)

   DILUTED EARNINGS PER SHARE
   Income available to common stockholders     $(84,164)            18,195              $(4.63)

   FOR THE YEAR 1997
   BASIC LOSS PER SHARE
   Income available to common stockholders     $(59,328)            13,641              $(4.35)

   DILUTED EARNINGS PER SHARE
   Income available to common stockholders     $(59,328)            13,641              $(4.35)




12.        SEGMENT REPORTING.

           The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information," during the fourth quarter of 1998. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by chief operating decision makers or decision making groups, in
deciding how to allocate resources and in assessing performance.

           The information in the following table is derived directly from the
Company's internal financial reporting used for corporate management purposes.
The Company evaluates its segments' performance based on several factors, of
which the primary financial measures are revenue and gross margin. Corporate
overhead and other costs are not allocated to business segments for management
reporting purposes. The accounting policies followed by the Company's business
segments are the same as those described in Note 2 to the consolidated financial
statements. The Company does not allocate assets by segment for management
reporting purposes.

            All of the Company's operations are located in the United States.
The Company's reportable operating segments include Ricochet and Utilinet.
Ricochet designs and manufactures and markets wireless data communications
solutions. Utilinet manufactures and markets customer-owned networks and related
products. A summary of operating results by reportable operating segment is as
follows:


                                      58.
   59


                                        YEAR ENDED DECEMBER 31,
                                  ---------------------------------
                                    1999        1998         1997
                                  -------      -------      -------
                                                   
Ricochet Revenue ...........      $12,039      $10,775      $ 7,772
Utilinet Revenue ...........        6,486        5,084        5,667
                                  -------      -------      -------
    Total Revenue ..........      $18,525      $15,859      $13,439
                                  =======      =======      =======

Cost of Product Ricochet ...      $ 3,037      $ 2,741      $ 2,162
Cost of Product Utilinet ...        2,977        2,309        2,396
                                  -------      -------      -------
    Total Cost of Product...      $ 6,014      $ 5,050      $ 4,558
                                  =======      =======      =======

Cost of Service Ricochet ...      $21,319      $27,870      $27,562
Cost of Service Utilinet ...          ---          440          304
                                  -------      -------      -------
    Total Cost of Service...      $21,319      $28,310      $27,866
                                  =======      =======      =======



13.        RELATED PARTY TRANSACTIONS

           MCI WorldCom, Inc. owns 30 million shares of the Company's preferred
stock, and has also entered into an agreement with the Company to resell the
Company's high-speed service when it becomes available. In 1999, the Company
paid MCI WorldCom and its subsidiaries a total of approximately $2.9 million for
the purchase of telecommunications services in the normal course of business.


14.        QUARTERLY FINANCIAL DATA  (UNAUDITED)



                                                            FISCAL 1999 QUARTER ENDED:
                                               -------------------------------------------------------
(In thousands, except per share amounts)       MARCH 31        JUNE 30      SEPTEMBER 30   DECEMBER 31
                                               --------        -------      ------------   -----------
                                                                               
Net revenues ............................      $  4,186       $  4,663       $  4,795       $  4,880
Total costs and expenses ................        18,134         19,805         19,956         25,858
Net loss ................................       (15,018)       (16,557)       (16,653)       (18,065)
Net loss attributable to common
 stockholders ...........................      $(15,018)      $(16,557)      $(16,654)      $(56,299)
Net loss attributable to common
 stockholders per share .................      $  (0.80)      $  (0.86)      $  (0.80)      $  (2.51)




                                                           FISCAL 1998 QUARTER ENDED:
                                               --------------------------------------------------------
(In thousands, except per share amounts)       MARCH 31        JUNE 30       SEPTEMBER 30   DECEMBER 31
                                               --------        -------       ------------   -----------
                                                                                 
Net revenues ..............................    $  3,603       $  4,361       $  4,195       $  3,700
Total costs and expenses...................      14,851         17,300         24,702         41,146
Net loss ..................................     (11,707)       (13,221)       (21,006)       (38,230)
Net loss per share ........................    $  (0.69)      $ ( 0.71)      $  (1.13)      $  (2.04)




                                      59.
   60

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF METRICOM, INC.:

           We have audited the accompanying consolidated balance sheets of
Metricom, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999
and 1998 and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

           We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

           In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Metricom, Inc. and
subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

           As discussed in Note 1 to the consolidated financial statements, in
1999, the Company changed its capitalization policy for network equipment.



/s/ ARTHUR ANDERSEN LLP

San Jose, California
February 3, 2000





                                      60.
   61

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL REPORTING DISCLOSURE

           None.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

IDENTIFICATION OF DIRECTORS

           The information required by this Item concerning our directors is
incorporated by reference from the sections captioned "Proposal 1: Election of
Directors" contained in our definitive Proxy Statement related to our 2000
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission (the "Proxy Statement").

IDENTIFICATION OF EXECUTIVE OFFICERS

           The information required by this Item concerning our executive
officers is set forth in Part 1 of this report.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

           The information required by this Item is incorporated by reference
from the section captioned "Compliance with Section 16(a) of the Securities and
Exchange Act of 1934" contained in the Proxy Statement.


ITEM 11 - EXECUTIVE COMPENSATION

           The information required by this Item is incorporated by reference
from the section captioned "Executive Compensation" contained in the Proxy
Statement.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The information required by this Item is incorporated by reference
from the section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           The information required by this Item is incorporated by reference
from the sections captioned "Certain Transactions" and "Executive Compensation"
contained in the Proxy Statement.




                                      61.
   62

                                     PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

           (a)      Financial Statements.

           Our consolidated financial statements for each of the three years
ended December 31, 1999 and related notes, together with the report thereon of
Arthur Andersen LLP, independent public accountants.

           (b)      Reports on Form 8-K.

           Reports on Form 8-K as amended and filed on November 5, 1999,
November 24, 1999 and December 21,1999 included Exhibits 10.15, 10.18 and 10.19
as referenced in the Exhibit table below.


           (c)      Exhibits.


EXHIBIT
NUMBER                                        EXHIBIT
- ------                                        -------
                  
3.1(12)              Restated Certificate of Incorporation of the Company.
3.2(7)               Bylaws of the Company.
4.2(1)               Specimen stock certificate.
4.3(12)              Senior Debt Indenture among Metricom, Inc., Metricom Finance Inc., and Bank One
                     Trust Company, N.A., as trustee.
4.4(12)              Subordinated Debt Indenture among Metricom, Inc., Metricom Finance, Inc., and
                     Bank One Trust Company, N.A.,
4.5(13)              First Supplemental Indenture for Senior Notes dated February 7, 2000 between
                     the Company, Metricom Finance, Inc. and Bank One Trust Company, N.A.
4.6(13)              Global Note dated February 7, 2000 in an aggregate
                     principal amount of $300,000,000, issued by the Company and
                     Metricom Finance, Inc.
10.1a(1)             Form of Indemnity Agreement entered into between the
                     Company and its directors and officers, with related
                     schedule.
10.1b(2)(8)          Executive Compensation Agreement between the Company and Timothy A. Dreisbach,
                     President and Chief Executive Officer
10.2(2)(5)           1988 Stock Option Plan (the "Option Plan"), as amended November 1, 1993.
10.3(1)(2)           Form of Incentive Stock Option Agreement under the Option Plan.
10.4(1)(2)           Form of Supplemental Stock Option Agreement under the Option Plan.
10.5(1)(2)           Form of Notice of Exercise under the Option Plan, as amended.
10.6(1)(2)           Form of Restricted Stock Purchase Agreement and promissory note under the
                     Option Plan.



