10-K405/A

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K/A

                               AMENDMENT NO. 2 TO
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                            For the Fiscal Year Ended
                                December 31, 1998

                         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. [X]

        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 12, 1999 was $71,686,000.
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 12, 1999
was 18,908,774.

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                                EXPLANATORY NOTE

Item 1 is being amended to delete from Amendment No. 1 to the Form 10-K
("Amendment No. 1") the first paragraph of "Risk Factors - Future Funding
Needed." Item 7 is being amended to delete from Amendment No. 1 the first
paragraph of "Liquidity and Capital Resources" and to insert a paragraph
regarding an event that occurred subsequent to the filing of Amendment No. 1.
Item 8 is being amended to (i) delete the second paragraph of Note 1 to the
Consolidated Financial Statements; (ii) insert into Note 1 to the Consolidated
Financial Statements a paragraph regarding updated information; (iii) add a new
"Note 12 - Subsequent Events" to the Consolidated Financial Statements; and (iv)
include a new executed "Report of Independent Public Accountants" and add
certain other updated information. Item 11 is being amended to (i) make certain
changes to the "Summary of Compensation" table; (ii) make certain changes to the
"Option Grants in Last Fiscal Year" table; (iii) insert certain changes to the
"Change in Control Arrangements" section; (iv) add "Compensation Committee
Interlocks and Insider Participation"; and (v) delete in their entirety the
following sections contained in Amendment No. 1: "Compensation Committee Report
on Executive Compensation"; "Option Repricing Information"; "Compensation
Committee Report on Option Repricing"; and "Performance Measurement Comparison".
Item 12 is being amended to make certain corrections to the "Security Ownership
of Certain Beneficial Owners and Management" table contained in Amendment No. 1.
Item 13 is being amended to make changes to "Certain Relationships and Related
Transactions." Except as otherwise stated therein, all information contained in
Items 11, 12 and 13 is current as of the date of filing of Amendment No.1 on
April 30, 1999. Item 14 is hereby amended by deleting Exhibit 23.1 in its
entirety and replacing it with the corresponding exhibit attached hereto and
filed herewith.

Except as otherwise stated thereon or as set forth above, the information
contained in this Amendment No. 2 is current only as of the date of
filing of the original Form 10-K on March 30, 1999.

                   SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

        This Form 10-K contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those factors identified below under "Item 1 -
Business - Risk Factors."


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 "Metricom" or the "Company" refer to Metricom,
Inc. and its subsidiaries. The Company's principal executive offices are located
at 980 University Avenue, Los Gatos, California 95032-2375, and its telephone
number is (408) 399-8200.

        Metricom is a leading provider of wide area wireless data communications
solutions. The Company designs, develops and markets wireless network products
and services that provide low-cost, high performance, easy-to-use data
communications that can be used in a broad range of personal computer and
industrial applications. The Company's primary service, Ricochet, provides users
of portable and desktop computers and hand-held computing devices with fast,
reliable, portable, wireless access to the Internet, private intranets, local
area networks ("LANs"), e-mail and on-line services for a low, flat monthly
subscription fee that permits unlimited usage.

OVERVIEW

        The Company began commercial Ricochet service in September 1995, and
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 in certain
airports and corporate and university campuses. Ricochet's customers include
individuals, corporations, educational institutions and federal, state and local
governments. As of February 28, 1999, there were approximately 26,500 Ricochet
subscribers, and the Company estimates that its networks covered areas with an
aggregate population of approximately 11 million people.

        The Company's current networks use unlicensed spectrum and provide end
users with speeds comparable to commonly used wired modems and, to the Company's
knowledge, faster than other portable wireless wide area data communications
networks. The Company plans to upgrade its existing Ricochet networks and design
modems in order to provide end user speeds comparable to today's high-speed ISDN
telephone lines. The high-speed system under development, known as Ricochet2,
has demonstrated in Company tests to provide the same service as Ricochet, but
at faster downstream speeds of up to 128kbps. This improvement in speed is in
part the result of the Company's acquisition of licensed spectrum in the 2.3 GHz
frequency band in the Wireless Communications Service ("WCS") auction held by
the Federal Communications Commission ("FCC") in 1997. The licensed spectrum
consists of two 5 MHz licenses covering the western and central United States,
one 5 MHz license covering the northeast United States and 10MHz licenses
covering the Seattle, Portland and St. Louis metropolitan areas. The Company
intends to use this licensed spectrum, together with unlicensed spectrum in the
902 to 928 MHz and 2.4 GHz frequency bands, with its existing technology and
infrastructure to add capacity to its commercial networks and to increase end
user speeds to 128 kbps. The Company's existing modems and networks will be
compatible with, and enjoy a slight increase in performance as a result of, the
Ricochet2 system.

        In January 1998, Vulcan Ventures Incorporated ("Vulcan"), the investment
organization of Paul G. Allen, increased its stake in Metricom to 49.5% of the
outstanding Common Stock. Vulcan has been an investor in Metricom since 1993.
The Company is currently working closely with Vulcan on the strategic plan
through which the Company plans to complete the development of Ricochet2 in
1999, and subsequently deploy it in various metropolitan areas in the United
States.


THE METRICOM SOLUTION

        The Company's current subscribers include (i) individual users of
portable computers in metropolitan areas, (ii) corporate users of portable
computers in metropolitan areas, (iii) individual and small-office/home-office
users of desktop computers in metropolitan areas, (iv) students, faculty and
staff using computers at educational institutions and (v) federal,


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state and local government users of portable computers in metropolitan areas. In
addition, the Company provides wireless wide area data communications solutions
to utility companies.

        The Company's Ricochet service provides subscribers with the following
combination of benefits:

        Portability. Today's computer users demand the ability to use
communications-enabled software application programs even when away from their
desktop computers. The most significant benefit of Ricochet is that a subscriber
within the network coverage area can access the Internet, private intranets,
on-line services and e-mail anytime, anywhere, without a telephone connection,
giving the subscriber untethered mobility. The Company's surveys show that
current subscribers use Ricochet with portable and desktop computers in offices,
conference rooms, throughout their homes, airports, libraries and other
locations where connecting to a telephone line may be inconvenient or
impossible.

        Desktop Replication. The Company targets businesses with mobile workers
who require full access to corporate resources from remote locations to mirror
the look and functionality of their in-office experience. Productivity and
security are key benefits of Ricochet service. Ricochet access to internal
corporate resources through a secure gateway combined with the inherent security
of the Ricochet mobile digital network allow mobile workers to leverage their
familiar desktop setup and LAN functionality to work with critical information
remotely. By extending their LAN to the Ricochet wide area network in this way,
corporations can provide employee access to internal resources including email,
databases, file and fax servers, and Intranet Web sites as well as the public
Internet without jeopardizing the security of the LAN.

        Affordability. The Company offers products and services that it believes
are price-competitive with commercial Internet and on-line service providers and
other wired data communications services and are significantly less expensive
than other wireless data communications services. For a low, flat, monthly
subscription fee, subscribers to Ricochet get unlimited, fast, reliable,
portable, wireless access to the Internet, private intranets, LANs, e-mail and
on-line services. Due to Ricochet's bypass of the local exchange network, the
Company believes that it will not be affected by potential regulatory changes
that could result in Internet users being charged on a per-minute basis. In
addition, because Ricochet is wireless, there is no need for a subscriber to
incur costs associated with installing and maintaining a separate telephone line
for wired data communications. The Company believes it is able to offer an
affordable solution because Ricochet employs an efficient, scalable network
architecture and license-free spectrum, and will employ inexpensive licensed
spectrum, all of which provide significant cost savings to the Company over
other wireless data communications technologies.

        Speed, Security and Reliability. Ricochet operates at speeds comparable
to the most commonly used wired modems, and the Company believes it operates
faster than other commercially available wireless wide area data communications
networks. The Company plans to upgrade its existing network platforms and design
modems in order to provide end user speeds of approximately 128 kbps, which is
comparable to today's high-speed ISDN telephone lines. Ricochet's use of
frequency-hopping, spread spectrum technology, combined with optional
encryption, makes unauthorized interception of its data packets extremely
difficult and provides greater security than is currently available from other
wired and wireless data communications services. Furthermore, Ricochet is
extremely reliable because Ricochet's network radios have a low failure rate. In
addition, if a network radio is busy or not functioning properly, data is routed
along a different path to its destination within the networks.

        Accessibility. Because of the Company's unique network design and
patented routing technology, Ricochet subscribers have not experienced the
well-publicized "busy signals" that have been suffered by users of popular
on-line services and wired Internet service providers. In addition, subscribers
are able to remain on-line with Ricochet for an unlimited amount of time. These
benefits result from the use of packet-switched communications in Ricochet
networks as compared with circuit switched technology. In packet-switched
networks, capacity is based on the amount of data actually passing through the
networks at a given time, rather than the number of users on the networks. In
addition, system congestion can be reduced and network coverage and capacity can
be increased quickly and inexpensively by the installation of additional network
or wired access point ("WAP") radios in areas of high use.

        Single-Source Solution; Ease of Installation and Use. Users of other
data communications services must usually obtain and integrate a telephone
modem, telephone line, Internet service connection and World Wide Web ("Web")
browser software, usually from separate parties. By providing the equivalent of
all of these in one package, the Company provides "one stop shopping" for
Ricochet subscribers. In addition, the subscriber can easily install the system
using the self-configuring Ricochet installation software. Finally, Ricochet
supports operation with standard TCP/IP protocols and the AT command set used by
telephone modems, which permits the use of standard third-party applications
designed to support communications using dial-up telephone lines. The Company
also provides a dial-in service which eliminates the subscribers need for a
separate Internet connection while outside the network coverage area.

SALES, MARKETING AND SUPPORT

        The Company is developing sales channels and processes that make it easy
for prospects to learn, familiarize and purchase services and related products.
Targeting individuals and business customers, the Company employs both direct
and indirect sales channels. The Company's external worldwide website currently
supports direct sales through the Internet and is integrated with back-office
systems. The website is also used today for supporting indirect sales channels
providing information about products, specifications, coverage and pricing to
help coordinate these efforts.

        The company has approximately twelve direct sales representatives,
approximately three telemarketers, and a limited number of independent dealers.
The direct channel focuses on corporations such as Cisco Systems, Inc. and
Microsoft Corporation, where users of portable computers and personal digital
assistants (PDA) can use secure remote access technology to reach critical
information on corporate LANs. Ricochet is sold to Federal government agencies
primarily through resellers. The Company structures the compensation
arrangements for its direct sales representatives, contract telemarketers,
retail outlets and independent dealers so that at least one half of aggregate
compensation paid is based on subscribers obtained. Any subscriber obtained must
remain a subscriber for at least six months in order for compensation to be
paid. The Company expects to increase such sales channels as deployment of
networks continues.


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        The Company is also building indirect sales channels in order to
maximize the commercialization of Ricochet. These include resellers, OEMs and
systems integrators, all of whom are compensated on a commission-only basis. The
Company expects to enter into more reseller arrangements as deployment of its
networks continues. The Company also is pursuing relationships with OEMs and
systems integrators in order to address specialized markets such as mobile
dispatch and industrial telemetry in each metropolitan area in which Ricochet is
deployed.

        The Company seeks to market Ricochet aggressively by pricing the service
attractively as compared to other wired and wireless data communications
services. The Company believes that its prices are comparable to commonly used
wired data communications services; however, such wired services do not offer
the benefit of portability offered by Ricochet. Currently, to access the
Ricochet networks and receive unlimited Internet access, subscribers typically
pay a $45.00 activation fee and a fixed monthly fee of $29.95 for the basic
service package. Additional subscriber charges are incurred for value-added
services such as premium e-mail, fax and access to the public switched telephone
network. Subscribers are also required to rent or purchase a Ricochet modem from
the Company.

        The Company provides timely, high quality customer service and technical
support to meet the needs of its customers. The Company's current customer
service and technical support staff consists of eighteen full-time employees.
The Company offers such services through a toll-free telephone number and
Web-based support tools. The Company believes that a high level of customer
service and technical support is essential to its business and expects to incur
significant expenditures in the future to increase its service and support
capabilities as deployment of networks continues.

THE RICOCHET NETWORK

        The Company's Ricochet networks use a wireless data communications
infrastructure to provide wide area coverage in metropolitan areas. Individual
subscribers access the network with wireless portable radio modems that connect
to the serial port of a desktop or portable computer or hand-held computing
device. Ricochet also supports wireless communications from other devices, such
as point-of-sale terminals that can incorporate or connect to a portable radio
modem. Ricochet provides user data rates of 10 to 30 kbps, depending on factors
such as geography and network usage. The Company believes these user data rates
are significantly faster than its wireless competitors and are comparable to
commonly used wired modems. The most commonly used wired modems operate at 33.6
and 56.6 kbps; however, the Company estimates that the quality of a telephone
line may decrease such rate under certain circumstances.

        The primary elements of a Ricochet network are compact, inexpensive
network radios that are deployed on street lights, utility poles and building
roofs in a geographical mesh pattern. The Company's mesh network architecture
and patented routing technology moves data packets across the network along any
of a number of alternative paths, thus allowing data packets to be routed around
busy or non-functioning radios. In addition, system congestion can be reduced
and network coverage and capacity increased by the installation of one or more
relatively inexpensive network radios or WAP radios where needed. Network radios
are quickly and easily installed since no wired communications line is required
and power is normally obtained directly from the street light. A WAP, which
typically incorporates 8 to 12 WAP radios to provide the required capacity,
provides service to clusters of up to 140 network radios. The Company believes
that a WAP will typically support approximately 1,200 subscribers. The WAP and
its associated WAP radios typically provide coverage for up to a 15 to 25 square
mile area. In the upgraded network, the Company expects a Super Cell, consisting
of three ISM WAPs and one WCS WAP to provide capacity for up to 3,000
subscribers and beyond with upgrades. All of the WAPs in the Ricochet network
are interconnected with a high-speed frame relay wired backbone. This wired
backbone provides access points to the public switched telephone network,
gateways to other networks such as the Internet, private intranets and LANs,
which provide e-mail and value-added services.


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        Ricochet networks employ packet-switched technology. The Company
believes that data communications networks that utilize packet-switched
technology offer a number of inherent advantages over circuit-switched networks
such as commonly available wired data communications 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 packets travel along any number of
alternative paths and are reassembled into the proper order when they arrive at
their destination, thus allowing multiple users to efficiently share network
capacity. In addition, because a dedicated physical connection is not
established between modems at each end of the circuit, network capacity is used
only when data packets are actually being transmitted. In a circuit-switched
network, a dedicated physical connection is established between modems at each
end of the circuit, thus limiting network capacity to the number of circuits
available and modems installed. In addition, in a circuit-switched network, once
a connection is established, neither modem 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
physical connections available.

        A data packet transmitted by a subscriber's Ricochet wireless modem
travels through one or more network radios wirelessly to a WAP where it is
routed to its destination over the wired backbone. The network is designed so
that a data packet typically requires no more than one or two hops through
network radios before reaching a WAP. Destinations may include another Ricochet
modem anywhere in the Ricochet network, a public packet-switched network like
the Internet, a private intranet, a LAN or an on-line service. In addition,
Ricochet modems can support communications with one another without accessing
network radios, provided that they are close enough to establish a direct radio
connection. Network performance is monitored and controlled by the Company's
network operations center located in Houston, Texas. As the size of the Ricochet
networks grows, certain network management activities that are currently
performed centrally will be distributed throughout the network to provide
redundancy and limit administrative communications over the network. Ricochet
supports operation with standard protocols and interfaces. This permits the use
of software applications intended to communicate over dial-up telephone lines
for access to the Internet, private intranet, LANs, on-line services and e-mail.

NETWORK DEPLOYMENT

        The Ricochet network deployment process consists of obtaining site
agreements, including lease, supply and right-of-way agreements, designing the
network configuration, acquiring and installing the network infrastructure and
testing the network. Once the necessary site agreements have been obtained,
installing the network infrastructure and testing the network can typically be
completed in two to three months. The service territory in a metropolitan area
will typically be expanded beyond the initial service territory as additional
site agreements are obtained and as the market for the Company's service
expands.

        The Company installs most of its Ricochet network radios on street
lights on which it leases space from electric utilities, municipalities or other
local government entities. In addition, the Company is often required to enter
into agreements with owners of the right-of-way in which street lights are
located and supply agreements with providers of electricity to power the
Company's network radios. The Company also leases space on building rooftops for
WAP sites. In the event the Company is unable to negotiate site agreements in a
timely manner and on commercially reasonable terms or at all, it will seek to
obtain sites to deploy network radios on commercial buildings, residential
dwellings or similar structures. While deploying a large area in this manner
could be significantly more expensive than installing radios on street lights,
it has been used on a limited basis to reduce the delays historically
experienced in the deployment process.

COMPETITION

        Competition in the market for data communications services is
intensifying and a large number of companies in diverse industries are expected
to enter the market. There can be no assurance that the Company will be able to
compete successfully in this market. A number of privately and publicly held
communications companies have developed or are developing new wireless and wired
data communications services and products using competing technologies. The
competition can be placed into two categories: portable and fixed access. While
Ricochet can be used as a fixed-point service, it is positioned primarily as a
portable service with its largest competitive advantages being portability and
low flat rate pricing.