                                      62.
   63



EXHIBIT
NUMBER                                        EXHIBIT
- ------                                        -------
                  
10.7(2)             1991 Employee Stock Purchase Plan, as amended.
10.9(3)             Agreement between the Company and Southern California Edison dated October 1,
                    1992.
10.10(2)(5)         1993 Non-Employee Directors' Stock Option Plan, as amended November 1, 1993
                    (the "Directors' Plan").
10.11(2)(3)         Form of Supplemental Stock Option under the Directors' Plan.
10.12(4)            Purchase Agreement, dated October 3, 1993, between the Company and Vulcan
                    Ventures Incorporated.
10.13(6)            Stock Purchase Agreement, dated as of October 10, 1997, between the Company and
                    Vulcan Ventures Incorporated, a Washington Corporation.
10.14(9)            Loan Agreement, dated October 29, 1998, between the Company and Vulcan Ventures
                    Incorporated.
10.15(10)           Preferred Stock Purchase Agreement, dated as of June 20, 1999, among the
                    Company, MCI WorldCom, Inc., and Vulcan Ventures Incorporated.
10.16               Amended and Restated Registration Rights, dated as of November 15, 1999, among
                    the Company, MCI Worldcom, Inc., and Vulcan Ventures, Inc.
10.17(2)            1997 Equity Incentive Plan, as amended.
10.18(11)           Ricochet Reseller Agreement, dated as of June 20, 1999, between the Company and
                    MCI WorldCom, Inc.
10.19(11)           Amendment to Ricochet Reseller Agreement, dated as of November 12, 1999,
                    between the Company and MCI WorldCom, Inc.
10.20(13)           Underwriting agreement dated February 1, 2000 among the Company, Metricom
                    Finance, Inc. and the underwriters named therein.
10.21(13)           Terms Agreement dated February 2, 2000 among the Company and the underwriters
                    named therein, relating to the issuance and sale of 5,750,000 shares of the
                    Company's Common Stock.
10.22(13)           Terms Agreement dated February 2, 2000 among the Company, Metricom Finance,
                    Inc. and the underwriters named therein relating to the issuance and sale of
                    300,000 warrants to purchase an aggregate of 1,425,000 shares of the Company's
                    Common Stock.
10.23(13)           Warrant Agreement dated February 7, 2000 among the Company, Bank One Trust
                    Company, as initial warrant agent and BankBoston N.A., as warrant agent.
10.24(13)           Warrant Certificate dated February 7, 2000 between the Company and Bank One
                    Trust Company, as initial warrant agent and BankBoston, N.A., as warrant agent.




                                      63.
   64
                 
10.26(14)           Terms Agreement dated February 2, 2000 among the Company, Metricom Finance,
                    Inc. and the underwriters named therein relating to the issuance and sale of
                    $300,000,000 aggregate principal amount of 13% Senior Notes due 2010.
12.1                Schedule of Deficiency of Earnings to Fixed Charges.
18.1                Letter from Arthur Andersen LLP, Independent Auditors, regarding change in
                    accounting principle.
21.1                Subsidiaries of the Company
23.1                Consent of Arthur Andersen LLP, Independent Auditors.
27.1                Financial Data Schedule




                                      64.
   65
- ---------------

(1)   Incorporated by reference from the indicated exhibit in our Registration
      Statement on Form S-1 (File No. 33-46050), as amended.

(2)   Management contract or compensatory plan or arrangement.

(3)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1992.

(4)   Incorporated by reference from our Form 10-Q for the quarter ended October
      31, 1993.

(5)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1993.

(6)   Incorporated by reference from our Form 8-K dated as of October 13, 1997.

(7)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1997.

(8)   Incorporated by reference from our Form 10-Q for the quarter ended March
      31, 1998.

(9)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1998.

(10)  Incorporated by reference from our Form 8-K filed July 9, 1999.

(11)  Incorporated by reference from our Form 8-K filed December 21, 1999, as
      amended.

(12)  Incorporated by reference from our Registration Statement on Form S-3
      (file No. 333-91359), as amended.

(13)  Incorporated by reference from our Form 8-K filed February 10, 2000.

(14)  Incorporated by reference from our Form 8-K/A filed February 16, 2000.








                                      65.
   66

                                   SIGNATURES

           Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
24th day of March, 2000.

                                 METRICOM, INC.


                                  By     /s/    TIMOTHY A. DREISBACH
                                    ----------------------------------------
                                             Timothy A. Dreisbach
                                             President and CEO


                                      66.
   67

                                POWER OF ATTORNEY

KNOWN ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Timothy A. Dreisbach and James E. Wall, jointly
and severally, his attorneys-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendments to this Report on Form
10-K, and file the same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:




Name                                                Title                                         Date
- ----                                                -----                                         ----
                                                                                       
/s/    TIMOTHY A. DREISBACH               President, Chief Executive Officer                 March 24, 2000
- -----------------------------------       and Chairman of the Board of
     (Timothy A. Dreisbach)               Directors  (Principal Executive
                                          Officer)


     /s/    JAMES E. WALL                 Chief Financial Officer (Principal                 March 24, 2000
- -----------------------------------       Financial and Accounting
           (James E. Wall)                Officer)


/s/    ROBERT P. DILWORTH                 Director                                           March 24, 2000
- -----------------------------------
           (Robert P. Dilworth)



/s/    WILLIAM D. SAVOY                   Director                                           March 24, 2000
- -----------------------------------
           (William D. Savoy)



   /s/    ROBERT S. CLINE                 Director                                           March 24, 2000
- -----------------------------------
           (Robert S. Cline)



/s/    RALPH DERRICKSON                   Director                                           March 24, 2000
- -----------------------------------
           (Ralph Derrickson)



/s/    JUSTIN JASCHKE                     Director                                           March 24, 2000
- -----------------------------------
           (Justin Jaschke)



/s/    DAVID MOORE                        Director                                           March 24, 2000
- -----------------------------------
           (David Moore)





                                      67.
   68

                                                                     SCHEDULE II


                                 METRICOM, INC.