        Portable Services. Current offerings of portable data communications
services include CDPD, cellular analog, cellular digital, ARDIS, RAM and two-way
paging. The primary attributes distinguishing these competitors are speed, price
and availability. These competitive offerings are generally widely available
throughout the United States, and pricing is


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typically based on usage. The Company estimates that actual user throughput
speed for these competitors range from 2 to 12 kbps and consequently, users
generally regard the throughput of these networks as not fast enough for
standard Internet browsing. In the near future, providers of digital voice PCS
service may also become competitors, as many are planning to offer data
services using CDMA and TDMA technology. Such data services are expected to be
priced on a per minute basis similar to voice services and offer data throughput
speeds of up to 14.4 kbps. It is anticipated that PCS providers could offer
higher speed solutions by combining channels and refining their protocols.

        Fixed-Point Access. A variety of fixed-point high-speed (up to 1 M) data
technologies for both wired and wireless products are in various stages of
development. Fixed-point data services and technologies include xDSL, wireless
LANs, cable modems, satellite service, Integrated Services Digital Network
("ISDN") and point-to-point terrestrial solutions such as those offered by
Wavepath. These services are aimed at providing data connectivity to the home or
office at high speeds that will support future video & multimedia applications
over the Internet, and typically require either high quality phone line
connections or special modems and hardware.

        Internet Access Services. The Company's Internet access services compete
with those currently offered by a large number of companies, primarily when the
Company's services are used by consumers at home, where a phone line is an
available alternative. The Company believes that existing competitors include
numerous national and regional independent Internet service providers,
established on-line service providers such as America Online ("AOL") and the
Microsoft Network, as well as long distance and regional telephone companies.
These services are typically offered over the phone network at speeds ranging
between 28.8 and 56.6 kbps. Certain competitors could choose to offer Internet
or on-line services at a price substantially below that of Ricochet. Such
actions would place the Company at a substantial competitive disadvantage. The
competitive environment could limit the Company's ability to grow its subscriber
base and retain existing subscribers and could result in increased spending on
selling, marketing and product development activities. These factors could have
a material adverse effect on the Company's financial condition and operating
results. The Company is currently considering to offer, as part of its service
offerings to its customers, the ability to access other Internet service
providers. Such offering could mitigate the adverse effect described above.

        Most of the current and anticipated competitors in the market for data
communications services have substantially greater management, technical,
marketing and financial resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing new technologies,
products and services that achieve broader market acceptance or that could
render Ricochet obsolete or noncompetitive. The Company's competitors are
becoming increasingly aware of the commercial value of technical findings and
are becoming more active in seeking patent protection and licensing arrangements
for the use of technology that others have developed. The development by others
of new products and processes competitive with or superior to those of the
Company could render the Company's products obsolete or unattractive. The
Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patents or otherwise develop proprietary
products or processes, and secure sufficient capital resources.

        A broad market for wide-area wireless data services has not yet
developed. In order for the market to develop, the Company believes that
wireless data communications services will need to provide data rates and
functionality comparable to those of the predominant mode of wired
communications, at an affordable cost, without compromising ease of use.

TECHNOLOGY

        The Company's networks utilize a hardware and software platform based on
spread spectrum, digital, packet-switched radio technology. In packet-switched
networks such as the Company's and the Internet, data is communicated in
discrete units called packets rather than in a continuous stream. Network radios
are the primary component of the hardware platform and are geographically
dispersed in a mesh topology. The Company's mesh network architecture and
patented routing technology moves data packets across the network along any of a
number of alternative paths, thus allowing data packets to be routed around busy
or non-functioning radios. If interference is encountered on any given channel,
the radio automatically hops to another channel. A high level of security is
offered by the frequency-hopping pattern of the Company's spread spectrum
technology, which makes interception of data packets by unauthorized users
difficult. The Company incorporated optional encryption capability into the
Ricochet service in 1996 to provide an additional level of security.

        The Company believes that the mesh topology used in its network provides
certain advantages over the more typical 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
because of weak signal strength must generally be addressed by installation of
another hub, typically a costly and time consuming process. With the Company's
networks, system congestion can be reduced and network coverage and capacity
increased by the installation of one or more relatively inexpensive network or
WAP radios where needed.


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        The Company's patented, software-based, radio-to-radio routing method is
based on the geographic address of each radio, eliminating the need for static
routing tables. Through a built-in protocol, network radios communicate with
neighboring network radios to learn their identity, geographic location, how
well they can communicate with each other and the frequencies where they can be
found at any particular point in time. When this process is complete, a network
radio sends data packets by adjusting its transmit frequency to the receive
frequency of the intended receiving radio. In the course of network operation,
if a network radio is unavailable or out of service, a data packet being
transmitted across the network is immediately rerouted along another path by the
transmitting radio.

RESEARCH AND DEVELOPMENT

        The Company intends to maintain technology leadership by continuing to
invest heavily in research and development of its networking products to
increase speed and performance. The Company incurred significant expenditures in
1998 toward the development of Ricochet2. Ricochet2 is a planned upgrade to
Ricochet that will use licensed spectrum in the 2.3 GHz frequency together with
unlicensed spectrum in the 902 to 928 MHz and 2.4 GHz frequency bands to
increase end user speeds to 128 kbps. The Company's existing modems and networks
will be compatible with, and enjoy a slight increase in performance as a result
of, the Ricochet2 system. The markets in which the Company participates and
intends to participate are characterized by rapid technological change. The
Company believes that it will for the foreseeable future be required to make
significant investments of resources in research and development in order to
continue to enhance its services and products. Research and development expense
was $13.9 million, $13.2 million and $27.3 million in 1996, 1997 and 1998,
respectively. The Company expects research and development expenses to increase
in absolute dollars in future periods.


MANUFACTURING

        The Company's printed circuit boards and other subassemblies are
assembled on a contract basis by outside manufacturers. The Company's only
manufacturing facilities are for final assembly and testing operations, which
are performed internally. The Company believes that it has or can develop
adequate capacity to meet forecasted demand for its products and networks for at
least the next 12 months. However, if customers begin to place large orders for
the Company's products or if the Company decides to accelerate deployment of
Ricochet2, the Company's present manufacturing capacity may prove inadequate. To
be successful, the Company's products and components must be manufactured in
commercial quantities at competitive cost and quality. The Company's long-term
manufacturing strategy is to supplement its manufacturing capabilities by
increasing its outsourcing of product assembly and testing and by licensing
other companies to manufacture certain of the Company's products. In the future,
the Company will be required to achieve significant product and component cost
reductions.

        The Company generally uses standard component parts that are available
from multiple sources. However, certain component parts used in the Company's
products are available only from sole or limited source vendors. The Company's
reliance on these sole or limited source vendors involves certain risks,
including the possibility of a shortage of certain key component parts and
reduced control over delivery schedules, manufacturing capability, quality and
costs. In addition, some key component parts require long delivery times. The
Company has in the past experienced delays due to availability of certain key
component parts from suppliers.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

        The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect its technology, inventions and improvements to its inventions that it
considers important to its business. The Company relies on a combination of
patent, copyright, trademark and trade secret protection and non-disclosure
agreements to establish and protect its proprietary rights. The Company has been
issued 25 patents in the United States, which expire on dates between 2006 and
2016. Foreign patents corresponding to one domestic patent have been granted in
four foreign countries, foreign patents corresponding to one other U.S. patent
have been approved for grant in three foreign countries, and other foreign and
domestic patents are pending. There can be no assurance that patents will issue
from any pending applications or, if patents do issue, that claims allowed will
be sufficiently broad to protect the Company's technology. The Company also owns
over 30 United States trademark registrations and approximately 20 foreign
counterparts. There can be no assurance that any of the Company's current or
future patents or trademarks will not be


                                       7.
   8

challenged, invalidated, circumvented or rendered unenforceable, or that the
rights granted thereunder will provide significant proprietary protection or
commercial advantage to the Company. The Company is not aware of any
infringement of its patents, trademarks or other proprietary rights by others.

        Although the Company has pursued and intends to continue pursuing patent
protection of inventions that it considers important, the Company believes that
other competitive factors are more important than its patent position. However,
these patents may not preclude competitors from developing equivalent or
superior products and technology to those of the Company. There can be no
assurance that the measures adopted by the Company for the protection of its
intellectual property will be adequate to protect its interests.

        The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to or disclose such information of the Company. It is the
Company's policy to require its employees, certain contractors, consultants,
directors and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of such relationships with the Company. There
can be no assurance that these agreements will not be breached, that they will
provide meaningful protection of the Company's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information or
that the Company's trade secrets will not otherwise become known or be
independently discovered by the Company's competitors.

        The commercial success of the Company will also depend in part on the
Company not infringing the proprietary rights of others and not breaching
technology licenses that cover technology used in the Company's products. It is
uncertain whether any third party patents will require the Company to develop
alternative technology or to alter its products or processes, obtain licenses or
cease certain activities. If any such licenses are required, there can be no
assurance that the Company will be able to obtain such licenses on commercially
favorable terms, if at all. If the Company cannot obtain a license to any
technology that it may require to commercialize its products and services, such
failure could have a material adverse effect on the Company. The Company may
have to resort to potentially costly litigation to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights.


GOVERNMENT REGULATION OF COMMUNICATIONS ACTIVITIES

        Federal Regulation. The Company is subject to various FCC regulations.
The FCC, pursuant to the Communications Act, regulates non-government use of the
electromagnetic spectrum in the United States, including the 902 - 928 MHz
frequency band (the "900 MHz Band") currently used by the Company's Ricochet
products, and the 2400 - 2483.5 MHz band (the "2.4 GHz Band") the 2305 - 2315,
2350 - 2360, 2315 - 2320, and 2345 - 2350 MHz bands (the "2.3 GHz Band")
intended to be used, along with the 900 MHz Band, by the Company's Ricochet2
products, which are currently under development. Part 15 of the FCC's
regulations provides that the 900 MHz and 2.4 GHz Bands may be authorized for
the operation of certified radio equipment without the requirement for a
license. The Company designs its license-free products to conform with, and be
certified under, the FCC's Part 15 spread spectrum rules. Operations in the 2.3
GHz Band will be in accordance with Part 27 of the FCC's rules governing the
Wireless Communications Service ("WCS"), a licensed service.

        License-free operation of the Company's products and other Part 15
products in the 900 MHz and 2.4 GHz Bands is subordinate to certain licensed and
unlicensed uses of these bands, including industrial, scientific and medical
equipment, the United States government, amateur radio services and, in certain
instances, location and monitoring systems. The Company's products must not
cause harmful interference to, and must accept interference from, authorized
non-Part 15 equipment operating in the band as well as other Part 15 equipment
operating in the band. If the Company were unable to eliminate any such harmful
interference caused by its products through technical or other means, or were
unwilling to accept interference caused by others to its services, the Company
or its customers could be required to cease operations in the band in the
locations affected by the harmful interference. Additionally, in the event the
license-free 900 MHz or 2.4 GHz Bands become unacceptably crowded, and no
additional frequencies are allocated by the FCC, the Company's business,
financial condition and results of operations could be materially and adversely
affected.

        Operation in the 2.3 GHz WCS Band is pursuant to licenses that the
Company purchased at an FCC spectrum auction. These licenses, issued on July
21,1997, 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


                                       8.
   9

Major Economic Areas (each as defined by the FCC). When the FCC adopted
regulations for WCS, it required that WCS licensees provide certain protections
for the adjacent channel Wireless Cable and Instructional Television Fixed
services for a period of five years. There is currently pending at the FCC a
contested Petition For Reconsideration requesting that this protection period be
extended to ten years. While the Company believes that it can provide the
requisite protection to adjacent channel users, there can be no assurance that
such protection can be provided in a technically or economically feasible
manner.

        The WCS operations will require the use of equipment which receives
certification from the FCC. While the Company believes it can develop certified
2.3 GHz equipment which performs satisfactorily with its license-free certified
equipment operating in the license-free bands, there can be no assurance that
such equipment can be developed, or that it can be developed in a timely and
economical manner. The licenses for WCS require that "substantial service" be
provided to the public in the authorized service areas within ten years of the
license grant. In addition, while the WCS licenses expire in ten years, the FCC
will grant a "renewal expectancy" to licensees whose operations have been in
accordance with the FCC's regulations. Although there can be no assurance of
compliance with all of the WCS requirements, the Company believes that it can
comply with all of the conditions in an economically efficient manner. Failure
to meet any one or all of these conditions could materially and adversely affect
the Company's business, financial condition and results of operations.

        The regulatory environment in which the Company operates is subject to
change. Changes in the regulation of the Company's activities by the FCC, as a
result of its own regulatory process or as directed by legislation or the
courts, including changes in the allocation of available spectrum, could have a
material adverse effect on the Company's business, financial condition and
results of operations, and the Company might deem it necessary or advisable to
move to another of the Part 15 bands or to obtain the right to operate in
additional licensed spectrum or other portions of the unlicensed spectrum.
Redesigning products to operate in another band could be expensive and time
consuming, and there can be no assurance that such redesign would result in
commercially viable products. In addition, there can be no assurance that, if
needed, the Company could obtain appropriate licensed or unlicensed spectrum on
commercially acceptable terms, if at all. On an ongoing basis, the FCC proposes
and issues new rules and amendments to existing rules that affect the Company's
business. The Company closely monitors the FCC's activities and, when
appropriate, actively participates in policy and rule making proceedings. The
Company is currently monitoring several proceedings at the FCC that could have
an impact on the Company. If the FCC adopts rules that directly or indirectly
restrict the Company's ability to conduct its business as currently conducted or
proposed to be conducted, the Company's business, financial condition or
operating results could be materially and adversely affected.

        The FCC has adopted, and affirmed through reconsideration, rules for the
Location and Monitoring Service ("LMS"), a licensed service replacing the
Automatic Vehicle Monitoring service operating in the 900 MHz Band. There is
currently very limited LMS operation; however, the FCC has recently concluded an
auction where only four entities purchased licenses for the entire country. This
could lead to the proliferation of LMS systems. In adopting the LMS rules, the
FCC affirmed the right of Part 15 users such as the Company to operate in this
frequency band, provided certain "safe harbors," and authorized operation so
long as it does not cause "harmful interference," as specifically defined by the
FCC. In addition, the FCC provided that all LMS licenses would be conditioned
upon testing with the Part 15 community to assure that there is no harmful
interference, if any. Although future LMS operations could lead to increased
congestion in the 900 MHz Band, the Company believes that there are sufficient
means to mitigate harmful interference to Part 15 operations. There can be no
assurance, however, that the operation of one or more of the Company's network
installations at particular locations would not be adversely affected by
existing or proposed LMS operations or that extensive LMS operations would not
have a material adverse effect on the Company's business, financial condition
and results of operations.

        In March 1997, the FCC initiated a rulemaking proceeding in response to
a request filed by the American Radio Relay League, Inc. on behalf of amateur
radio operators. The FCC proposed to amend its rules for the Amateur Radio
Services to allow amateur stations greater flexibility in the use of
high-powered spread spectrum technologies in, among others, the 900 MHz Band. To
protect other users, including Part 15 users such as the Company, the FCC
proposes to require spread spectrum equipment used by amateur radio licensees to
use the minimum power necessary and to incorporate automatic power control
circuitry in their equipment to reduce the potential for interference. If the
FCC ultimately adopts rules as proposed, amateur spread spectrum operations may
interfere with the Company's operations in certain discrete geographic areas.
Although the Company believes it would be able to overcome such interference, if
any, by installing additional network radios and other measures, there can be no
assurance to that effect.


                                       9.
   10

        In April 1998, the FCC adopted a Notice of Proposed Rule Making
concerning the operation of radio frequency ("RF") lighting devices in, among
others, the 2.4 GHz frequency band. RF lighting devices are governed by Part 18
of the FCC's rules and are among the "senior" users in the unlicensed frequency
bands. While the FCC did not propose any rule changes that would modify
operations in the 2.4 GHz band for any users, the rule making recognized and
encouraged the further use of RF lighting devices. The Company, in Comments
filed, urged the FCC to limit the amount of RF power generated by RF lighting
devices in the 2.4 GHz band. If the FCC chooses not to limit the amount of power
generated by RF lighting devices in the 2.4 GHz band, RF lighting devices could
interfere with the Company's operations in certain discrete geographic areas.
Although the Company believes it would be able to overcome such interference, if
any, there can be no assurance that the proliferation of RF lighting devices in
the 2.4 GHz band would not have a material adverse affect on the Company's
business, financial condition and results of operations.

        The FCC has pending a Notice of Proposed Rulemaking concerning
implementation of the Communications Assistance For Law Enforcement Act
("CALEA"). CALEA requires entities offering certain communications services to
provide a means by which law enforcement agencies can conduct electronic
surveillance in the face of changing communications technologies. Because of
exemptions provided in the Act itself, the Company believes that the CALEA
provisions are not applicable to its operations. If the FCC or the courts
nevertheless require the Company to implement CALEA compliance capability, such
action could have a material adverse impact on the Company's business, financial
condition and results of operations.

        In June 1993, the FCC issued a Notice of Inquiry soliciting comments on
a private entity's proposal to authorize non-government, wind profiler radar
systems in the 900 MHz Band. Before the FCC can adopt any rules for wind
profiler radar systems in this band, it would have to issue a Notice of Proposed
Rule Making, and the Company would have an opportunity to participate in the
proceeding. Nevertheless, if the FCC ultimately adopts such rules, there can be
no assurance that such regulation would not have a material adverse effect on
the Company's business, financial condition and results of operations.

        The FCC has authority to enforce certain provisions of the National
Environmental Policy Act as they may apply to the Company's facilities. The FCC
recently adopted rules containing guidelines and methods for evaluating the
environmental effects of radio frequency emissions from FCC-regulated
transmitters. The rules categorically exclude low power, Part 15 devices of the
type used by the Company from routine environmental evaluation because they
offer little or no potential for exposure in excess of specified health and
safety guidelines. The environmental evaluation rules do apply to the 2.3 GHz
equipment being developed by the Company for WCS operations. The FCC also
incorporated into its rules provisions of the Telecommunications Act of 1996
that preempt state and local governmental regulation over the placement of radio
frequency devices based on radio frequency environmental effects. Despite these
actions, some public concerns about radio frequency emissions remain. Regulatory
action in response to these concerns could have a material adverse effect on the
Company's business, financial condition and results of operations.

        State and Local Regulation. The Company often requires the siting of its
network radios and WAPs on public rights-of-way and other public property. Due
to state and local right-of-way, zoning and franchising issues, the Company is
not always able to place its radios in the most desirable locations, on an
optimal schedule or in the most cost-effective manner. There can be no assurance
that state and local processes associated with radio location will not have a
material adverse effect on the Company's business, financial condition or
results of operations.

        As a result of amendments to the Communications Act of 1934, certain
states may attempt to regulate the Company with respect to the terms and
conditions of service offerings. While the Company believes that state
regulation, if any, will be minimal, there can be no assurance that such
regulation will not have a material adverse effect on the Company's business,
financial condition or results of operations.

        Internet Regulation. Due to the increase in Internet use and publicity,
it is possible that new laws and regulations may be adopted, and that changes in
laws or regulations may be made, with respect to the Internet, including laws
regarding privacy, pricing and characteristics of services or products. Certain
other legislative initiatives, including those involving taxation of Internet
services and transactions, and payment of access charges by Internet providers
have also been proposed. Any legislation or regulation regarding the Internet
could adversely impact the Company's ability to provide its planned services and
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company cannot predict the impact, if any, that
future laws or any legal changes may have on its business.


                                      10.
   11

BACKLOG

        The Company had backlog of $600,000 and $450,000 as of December 31, 1997
and 1998, respectively. Backlog as of any particular date is cancelable at any
time without penalty and should not be relied on as an indicator of future
revenues.

EMPLOYEES

        As of December 31, 1998, the Company employed approximately 310 people,
all of whom were based in the United States. Of the total employees, 40 were in
manufacturing, 63 were in network operations and deployment, 101 were in
research and development, 42 were in sales, marketing and customer support and
64 were in administration. The Company is highly dependent on certain members of
its management and engineering staff, the loss of the services of one or more of
whom might impede the achievement of the Company's development, deployment and
commercialization of the Company's products and services. With the exception of
the Chief Executive Officer, none of these individuals has an employment
contract with the Company. None of the Company's employees is represented by a
labor union. The Company has not experienced any work stoppage and considers its
relations with its employees to be good.


RISK FACTORS

FUTURE FUNDING NEEDED

        The Company intends to continue development of its next-generation,
high-speed network and modem and deployment and commercialization of Ricochet.
In order to do so, the Company will need to raise additional funds through the
sale of equity or debt securities in private or public financings or through
strategic partnerships. There can be no assurance that additional financing will
be available on terms favorable to the Company, if at all. In addition, Vulcan's
control position may deter or discourage investors who may otherwise have
provided financing to the Company. If the Company cannot obtain additional
financing, it may be required to scale back its development and
commercialization activities, which could seriously harm the Company's business,
financial condition and results of operations.


EARLY-STAGE TECHNOLOGY; FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW FROM
OPERATIONS

        The Company's Ricochet technology is at an early stage of development
and has been in commercial operation for only a short period of time;
consequently, the Company has limited historical financial information for you
to evaluate. The Company will incur significant expenses in advance of
generating revenues and is expected to realize significant operating losses in
the future as a result of the continuing development, deployment and
commercialization of its Ricochet networks. The Company's future operating
results are subject to a number of risks, including the Company's ability to
implement its strategic plan, to attract and retain qualified individuals and to
raise appropriate financing as necessary. As such, the timing and extent of
revenue receipts and expense disbursements and the Company's ability to
successfully complete all of the tasks associated with developing and
maintaining a successful enterprise are all uncertain. In addition, there can be
no assurance that the Company will be able to successfully manage operations.
Management's failure to guide and control growth effectively (including
implementing adequate systems, procedures and controls in a timely manner) could
have a material adverse effect on the Company's financial condition and results
of operations.

        Expenditures associated with the development, deployment and
commercialization of the Company's wireless network products and services had
led to cumulative net losses through December 31, 1998 of approximately $233.5
million. The Company expects to incur significant operating losses and to
generate negative cash flow from operating activities during the next several
years while it continues to develop and deploy its Ricochet networks and build
its customer base. There can be no assurance that the Company will achieve or
sustain profitability or positive cash flow from operating activities in a
timely manner.

UNCERTAINTY REGARDING DEPLOYMENT OF NETWORKS AND ACQUISITION OF DEPLOYMENT
AGREEMENTS.

         The Company's future success depends on the successful deployment of
Ricochet in major metropolitan areas of the United States. Before offering
Ricochet service, the Company must complete deploying the network in a portion
of a metropolitan area that is large enough to justify commencement of marketing
and sales efforts. Deploying the network includes obtaining site agreements,
designing the network configuration, installing the network infrastructure and
testing the network. After initial deployment and commencement of service in a
portion of a metropolitan area, the Company can extend the geographic coverage
of the Ricochet network to additional portions of the metropolitan area.
Problems or delays in carrying out the deployment plan could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company has limited prior experience in deploying and operating
a wireless data communications service. Accordingly, the timing or extent of the
deployment of Ricochet is uncertain.

        The construction of the Company's networks will depend to a significant
degree on the Company's ability to lease or acquire sites for the location of
its network equipment and to maintain agreements for such sites as needed. The
Company installs most of its Ricochet network radios on streetlights on which it
leases space from electric utilities, municipalities or


                                      11.
   12

other local government entities. In addition, the Company often must contract
with providers of electricity to the street lights to provide power for the
Company's network radios and with owners of the right-of-way in which street
lights are located. Completing these complex contracts has caused significant
delays in deploying Ricochet networks. The Company must deal separately with
each city in which it plans to deploy its network. In some instances, cities
have never faced requests similar to the Company's, are reluctant to grant such
rights or do not have a process in place to do so. The Company must then meet
with various municipal organizations to discuss issues such as pricing, health
and safety concerns, traffic disruption, aesthetics and citizen concerns. If the
Company is unable to negotiate, renew or extend site agreements in a timely
manner and on commercially reasonable terms, or at all, it would need to obtain
sites to deploy network radios on commercial buildings, residential dwellings or
similar structures. Deploying a large area in this manner could be significantly
more expensive than installing network radios on street lights and may be
restricted or prohibited by a municipality. The Company also leases space on
building rooftops for its Wireless Access Point ("WAP") sites. In connection
with the leasing of WAP sites, the Company faces competition with other
providers of wireless communication services. The Company expects that the site
acquisition process will continue throughout the construction of the Company's
networks. Each stage of the process involves various risks and contingencies,
many of which are not within the control of the Company and any of which could
adversely affect the construction of the Company's networks should there be
delays or other problems.

MARKET ACCEPTANCE UNCERTAIN

        The market might not accept Ricochet. A broad market for wide area
wireless data communications services has not yet developed. As a result, the
Company cannot reliably estimate the extent of the potential demand for Ricochet
service. In addition, the Company has limited experience marketing its Ricochet
service. As of February 28, 1999, the Company had approximately 26,500
subscribers. The Company believes that market acceptance depends principally on:

o       cost competitiveness,
o       data rate,
o       ease of use, including compatibility with existing applications,
o       cost and size of Ricochet modems,
o       extent of coverage,
o       customer support,
o       marketing,
o       distribution and
o       pricing strategies of the Company and competitors,
o       Company reputation and
o       general economic conditions.

        Some of the foregoing factors are beyond the control of the Company. If
the Company's customer base for Ricochet does not expand as required to support
the deployment of additional networks, the Company's business, financial
condition and operating results will be materially adversely affected. In
addition, the market for wireless communications services is characterized by a
high customer turnover rate. The Company might not be able to retain existing or
future customers.

CAPITAL NEEDS; ADDITIONAL FINANCING UNCERTAIN

        The Company intends to continue to develop, deploy and commercialize its
Ricochet networks. The timing and amount of capital expenditures may vary
significantly depending on numerous factors including:

o       market acceptance of Ricochet,
o       availability and financial terms of site agreements for the Company's
        network infrastructure,
o       technological feasibility,
o       availability of Ricochet radios and modems and
o       availability of sufficient management, technical, marketing and
        financial resources.

        The Company will need to raise additional funds through the sale of its
equity or debt securities in private or public financings or through strategic
partnerships in order to complete the deployment and commercialization of
Ricochet. Funds raised may prove insufficient to fund planned deployment.
Additional financing might not be available or, might only be available on terms
unfavorable to the Company. If the Company cannot obtain additional financing,
it may be required to


                                      12.
   13

scale back the planned deployment of its Ricochet networks and reduce capital
expenditures, which would have a material adverse effect on the Company's
business, financial condition and operating results.

INDUSTRY IS HIGHLY COMPETITIVE

        Competition in the market for data communications services is
intensifying and a large number of companies in diverse industries are expected
to enter the market. There can be no assurance that the Company will be able to
compete successfully in this market. A number of privately and publicly held
communications companies have developed or are developing new wireless and wired
data communications services and products using competing technologies. The
competition can be placed into two categories: portable and fixed access. While
Ricochet can be used as a fixed-point service, it is positioned primarily as a
portable service with its largest competitive advantages being portability and
low flat rate pricing.

        Portable Services. Current offerings of portable data communications
services include CDPD, cellular analog, cellular digital, ARDIS, RAM and two-way
paging. The primary attributes distinguishing these competitors are speed, price
and availability. These competitive offerings are generally widely available
throughout the United States, and pricing is typically based on usage. The
Company estimates that actual user throughput speed for these competitors range
from 2 to 12 kbps and consequently, users generally regard the throughput of
these networks as not fast enough for standard Internet browsing. In the near
future, providers of digital voice PCS service may also become competitors, as
many are planning to offer data services using CDMA and TDMA technology. Such
data services are expected to be priced on a per minute basis similar to voice
services and offer data throughput speeds of up to 14.4 kbps. It is anticipated
that PCS providers could offer higher speed solutions by combining channels and
refining their protocols.

        Fixed-Point Access. A variety of fixed-point high-speed (up to 1 M) data
technologies for both wired and wireless products are in various stages of
development. Fixed-point data services and technologies include xDSL, wireless
LANs, cable modems, satellite service, Integrated Services Digital Network
("ISDN") and point-to-point terrestrial solutions such as those offered by
Wavepath. These services are aimed at providing data connectivity to the home or
office at high speeds that will support future video & multimedia applications
over the Internet, and typically require either high quality phone line
connections or special modems and hardware.

        Internet Access Services. The Company's Internet access services compete
with those currently offered by a large number of companies, primarily when the
Company's services are used by consumers at home, where a phone line is an
available alternative. The Company believes that existing competitors include
numerous national and regional independent Internet service providers,
established on-line service providers such as America Online ("AOL") and the
Microsoft Network, as well as long distance and regional telephone companies.
These services are typically offered over the phone network at speeds ranging
between 28.8 and 56.6 kbps. Certain competitors could choose to offer Internet
or on-line services at a price substantially below that of Ricochet. Such
actions would place the Company at a substantial competitive disadvantage. The
competitive environment could limit the Company's ability to grow its subscriber
base and retain existing subscribers and could result in increased spending on
selling, marketing and product development activities. These factors could have
a material adverse effect on the Company's financial condition and operating
results. The Company is currently considering to offer, as part of its service
offerings to its customers, the ability to access other Internet service
providers. Such offering could mitigate the adverse effect described above.

        Most of the current and anticipated competitors in the market for data
communications services have substantially greater management, technical,
marketing and financial resources than the Company. There can be no assurance
that the Company's competitors will not succeed in developing new technologies,
products and services that achieve broader market acceptance or that could
render Ricochet obsolete or noncompetitive. The Company's competitors are
becoming increasingly aware of the commercial value of technical findings and
are becoming more active in seeking patent protection and licensing arrangements
for the use of technology that others have developed. The development by others
of new products and processes competitive with or superior to those of the
Company could render the Company's products obsolete or unattractive. The
Company's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patents or otherwise develop proprietary
products or processes, and secure sufficient capital resources.

        A broad market for wide-area wireless data services has not yet
developed. In order for the market to develop, the Company believes that
wireless data communications services will need to provide data rates and
functionality comparable to those of the predominant mode of wired
communications, at an affordable cost, without compromising ease of use.


                                      13.
   14

TECHNOLOGICAL CHANGE

        The market for data communications systems is characterized by rapidly
changing technology and evolving industry standards in both the wireless and
wireline industries. The Company's success will depend to a substantial degree
on its ability to develop and introduce in a timely and cost-effective manner
enhancements to its existing systems and new products that meet changing
customer requirements and evolving industry standards. For example, increased
data rates, such as those provided by wired solutions like ISDN, may affect
customer perceptions as to the adequacy of the Company's services and may also
result in the widespread development and acceptance of applications that require
a higher data rate than the Company's Ricochet service currently provides. There
can be no assurance that the Company's technology or systems will not become
obsolete upon the introduction of alternative technologies. If the Company does
not develop and introduce new products and services and achieve market
acceptance in a timely manner, its business, financial condition and operating
results could be materially and adversely affected.

DEPENDENCE ON KEY PERSONNEL

        The Company is highly dependent on certain members of its management and
engineering staff, the loss of the services of one or more of who might impede
the achievement of the Company's business objectives. None of these individuals
has an employment contract with the Company. Furthermore, recruiting and
retaining qualified technical personnel to perform research, development and
technical support work is critical to the Company's success. If the Company's
Ricochet business grows, the Company will also need to recruit a significant
number of management, technical and other personnel for such business.
Competition for employees in the Company's industry is intense. Although the
Company believes that it will be successful in attracting and retaining skilled
and experienced personnel, there can be no assurance that the Company will be
able to continue to attract and retain such personnel on acceptable terms.

MANAGEMENT OF GROWTH

        Management of growth is especially challenging for a company with a
short operating history and the failure to effectively manage growth could have
a material adverse effect on the Company's business, financial condition and
operating results. Development, deployment and commercialization of Ricochet has
required and will continue to require management of a number of operational
activities in which the Company has little or no prior experience, including the
administration of its subscriber base, maintenance and support of Ricochet
hardware and software and management of Company activities and properties in
dispersed locations. There can be no assurance that the Company will be able to
manage the growth of its business successfully.

UNCERTAINTY OF PROPRIETARY RIGHTS

        The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file patent applications
to protect its technology, inventions and improvements to its inventions that it
considers important to its business. The Company relies on a combination of
patent, copyright, trademark and trade secret protection and non-disclosure
agreements to establish and protect its proprietary rights. The Company has been
issued 25 patents in the United States, which expire on dates between 2006 and
2016. Foreign patents corresponding to one domestic patent have been granted in
four foreign countries, foreign patents corresponding to one other U.S. patent
have been approved for grant in three foreign countries, and other foreign and
domestic patents are pending. There can be no assurance that patents will issue
from any pending applications or, if patents do issue, that claims allowed will
be sufficiently broad to protect the Company's technology. The Company also owns
over 30 United States trademark registrations and approximately 20 foreign
counterparts. There can be no assurance that any of the Company's current or
future patents or trademarks will not be challenged, invalidated, circumvented
or rendered unenforceable, or that the rights granted thereunder will provide
significant proprietary protection or commercial advantage to the Company. The
Company is not aware of any infringement of its patents, trademarks or other
proprietary rights by others.

        Although the Company has pursued and intends to continue pursuing patent
protection of inventions that it considers important, the Company believes that
other competitive factors are more important than its patent position. However,
these patents may not preclude competitors from developing equivalent or
superior products and technology to those of the Company. There can be no
assurance that the measures adopted by the Company for the protection of its
intellectual property will be adequate to protect its interests.


                                      14.
   15

        The Company also relies upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
its competitive position. There can be no assurance that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to or disclose such information of the Company. It is the
Company's policy to require its employees, certain contractors, consultants,
directors and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of such relationships with the Company. There
can be no assurance that these agreements will not be breached, that they will
provide meaningful protection of the Company's trade secrets or adequate
remedies in the event of unauthorized use or disclosure of such information or
that the Company's trade secrets will not otherwise become known or be
independently discovered by the Company's competitors.