                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)



                                          BALANCE AT         CHARGED TO                            BALANCE AT
                                          BEGINNING           COSTS AND           DEDUCTION/         END OF
DESCRIPTION                               OF PERIOD           EXPENSES            WRITEOFF           PERIOD
- -----------                               ---------          ---------           ---------         ----------
                                                                                        
Year ended December 31, 1997:
 Accounts receivable allowances              $121                $807                 $129              $799
                                           ======              ======              =======            ======


Year ended December 31, 1998:
 Accounts receivable allowances              $799              $1,400                 $533            $1,666
                                             ====              ======              =======           =======


Year ended December 31, 1999:
 Accounts receivable allowances            $1,666              $1,334                 $852            $2,148
                                           ======              ======              =======           =======







   69



EXHIBIT
NUMBER                                        EXHIBIT
- ------                                        -------
                  
3.1(12)              Restated Certificate of Incorporation of the Company.
3.2(7)               Bylaws of the Company.
4.2(1)               Specimen stock certificate.
4.3(12)              Senior Debt Indenture among Metricom, Inc., Metricom Finance Inc., and Bank One
                     Trust Company, N.A., as trustee.
4.4(12)              Subordinated Debt Indenture among Metricom, Inc., Metricom Finance, Inc., and
                     Bank One Trust Company, N.A.,
4.5(13)              First Supplemental Indenture for Senior Notes dated February 7, 2000 between
                     the Company, Metricom Finance, Inc. and Bank One Trust Company, N.A.
4.6(13)              Global Note dated February 7, 2000 in an aggregate
                     principal amount of $300,000,000, issued by the Company and
                     Metricom Finance, Inc.
10.1a(1)             Form of Indemnity Agreement entered into between the
                     Company and its directors and officers, with related
                     schedule.
10.1b(2)(8)          Executive Compensation Agreement between the Company and Timothy A. Dreisbach,
                     President and Chief Executive Officer
10.2(2)(5)           1988 Stock Option Plan (the "Option Plan"), as amended November 1, 1993.
10.3(1)(2)           Form of Incentive Stock Option Agreement under the Option Plan.
10.4(1)(2)           Form of Supplemental Stock Option Agreement under the Option Plan.
10.5(1)(2)           Form of Notice of Exercise under the Option Plan, as amended.
10.6(1)(2)           Form of Restricted Stock Purchase Agreement and promissory note under the
                     Option Plan.




   70



EXHIBIT
NUMBER                                        EXHIBIT
- ------                                        -------
                  
10.7(2)             1991 Employee Stock Purchase Plan, as amended.
10.9(3)             Agreement between the Company and Southern California Edison dated October 1,
                    1992.
10.10(2)(5)         1993 Non-Employee Directors' Stock Option Plan, as amended November 1, 1993
                    (the "Directors' Plan").
10.11(2)(3)         Form of Supplemental Stock Option under the Directors' Plan.
10.12(4)            Purchase Agreement, dated October 3, 1993, between the Company and Vulcan
                    Ventures Incorporated.
10.13(6)            Stock Purchase Agreement, dated as of October 10, 1997, between the Company and
                    Vulcan Ventures Incorporated, a Washington Corporation.
10.14(9)            Loan Agreement, dated October 29, 1998, between the Company and Vulcan Ventures
                    Incorporated.
10.15(10)           Preferred Stock Purchase Agreement, dated as of June 20, 1999, among the
                    Company, MCI WorldCom, Inc., and Vulcan Ventures Incorporated.
10.16               Amended and Restated Registration Rights, dated as of November 15, 1999, among
                    the Company, MCI Worldcom, Inc., and Vulcan Ventures, Inc.
10.17(2)            1997 Equity Incentive Plan, as amended.
10.18(11)           Ricochet Reseller Agreement, dated as of June 20, 1999, between the Company and
                    MCI WorldCom, Inc.
10.19(11)           Amendment to Ricochet Reseller Agreement, dated as of November 12, 1999,
                    between the Company and MCI WorldCom, Inc.
10.20(13)           Underwriting agreement dated February 1, 2000 among the Company, Metricom
                    Finance, Inc. and the underwriters named therein.
10.21(13)           Terms Agreement dated February 2, 2000 among the Company and the underwriters
                    named therein, relating to the issuance and sale of 5,750,000 shares of the
                    Company's Common Stock.
10.22(13)           Terms Agreement dated February 2, 2000 among the Company, Metricom Finance,
                    Inc. and the underwriters named therein relating to the issuance and sale of
                    300,000 warrants to purchase an aggregate of 1,425,000 shares of the Company's
                    Common Stock.
10.23(13)           Warrant Agreement dated February 7, 2000 among the Company, Bank One Trust
                    Company, as initial warrant agent and BankBoston N.A., as warrant agent.
10.24(13)           Warrant Certificate dated February 7, 2000 between the Company and Bank One
                    Trust Company, as initial warrant agent and BankBoston, N.A., as warrant agent.






   71
                 
10.26(14)           Terms Agreement dated February 2, 2000 among the Company, Metricom Finance,
                    Inc. and the underwriters named therein relating to the issuance and sale of
                    $300,000,000 aggregate principal amount of 13% Senior Notes due 2010.
12.1                Schedule of Deficiency of Earnings to Fixed Charges.
18.1                Letter from Arthur Andersen LLP, Independent Auditors, regarding change in
                    accounting principle.
21.1                Subsidiaries of the Company
23.1                Consent of Arthur Andersen LLP, Independent Auditors.
27.1                Financial Data Schedule





   72
- ---------------

(1)   Incorporated by reference from the indicated exhibit in our Registration
      Statement on Form S-1 (File No. 33-46050), as amended.

(2)   Management contract or compensatory plan or arrangement.

(3)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1992.

(4)   Incorporated by reference from our Form 10-Q for the quarter ended October
      31, 1993.

(5)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1993.

(6)   Incorporated by reference from our Form 8-K dated as of October 13, 1997.

(7)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1997.

(8)   Incorporated by reference from our Form 10-Q for the quarter ended March
      31, 1998.

(9)   Incorporated by reference from our Form 10-K for the year ended December
      31, 1998.

(10)  Incorporated by reference from our Form 8-K filed July 9, 1999.

(11)  Incorporated by reference from our Form 8-K filed December 21, 1999, as
      amended.

(12)  Incorporated by reference from our Registration Statement on Form S-3
      (file No. 333-91359), as amended.

(13)  Incorporated by reference from our Form 8-K filed February 10, 2000.

(14)  Incorporated by reference from our Form 8-K/A filed February 16, 2000.

EX-10.7

   1
                                                                    EXHIBIT 10.7


                                 METRICOM, INC.

                        1991 EMPLOYEE STOCK PURCHASE PLAN

                            Adopted November 12, 1991
                             Approved March 19, 1992
                              Amended January 1996
                             Approved April 24, 1996
                              Amended November 1996
                             Amended April 29, 1998
                             Approved June 26, 1998
                             Amended August 16, 1999
                            Approved October 15, 1999

1.      PURPOSE.

        (a) The purpose of the Plan is to provide a means by which employees of
Metricom, Inc., a California corporation (the "Company"), and its Affiliates, as
defined in subparagraph 1(b), which are designated as provided in subparagraph
2(b), may be given an opportunity to purchase stock of the Company.

        (b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").

        (c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.

        (d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.

2.      ADMINISTRATION.

        (a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.

        (b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

               (i) To determine when and how rights to purchase stock shall be
granted and the provisions of each offering of such rights (which need not be
identical).



                                       1.
   2

               (ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.

               (iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

               (iv) To amend the Plan as provided in paragraph 13.

               (v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.

        (c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

3.      SHARES SUBJECT TO THE PLAN.

        Subject to the provisions of paragraph 12 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to rights granted under
the Plan shall not exceed in the aggregate seven hundred and fifty thousand
(750,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan.