        The commercial success of the Company will also depend in part on the
Company not infringing the proprietary rights of others and not breaching
technology licenses that cover technology used in the Company's products. It is
uncertain whether any third party patents will require the Company to develop
alternative technology or to alter its products or processes, obtain licenses or
cease certain activities. If any such licenses are required, there can be no
assurance that the Company will be able to obtain such licenses on commercially
favorable terms, if at all. If the Company cannot obtain a license to any
technology that it may require to commercialize its products and services, such
failure could have a material adverse effect on the Company. The Company may
have to resort to potentially costly litigation to enforce any patents issued or
licensed to the Company or to determine the scope and validity of third party
proprietary rights.

THE COMPANY'S COMMUNICATION ACTIVITIES ARE REGULATED

        Federal Regulation. The Company is subject to various FCC regulations.
The FCC, pursuant to the Communications Act, regulates non-government use of the
electromagnetic spectrum in the United States, including the 902 - 928 MHz
frequency band (the "900 MHz Band") currently used by the Company's Ricochet
products, and the 2400 - 2483.5 MHz band (the "2.4 GHz Band") the 2305 - 2315,
2350 - 2360, 2315 - 2320, and 2345 - 2350 MHz bands (the "2.3 GHz Band")
intended to be used, along with the 900 MHz Band, by the Company's Ricochet2
products, which are currently under development. Part 15 of the FCC's
regulations provides that the 900 MHz and 2.4 GHz Bands may be authorized for
the operation of certified radio equipment without the requirement for a
license. The Company designs its license-free products to conform with, and be
certified under, the FCC's Part 15 spread spectrum rules. Operations in the 2.3
GHz Band will be in accordance with Part 27 of the FCC's rules governing the
Wireless Communications Service ("WCS"), a licensed service.

        License-free operation of the Company's products and other Part 15
products in the 900 MHz and 2.4 GHz Bands is subordinate to certain licensed and
unlicensed uses of these bands, including industrial, scientific and medical
equipment, the United States government, amateur radio services and, in certain
instances, location and monitoring systems. The Company's products must not
cause harmful interference to, and must accept interference from, authorized
non-Part 15 equipment operating in the band as well as other Part 15 equipment
operating in the band. If the Company were unable to eliminate any such harmful
interference caused by its products through technical or other means, or were
unwilling to accept interference caused by others to its services, the Company
or its customers could be required to cease operations in the band in the
locations affected by the harmful interference. Additionally, in the event the
license-free 900 MHz or 2.4 GHz Bands become unacceptably crowded, and no
additional frequencies are allocated by the FCC, the Company's business,
financial condition and results of operations could be materially and adversely
affected.

        Operation in the 2.3 GHz WCS Band is pursuant to licenses that the
Company purchased at an FCC spectrum auction. These licenses, issued on July
21,1997, 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 (each as
defined by the FCC). When the FCC adopted regulations for WCS, it required that
WCS licensees provide certain protections for the adjacent channel Wireless
Cable and Instructional Television Fixed services for a period of five years.
There is currently pending at the FCC a contested Petition For Reconsideration
requesting that this protection period be extended to ten years. While the
Company believes that it can provide the requisite protection to adjacent
channel users, there can be no assurance that such protection can be provided in
a technically or economically feasible manner.

        The WCS operations will require the use of equipment which receives
certification from the FCC. While the Company believes it can develop certified
2.3 GHz equipment which performs satisfactorily with its license-free certified
equipment operating in the license-free bands, there can be no assurance that
such equipment can be developed, or that it can be developed in a timely and
economical manner. The licenses for WCS require that "substantial service" be
provided to the


                                      15.
   16

public in the authorized service areas within ten years of the license grant. In
addition, while the WCS licenses expire in ten years, the FCC will grant a
"renewal expectancy" to licensees whose operations have been in accordance with
the FCC's regulations. Although there can be no assurance of compliance with all
of the WCS requirements, the Company believes that it can comply with all of the
conditions in an economically efficient manner. Failure to meet any one or all
of these conditions could materially and adversely affect the Company's
business, financial condition and results of operations.

        The regulatory environment in which the Company operates is subject to
change. Changes in the regulation of the Company's activities by the FCC, as a
result of its own regulatory process or as directed by legislation or the
courts, including changes in the allocation of available spectrum, could have a
material adverse effect on the Company's business, financial condition and
results of operations, and the Company might deem it necessary or advisable to
move to another of the Part 15 bands or to obtain the right to operate in
additional licensed spectrum or other portions of the unlicensed spectrum.
Redesigning products to operate in another band could be expensive and time
consuming, and there can be no assurance that such redesign would result in
commercially viable products. In addition, there can be no assurance that, if
needed, the Company could obtain appropriate licensed or unlicensed spectrum on
commercially acceptable terms, if at all. On an ongoing basis, the FCC proposes
and issues new rules and amendments to existing rules that affect the Company's
business. The Company closely monitors the FCC's activities and, when
appropriate, actively participates in policy and rule making proceedings. The
Company is currently monitoring several proceedings at the FCC that could have
an impact on the Company. If the FCC adopts rules that directly or indirectly
restrict the Company's ability to conduct its business as currently conducted or
proposed to be conducted, the Company's business, financial condition or
operating results could be materially and adversely affected.

        The FCC has adopted, and affirmed through reconsideration, rules for the
Location and Monitoring Service ("LMS"), a licensed service replacing the
Automatic Vehicle Monitoring service operating in the 900 MHz Band. There is
currently very limited LMS operation; however, the FCC has recently concluded an
auction where only four entities purchased licenses for the entire country. This
could lead to the proliferation of LMS systems. In adopting the LMS rules, the
FCC affirmed the right of Part 15 users such as the Company to operate in this
frequency band, provided certain "safe harbors," and authorized operation so
long as it does not cause "harmful interference," as specifically defined by the
FCC. In addition, the FCC provided that all LMS licenses would be conditioned
upon testing with the Part 15 community to assure that there is no harmful
interference, if any. Although future LMS operations could lead to increased
congestion in the 900 MHz Band, the Company believes that there are sufficient
means to mitigate harmful interference to Part 15 operations. There can be no
assurance, however, that the operation of one or more of the Company's network
installations at particular locations would not be adversely affected by
existing or proposed LMS operations or that extensive LMS operations would not
have a material adverse effect on the Company's business, financial condition
and results of operations.

        In March 1997, the FCC initiated a rulemaking proceeding in response to
a request filed by the American Radio Relay League, Inc. on behalf of amateur
radio operators. The FCC proposed to amend its rules for the Amateur Radio
Services to allow amateur stations greater flexibility in the use of
high-powered spread spectrum technologies in, among others, the 900 MHz Band. To
protect other users, including Part 15 users such as the Company, the FCC
proposes to require spread spectrum equipment used by amateur radio licensees to
use the minimum power necessary and to incorporate automatic power control
circuitry in their equipment to reduce the potential for interference. If the
FCC ultimately adopts rules as proposed, amateur spread spectrum operations may
interfere with the Company's operations in certain discrete geographic areas.
Although the Company believes it would be able to overcome such interference, if
any, by installing additional network radios and other measures, there can be no
assurance to that effect.

        In April 1998, the FCC adopted a Notice of Proposed Rule Making
concerning the operation of radio frequency ("RF") lighting devices in, among
others, the 2.4 GHz frequency band. RF lighting devices are governed by Part 18
of the FCC's rules and are among the "senior" users in the unlicensed frequency
bands. While the FCC did not propose any rule changes that would modify
operations in the 2.4 GHz band for any users, the rule making recognized and
encouraged the further use of RF lighting devices. The Company, in Comments
filed, urged the FCC to limit the amount of RF power generated by RF lighting
devices in the 2.4 GHz band. If the FCC chooses not to limit the amount of power
generated by RF lighting devices in the 2.4 GHz band, RF lighting devices could
interfere with the Company's operations in certain discrete geographic areas.
Although the Company believes it would be able to overcome such interference, if
any, there can be no assurance that the proliferation of RF lighting devices in
the 2.4 GHz band would not have a material adverse affect on the Company's
business, financial condition and results of operations.


                                      16.
   17

        The FCC has pending a Notice of Proposed Rulemaking concerning
implementation of the Communications Assistance For Law Enforcement Act
("CALEA"). CALEA requires entities offering certain communications services to
provide a means by which law enforcement agencies can conduct electronic
surveillance in the face of changing communications technologies. Because of
exemptions provided in the Act itself, the Company believes that the CALEA
provisions are not applicable to its operations. If the FCC or the courts
nevertheless require the Company to implement CALEA compliance capability, such
action could have a material adverse impact on the Company's business, financial
condition and results of operations.

        In June 1993, the FCC issued a Notice of Inquiry soliciting comments on
a private entity's proposal to authorize non-government, wind profiler radar
systems in the 900 MHz Band. Before the FCC can adopt any rules for wind
profiler radar systems in this band, it would have to issue a Notice of Proposed
Rule Making, and the Company would have an opportunity to participate in the
proceeding. Nevertheless, if the FCC ultimately adopts such rules, there can be
no assurance that such regulation would not have a material adverse effect on
the Company's business, financial condition and results of operations.

        The FCC has authority to enforce certain provisions of the National
Environmental Policy Act as they may apply to the Company's facilities. The FCC
recently adopted rules containing guidelines and methods for evaluating the
environmental effects of radio frequency emissions from FCC-regulated
transmitters. The rules categorically exclude low power, Part 15 devices of the
type used by the Company from routine environmental evaluation because they
offer little or no potential for exposure in excess of specified health and
safety guidelines. The environmental evaluation rules do apply to the 2.3 GHz
equipment being developed by the Company for WCS operations. The FCC also
incorporated into its rules provisions of the Telecommunications Act of 1996
that preempt state and local governmental regulation over the placement of radio
frequency devices based on radio frequency environmental effects. Despite these
actions, some public concerns about radio frequency emissions remain. Regulatory
action in response to these concerns could have a material adverse effect on the
Company's business, financial condition and results of operations.

        State and Local Regulation. The Company often requires the siting of its
network radios and WAPs on public rights-of-way and other public property. Due
to state and local right-of-way, zoning and franchising issues, the Company is
not always able to place its radios in the most desirable locations, on an
optimal schedule or in the most cost-effective manner. There can be no assurance
that state and local processes associated with radio location will not have a
material adverse effect on the Company's business, financial condition or
results of operations.

        As a result of amendments to the Communications Act of 1934, certain
states may attempt to regulate the Company with respect to the terms and
conditions of service offerings. While the Company believes that state
regulation, if any, will be minimal, there can be no assurance that such
regulation will not have a material adverse effect on the Company's business,
financial condition or results of operations.

        Internet Regulation. Due to the increase in Internet use and publicity,
it is possible that new laws and regulations may be adopted, and that changes in
laws or regulations may be made, with respect to the Internet, including laws
regarding privacy, pricing and characteristics of services or products. Certain
other legislative initiatives, including those involving taxation of Internet
services and transactions, and payment of access charges by Internet providers
have also been proposed. Any legislation or regulation regarding the Internet
could adversely impact the Company's ability to provide its planned services and
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company cannot predict the impact, if any, that
future laws or any legal changes may have on its business.

SOLE SOURCES OF SUPPLY

        The Company generally uses standard component parts that are available
from multiple sources. However, certain component parts used in the Company's
products are available only from sole or limited source vendors. The Company's
reliance on these sole or limited source vendors involves certain risks,
including the possibility of a shortage of certain key component parts and
reduced control over delivery schedules, manufacturing capability, quality and
costs. In addition, some key component parts require long delivery times. The
Company has in the past experienced delays in its ability to obtain certain key
component parts from suppliers. In the event of future supply problems from the
Company's sole or limited source vendors, the inability of the Company to
develop alternative sources of supply quickly and on a cost-effective basis
could materially impair the Company's ability to manufacture and deliver its
products and to implement its services.


                                      17.
   18

LIMITED MANUFACTURING EXPERIENCE AND CAPABILITY; INVENTORY MANAGEMENT

        The Company has limited experience in large-scale manufacturing. The
Company's printed circuit boards and other subassemblies are assembled on a
contract basis by local manufacturers. Final assembly and testing operations are
performed internally. The Company believes that it has or can secure adequate
capacity to meet forecasted demand for its products and networks for at least
the next 12 months. However, if customers begin to place large orders for the
Company's products or if the Company decides to accelerate deployment of
Ricochet, the Company's present manufacturing capacity may prove inadequate. To
be successful, the Company's products and components must be manufactured in
commercial quantities at competitive cost and quality. The Company's long-term
manufacturing strategy is to supplement its manufacturing capabilities by
increasing outsourcing of product assembly and testing and by licensing other
companies to manufacture certain of the Company's products. In the future, the
Company will be required to achieve significant product and component cost
reductions. If the Company is unable to develop or contract for manufacturing
capabilities on acceptable terms and if product and component cost reductions
are not achieved, the Company's competitive position, and the ability of the
Company to achieve profitability, would be materially impaired.

        Effective inventory management requires the Company to accurately
forecast demand for its services and products and to adequately take into
account the introduction of new or replacement products. Failure to manage this
process effectively could result in insufficient inventory to meet demand,
thereby limiting revenues and deployment of Ricochet networks, or could result
in excess inventory that may become obsolete before it is sold, either of which
could have a material adverse effect on the Company's business, financial
condition or operating results.

FLUCTUATION IN OPERATING RESULTS

        The Company believes that its future operating results over both the
short and long term will be subject to annual and quarterly fluctuations due to
several factors, some of which are outside the control of the Company. These
factors include:

o       the significant cost of building its Ricochet networks (including any
        unanticipated costs associated therewith),
o       fluctuating market demand for the Company's services,
o       establishment of a market for the Ricochet service,
o       pricing strategies for competitive services,
o       delays in the introduction of the Company's services,
o       new offerings of competitive services,
o       changes in the regulatory environment,
o       the cost and availability of Ricochet infrastructure and
o       subscriber equipment and general economic conditions.



VULCAN CONTROLS SIGNIFICANT VOTING STOCK

        In January 1998, Vulcan Ventures Incorporated acquired 4,650,000 shares
of the Company's common stock bringing Vulcan's beneficial ownership to
approximately 49.5% of the Company's outstanding common stock. As a result,
Vulcan can control most matters submitted to a vote of the stockholders,
including the election of members of the Board (other than the independent
directors) and significant corporate transactions. Accordingly, Vulcan can
control or significantly influence actions taken by the Board or the Company and
can limit the ability of the Company's current stockholders to affect or
influence the direction of the Company and the composition of the Board.

        In addition, conflicts of interest may arise as a consequence of the
control relationship between Vulcan and the Company, including:

(a)     conflicts between Vulcan, as a stockholder with effective control of the
        Company and the other stockholders of the Company, whose interests may
        differ with respect to, among other things, the strategic direction of
        the Company or significant corporate transactions,


                                      18.
   19

(b)     conflicts arising in respect of corporate opportunities that could be
        pursued by the Company, on the one hand, or by Vulcan and any of its
        other affiliated entities, on the other hand, or
(c)     conflicts arising in respect of any new contractual relationships
        between the Company, on the one hand, and Vulcan and any of its other
        affiliated entities, on the other hand.

        In addition, Vulcan's beneficial ownership of approximately 49.5% of the
outstanding common stock makes it more difficult for a third party to effect a
change in management or to acquire control of the Company without the approval
of Vulcan and, therefore, may delay, prevent or deter a proxy contest for
control of the Company or other changes in management, or discourage bids for a
merger, acquisition or tender offer, in which the Company's stockholders could
receive a premium for their shares. The common stock Purchase Agreement, dated
October 10, 1997, between the Company and Vulcan (the "Stock Purchase
Agreement"), provides that transactions between Vulcan and the Company outside
the ordinary course of business or having a dollar value of $25,000 or more may
not be effected without the approval of the Independent Directors (as defined in
the Stock Purchase Agreement). To the extent that conflicts arise as a result of
Vulcan's control relationship that are not subject to such requirement, it is
anticipated that the Board of Directors would be guided by its fiduciary
obligations as directors under the Delaware General Corporate Law, included the
directors' duty of loyalty.

        Although the Stock Purchase Agreement contains a number of provisions
designed to protect stockholders in the event of, among other things, a proposal
by Vulcan to acquire the Company or a proposal to sell the Company to a third
party, the Stock Purchase Agreement does not require Vulcan to sell its
controlling block of shares, even if an offer is made that might be attractive
to the other stockholders. Moreover, there can be no assurance that any of the
stockholder protection measures included in the Stock Purchase Agreement will be
effective in any particular case.


YEAR 2000 RISKS

        Many installed computer systems and software products are coded to
accept only two digit entries in the date code field. As the year 2000
approaches, these code fields will need to accept four digit entries to
distinguish years beginning with "19" from those beginning with "20" dates. As a
result, in the next year, computer systems and/or software products used by many
companies may need to be upgraded to comply with such year 2000 ("Y2K")
requirements.

        In the third quarter of 1998, the Company began a plan to remedy the
potential Y2K problems. The Company is currently in various stages of
assessment, testing and remediation of Y2K compliance, depending on the
particular computer systems or software involved. The Company's business and
financial systems have recently been upgraded to Oracle 10.7, a current revision
which has been certified by the vendor to be Y2K compliant. The Company is in
the process of assessing its microcellular commercial data networks for Y2K
compliance. These networks are dependent upon third parties for
telecommunications services and power. If the Company's providers of these
services are not Y2K compliant, the usability of the Company's microcellular
commercial networks could be impaired, which could have a material adverse
effect on the Company's business, financial condition and results of operations.