4.      GRANT OF RIGHTS; OFFERING.

        The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering Date(s)")
selected by the Board or the Committee. Each Offering shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. If an employee has more than one right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (1) each agreement or notice delivered by that employee will be
deemed to apply to all of his or her rights under the Plan, and (2) a right with
a lower exercise price (or an earlier-granted right, if two rights have
identical exercise prices), will be exercised to the fullest possible extent
before a right with a higher exercise price (or a later-granted right, if two
rights have identical exercise prices) will be exercised. The provisions of
separate Offerings need not be identical, but each Offering shall include
(through incorporation of the provisions of this Plan by reference in the
Offering or otherwise) the substance of the provisions contained in paragraphs 5
through 8, inclusive.


                                       2.
   3

5.      ELIGIBILITY.

        (a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be equal to or greater than
two (2) years. In addition, unless otherwise determined by the Board or the
Committee, no employee of the Company or any Affiliate shall be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee's
customary employment with the Company or such Affiliate is at least twenty (20)
hours per week and at least five (5) months per calendar year.

        (c) The Board or the Committee may provide that, each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:

               (i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of the
exercise price of such right;

               (ii) the Offering Period for such right shall begin on its
Offering Date and end coincident with the end of such Offering; and

               (iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.

        (c) No employees shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any employee, and stock which such employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such employee.

        (d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty-five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.


                                       3.
   4

6.      RIGHTS; PURCHASE PRICE.

        (a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase the number
of shares of Common Stock of the Company purchasable with up to fifteen percent
(15%) of such employee's Earnings (as defined in Section 7(a)) during the period
which begins on the Offering Date (or such later date as the Board determines
for a particular Offering) and ends on the date stated in the Offering, which
date shall be no more than twenty-seven (27) months after the Offering Date (the
"Offering Period"). In connection with each Offering made under this Plan, the
Board or the Committee shall specify a maximum number of shares which may be
purchased by any employee as well as a maximum aggregate number of shares which
may be purchased by all eligible employees pursuant to such Offering. In
addition, in connection with each such Offering, the Board or the Committee may
specify a maximum aggregate number of shares which may be purchased by all
eligible employees on any given Exercise Date (as defined in the Offering) under
the Offering. If the aggregate purchase of shares upon exercise of rights
granted under the Offering would exceed any such maximum aggregate number, the
Board or the Committee shall make a pro rata allocation of the shares available
in as nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.

        (b) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:

               (i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or

               (ii) an amount equal to eight-five percent (85%) of the fair
market value of the stock on the Exercise Date.

7.      PARTICIPATION; WITHDRAWAL; TERMINATION.

        (a) An eligible employee may become a participant in an Offering by
delivering an agreement to the Company within the time specified in the
Offering, in such form as the Company provides. Each such agreement shall
authorize payroll deductions of up to fifteen percent (15%) of such employee's
Earnings during the Offering Period. "Earnings" is defined as base salary or
wages and including amounts elected to be deferred by the employee (that would
otherwise have been paid) under the Company's 401(k) Plan, and may include or
exclude bonuses, commissions, overtime pay, incentive pay, profit sharing, other
remuneration paid directly to the employee, the cost of employee benefits paid
for by the Company or an Affiliate, education or tuition reimbursements, imputed
income arising under any group insurance or benefit program, traveling expenses,
business and moving expense reimbursements, income received in connection with
stock options, contributions made by the Company or an Affiliate under any
employee benefit plan, and similar items of compensation as determined by the
Board or Committee and as set forth in the Offering. The payroll deductions made
for each participant shall be credited to an account for such participant under
the Plan and shall be deposited with the general funds of the Company. At any
time during the Offering a participant may terminate his or her payroll
deductions. A participant may reduce, increase or begin such payroll deductions
after the beginning of any Offering Period only as provided for in the Offering.
A participant


                                       4.
   5
may not make any additional payments into his or her account unless expressly
provided for in the Offering.

        (b) If a participant terminates his or her payroll deductions, such
participant may withdraw from the Offering by delivering to the Company a notice
of withdrawal in such form as the Company provides. Such withdrawal may be
elected at any time prior to the end of the Offering Period. Upon such
withdrawal from the Offering by a participant, the Company shall distribute to
such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new participation agreement in order
to participate in other Offerings under the Plan.

        (c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company or an Affiliate, for any reason, and the Company shall
distribute to such terminated employee all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the terminated employee), without interest; provided, however,
that subject to the right of the terminated employee to withdraw from the
Offering and receive a distribution of his or her accumulated payroll deductions
(as described in paragraph 7(b)), in the event that a participating employee's
employment ceases within three (3) months of the next Exercise Date, the balance
in such employee's account shall be held and used to purchase Common Stock for
the terminated employee on such Exercise Date pursuant to the terms of the
ongoing Offering.

        (d) Rights granted under the Plan shall not be transferable, and shall
be exercisable only by the person to whom such rights are granted.

8.      EXERCISE.

        (a) On each exercise date, as defined in the relevant Offering (an
"Exercise Date"), each participant's accumulated payroll deductions (without any
increase for interest) will be applied to the purchase of whole shares of stock
of the Company, up to the maximum number of shares permitted pursuant to the
terms of the Plan and the applicable Offering, at the purchase price specified
in the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of shares
which is less than the amount required to purchase one share of stock on the
final Exercise Date of an Offering shall be held in each such participant's
account for the purchase of shares under the next Offering under the Plan,
unless such participant withdraws from such next Offering, as provided in
subparagraph 7(b), or is no longer eligible to be granted rights under the Plan,
as provided in paragraph 5, in which case such amount shall be distributed to
such participant after such Exercise Date, without interest. The amount, if any,
of accumulated payroll deductions remaining in any participant's account after
the purchase of shares which is equal to the amount required to purchase whole
shares of



                                       5.
   6

stock on the final Exercise Date of an Offering shall be distributed in full to
such participant after such Exercise Date, without interest.

        (b) No rights granted under the Plan may be exercised to any extent
unless the Plan (including rights granted thereunder) is covered by an effective
registration statement pursuant to the Securities Act of 1933, as amended. If,
on an Exercise Date of any Offering hereunder, the Plan is not so registered, no
rights granted under the Plan or any Offering shall be exercised and all payroll
deductions accumulated and not previously applied to the purchase of Common
Stock shall be distributed to the participants, without interest.

9.      COVENANTS OF THE COMPANY.

        (a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.

        (b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the rights granted under the
Plan. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such rights unless and until such authority is obtained.

10.     USE OF PROCEEDS FROM STOCK.

        Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.

11.     RIGHTS AS A SHAREHOLDER.

        A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until certificates representing such shares shall have
been issued.

12.     ADJUSTMENTS UPON CHANGES IN STOCK.

        (a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Board shall make
appropriate adjustments in the maximum number of shares subject to the Plan and
the number of shares and price per share of stock subject to outstanding rights.

        (b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital



                                       6.
   7

reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then, as determined by the Board in its
sole discretion, any surviving corporation shall assume outstanding rights or
substitute similar rights for those under the Plan, such rights shall continue
in full force and effect, or such rights shall be exercised immediately prior to
such event.

13.     AMENDMENT OF THE PLAN.

        (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the shareholders of
the Company within 12 months before or after the adoption of the amendment,
where the amendment will:

               (i) Increase the number of shares reserved for rights under the
Plan; or

               (ii) Modify the provisions as to eligibility for participation in
the Plan or modify the Plan in any other way to the extent such modification
requires shareholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code.

               It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.