        The Company intends to have its Y2K assessment, testing, remediation
efforts and development of necessary contingency plans complete by the year
2000. To date, costs incurred to address Y2K compliance issues have not been
material. The Company estimates that total costs to address Y2K compliance
issues will be approximately $300,000. The total cost estimate is subject to
change as the Company progresses in the execution of its Y2K plan. Costs related
to Y2K issues continue to be funded through operating cash flows. There can be
no assurance that the Company will be able to complete its Y2K assessment,
testing, remediation efforts and development of necessary contingency plans by
the year 2000.


                                      19.
   20

Any failure to complete the Y2K assessment, testing, remediation efforts and
development of necessary contingency plans prior to the year 2000 could have a
material adverse effect on the Company's business, financial condition and
results of operations.


        The Company has begun communicating with its key suppliers to assess Y2K
compliance. There can be no assurance that the Company's key suppliers have or
will have information technology systems, non-information technology systems and
products that are Y2K compliant. Similarly, there can be no assurance that the
Company's customers have, or will have information technology systems,
non-information technology systems and products that are Y2K compliant. Any Y2K
problem facing the Company, its customers or suppliers could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event that the Company's planned actions do not resolve the
Y2K issues, the Company is prepared to use backup systems, where possible, that
do not rely on computers. In other critical functions where computer systems are
essential, the Company intends to develop an alternative contingency plan in the
coming months.


DEPENDENCE ON SOUTHERN CALIFORNIA EDISON

        The Company has relied to date primarily on Southern California Edison
("SCE") as the principal source of its revenues. Revenues from SCE accounted for
84%, 72%, 51%, 12% and 7% of the Company's total revenues in 1994, 1995, 1996,
1997 and 1998 respectively. As of December 31, 1998, SCE was the only company to
have made a commitment to purchase a large volume of the Company's products. The
Company expects only a small amount of revenues from SCE in 1999 and thereafter.

VOLATILITY OF STOCK PRICE

        The market price of the Company's common stock has been volatile and may
be volatile in the future. Future announcements concerning the Company or its
competitors, including technological innovations, new commercial products,
status of network implementation, government regulations, proprietary rights or
product or patent litigation, operating results and general market and economic
conditions may have a significant impact on the market price of the Company's
common stock. In addition, any delays or difficulties in establishing Ricochet
or attracting Ricochet subscribers are likely to result in pronounced
fluctuations in the market price of the Company's common stock.

ANTITAKEOVER PROVISIONS; POSSIBLE FUTURE ISSUANCES OF PREFERRED STOCK

        The Company's Certificate of Incorporation, as amended (the "Amended
Certificate"), Bylaws and the provisions of the Delaware General Corporation Law
(the "Delaware GCL") contain certain provisions that may have the effect of
discouraging, delaying or making more difficult a change in control of the
Company or preventing the removal of incumbent directors. These provisions may
have a negative impact on the price of the common stock and may discourage third
party bidders from making a bid for the Company or may reduce any premiums paid
to stockholders for their common stock. Furthermore, the Company is subject to
Section 203 of the Delaware GCL, which could have the effect of delaying or
preventing a change in control of the Company.

        The Amended Certificate also allows the Board of Directors to issue up
to 2,000,000 shares of Preferred Stock and to fix the rights, preferences and
privileges of such shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to, and
may be adversely affected by, the rights of the holders of any Preferred Stock
that may be issued in the future. While the Company has no present intention to
issue shares of Preferred Stock, any such issuance could be used to discourage,
delay or make more difficult a change in control of the Company.


ITEM 2 - PROPERTIES.

        The largest part of the Company's operations and its headquarters are
located in approximately 78,500 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. The Company believes this space will
provide the office and manufacturing space that will be required for anticipated
increases in the Company's business activity over the next year. The Company
also leases approximately 10,000 square feet for its network operations facility
in Houston, Texas under a


                                      20.
   21

lease that expires in the year 2000. The Company leases small offices in
thirteen other metropolitan areas in the United States.


ITEM 3 - LEGAL PROCEEDINGS.

        The Company is not a party to any material litigation.


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

        No matters were submitted to a vote of Metricom's security holders
during the fourth quarter of 1998.


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

        The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MCOM." The table below sets forth the high and low sales prices for
the Company's Common Stock (as reported on the Nasdaq National Market) during
the periods indicated. The reported last sale price of the Common Stock on the
Nasdaq National Market on March 12, 1999 was $7.375.




                                                              PRICE RANGE OF
                                                               COMMON STOCK
                                                               HIGH     LOW
                                                              ------   -----
                                                                 
Year Ended December 31, 1997:
     1st Quarter .......................................      $16.50   $9.50
     2nd Quarter .......................................       10.75    4.875
     3rd Quarter .......................................       11.50    4.375
     4th Quarter .......................................       18.375   9.87

Year Ended December 31, 1998:
     1st Quarter .......................................      $13.25   $8.188
     2nd Quarter .......................................       12.625   8.25
     3rd Quarter .......................................       10.50    4.781
     4th Quarter .......................................        8.75    3.00


        As of March 12, 1999, there were approximately 430 holders of record of
the Company's Common Stock. Since inception, the Company has not declared or
paid any cash dividends on its capital stock. The Company currently intends to
retain future earnings, if any, to finance the growth and development of its
business and, therefore does not anticipate paying any cash dividends in the
foreseeable future.


                                      21.
   22

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



                                                                   YEAR ENDED DECEMBER 31,
                                                -------------------------------------------------------------
                                                   1994        1995          1996         1997         1998
                                                ---------    ---------    ---------    ---------    ---------
                                                                                     
STATEMENT OF OPERATIONS DATA:
Revenues:
  Service revenues ..........................   $      27    $     789    $   2,158    $   6,642    $   8,419
  Product revenues ..........................      19,580        4,995        4,996        6,797        7,440
  Development contract revenues .............       1,957           --           --           --           --
                                                ---------    ---------    ---------    ---------    ---------
    Total revenues ..........................      21,564        5,784        7,154       13,439       15,859
                                                ---------    ---------    ---------    ---------    ---------
Costs and expenses:
  Cost of  service revenues .................       1,244        8,192       14,334       27,866       28,310
  Provision for network replacement .........          --           --           --           --       14,392
  Cost of product revenues ..................      15,116        3,134        2,528        4,558        5,050
  Cost of development contract revenues .....       1,890           --           --           --           --
  Research and development ..................       8,668       10,627       13,920       13,212       27,313
  Selling, general and administrative .......       9,695       11,715       17,724       21,189       22,934
  Provision for Overall Wireless.............          --           --           --        3,611           --
                                                ---------    ---------    ---------    ---------    ---------
Total costs and expenses                           36,613       33,668       48,506       70,436       97,999
                                                ---------    ---------    ---------    ---------    ---------
    Loss from operations ....................     (15,049)     (27,884)     (41,352)     (56,997)     (82,140)
Interest expense ............................          --           --       (1,310)      (4,151)      (3,939)
Interest income .............................       3,300        4,363        3,317        1,820        1,915
                                                ---------    ---------    ---------    ---------    ---------
    Net loss ................................   $ (11,749)   $ (23,521)   $ (39,345)   $ (59,328)   $ (84,164)
                                                =========    =========    =========    =========    =========
Basic and diluted net loss per share ........   $   (0.96)   $   (1.79)   $   (2.93)   $   (4.35)   $   (4.63)
                                                =========    =========    =========    =========    =========

Weighted average shares outstanding .........      12,202       13,140       13,413       13,641       18,195




                                                                       AS OF DECEMBER 31,
                                                -------------------------------------------------------------
                                                   1994        1995          1996         1997         1998
                                                ---------    ---------    ---------    ---------    ---------
                                                                                     
BALANCE SHEET DATA:
  Cash and investments ......................   $  89,588    $  64,415    $  65,221    $  14,474    $  19,141
  Working capital ...........................      73,012       46,771       57,738        6,980        9,396
  Property and equipment ....................      10,170       17,717       33,606       40,301       42,345
  Total assets ..............................     105,534       86,076      101,799       51,103       34,466
  Long-term debt ............................          --           --       45,000       45,000       55,098
  Stockholders' equity (deficit) ............     101,516       80,374       43,306      (13,817)     (42,259)



                                      22.
   23

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

OVERVIEW

        Since inception, the Company has devoted significant resources to the
development, deployment and commercialization of its wireless network products
and services. Historically, a significant portion of the Company's revenues have
been derived primarily from the development contracts and sales of
customer-owned networks and related products, known as UtiliNet, to utility
companies. In recent years, the Company has deployed a commercial wireless data
network known as Ricochet in various metropolitan areas of the United States.
The Company currently provides Ricochet commercial service in the San Francisco
Bay Area, the Seattle and Washington D.C. metropolitan areas, parts of Los
Angeles, 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 February 28, 1999, there were
approximately 26,500 Ricochet network subscribers.

        In 1997, in conjunction with the Company's acquisition of licensed
spectrum in the 2.3 GHz Band in the FCC's WCS auctions, the Company began the
development of a higher speed service known as Ricochet2. Ricochet2, an upgrade
to Ricochet, has demonstrated in Company tests to provide the same service as
Ricochet, but at faster downstream speeds of up to 128 Kbps. In conjunction with
development of Ricochet2, the Company has continued to pursue right-of-way and
site agreements to enable Ricochet2 deployment in various metropolitan areas.
The Company plans to complete development of the Ricochet2 system in 1999 and
subsequently deploy it in various metropolitan areas in the United States.

        The Company has incurred cumulative net losses through December 31, 1998
of approximately $233.5 million. 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 flow from
operating activities during the next few years while it continues to develop and
deploy its Ricochet2 networks and build its customer base. There can be no
assurance that the Company will achieve or sustain profitability or positive
cash flow from operating activities in a timely manner or at all.

        The Company's future success depends on completing the development of
Ricochet2, acquiring new right-of-way and site agreements in metropolitan areas,
and deploying Ricochet2 in those areas. Completing the development of Ricochet2
will require significant expenditures to engineer, install and test Ricochet2
network equipment and modems prior to widespread deployment. Successful
acquisition of right-of-way and site agreements will require expenditures to
identify appropriate sites to locate network infrastructure, and negotiate and
formalize agreements to allow for the Company's use of such sites. Deployment of
Ricochet2 will require the Company to incur significant costs to design, install
and test network infrastructure in each metropolitan area. A substantial portion
of the development, site acquisition and deployment costs will be incurred
before the realization of revenues from such areas. Any inability to execute, or
delays in execution of, the development and deployment plans could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance as to the timing or extent of
the development and deployment of Ricochet2.

        This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in the section of this Form
10-K entitled "Risk Factors".


                                      23.
   24

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,
                                                    --------------------------
                                                    1996       1997       1998
                                                    ----       ----       ----
                                                                 
REVENUES:
    Service revenues ..........................       30         49         53
    Product revenues ..........................       70         51         47
                                                    ----       ----       ----
        Total revenues ........................      100        100        100

COSTS AND EXPENSES:
    Cost of service revenues ..................      200        207        179
    Provision for network replacement .........       --         --         91
    Cost of product revenues ..................       35         34         32
    Research and development ..................      195         98        172
    Selling, general and administrative .......      248        158        145
    Provision for Overall Wireless ............       --         27         --
                                                    ----       ----       ----
Total costs and expenses ......................      678        524        618
                                                    ----       ----       ----
Loss from operations ..........................     (578)      (424)      (518)
Interest expense ..............................      (18)       (31)       (25)
Interest income, net ..........................       46         14         12
                                                    ----       ----       ----
Net loss ......................................     (550)%     (441)%     (531)%
                                                    ====       ====       ====


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

        Revenues. Revenues consist of service and product revenues. Service
revenues are derived from subscriber fees and modem rentals for Ricochet and
fees for UtiliNet customer support and are recognized ratably over the service
period. Product revenues are derived from the sale of UtiliNet products and
Ricochet modems and are recognized upon shipment.

        Total revenues increased to $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. A significant portion of UtiliNet product revenue was derived from
Southern California Edison ("SCE"). Product revenues from SCE accounted for 10%
and 17% of total 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 is 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 is primarily costs incurred
to operate Ricochet networks, the cost of providing customer support, certain
excess capacity costs and manufacturing variances associated with manufacturing
the Company's network components and depreciation of modems rented to Ricochet
subscribers. Cost of service revenues also includes the cost to design the
Ricochet networks and maintain site agreements for the Company's infrastructure
in the metropolitan areas where commercial service is currently offered. These
costs are expensed as incurred due to the uncertainties regarding the
realizability of these costs. Cost of service revenues were $28.3 million in
1998 and $27.8 million in 1997. In comparing cost of service revenues between
1998 and 1997, 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 Ricochet2 networks. Cost of service revenues is
expected to be greater than service revenues for the foreseeable future. Cost of
product revenues increased to $5.0 million in 1998 from $4.6 million in 1997.
Cost of product revenues as a percentage of product revenues increased slightly
to 68% in 1998 from 67% in 1997. The increase over 1997 is primarily due to a
higher


                                      24.
   25

proportion of product revenues in 1998 derived from the sale of Ricochet modems
at prices less than their cost to manufacture.

        Provision for Network Replacement. In the fourth quarter of 1998, the
Company 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 the Company's plans
to replace this equipment with Ricochet2 equipment in the near future. See
"Property and Equipment" in Note 1 of Notes to Consolidated Financial
Statements.

        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 the high speed Ricochet2 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 the Company currently plans to offer service. The
Company expects research and development expenses to continue to increase in
absolute dollars in future periods as the Company continues the acquisition of
right-of-way and site agreements as well as the development of Ricochet2.

        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 the Company's
reduced Ricochet sales and marketing efforts in 1998 compared with 1997.
Selling, general and administrative costs are expected to increase in the future
as a result of the Company's planned deployment of Ricochet2, which is currently
in development.

        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.

YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996

        Revenues. Total revenues increased to $13.4 million in 1997 from $7.2
million in 1996 primarily due to increased Ricochet service revenues, which
increased to $6.6 million in 1997 from $2.2 million in 1996. This increase was
due to increases in Ricochet subscriber fees and modem rentals. Product revenues
increased to $6.8 million in 1997 from $5.0 million in 1996. A significant
portion of such revenue was derived from SCE, the Company's principal customer.
Product revenues from SCE accounted for 17% and 51% of total product revenues in
1997 and 1996, respectively.

        Cost of Revenues. Cost of service revenues increased to $27.8 million in
1997 from $14.3 million in 1996. The increase is due to higher Ricochet network
operating expenses resulting from increases in the Ricochet service territory
during 1997. Customer service expenses increased to $2.9 million in 1997 from
$1.8 million in 1996. Cost of modems rented to Ricochet subscribers increased to
$4.8 million in 1997 from $450,000 in 1996. Cost of product revenues increased
to $4.6 million in 1997 from $2.5 million in 1996. The cost of product revenues
as a percent of product revenues increased to 67% in 1997 from 51% in 1996,
primarily due to a higher percentage of product revenues in 1997 derived from
the sale of Ricochet modems that were sold for less than cost.

        Research and Development. Research and development expenses decreased to
$13.2 million in 1997 from $13.9 million in 1996. The net decrease in 1997 was
due to reduced level of activity to obtain site agreements in metropolitan areas
where Ricochet deployment was planned. This reduction was partially offset by an
increase in development activities on Ricochet and Ricochet2 networks and
subscriber devices.

        Selling, General and Administrative. Selling, general and administrative
expenses increased to $21.2 million in 1997 from $17.7 million in 1996 primarily
due to increased selling expense as a result of personnel increases and
additional efforts to increase the number of Ricochet subscribers. General and
administrative expenses also increased primarily as a result of personnel
increases and professional fees associated with addressing regulatory matters,
developing strategic relationships and pursuing financing arrangements.


                                      25.
   26

        Provision for Overall Wireless. In February 1996, the Company purchased
an option to acquire Overall Wireless Communications Corporation ("Overall
Wireless"), a company that holds a nationwide, wireless communications license
in the 220 to 222 MHz frequency band. The Company paid $700,000 for the option
and agreed to loan Overall Wireless up to $2.0 million for the construction of a
system utilizing the license, of which approximately $1.8 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.

        Interest Income and Expense. Interest expense increased to $4.2 million
in 1997 from $1.3 million in 1996 as a result of a full year of interest expense
in 1997 from the issuance in August 1996 of $45 million in principal amount of
8% Convertible Subordinated Notes. Interest income decreased to $1.8 million in
1997 from $3.3 million in 1996 primarily due to a lower level of cash, cash
equivalents and investments in 1997 as compared with 1996.


LIQUIDITY AND CAPITAL RESOURCES

        The Company has financed its operations and capital expenditures
primarily through the public and private sale of equity and convertible debt
securities. Since inception, the Company has completed (i) private placements of
preferred stock with net proceeds to the Company of approximately $18.9 million,
of which $3.0 million was repurchased and the balance converted to Common Stock
at the time of the Company's initial public offering in 1992, (ii) an initial
public offering of Common Stock with net proceeds to the Company of
approximately $8.8 million in 1992, (iii) private placements of Common Stock
with net proceeds to the Company of approximately $18.6 million in 1993, (iv)
public and private placements of Common Stock with net proceeds to the Company
of approximately $75.2 million in 1994, (v) a private placement of 8%
Convertible Subordinated Notes due 2003 with net proceeds to the Company of
approximately $43.4 million in 1996 and (vi) a private placement of Common Stock
with Vulcan Ventures, Inc. with net proceeds to the Company of approximately
$53.7 million in 1998. In October 1998, the Company secured a line of credit for
$30 million from Vulcan Ventures, Inc. As of December 31, 1998, the Company had
drawn down $10 million against this line of credit.

        On November 15, 1999, the Company issued 60 million shares of Series A1
and A2 redeemable convertible preferred stock to Vulcan Ventures and MCI
WorldCom, Inc. at a price of $10.00 per share. The total net proceeds to the
Company were approximately $572 million. Of these net proceeds, approximately
$60.5 million was used to pay outstanding indebtedness to Vulcan Ventures. The
indebtedness to Vulcan Ventures was incurred by the Company pursuant to lines of
credit that were entered in October 1998 and June 1999. Management believes the
net proceeds from the sale of the preferred stock will be sufficient to permit
the Company to fund its operations for at least the next 12 months.

        Since inception, the Company has devoted significant resources to the
development, deployment and commercialization of wireless network products and
services. As a result, as of December 31, 1998, the Company had incurred $233.5
million of cumulative net losses. The Company's operations have required
substantial capital investments for the purchase of Ricochet network equipment,
Ricochet modems and computer and office equipment. Capital expenditures were
$15.9 million, $10.6 million and $5.0 million in 1996, 1997 and 1998,
respectively. The Company expects that it will continue to have substantial
capital requirements in connection with the ongoing development and planned
deployment of Ricochet2. The Company also expects that, to the extent Ricochet2
is deployed and marketed, increasingly significant capital expenditures will be
required to procure Ricochet2 modems.

        The Company expects to make significant capital expenditures in
connection with the development, deployment and marketing of its wireless
networks. The Company also expects that to the extent the Company's subscriber
base grows, significant capital expenditures will be required to procure
Ricochet and Ricochet2 modems. The amount and timing of expenditures, however,
may vary significantly depending on numerous factors including market
acceptance; availability of radios and modems; availability of sufficient
financial, management, marketing and technical resources, and technological
feasibility.

        As of December 31, 1998, the Company had cash and cash equivalents of
$19.1 million and working capital of $9.4 million. The Company's accounts
receivable decreased to $1.5 million as of December 31, 1998 from $2.3 million
at December 31, 1997 due in part to increased efforts to expedite collections in
the latter part of 1998. Inventories remained relatively unchanged at December
31, 1998 as compared with December 31, 1997. The Company believes that both
accounts receivable and inventories will increase in the future in order to
support the planned deployment and commercialization of Ricochet2.


                                      26.
   27

        In 1995, Metricom Investments DC, Inc. ("Metricom Investments"), a
subsidiary of the Company, and PepData, Inc. ("PepData"), a subsidiary of
Potomac Electronic Power Company, formed Metricom DC, L.L.C ("Metricom DC") to
own and operate a wireless data communications network in the metropolitan
Washington D.C. area. Metricom Investments contributed $1,000 and rights to use
proprietary technology employed by the Company's Ricochet networks in exchange
for an 80% ownership interest in Metricom DC. PepData will contribute up to $7.0
million in exchange for a 20% ownership interest in Metricom DC. Metricom DC
will distribute available cash first to PepData, until PepData has received
cumulative distributions equal to its capital contributions, and second to
PepData and Metricom Investments in proportion to their respective ownership
interests. As of December 31, 1998, PepData had contributed $5.9 million to the
joint venture, $5.2 million of which is reflected as a minority interest in the
accompanying consolidated financial statements.

        Year 2000 Compliance. Many installed computer systems and software
products are coded to accept only two digit entries in the date code field. As
the year 2000 approaches, these code fields will need to accept four digit
entries to distinguish years beginning with "19" from those beginning with "20"
dates. As a result, in the next year, computer systems and/or software products
used by many companies may need to be upgraded to comply with such year 2000
("Y2K") requirements.

        In the third quarter of 1998, the Company began a plan to remedy the
potential Y2K problems. The Company is currently in various stages of
assessment, testing and remediation of Y2K compliance, depending on the
particular computer systems or software involved. The Company's business and
financial systems have recently been upgraded to Oracle 10.7, a current revision
which has been certified by the vendor to be Y2K compliant. The Company is in
the process of assessing its microcellular commercial data networks for Y2K
compliance. These networks are dependent upon third parties for
telecommunications services and power. If the Company's providers of these
services are not Y2K compliant, the usability of the Company's microcellular
commercial networks could be impaired, which could have a material adverse
effect on the Company's business, financial condition and results of operations.

        The Company intends to have its Y2K assessment, testing, remediation
efforts and development of necessary contingency plans complete by the year
2000. To date, costs incurred to address Y2K compliance issues have not been
material. The Company estimates that total costs to address Y2K compliance
issues will be approximately $300,000. The total cost estimate is subject to
change as the Company progresses in the execution of its Y2K plan. Costs related
to Y2K issues continue to be funded through operating cash flows. There can be
no assurance that the Company will be able to complete its Y2K assessment,
testing, remediation efforts and development of necessary contingency plans by
the year 2000. Any failure to complete the Y2K assessment, testing, remediation
efforts and development of necessary contingency plans prior to the year 2000
could have a material adverse effect on the Company's business, financial
condition and results of operations.

        The Company has begun communicating with its key suppliers to assess Y2K
compliance. There can be no assurance that the Company's key suppliers have or
will have information technology systems, non-information technology systems and
products that are Y2K compliant. Similarly, there can be no assurance that the
Company's customers have, or will have information technology systems,
non-information technology systems and products that are Y2K compliant. Any Y2K
problem facing the Company, its customers or suppliers could have a material
adverse effect on the Company's business, financial condition and results of
operations. In the event that the Company's planned actions do not resolve the
Y2K issues, the Company is prepared to use backup systems, where possible, that
do not rely on computers. In other critical functions where computer systems are
essential, the Company intends to develop an alternative contingency plan in the
coming months.

        New Accounting Standards. In February, 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits", which revises and standardizes
employers' disclosures about pension and other postretirement benefit plans and
requires additional information on changes in the benefit obligations and fair
values of plan assets. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and has been adopted by the Company in 1998. This
pronouncement does not have a material effect on the Company's financial
statements.

        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, 1999. The Company believes the pronouncement will not have a material effect
on its financial statements.


                                      27.
   28

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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



                                                                    DECEMBER 31,
                                                               ------------------------
                                                                  1997         1998
                                                               ---------      ---------
                                                                    
ASSETS
Current assets:
    Cash and cash equivalents ............................     $   9,784      $  19,141
    Short-term investments ...............................         4,390             --
    Accounts receivable, net .............................         2,278          1,450
    Inventories ..........................................         3,011          3,046
    Prepaid expenses and other ...........................         1,124          1,522
                                                               ---------      ---------
        Total current assets .............................        20,587         25,159
Property and equipment, net ..............................        25,875          5,555
Long-term investments ....................................           300             58
Other assets, net ........................................         4,341          3,694
                                                               ---------      ---------
        Total assets .....................................     $  51,103      $  34,466
                                                               =========      =========


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable .....................................     $   3,143      $   5,061
    Accrued liabilities ..................................         5,464         10,662
    Notes payable ........................................         5,000             40
                                                               ---------      ---------
Total current liabilities ................................        13,607         15,763
                                                               ---------      ---------

Long-term debt ...........................................        45,000         55,098
                                                               ---------      ---------
Other liabilities ........................................         1,129            680
                                                               ---------      ---------
Minority interest ........................................         5,184          5,184
                                                               ---------      ---------

Commitments (Note 5)

Stockholders' equity (deficit):
Preferred Stock, $.001 par value per share: authorized -
        2,000,000 shares; issued and outstanding  - none .            --             --
Common Stock, $.001 par value per share: authorized -
        50,000,000 shares; issued and outstanding -
        13,819,276 shares in 1997 and 18,793,055 shares
        in 1998...........................................            14             19
Additional paid-in capital ...............................       135,466        191,184
Unrealized holding gain on investments ...................             1             --
Accumulated deficit ......................................      (149,298)      (233,462)
                                                               ---------      ---------
Total stockholders' equity (deficit) .....................       (13,817)       (42,259)
                                                               ---------      ---------
Total liabilities and stockholders' equity (deficit) .....     $  51,103      $  34,466
                                                               =========      =========


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


                                      28.
   29

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



                                                  YEAR ENDED DECEMBER 31,
                                           ------------------------------------
                                             1996          1997          1998
                                           --------      --------      --------
                                                              
REVENUES:
  Service revenues ...................     $  2,158      $  6,642      $  8,419
  Product revenues ...................        4,996         6,797         7,440
                                           --------      --------      --------
     Total revenues ..................        7,154        13,439        15,859
                                           --------      --------      --------
COSTS AND EXPENSES:
  Cost of service revenues ...........       14,334        27,866        28,310
  Provision for network replacement ..           --            --        14,392
  Cost of product revenues ...........        2,528         4,558         5,050
  Research and development ...........       13,920        13,212        27,313
  Selling, general and administrative        17,724        21,189        22,934
  Provision for Overall Wireless .....           --         3,611            --
                                           --------      --------      --------
     Total costs and expenses ........       48,506        70,436        97,999
                                           --------      --------      --------
  Loss from operations ...............      (41,352)      (56,997)      (82,140)
  Interest expense ...................       (1,310)       (4,151)       (3,939)
  Interest income ....................        3,317         1,820         1,915
                                           --------      --------      --------
  Net loss ...........................     $(39,345)     $(59,328)     $(84,164)
                                           ========      ========      ========
  Basic and diluted net loss per share     $  (2.93)     $  (4.35)     $  (4.63)
                                           ========      ========      ========
  Weighted average shares outstanding        13,413        13,641        18,195
                                           ========      ========      ========


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


                                      29.
   30

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



                                                                   UNREALIZED
                                                                    HOLDING
                                                       ADDITIONAL  GAIN/(LOSS)
                                      COMMON STOCK       PAID-IN       ON       ACCUMULATED
                                   SHARES      AMOUNT    CAPITAL   INVESTMENTS    DEFICIT        TOTAL
                                 ----------     ---     --------     -----      ---------      --------
                                                                               
BALANCE, DECEMBER 31, 1995 ...   13,291,025      13      130,831       155        (50,625)       80,374

Exercise of common
Stock options ................       81,573      --          497        --             --           497
Common stock issued to
employees ....................      110,465       1        1,354        --             --         1,355
Exercise of common stock
warrants .....................       72,382      --           --
Warrant issued in exchange
for services rendered ........           --      --          616        --             --           616
Unrealized holding loss on
investments ..................           --      --           --      (191)            --          (191)
Net loss .....................           --      --           --        --        (39,345)      (39,345)
                                 ----------     ---     --------     -----      ---------      --------
BALANCE, DECEMBER 31, 1996 ...   13,555,445     $14     $133,298     $ (36)     $ (89,970)     $ 43,306

Exercise of common
Stock options ................       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 common
Stock options ................      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)
                                 ==========     ===     ========     =====      =========      ========




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


                                      30.
   31

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




                                                            YEAR ENDED DECEMBER 31,
                                                      ------------------------------------
                                                        1996          1997          1998
                                                      --------      --------      --------
                                                                         
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net loss ....................................     $(39,345)     $(59,328)     $(84,164)
Adjustments to reconcile net loss to net cash
    used in operating activities -
 Depreciation and amortization ..................        4,135         8,366         9,205
 Provision for Overall Wireless .................           --         3,611            --
 Provision for obsolete inventory ...............           --         3,622            --
 Provision for network replacement ..............           --            --        14,392
 (Increase) decrease in accounts receivable,
    prepaid expenses and other current assets ...         (765)          (93)          430
 (Increase) decrease in inventories .............        1,352          (567)        1,970
    Increase (decrease) in accounts payable,
    accrued liabilities and other liabilities ...        5,484        (1,350)        6,667
                                                      --------      --------      --------
     Net cash used in operating activities ......      (29,139)      (45,739)      (51,500)
                                                      --------      --------      --------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of property and equipment .............      (15,910)      (10,584)       (4,994)
 (Increase) decrease in other assets ............       (1,463)       (3,580)         (226)
 Purchase of investments ........................      (58,675)      (18,941)           --
 Proceeds from the sale of investments ..........       67,723        64,263         4,390
                                                      --------      --------      --------
     Net cash provided by (used in) investing
        activities...............................       (8,325)       31,158          (830)
                                                      --------      --------      --------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock .........        1,852         2,168        56,549
 Proceeds from issuance of notes payable and
   long-term debt................................       45,000         5,000        10,138
 Reduction of notes payable and long-term debt ..           --            --        (5,000)
 Financing costs ................................       (1,650)         (826)           --
 Contribution from minority interest ............        2,307         2,777            --
                                                      --------      --------      --------
     Net cash provided by financing activities ..       47,509         9,119        61,687
                                                      --------      --------      --------
 Net increase (decrease) in cash and cash
   equivalents...................................       10,045        (5,462)        9,357


 Cash and cash equivalents, beginning of year ...        5,201        15,246         9,784
                                                      --------      --------      --------
 Cash and cash equivalents, end of year .........     $ 15,246      $  9,784      $ 19,141
                                                      ========      ========      ========



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


                                      31.
   32

                                 METRICOM, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.      ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES.

        ORGANIZATION AND BASIS OF PRESENTATION. Metricom, Inc. (the "Company")
designs, develops and markets wireless network products and services that
provide low cost, high performance, easy to use, data communications that can be
used in a broad range of personal computer and industrial applications. 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 is currently available in the San Francisco Bay
Area, in the Seattle and Washington, D.C. metropolitan areas and in a number of
airports and college and university campuses across the United States. In the
future, the Company plans to deploy networks in 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 several years while it continues to develop and deploy networks and build
its customer base. The ability of the Company to achieve profitability will
depend in part upon the successful and timely development of its next
generation network, Ricochet2, and the deployment and marketing of Ricochet2 in
major metropolitan areas of the United States, as to which there can be no
assurance. Further, the Company will need to obtain additional capital from
either debt or equity sources in order to complete the development and
deployment of its networks. The Company has no assurance that such capital will
be available when required. A broad market for wide area wireless data
communications has not yet developed. As a result, the extent of the potential
demand for its products and services cannot be reliably estimated. 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.

        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 1998 presentation. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

        CASH AND CASH EQUIVALENTS. 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. Cash paid during fiscal 1996 for interest and income
taxes was not significant. In both fiscal 1997 and fiscal 1998, the Company paid
$3.6 million for interest, and cash paid for income taxes was not significant.

        NON CASH TRANSACTIONS. In July 1997, the Company transferred certain
property and equipment to a third party in exchange for research and development
services. The assets and the services were valued at $439,000, which was the net
book value of the assets as of the date of the transaction.

        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):



                                                         DECEMBER 31,
                                                     -------------------
                                                      1997         1998
                                                     ------       ------
                                                            
        Raw materials and component parts .......    $1,660       $  680
        Work-in-process .........................        28            3
        Finished goods and consigned inventory ..     1,323        2,363
                                                     ------       ------
        TOTAL ...................................    $3,011       $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


                                      32.
   33

equipment includes poletop radios and wired access points deployed, and raw
materials, work-in-process and finished goods not yet deployed. This charge was
recorded as a result of the Company's plans to replace this equipment with
Ricochet2 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, 1997 and 1998, network equipment included
approximately $3.6 million 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,
                                                              ------------------------
                                                                1997            1998
                                                              --------        --------
                                                                        
        Machinery and equipment ..........................    $  9,150        $ 13,017
        Network equipment ................................      24,603          22,752
        Ricochet modems ..................................       3,317           3,229
        Furniture and fixtures ...........................       2,071           1,964
        Leasehold improvements ...........................       1,160           1,383
                                                              --------        --------
                                                                40,301          42,345
        Less--Accumulated depreciation and amortization ..     (14,426)        (36,790)
                                                              --------        --------
        TOTAL ............................................    $ 25,875        $  5,555
                                                              ========        ========



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



                                                      DECEMBER 31,
                                                   --------------------
                                                    1997          1998
                                                   ------       -------
                                                          
        Interest ..............................    $1,050       $ 1,075
        Employee stock purchase plan ..........       282           210
        Deferred Revenue ......................     1,843         2,691
        Payroll and related ...................       981         5,477
        Royalties .............................       332           185
        State and local taxes .................       453           275
        Warranty ..............................       256           256
        Other .................................       267           493
                                                   ------       -------
        TOTAL .................................    $5,464       $10,662
                                                   ======       =======



        DEBT ISSUANCE COSTS. Debt issuance costs of $1.3 million and $1.0
million at December 31, 1997 and 1998 are included in other assets in the
accompanying consolidated balance sheet. Debt issuance costs are amortized over
the life of the respective debt instrument, and 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 to increase network capacity and speed. 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 February, 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits", which revises and standardizes
employers' disclosures about pension and other postretirement benefit plans and
requires additional information on changes in the benefit obligations and fair
values of plan assets. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and has been adopted by the Company in 1998. This
pronouncement does not have a material effect on the Company's financial
statements.