        (b) Rights and obligations under any rights granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted.

14.     TERMINATION OR SUSPENSION OF THE PLAN.

        (a) The Board may suspend or terminate the Plan at any time. No rights
may be granted under the Plan while the Plan is suspended or after it is
terminated.

        (b) Rights and obligations under any rights granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom such rights were granted.


                                       7.

EX-10.16

   1

                                                                   EXHIBIT 10.16

                                 METRICOM, INC.


                              AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT


                                NOVEMBER 15, 1999



   2

                                 METRICOM, INC.

                              AMENDED AND RESTATED
                          REGISTRATION RIGHTS AGREEMENT

        THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"AGREEMENT") is entered into as November 15, 1999, by and among METRICOM, INC.,
a Delaware corporation (the "COMPANY") and holders of the Company's outstanding
securities listed on the Schedule of Investors attached hereto as Exhibit A
(collectively the "INVESTORS" and each individually as an "INVESTOR").


                                    RECITALS

        WHEREAS, the Company and certain of its security holders are parties to
a Registration Rights Agreement, originally dated as of June 23, 1986, as
amended to date (the "Original Registration Rights Agreement"); and

        WHEREAS, pursuant to a Preferred Stock Purchase Agreement dated as of
June 20, 1999 (the "Purchase Agreement"), the Company has sold and issued
30,000,000 shares of its Series A1 Preferred Stock to MCI Worldcom, Inc. and
30,000,000 shares of its Series A2 Preferred Stock to Vulcan Ventures
Incorporated; and

               WHEREAS, the Company and the holders of the requisite percentage
of Registrable Securities (as defined in the Original Registration Rights
Agreement) desire to amend the Original Registration Rights Agreement to permit
the Company to grant to MCI Worldcom, Inc. and Vulcan Ventures Incorporated
registration rights with respect to the shares purchased under the Purchase
Agreement, to revise Schedule A to the Original Registration Rights Agreement to
include only those holders and those holders' shares which are eligible for
registration rights as of the date first set forth above, to make certain other
changes to the Original Registration Rights Agreement and to restate the
Original Registration Rights Agreement in full;

        NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:

                                    AGREEMENT

SECTION 1. GENERAL

        1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:

               "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

               "FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any successor registration form under the Securities Act
subsequently adopted by the



                                       1.
   3

SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.

               "HOLDER" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.

               "MAJOR HOLDER" means MCI WorldCom, Inc., Vulcan Ventures
Incorporated or any assignee of record of Registrable Securities held by either
of such Holders (in accordance with Section 2.10 hereof) that is an affiliate of
a Major Holder or holds at least twenty-five percent (25%) of the then
outstanding Registrable Securities.

               "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.

               "REGISTRABLE SECURITIES" means (a) Common Stock of the Company
issued or issuable upon conversion of the Shares, (b) the shares of Common Stock
of the Company listed on Schedule A hereto that are issuable upon exercise of
certain warrants issued by the Company, and (c) Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under Section 2 of this Agreement are not assigned.

               "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.

               "REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed twenty-five thousand dollars ($25,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).

               "SEC" or "COMMISSION" means the Securities and Exchange
Commission.

               "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.

               "SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.

               "SHARES" shall mean the Company's Series A1 Preferred Stock and
Series A2 Preferred Stock issued pursuant to the Purchase Agreement.



                                       2.
   4

SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER

        2.1 RESTRICTIONS ON TRANSFER.

               (a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:

                    (i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or

                    (ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.

                    (iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its shareholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder; provided that in each
case the transferee will be subject to the terms of this Agreement to the same
extent as if he were an original Holder hereunder.

               (b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws):

               "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
               REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
               SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
               OTHERWISE DISPOSED OF UNLESS THEY ARE SO REGISTERED OR UNLESS AN
               EXEMPTION FROM REGISTRATION IS AVAILABLE."

               (c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.



                                       3.
   5

               (d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.

        2.2 DEMAND REGISTRATION.

               (a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from either (i) one or more of the Major Holders
or (ii) Holders who in the aggregate hold at least 500,000 shares of Registrable
Securities (the "INITIATING HOLDERS"), that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities the anticipated aggregate offering price of which, net of
underwriting discounts and commissions, would exceed $10,000,000 (a "QUALIFIED
PUBLIC OFFERING"), then the Company shall, within thirty (30) days of the
receipt thereof, give written notice of such request to all Holders and, subject
to the limitations of this Section 2.2, use its best efforts to effect, as soon
as practicable, the registration under the Securities Act of all Registrable
Securities that the Initiating Holders request to be registered.

               (b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a), as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this Section
2.2 or Section 2.4, if the underwriter advises the Company that marketing
factors require a limitation of the number of securities to be underwritten
(including Registrable Securities) then the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders); provided, however, that:

                    (i) the number of shares of Registrable Securities to be
included in such underwriting and registration on behalf of Initiating Holders
that are Major Holders shall not be subject to reduction pursuant to this
Section 2.2(b); and

                    (ii) the number of shares of Registrable Securities to be
included in such underwriting and registration shall not be reduced unless all
other securities of the Company are first entirely excluded from the
underwriting and registration.

Any Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.



                                       4.
   6

               (c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:

                    (i) after the Company has effected two (2) registrations
pursuant to this Section 2.2 and such registrations have been declared or
ordered effective; provided, however, that this subsection (i) shall not apply
to any registration for which the Initiating Holders include one or more of the
Major Holders;

                    (ii) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12) month period; or

                    (iii) if the Initiating Holders propose to dispose of shares
of Registrable Securities that are then eligible to be registered on Form S-3
pursuant to a request made pursuant to Section 2.4 below; provided, however,
that this subsection (iii) shall not apply to any registration for which the
Initiating Holders include one or more of the Major Holders.

        2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least fifteen (15) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.

               (a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the



                                       5.
   7

Company. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, the number of shares that may be
included in the underwriting shall be allocated, first, to the Company; second,
to the Holders on a pro rata basis based on the total number of Registrable
Securities held by the Holders; and third, to any shareholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall (i) reduce
the securities being offered by the Company for its own account to be included
in the registration and underwriting, or (ii) reduce the amount of securities of
the selling Holders included in the registration below twenty-five percent (25%)
of the total amount of securities included in such registration. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing person shall be deemed to be a single "HOLDER", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.

               (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.

        2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:

               (a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and

               (b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 2.4:

                    (i) if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders;



                                       6.
   8

                    (ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than one million dollars ($1,000,000);

                    (iii) if within thirty (30) days of receipt of a written
request from any Holder or Holders pursuant to this Section 2.4, the Company
gives notice to such Holder or Holders of the Company's intention to make a
public offering within ninety (90) days;

                    (iv) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4; provided, that such
right to delay a request shall be exercised by the Company not more than twice
in any twelve (12) month period, or

                    (v) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected two (2) registrations on
Form S-3 for the Holders pursuant to this Section 2.4 (unless the registration
is requested by one or more of the Major Holders, in which case the Company
shall not be excused from effecting such registration under this subsection
unless it has, within the twelve (12) month period preceding the date of such
request, already effected one (1) or more registrations requested by such Major
Holder(s) under Section 2.2 or this Section 2.4), or

                    (vi) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

               (c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 2.4 shall not be counted as demands for registration or registrations
effected pursuant to Sections 2.2 or 2.3, respectively.