        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, 1999. The Company believes the pronouncement will not have a material effect
on its financial statements.


                                      33.
   34

2.      SHORT-TERM AND LONG-TERM INVESTMENTS.

        The Company's investments in debt and equity securities are considered
available-for-sale and are recorded at their fair value 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, 1997 and 1998, the difference between aggregate fair value
and cost basis was an unrealized holding gain of $676 and a holding loss of
$676, respectively. The value of the Company's investments by major security
type is as follows (in thousands):



                                                      DECEMBER 31,
                                                   ------------------
                                                    1997        1998
                                                   ------     -------
                                                        
     SECURITY TYPE
     United States Treasury and Agencies ........  $  717     $    --
     Corporate debt securities ..................   3,922      15,408
     Certificates of  Deposit ...................   1,300          --
                                                   ------     -------
      TOTAL .....................................  $5,939     $15,408
                                                   ======     =======



        As of December 31, 1998, investments in obligations of the United States
Treasury and Agencies and corporate debt securities had maturities of 0 to 3
months. Approximately $1.3 million and $16.4 million of the total investments as
of December 31, 1997 and 1998, respectively, are included in cash and cash
equivalents.

3.      INVESTMENTS.

        On June 8, 1995, Metricom Investments DC, 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% ownership
interest in Metricom DC. PepData will contribute up to $7.0 million in exchange
for a 20% ownership interest in Metricom DC. Metricom DC will distribute
available cash first to PepData, until PepData has received cumulative
distributions equal to its capital contributions, and second to PepData and
Metricom Investments in proportion to their respective ownership interests. As
of December 31, 1998, PepData had contributed $5.9 million to the joint venture,
$5.2 million of which is reflected as a minority interest in the accompanying
consolidated financial statements.

        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, 1996, 1997 and 1998, combined product
and service revenues from Southern California Edison accounted for 51%, 12% and
7%, respectively, of total revenues. No other customers accounted for more than
10% of revenues.


                                      34.
   35

5.      COMMITMENTS.

        The Company leases various facilities and equipment under operating
lease agreements. Rent expense under these agreements for the years ended
December 31, 1996, 1997 and 1998, was approximately $1.4 million, $1.8 million
and $1.9 million, respectively. The lease agreement for the Company's 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, 1997 and 1998, the Company had accrued approximately $428,000
and $388,000, respectively, of deferred rental payments under this agreement,
which are included in other liabilities in the accompanying consolidated balance
sheets. Approximate future minimum rental payments under operating lease
agreements are as follows (in thousands):



              YEARS ENDING DECEMBER 31,

                                                                  
              1999..............................................     $ 1,631
              2000..............................................       1,255
              2001..............................................         844
              2002..............................................         635
              2003..............................................         635
              Thereafter........................................          53
                                                                     -------
                 Total..........................................     $ 5,053
                                                                     =======


        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 these
agreements is generally contingent upon the number of network radios installed
during the year. Rent expense under these agreements for the year ended December
31, 1997 and 1998, was approximately $1.1 million and $1.1 million,
respectively. Future minimum rental payments under these agreements are
approximately $1.9 million per year.


6.      LONG-TERM DEBT.

        On August 28, 1996, the Company issued $45 million principal amount of
unsecured, 8% Convertible Subordinated Notes (the "Notes") due September 15,
2003. Interest is payable semi-annually on March 15 and September 15, commencing
March 15, 1997. The 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. The Notes are redeemable, in whole or in part, at the option of
the Company at any time on or after September 15, 1999, at the following
redemption prices if redeemed during the 12- month period commencing September
15 of the years indicated below:



                          YEAR                  PERCENTAGE
                                               
                          1999                    104.0
                          2000                    102.7
                          2001                    101.3
                          2002                    100.0


        In the event of a change of control, as defined in the indenture, each
holder of the Notes will have the right to require the Company to purchase all
or any part of such holder's Notes at 101% of the principal amount, plus accrued
and unpaid interest and liquidated damages, if any.

        In October 1998, the Company entered into an unsecured line of credit
agreement with Vulcan Ventures, a significant shareholder of the Company. The
line of credit is due on October 29, 2000. Interest at the prime rate is due
quarterly on the outstanding balance. As of December 31, 1998, there was $10
million outstanding on the line of credit.

                                      35.
   36

7.      COMMON STOCK.

        In January, 1998 the Company completed a private placement for the sale
of 4,650,000 shares of common stock to Vulcan Ventures Incorporated at $12.00
per share for net proceeds of approximately $53.7 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. These warrants are exercisable in cash or
via a net exercise, expire five years from the date of issuance and provide for
certain registration rights.

        Upon closing of the Company's initial public offering in May 1992,
warrants to purchase 368,000 shares of Series C preferred stock at $7.81 per
share were converted to warrants to purchase 395,541 shares of common stock at
$7.27 per share. During 1996, 72,382 shares were issued upon a net exercise of
168,451 of these warrants.

        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 at any time, 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 January 1996, the Board of Directors approved the
replacement of each outstanding option with a per share exercise price of $14.00
or greater, upon the request of the optionee, with a stock option having an
exercise price of $13.125 per share and certain extended vesting terms. A total
of 982,263 options with exercise prices ranging from $15.00-$28.75 per share
were replaced. In August 1997, the Board of Directors approved the replacement
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. A total of 1,423,650 options with exercise prices ranging
from $7.81-$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. A total of 568,000 options with
exercise prices ranging from $11.88-$13.50 per share were replaced. In 1998,
501,857 shares expired.

        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 375,000 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, the Company is authorized to grant up to 1,075,000 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. Non-qualified
stock options and 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 at any time, as determined by the Board of Directors, and 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 1,350,000
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. Non-qualified
stock options and 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 at any time, as determined
by the Board of Directors, and will expire no later than ten years from the date
of grant.

        During 1996, 1997 and 1998, the Company issued members of the Board of
Directors and Advisory Board options to purchase 53,000, 42,000 and 63,000
shares, respectively, of common stock at fair market value of the stock at the
date of grant.


                                      36.
   37

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,
1996, 1997 and 1998 was as follows:




                                          SHARES                      WEIGHTED
                                        AVAILABLE                     AVERAGE
                                        FOR FUTURE      OPTIONS       EXERCISE
                                          GRANT        OUTSTANDING     PRICE
                                        ---------      ----------      ------
                                                              
Balance, December 31, 1995........        674,532       2,647,819      $14.36
        Authorized ...............        475,000              --       --
        Grants ...................     (1,050,500)      1,050,500      $13.87
        Exercises ................             --         (85,092)     $ 6.08
        Cancellations ............        245,358        (245,358)     $18.01
                                        ---------      ----------      ------
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
                                        =========      ==========      ======


        The following table summarizes information concerning stock options
outstanding and exercisable as of December 31, 1998:



                                                 OPTIONS OUTSTANDING       OPTIONS EXERCISABLE
                                               ------------------------  -----------------------
               RANGE OF           SHARES       WEIGHTED       WEIGHTED     SHARES       WEIGHTED
               EXERCISE        OUTSTANDING      AVERAGE       AVERAGE    EXERCISABLE    AVERAGE
                PRICES                         REMAINING      EXERCISE                  EXERCISE
                                                 LIFE          PRICE                     PRICE
                                                                          
            $ 1.00 - $ 3.28       128,519        2.80          $ 2.72      114,019       $ 2.65
            $ 3.44 - $ 4.53     1,201,034        6.76          $ 4.50      952,959       $ 4.50
            $ 4.66 - $ 6.31     1,071,753        6.87          $ 5.95      690,459       $ 6.03
            $ 6.36 - $ 9.41     1,102,827        9.06          $ 7.23      587,157       $ 6.72
            $ 9.50 - $23.37     1,744,661        8.47          $12.23      454,764       $16.51
                                ---------        ----          ------      -------       ------
                                5,248,794        7.74           $7.89    2,799,358       $ 7.22
                                =========        ====           =====    =========       ======


        STOCK PURCHASE PLAN. In 1991, the Board of Directors adopted the 1991
Employee Stock Purchase Plan (the "Purchase Plan"). An aggregate of 550,000
shares of common stock have been reserved 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.


                                      37.
   38

In 1996, 1997 and 1998, the Company issued 49,994, 103,056 and 84,650 shares,
respectively, under this plan. In January, 1999 the Company issued 37,674 shares
under this plan.

        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 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):



                                                                      1996        1997        1998
                                                                     -------     -------     -------
                                                                                    
          Net loss - As reported                                     $39,345     $59,328     $84,164
          Net loss - Pro forma                                       $44,178     $65,436     $89,309
          Basic and diluted net loss per share - As reported         $2.93       $4.35       $4.63
          Basic and diluted net loss per share - Pro forma           $3.29       $4.80       $4.91


        The weighted average fair value of stock options granted during 1996,
1997 and 1998 was $4.51, $2.02 and $3.20 per share, respectively. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model using the following assumptions:



                                                            1996      1997      1998
                                                            ----      ----      ----
                                                                       
          Risk free interest rate                           6.0%      5.5%      5.2%
          Dividend Yield                                    0.0%      0.0%      0.0%
          Volatility factor of expected market price
              of the company's stock                        0.48      0.50      0.50
          Weighted average expected option life from
              Vest date (in years)                          0.68      1.11      1.03


        The weighted average fair value of employee stock purchase rights
granted during 1996, 1997 and 1998 was $1.44, $1.04 and $3.75 per share,
respectively. The fair value for these purchase rights was estimated at the date
of grant using a Black-Scholes option pricing model using the following
assumptions:



                                                            1996      1997      1998
                                                            ----      ----      ----
                                                                       
          Risk free interest rate                           5.0%      5.2%      5.2%
          Dividend Yield                                    0.0%      0.0%      0.0%
          Volatility factor of expected market price
              of the company's stock                        0.48      0.50      0.50
          Weighted average expected option life from
              Vest date (in years)                          0.50      0.50      0.70


        COMMON STOCK RESERVED FOR FUTURE ISSUANCE. As of December 31, 1998 the
Company had reserved the following shares of common stock for future issuance:


                                                                   
             Exercise of stock options...........................................  5,424,963
             Conversion of 8% Convertible Subordinated Notes due 2003............  3,092,783
             Exercise of common stock warrants...................................    200,000
             Employee stock purchase plan........................................    205,340
                                                                                   ---------
                TOTAL                                                              8,923,086
                                                                                   =========

             


                                      38.
   39

8.      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 at the rate of 50% for the first
$2,000 contributed. Contributions by the Company to date have not been material.

9.      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,
                                                 ----------------------
                                                   1997          1998
                                                 --------      --------
                                                         
        Reserves and other                       $  5,485      $ 11,755
        Capitalized research and development        1,821         3,659
                                                 --------      --------
          TOTAL                                     7,306        15,414
        NOL and other credit carryforwards         51,916        74,745
        Valuation allowance                       (59,222)      (90,159)
                                                 --------      --------
          TOTAL                                  $     --      $     --
                                                 ========      ========


        As of December 31, 1997 and 1998, a valuation allowance was provided for
the net deferred tax assets as a result of uncertainties regarding their
realization. During 1998, the valuation allowance increased by approximately
$30.9 million due to increases in temporary differences and additional losses
incurred during the year. Approximately $2.8 million of the valuation allowance
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, 1998, the Company had net operating loss
carryforwards for Federal and California income tax purposes of approximately
$200 million and $58 million, respectively, and research and development tax
credit carryforwards of approximately $3 million. To the extent not used, these
carryforwards expire at various times through 2013. 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.

10.     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 average number of shares of common stock
outstanding. Potential common shares from options and warrants to purchase
common stock and from conversion of the Convertible Subordinated Debt 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:


                                      39.
   40



                                                      INCOME            SHARES          PER SHARE
                                                      (NUMERATOR)       (DENOMINATOR)   AMOUNT
                                                       ----------       -------------   ------
                                                                               
        FOR THE YEAR 1996
        BASIC LOSS PER SHARE
        Income available to common stockholders        $(39,345)        13,413          $(2.93)

        DILUTED EARNINGS PER SHARE
        Income available to common stockholders        $(39,345)        13,413          $(2.93)

        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)

        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)



11.     SEGMENT REPORTING.

        The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information", during the fourth quarter 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 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.

        The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. A summary of
operating results by reportable operating segment is as follows:


                                      40.
   41



                                                     DECEMBER 31,
                                                 --------------------
                                                   1997         1998
                                                 -------      -------
                                                        
        Ricochet Revenue ..................      $ 7,772      $10,775
        Utilinet Revenue ..................        5,667        5,084
                                                 -------      -------
            Total Revenue .................       13,439       15,859
                                                 -------      -------
        Cost of Product Ricochet ..........        2,162        2,741
        Cost of Product Utilinet ..........        2,396        2,309
                                                 -------      -------
            Total Cost of Product                $ 4,558      $ 5,050
                                                 =======      =======


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


12.  SUBSEQUENT EVENTS

     On November 15, 1999, the Company issued 60 million shares of Series A1 and
A2 redeemable convertible preferred stock to Vulcan Ventures and MCI WorldCom,
Inc. at a price of $10.00 per share. The total net proceeds to the Company were
approximately $572 million. Of these net proceeds, approximately $60.5 million
was used to pay outstanding indebtedness to Vulcan Ventures. The indebtedness to
Vulcan Ventures was incurred by the Company pursuant to lines of credit that
were entered in October 1998 and June 1999. Management believes the net proceeds
from the sale of the preferred stock will be sufficient to permit the Company to
fund its operations for at least the next 12 months.

13.  QUARTERLY FINANCIAL DATA  (UNAUDITED)




                                                FISCAL 1997 QUARTER ENDED:
(In thousands, except per share    MARCH 31      JUNE 30     SEPTEMBER 30   DECEMBER 31
amounts)                           --------      --------    ------------   -----------
                                                                 
Net revenues .................     $  1,794      $  4,742      $  3,141      $  3,762
Total costs and expenses......       15,555        20,070        15,235        19,576
Net loss .....................      (13,959)      (15,951)      (12,812)      (16,606)
Net loss per share ...........     $  (1.03)     $  (1.17)     $  (0.94)     $  (1.21)





                                                FISCAL 1998 QUARTER ENDED:
(In thousands, except per share    MARCH 31      JUNE 30     SEPTEMBER 30   DECEMBER 31
amounts)                           --------      --------    ------------   -----------
                                                                 
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)



                                      41.
   42

                    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, 1997
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, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Metricom, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.



/s/ ARTHUR ANDERSEN LLP

San Jose, California
February 1, 1999
(except with respect to the
  matter discussed in Note 12,
  as to which the date is
  November 17, 1999)

                                      42.
   43
ITEM 7A - QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's interest income and expense is sensitive to market
fluctuations in the general level of U.S. interest rates. In this regard,
changes in the U.S. interest rates affect the interest earned on the Company's
cash and cash equivalents, as well as the interest paid on long-term debt
obligations. The Company's cash and cash equivalents subject to interest rate
risk are primarily highly liquid corporate debt securities from high credit
quality issuers. At December 31, 1998, the Company's investments in debt
securities had maturities of three months or less. Interest rate risk on cash
and cash equivalents is considered to be insignificant.

        The Company's exposure to interest rate risk on long-term debt
outstanding relates primarily to the unsecured line of credit agreement entered
into with Vulcan Ventures, a significant shareholder of the Company. The line of
credit is due on October 29, 2000. Interest at the prime rate is due quarterly
on the outstanding balance. As of December 31, 1998, there was $10 million
outstanding on the line of credit. Any future increase in interest rates could
result in increased interest expense on the outstanding balance and a negative
impact on the Company's financial statements.


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

        None.

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS

BIOGRAPHICAL INFORMATION

        The names, ages and positions held by the executive officers and
directors of the Company are as follows:



NAME                         AGE       POSITION

                                 
Timothy A. Dreisbach         49        President and Chief Executive Officer
Lee M. Gopadze               52        Senior Vice President, Field Operations
Dale W. Marquart             40        Senior Vice President of Administration, General Counsel and
                                       Secretary
Robert W. Mott               39        Senior Vice President, Engineering & Manufacturing
John G. Wernke               40        Senior Vice President of Marketing and Sales
Robert P. Dilworth           57        Chairman of the Board
Robert S. Cline              61        Director
Ralph Derrickson             40        Director
Justin L. Jaschke            41        Director
David M. Moore               44        Director
William D. Savoy             34        Director



        TIMOTHY A. DREISBACH, has served as the Company's President and Chief
Executive Officer since May 1998. Prior to joining the Company, Mr. Dreisbach
served as president and CEO of Premenos Technology Corp., a supplier of software
and services for business-to-business electronic commerce. He previously served
five years as senior vice president for North American Sales and Service at
Boole & Babbage, and was a founding officer of Legent Corporation. Dreisbach has
an undergraduate degree from Dartmouth College, and a graduate degree from
UCLA's School of Engineering and Applied Science.