        2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All such
Registration Expenses incurred in connection with registrations requested
pursuant to Section 2.4 (other than registrations requested by one or more Major
Holders) after the first two (2) registrations shall be paid by the selling
Holders pro rata in proportion to the number of shares sold by each. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the



                                       7.
   9

withdrawal is based upon material adverse information concerning the Company of
which the Initiating Holders were not aware at the time of such request or (b)
the Holders of a majority of Registrable Securities agree to forfeit their right
to one requested registration pursuant to Section 2.2 or Section 2.4, as
applicable, in which event such right shall be forfeited by all Holders). If the
Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.

        2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:

               (a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to thirty (30) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto. The
Company shall not be required to file, cause to become effective or maintain the
effectiveness of any registration statement that contemplates a distribution of
securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.

               (b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in paragraph (a) above.

               (c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.

               (d) Use its reasonable best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.

               (e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

               (f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such



                                       8.
   10

registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.

               (g) Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.

        2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 2 to Holders other than Major Holders shall terminate on
December 31, 2001 and shall thereafter be of no further force or effect. In
addition, a Holder's registration rights shall expire if all Registrable
Securities held by and issuable to such Holder (and such Holder's affiliates,
partners, former partners, members and former members) may be sold under Rule
144 (including paragraph (k) thereof) during any ninety (90) day period.

        2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.

               (a) No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.

               (b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.

               (c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.

        2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:

               (a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims,



                                       9.
   11

damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"VIOLATION") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will pay as incurred to
each such Holder, partner, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.

               (b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers and
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder under an
instrument duly executed by such Holder and stated to be specifically for use in
connection with such registration; and each such Holder will pay as incurred any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the net proceeds from the offering
received by such Holder.



                                      10.
   12

               (c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 2.9.

               (d) If the indemnification provided for in this Section 2.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the net proceeds from the offering received by such
Holder.

               (e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.

        2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 2 may be assigned by
a Holder to a transferee or assignee of Registrable Securities which (a) is a
subsidiary, parent, general partner, limited partner, retired partner, member or
retired member of a Holder, (b) is an affiliate of a Major Holder, (c) is a
Holder's family member or trust for the benefit of an individual Holder, or (d)



                                      11.
   13

acquires at least fifty thousand (50,000) shares of Registrable Securities (as
adjusted for stock splits and combinations); provided, however, (i) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.

        2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company, the Major Holders and the Holders of at least
two-thirds (2/3) of the Registrable Securities then outstanding. Any amendment
or waiver effected in accordance with this Section 2.11 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this Section 2,
Holders of Registrable Securities hereby agree to be bound by the provisions
hereunder.

        2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least two-thirds (2/3) of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company that would grant such holder registration rights
pari passu or senior to those granted to the Holders hereunder.

        2.13 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION.

               (a) Each Holder hereby agrees that such Holder shall not sell,
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any Common Stock (or other securities) of the Company held by such Holder (other
than those included in the registration) for a period specified by the
representative of the underwriters of Common Stock (or other securities) of the
Company not to exceed ninety (90) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided
that all officers and directors of the Company enter into similar agreements.

               (b) Each Holder agrees to execute and deliver such other
agreements as may be reasonably requested by the Company or the underwriter
which are consistent with the foregoing or which are necessary to give further
effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, each
Holder shall provide, within ten (10) days of such request, such information as
may be required by the Company or such representative in connection with the
completion of any public offering of the Company's securities pursuant to a
registration statement filed under the Securities Act. The obligations described
in this Section 2.13 shall not apply to a registration relating solely to
employee benefit plans on Form S-1 or Form S-8 or similar forms that may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the
future. The Company may impose stop-transfer instructions with respect to the
shares of Common Stock (or other securities) subject to the foregoing
restriction until the end of said ninety (90) day period.



                                      12.
   14

        2.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:

               (a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;

               (b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and

               (c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing it to sell any such securities without registration.

SECTION 3. MISCELLANEOUS

        3.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.

        3.2 SURVIVAL. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.

        3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

        3.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.



                                      13.
   15

        3.5 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.

        3.6 AMENDMENT AND WAIVER.

               (a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least two-thirds (2/3) of the Registrable Securities.

               (b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least two-thirds (2/3) of the
Registrable Securities.

        3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.

        3.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature pages hereof or
Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.

        3.9 ATTORNEYS' FEES. In the event that any suit or action is instituted
to enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

        3.10 TITLES AND SUBTITLES. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.



                                      14.
   16

        3.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.







                      [THIS SPACE INTENTIONALLY LEFT BLANK]





                                      15.
   17

        IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.



COMPANY:                                 INVESTORS:

METRICOM, INC.                           VULCAN VENTURES INCORPORATED




By: /s/ TIMOTHY A. DREISBACH             By:
   ------------------------------           --------------------------------





                                         MCI WORLDCOM, INC.

                                         By:
                                            --------------------------------



                                 SIGNATURE PAGE
                         REGISTRATION RIGHTS AGREEMENT

   18


        IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.



COMPANY:                                 INVESTORS:

METRICOM, INC.                           VULCAN VENTURES INCORPORATED




By:                                      By: /s/ WILLIAM D. SAVOY
   ------------------------------           --------------------------------





                                         MCI WORLDCOM, INC.

                                         By:
                                            --------------------------------



                                 SIGNATURE PAGE
                         REGISTRATION RIGHTS AGREEMENT



   19

        IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED REGISTRATION RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.



COMPANY:                                 INVESTORS:

METRICOM, INC.                           VULCAN VENTURES INCORPORATED




By:                                      By:
   ------------------------------           --------------------------------





                                         MCI WORLDCOM, INC.

                                         By: /s/ JOHN STUPKA
                                            --------------------------------








                                 SIGNATURE PAGE
                         REGISTRATION RIGHTS AGREEMENT

EX-10.17

   1
                                                                   EXHIBIT 10.17


                                 METRICOM, INC.

                           1997 EQUITY INCENTIVE PLAN

                             ADOPTED MARCH 14, 1997
                      APPROVED BY STOCKHOLDERS MAY 1, 1997
               AMENDED BY THE BOARD OF DIRECTORS ON APRIL 29, 1998
                    APPROVED BY STOCKHOLDERS ON JUNE 26, 1998
              AMENDED BY THE BOARD OF DIRECTORS ON AUGUST 16, 1999
                  APPROVED BY STOCKHOLDERS ON OCTOBER 15, 1999


1.      PURPOSES.

        (a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.

        (b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.

        (c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.

2.      DEFINITIONS.

        (a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.

        (b) "BOARD" means the Board of Directors of the Company.

        (c) "CODE" means the Internal Revenue Code of 1986, as amended.

        (d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.

        (e) "COMPANY" means Metricom, Inc., a Delaware corporation.



                                       1.
   2

        (f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.

        (g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.

        (h)    "DIRECTOR" means a member of the Board.

        (i) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

        (j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

        (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

        (l) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock of the Company determined as follows:

               (i) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the last market trading day prior to
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable;

               (ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.

        (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

        (n) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is



                                       2.
   3

not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

        (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

        (p) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

        (q) "OPTION" means a stock option granted pursuant to the Plan.

        (r) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.

        (s) "OPTIONEE" means a person to whom an Option is granted pursuant to
the Plan.

        (t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

        (u) "PLAN" means this 1997 Equity Incentive Plan.

        (v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

        (w) "SECURITIES ACT" means the Securities Act of 1933, as amended.

        (x) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.

        (y) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

3.      ADMINISTRATION.

        (a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).

        (b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:



                                       3.
   4

               (i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.

               (ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

               (iii) To amend the Plan or a Stock Award as provided in
Section 12.

               (iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

        (c) The Board may delegate administration of the Plan to a committee or
committees ("Committee") of one (1) or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee any of the administrative
powers the Committee is authorized to exercise (and references in this Plan to
the Board shall thereafter be to the Committee or such a subcommittee), subject,
however, to such resolutions, not inconsistent with the provisions of the Plan,
as may be adopted from time to time by the Board. The Board may abolish the
Committee at any time and revest in the Board the administration of the Plan.

4.      SHARES SUBJECT TO THE PLAN.

        (a) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate two million two hundred seventy-five thousand
(2,275,000) shares of Common Stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full (or vested in the case of Restricted Stock), the stock not
acquired under such Stock Award shall revert to and again become available for
issuance under the Plan.

        (b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

5.      ELIGIBILITY.

        (a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.



                                       4.
   5

        (b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.

        (c) Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Stock Awards
covering more than four hundred thousand (400,000) shares of Common Stock in any
calendar year.

        (d) A Consultant shall not be eligible for the grant of a Stock Award
if, at the time of grant, a Form S-8 Registration Statement under the Securities
Act ("Form S-8") is not available to register either the offer or the sale of
the Company's securities to such Consultant because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

6.      OPTION PROVISIONS.

        Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

        (a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

        (b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Option is granted pursuant to an assumption or substitution for another
option in a manner satisfying the provisions of Section 424(a) of the Code.

        (c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person



                                       5.
   6

to whom the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be payable at
least annually and shall be charged at the minimum rate of interest necessary to
avoid the treatment as interest, under any applicable provisions of the Code, of
any amounts other than amounts stated to be interest under the deferred payment
arrangement.

        (d) TRANSFERABILITY. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory Stock Option may be transferred
to the extent provided in the Option Agreement; provided that if the Option
Agreement does not expressly permit the transfer of a Nonstatutory Stock Option,
the Nonstatutory Stock Option shall not be transferable except by will, by the
laws of descent and distribution or pursuant to a domestic relations order
satisfying the requirements of Rule 16b-3, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person or any
transferee pursuant to a domestic relations order. Notwithstanding the
foregoing, the person to whom the Option is granted may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall thereafter be
entitled to exercise the Option.

        (e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.

        (f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option within such period of
time designated by the Board, which shall in no event be later than the
expiration of the term of the Option as set forth in the Option Agreement (the
"Post-Termination Exercise Period") and only to the extent that the Optionee was
entitled to exercise the Option on the date Optionee's Continuous Status as an
Employee, Director or Consultant terminates. In the case of an Incentive Stock
Option, the Board shall determine the Post-Termination Exercise Period at the
time the Option is granted, and the term of such Post-Termination Exercise
Period shall in no event exceed three (3) months from the date of termination,
and may, in the event Optionee's Continuous Status as an Employee, Director or
Consultant terminates for Cause (as defined in subsection 11(b)), terminate of
the date of such Optionee's termination. In addition, the Board may at any time,
with the consent of the Optionee, extend the Post-Termination Exercise Period
and provide for continued vesting; provided however, that any extension of such



                                       6.
   7

period by the Board in excess of three (3) months from the date of termination
shall cause an Incentive Stock Option so extended to become a Nonstatutory Stock
Option, effective as of the date of Board action. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement or as otherwise
determined above, the Option shall terminate, and the shares covered by such
Option shall revert to the Plan. Notwithstanding the foregoing, the Board shall
have the power to permit an Option to continue to vest during the
Post-Termination Exercise Period.

        An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
Disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in the first paragraph of this
subsection 6(f), or (ii) the expiration of a period of three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant during which the exercise of the Option would not be in violation of
such registration requirements.

        (g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, at the date of termination, the Optionee is
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

        (h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a three (3)-month period after the termination of, the Optionee's
Continuous Status as an Employee, Director or Consultant, the Option may be
exercised to the extent vested by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period specified in the Option Agreement), or (ii) the expiration of the term of
such Option as set forth in the Option



                                       7.
   8

Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

        (i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.

        (j) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option Agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option which is an Incentive Stock Option and which is
granted to a 10% stockholder (as described in subsection 5(b)), shall have an
exercise price which is equal to one hundred ten percent (110%) of the Fair
Market Value of the stock subject to the Re-Load Option on the date of exercise
of the original Option and shall have a term which is no longer than five (5)
years.

        Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollars ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 10(d) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.

7.      TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

        Each stock bonus or restricted stock purchase agreement shall be in such
form and shall contain such terms and conditions as the Board or Committee shall
deem appropriate. The terms and conditions of stock bonus or restricted stock
purchase agreements need not be identical, but each stock bonus or restricted
stock purchase agreement shall include (through incorporation of provisions
hereof by reference in the agreement or otherwise) the substance of each of the
following provisions as appropriate:



                                       8.
   9

        (a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.

        (b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or, if the agreement so provides, pursuant to a domestic
relations order satisfying the requirements of Rule 16b-3, so long as stock
awarded under such agreement remains subject to the terms of the agreement.

        (c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion; provided, however, that at any time that
the Company is incorporated in Delaware payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment. Notwithstanding the foregoing, the Board or Committee to which
administration of the Plan has been delegated may award stock pursuant to a
stock bonus agreement in consideration for past services actually rendered to
the Company or for its benefit.

        (d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.

        (e) TERMINATION OF CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire any or all of the shares of stock held by that person which have not
vested as of the date of termination under the terms of the stock bonus or
restricted stock purchase agreement between the Company and such person.

8.      COVENANTS OF THE COMPANY.

        (a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

        (b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance



                                       9.
   10

and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such Stock Awards
unless and until such authority is obtained.

9.      USE OF PROCEEDS FROM STOCK.

        Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

10.     MISCELLANEOUS.

        (a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.

        (b) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.

        (c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, or the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's Bylaws.

        (d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

        (e) The Company may require any person to whom a Stock Award is granted,
or any person to whom a Stock Award is transferred in accordance with the Plan,
as a condition of exercising or acquiring stock under any Stock Award, (1) to
give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing



                                      10.
   11

requirements, and any assurances given pursuant to such requirements, shall be
inoperative if (i) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act, or (ii) as to any
particular requirement, a determination is made by counsel for the Company that
such requirement need not be met in the circumstances under the then applicable
securities laws. The Company may, upon advice of counsel to the Company, place
legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

        (f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the Common Stock
of the Company. Notwithstanding the foregoing, the Company shall not be
authorized to withhold shares of Common Stock at rates in excess of the maximum
statutory withholding rates for federal and state tax purposes, including
payroll taxes.

11.     ADJUSTMENTS UPON CHANGES IN STOCK.

        (a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan and the maximum number of shares subject to
award to any person during any calendar year, and the outstanding Stock Awards
will be appropriately adjusted in the class(es) and number of shares and price
per share of stock subject to such outstanding Stock Awards. Such adjustments
shall be made by the Board or Committee, the determination of which shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")

        (b) In the event of a Change in Control, (i) any surviving or acquiring
corporation shall assume Stock Awards outstanding under the Plan or shall
substitute similar Stock Awards for those outstanding under the Plan, or (ii) in
the event any surviving or acquiring corporation refuses to assume such Stock
Awards or to substitute similar Stock Awards for those outstanding under the
Plan, (A) with respect to Stock Awards held by persons then performing services
as Employees, Directors or Consultants, the vesting of such Stock Awards and the
time during which such Stock Awards may be exercised shall be accelerated prior
to such event and the Stock Awards terminated if not exercised after such
acceleration and at or prior to such event, and (B) with respect to any other
Stock Awards outstanding under the Plan, such Stock Awards shall be terminated
if not exercised prior to such event.



                                      11.
   12

        In addition, subject to the limitation set forth in subsection 11(c)
below, with respect to any person who was providing services as an Employee,
Director or Consultant immediately prior to the consummation of the Change in
Control, any Stock Awards held by such persons shall immediately become fully
vested and exercisable, and any repurchase right by the Company with respect to
shares acquired by such person under a Stock Award shall lapse, if such person's
Continuous Status as an Employee, Director or Consultant is terminated other
than for Cause within twelve (12) months following consummation of the Change in
Control.

        For purposes of the Plan, "Cause" shall mean willful conduct that is
materially injurious to the business of the person's employer, whether financial
or otherwise.

        For purposes of this Plan, "Change in Control" means: (1) a dissolution,
liquidation, or sale of all or substantially all of the assets of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.

        (c) If any acceleration of the vesting of a Stock Award or lapse of a
repurchase right to which such Stock Award is subject or any other payment or
benefit the holder of such Stock Award would receive pursuant to a Change in
Control from the Company or otherwise ("Payment") would (i) constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), and (ii) but for this sentence, be
subject to the excise tax imposed by Section 4999 of the Code (the "Excise
Tax"), then such Payment shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be either (x) the largest portion of the Payment that would result
in no portion of the Payment being subject to the Excise Tax or (y) the largest
portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes,
income taxes, and the Excise Tax (all computed at the highest applicable
marginal rate), results in the Stock Award holder's receipt, on an after-tax
basis, of the greater amount of the Payment notwithstanding that all or some
portion of the Payment may be subject to the Excise Tax. If a reduction in
payments or benefits constituting "parachute payments" is necessary so that the
Payment equals the Reduced Amount, reduction shall occur in the following order
unless the Stock Award holder elects in writing a different order (provided,
however, that such election shall be subject to Company approval if made on or
after the effective date of the Change in Control): reduction of cash payments;
cancellation of accelerated vesting of stock awards or lapse of repurchase
rights; reduction of employee benefits. In the event that acceleration of
vesting of stock award or lapse of repurchase right compensation is to be
reduced, such acceleration shall be cancelled in the reverse order of the date
of grant of the stock awards unless the Stock Award holder elect in writing a
different order for cancellation.



                                      12.
   13

        The accounting firm engaged by the Company for general audit purposes as
of the day prior to the effective date of the Change in Control shall perform
the foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change in Control, the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

        The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
the Company and the Stock Award holder within fifteen (15) calendar days after
the date on which the Stock Award holder's right to a Payment is triggered (if
requested at that time by the Company or the Stock Award holder) or such other
time as requested by the Company or the Stock Award holder. If the accounting
firm determines that no Excise Tax is payable with respect to a Payment, either
before or after the application of the Reduced Amount, it shall furnish the
Company and the Stock Award holder with an opinion reasonably acceptable to the
Stock Award holder that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and the Stock Award
holder.

12.     AMENDMENT OF THE PLAN AND STOCK AWARDS.

        (a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.

        (b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.

        (c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

        (d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

        (e) The Board at any time, and from time to time, may amend the terms of
any one or more Stock Award; provided, however, that the rights and obligations
under any Stock Award



                                      13.
   14

shall not be impaired by any such amendment unless (i) the Company requests the
consent of the person to whom the Stock Award was granted and (ii) such person
consents in writing.

13.     TERMINATION OR SUSPENSION OF THE PLAN.

        (a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.

        (b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.

14.     EFFECTIVE DATE OF PLAN.

        This Plan shall become effective on the date of adoption by the Board,
but no Stock Awards granted under the Plan shall be exercised unless and until
the Plan has been approved by the stockholders of the Company, which approval
shall be within twelve (12) months before or after the date the Plan is adopted
by the Board.




                                      14.

EX-12.1

   1
                                                                    EXHIBIT 12.1

                     DEFICIENCY OF EARNINGS TO FIXED CHARGES

        Our earnings were insufficient to cover our fixed charges during each of
the periods described below. For the purpose of these calculations, "earnings"
consist of income before taxes, plus fixed charges, and "fixed charges" consist
of interest expense incurred, preferred dividends, and the portion of rental
expense deemed by us to be representative of the interest factor of rental
payments under leases.




                                                                             (IN THOUSANDS)
                                                                         YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------------------------
                                                   1999           1998            1997            1996            1995
                                                ---------       ---------       ---------       ---------       ---------
                                                                                                 
Deficiency of earnings to fixed charges......   $(104,526)      $ (84,164)      $ (59,328)      $ (39,345)      $ (23,521)

EX-18.1

   1

                                                                    EXHIBIT 18.1


Metricom, Inc.
980 University Avenue
Los Gatos, California  95030

March 6, 2000

Gentlemen/Ladies:

Re:  Form 10-K Report for the year ended December 31, 1999

This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.

As of January 1, 1999, the Company changed its capitalization policy for network
equipment. In the first generation Ricochet network, costs incurred for site
acquisition and radio frequency engineering, were expensed as incurred due to
the network's early stage of development. According to the management of the
Company, this change was made because site acquisition and radio frequency
engineering costs are integral steps in the design and construction of the
high-speed network and the high-speed network currently being deployed is past
the early stages of development and therefore, these costs are now being
capitalized.

A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.

We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.

Very truly yours,


/S/ ARTHUR ANDERSEN LLP

EX-21.1

   1



                                                                    EXHIBIT 21.1


                         SUBSIDIARIES OF METRICOM, INC.*


Metricom Finance, Inc.
Metricom Investments DC, Inc.
Metricom DC L.L.C.
Metricom N.Y., L.L.C.


*Pursuant to Item 601(b)(21)(ii) of Regulation S-K, the names of other
subsidiaries of Metricom, Inc. are omitted because they would not constitute a
significant subsidiary as of the end of the year covered by this report.

EX-23.1

   1
                                                                    EXHIBIT 23.1


                                 METRICOM, INC.

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8, File Nos. 33-47688,33-63076, 33-63088,
33-81740, 33-91746, 33-95070, 333-09001, 333-09005, 333-18319, 333-32211,
333-62557, 333-32718 and 333-32728 and on Form S-3, File Nos. 33-78286,
333-15169, 333-91359 and 333-95669.




/s/ ARTHUR ANDERSEN LLP

San Jose, California

March 23, 2000

EX-27.1

 

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