        LEE M. GOPADZE has served as the Company's Senior Vice President of
Field Operations since September 1998, and its Vice President of Right of Way
since April 1998. Mr. Gopadze served as the Company's Vice President of
Marketing and President of Ricochet LA from February 1997, to April 1998. Mr.
Gopadze joined the Company in February, 1997. Prior to joining the Company, Mr.
Gopadze was the Chief Operating Officer and Executive Vice President of The
National Dispatch Center, Incorporated.

        DALE W. MARQUART has served as the Company's General Counsel, Senior
Vice President of Administration and Secretary since June 1998. Prior to joining
the Company he served as General Counsel and Vice President of International
Sales at Premenos Technology Corporation. Previously Mr. Marquart served as the
Senior Director of Business Development and Field Operations at Boole & Babbage,
an industry leader in systems management software.

        ROBERT W. MOTT has served as the Company's Senior Vice President of
Engineering since August, 1998 and as Senior Vice President of Engineering and
Manufacturing since December 1998. Prior to joining the Company, he was the Vice
President of Engineering for CSI ZeitNet. Previously Mr. Mott was Vice President
of Engineering, KENETECH Windpower; a Senior Manager, KPMG Consulting; a Manager
with Pittiglio Rabin Todd & McGrath; and a Senior Associate with Booz - Allen &
Hamilton, Inc.



                                      43.
   44




        JOHN G. WERNKE has served as the Company's Senior Vice President of
Sales and Marketing since August 1998. Prior to joining the Company, Mr. Wernke
was the Vice President of Enterprise Product Marketing for Harbinger
Corporation. He has also served as a Product Marketing Manager at OpenVision,
where he directed the positioning of storage products.

        ROBERT P. DILWORTH has served as a director since August 1987 and as
Chairman of the Board since February 1997. Mr. Dilworth also served as Chief
Executive Officer from September 1987 to May 1998 and as President from
September 1987 to March 1997. Mr. Dilworth has served as Senior Vice President
of VLSI Technology, Inc. since December 1998. Prior to joining the Company, he
served as President of Zenith Data Systems Corp., a microcomputer manufacturer
and a wholly-owned subsidiary of Zenith Electronics Corp., from May 1985 to
November 1987. Mr. Dilworth is also a director of Data Technology Corporation,
Cortelco Systems, Inc. and GraphOn Corporation.

        ROBERT S. CLINE has served as a director of the Company since January
1994. He currently serves as Chairman and Chief Executive Officer of Airborne
Freight Corp., an air express company. Mr. Cline has been employed by Airborne
Freight Corp. since 1968. In addition to Airborne Freight Corp., Mr. Cline is
also a director of SAFECO Corp. and Seattle-First National Bank.

        RALPH DERRICKSON has served as a director of the Company since February
1998. Mr. Derrickson is a partner of Watershed Capital, LLC. Prior to founding
Watershed, Mr. Derrickson was a representative of Vulcan Northwest, Inc., a
venture capital firm affiliated with Vulcan Ventures, since December 1996. Since
June 1993, Mr. Derrickson also served as Vice President of Product Development
at Starwave Corporation, an internet technology company and creator and producer
of online sports, news and entertainment services. From December 1989 to May
1993, Mr. Derrickson was with NeXT Computer Inc., a computer company, most
recently as Director of NeXTedge.

        JUSTIN L. JASCHKE has served as a director of the Company since June
1996. He currently serves as Chief Executive Officer and a Director of Verio
Inc., an internet service provider. Prior to forming Verio, Mr. Jaschke served
as Chief Operating Officer of Nextel Communications, a telecommunications
company, following its merger with OneComm Corporation ("OneComm"), a
telecommunications company, in July 1995. From April 1993 to July 1995, he
served as OneComm's President and a member of its Board of Directors. From May
1990 to April 1993, he served as President and Chief Executive Officer of Bay
Area Cellular Telephone Company, a provider of cellular service in the San
Francisco Bay Area, and from November 1987 to May 1990, as Vice President of
Corporate Development for PacTel Cellular, a telecommunications company.

        DAVID M. MOORE has served as a director of the Company since January
1999. He currently is a Senior Analyst with Vulcan Northwest. Prior to joining
Vulcan in November 1998, Mr. Moore was President of Paralex Corporation, a
provider of management and technical consulting to venture capital firms. Prior
to Paralex, Mr. Moore was employed by Microsoft for 16 years, most recently
holding the position of Director of Development.

        WILLIAM D. SAVOY has served has a director of the Company since February
1998. He has served as the President of Vulcan Northwest, Inc. since January
1990. Prior to joining Vulcan, Mr. Savoy was President of Layered, Inc. since
1988. Mr. Savoy is a director of c/net, Inc., Harbinger Corporation, Telescan,
Inc., U.S. Satellite Broadcasting, Inc., Ticketmaster Group, Inc. and USA
Networks, Inc.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT

        Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the SEC initial reports of ownership and reports
of changes in ownership of Common Stock and other equity securities of the
Company. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

        To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31,


   45




1998, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.


ITEM 11 - EXECUTIVE COMPENSATION

COMPENSATION OF DIRECTORS

        Each non-employee director of the Company receives an annual retainer of
$6,000 and a per meeting fee of $1,000 (plus $250 for each committee meeting
attended by committee members). In the fiscal year ended December 31, 1998, the
total compensation paid to non-employee directors was $42,250. The members of
the Board of Directors are also eligible for reimbursement for their expenses
incurred in connection with attendance at Board of Directors and Committee
meetings in accordance with Company policy.

        Each non-employee director of the Company also receives stock option
grants under the 1993 Non-Employee Directors' Stock Option Plan (the "Directors'
Plan"). Only non-employee directors of the Company or an affiliate of such
directors (as defined in the Code) are eligible to receive options under the
Directors' Plan. Options granted under the Directors' Plan are intended by the
Company not to qualify as incentive stock options under the Code.

        Option grants under the Directors' Plan are non-discretionary. On
January 1 of each year (or the next business day should such date be a legal
holiday), each member of the Company's Board of Directors who is not an employee
of the Company, is automatically granted under the Directors' Plan, without
further action by the Company, the Board of Directors or the stockholders of the
Company, an option to purchase 7,000 shares of Common Stock of the Company. No
other options may be granted at any time under the Directors' Plan. The exercise
price of options granted under the Directors' Plan is 100% of the fair market
value of the Common Stock subject to the option on the date of the option grant.
Options granted under the Directors' Plan may not be exercised until the date
upon which such optionee has provided one year of continuous service as a
non-employee director following the date of grant of such option, whereupon such
option will become exercisable as to one third of the option shares and one
third of the option shares will become exercisable each year thereafter in
accordance with its terms. The term of options granted under the Directors' Plan
is ten years. In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or other change-in-control
transaction involving the Company, the vesting of each option will accelerate
and the option will terminate if not exercised prior to the consummation of the
transaction.

        During the last fiscal year, the Company granted options covering
42,000, 7,000 and 14,000 shares to non-employee directors of the Company at
exercise prices per share of $9.3125, $10.969 and $11.75, respectively. The
exercise prices were also the respective fair market values of such Common Stock
on the date of grant (based on the closing sale price reported on the Nasdaq
National Market for the date of grant). There were no exercises of options to
purchase shares of Common Stock under the Directors' Plan from January 1, 1998
through March 31, 1999.

        Directors who are employees of the Company do not receive separate
compensation for their services as directors.

SUMMARY OF COMPENSATION

        The following table shows for the fiscal years ended December 31, 1998,
1997 and 1996 compensation awarded or paid to, or earned by, the current Chief
Executive Officer, four other current executive officers of the Company and five
former executive officers, including a former Chief Executive Officer, who left
the Company in 1998 (the "Named Executive Officers"):


   46






                           SUMMARY COMPENSATION TABLE

                                                                                   Long-Term
                                                                                           Compensation
                                                                                           ------------
                                                                                              Awards
                                                                                         ----------------
                                                                                         Shares of Common
                                                           Annual Compensation                Stock
                                                        ------------------------            Underlying           All Other
Name and Principal Position(1)             Year         Salary(2)       Bonus(3)            Options(4)        Compensation(5)
- ---------------------------                ----         ------         ---------         ----------------      ---------------

                                                                                                
Timothy A. Dreisbach ...................   1998        $148,616        $     --              550,000             $  2,578
  President and Chief Executive Officer

Lee M. Gopadze .........................   1998        $166,179        $ 49,453               65,000             $  2,966
  Senior Vice President of                 1997        $122,950        $ 49,317               20,000                   --
  Field Operations

Dale W. Marquart .......................   1998        $ 83,654        $ 15,000               75,000             $    258
  General Counsel, Senior Vice President
  of Administration and Secretary

Robert W. Mott .........................   1998        $ 53,846        $ 47,500               75,000             $  1,220
  Senior Vice President of Engineering &
  Manufacturing

John G. Wernke .........................   1998        $ 54,808        $ 20,000               75,000             $  2,011
  Senior Vice President of Marketing and
  Sales

Robert P. Dilworth .....................   1998        $253,762        $ 76,250                   --             $185,903
  Chief Executive Officer                  1997        $305,000        $228,750              330,000             $  6,400
                                           1996        $281,960        $305,000              255,000             $ 12,396

Gary M. Green ..........................   1998        $150,515        $ 54,000               50,000             $143,477
  Former Executive Vice President          1997        $206,774        $ 81,000              121,000             $  6,472
  and Chief Operating Officer              1996        $193,232        $ 72,000               86,000             $ 36,157

William D. Swain .......................   1998        $127,364        $ 32,600               40,000             $ 88,769
  Former Vice President,                   1997        $155,695        $ 48,900               95,000             $  5,050
  Administration and Secretary             1996        $145,424        $ 61,400               65,000             $  4,789

Donald F. Wood .........................   1998        $ 57,846        $     --                   --             $327,742
  Former President                         1997        $223,748        $141,000              362,000             $  2,357
                                           1996        $179,846        $ 98,000               37,000             $  1,118

Vanessa A. Wittman .....................   1998        $140,560        $ 32,000               50,000             $  5,783
  Former Chief Financial Officer           1997        $ 94,058        $ 26,500               75,000             $  1,258

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

(1)     Mr. Dilworth resigned as Chief Executive Officer in May 1998. Mr.
        Dreisbach joined the Company in May 1998. Mr. Gopadze joined the Company
        in February 1997. Mr. Marquart joined the Company in June 1998. Mr. Mott
        and Mr. Wernke joined the Company in August 1998. Mr. Green and Mr.
        Swain left the Company in July 1998. Mr. Wood left the Company in
        January 1998. Ms. Wittman joined the Company in May 1997 and left the
        Company in November 1998.

(2)     For fiscal 1997 and 1996, includes amounts earned but deferred at the
        election of the Named Executive Officer under the Company's
        Non-Qualified Deferred Compensation Plan. In accordance with the rules
        of the SEC, the compensation described in this table does not include
        medical or group life insurance or other benefits that are generally
        available to all salaried employees of the Company or certain
        perquisites and other personal benefits received by the Named Executive
        Officers that do not exceed the lesser of $50,000 or 10% of any such
        officer's salary and bonus disclosed in this table.

   47
(3)     For fiscal 1998, 1997 and 1996, includes shares of stock issued in
        connection with the Company's annual bonuses paid in cash and stock. In
        fiscal 1996, Messrs. Dilworth, Green, Swain and Wood, respectively,
        received stock valued at $101,668, $34,003, $20,475 and $32,675, based
        on a per share value of $12.1875, the fair market value of the Company's
        Common Stock on the date bonuses were paid (based on the average of the
        previous day's high and low sales price reported in the Nasdaq National
        Market). In fiscal 1997, Messrs. Dilworth, Gopadze, Green, Swain, Wood
        and Ms. Wittman, respectively, received stock valued at $76,258, $9,367,
        $27,003, $16,301, $47,003 and $8,835, based on a per share value of
        $11.3125, the fair market value of the Company's Common Stock on the
        date bonuses were paid (based on the average of the previous day's high
        and low sales price reported in the Nasdaq National Market). In fiscal
        1998, Messrs. Dilworth, Gopadze, Green, Swain and Ms. Wittman,
        respectively, received stock valued at $50,828, $13,151, $17,993,
        $10,865, $10,659, based on a per share value of $8.25, the fair market
        value of the Company's Common Stock on the date bonuses were paid (based
        on the average of the previous day's high and low sales price reported
        in the Nasdaq National Market). Included in Mr. Mott's bonus in 1998 is
        an advance payment of $35,000.

(4)     Includes repriced options. In January 1996, the Board approved the
        replacement of each outstanding stock option with a per share exercise
        price of $14.00 or greater, upon the timely request of the optionee,
        with a nonstatutory stock option having an exercise price of $13.125
        per share and certain extended vesting terms. Amounts for fiscal 1996
        include 205,000, 61,000, 45,000, 12,000 shares subject to repriced
        options for Messrs. Dilworth, Green, Swain and Wood, respectively. In
        September 1997, the Board approved the replacement of each outstanding
        option held by an executive officer with a per share exercise price of
        $11.00 per share or greater, upon the timely request of the optionee,
        with a nonstatutory stock option having an exercise price of $6.75 per
        share and certain delayed exercise provisions. Amounts for fiscal 1997
        include 225,000, 86,000, 65,000 and 162,000 shares subject to repriced
        options for Messrs. Dilworth, Green, Swain and Wood, respectively.

(5)     For 1996 and 1997, includes the Company's matching payment of $1,000 for
        each executive officer under its 401(k) plan, except for Mr. Gopadze,
        who received no matching payments. For 1998, includes the Company's
        matching payment of $1,000 for each executive officer under its 401(k)
        plan, except for Messrs. Gopadze, Marquart, Mott and Wernke, who
        received $0, $0, $942, and $0 in matching payments, respectively. For
        fiscal 1996, includes payments for term life insurance in the amounts of
        $5,400, $5,157, $3,789 and $1,118 for Messrs. Dilworth, Green, Swain and
        Wood, respectively, loan principal forgiveness in the amount of $30,000
        for Mr. Green and an automobile allowance of $5,996 for Mr. Dilworth.
        For fiscal 1997, includes payments for term life insurance in the
        amounts of $5,400, $5,472, $4,050, $1,357 and $258 for Messrs. Dilworth,
        Green, Swain, Wood and Ms. Wittman, respectively. For fiscal 1998,
        includes payments for term life insurance in the amounts of $1,578,
        $7,875, $2,966, $258, $278, $349, $5,400, $1,357, and $475 for Messrs.
        Dreisbach, Dilworth, Gopadze, Marquart, Mott, Wernke, Green, Wood and
        Ms. Wittman, respectively, and an automobile allowance of $1,662 for Mr.
        Wernke. Also includes, for fiscal 1998, payments under the Key Employee
        Severance Plan in the amounts of $177,028, $137,077, $87,769, $325,385
        and $4,308 for Messrs. Dilworth, Green, Swain, Wood, and Ms. Wittman,
        respectively. See "Change in Control Arrangements."

   48




COMPENSATION PURSUANT TO PLANS

        The following tables show for the fiscal year ended December 31, 1998,
certain information regarding options granted to, exercised by and held at year
end by the Named Executive Officers:

                        OPTION GRANTS IN LAST FISCAL YEAR



                          Number of     Percent of
                          Shares of       Total
                           Common        Options
                            Stock       Granted to                                            Potential Realizable Value at
                         Underlying      Employees                                                Assumed Annual Rates of
                          Options       in Fiscal       Exercise Price         Expiration       Stock Price Appreciation for
                         Granted(2)      Year(3)           per Share              Date                  Option Term(1)
                        -----------      --------          ---------           ----------       ---------------------------
                                                                                                    5%              10%
                                                                                                ----------        ---------
                                                                                                
Mr. Dreisbach(4) ......   550,000          23.6%           $10.3750             05/08/08        $3,588,630        $9,094,293
Mr. Gopadze ...........    10,000           0.4%           $10.3125             04/29/08        $   64,855        $  164,355
                           55,000           2.3%           $ 5.8750             09/01/08        $  203,212        $  514,978
Mr. Marquart ..........    50,000           2.1%           $ 7.9065             07/06/08        $  248,618        $  630,046
                           25,000           1.1%           $ 9.8130             06/01/08        $  154,284        $  390,985
Mr. Mott ..............    75,000           3.2%           $ 6.6250             08/31/08        $  312,482        $  791,891
Mr. Wernke ............    75,000           3.2%           $ 8.1250             08/10/08        $  383,233        $  971,187
Mr. Dilworth(5) .......        --            --                  --                   --                --                --
Mr. Green(5) .........     50,000           2.1%           $10.3125             07/15/99        $  324,274        $  821,773
Mr. Swain(5) .........     40,000           1.7%           $10.3125             07/31/99        $  259,419        $  657,419
Mr. Wood(5) ...........        --            --                  --                   --                --                --
Ms. Wittman(5) ........    50,000           2.1%           $10.3125             11/20/99        $  324,274        $  821,773


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

(1)     For new grants, the potential realizable value is calculated based on
        the term of the option at its time of grant (ten years). Potential
        realizable value is calculated by assuming that the stock price on the
        date of grant appreciates at the indicated annual rate compounded
        annually for the entire term of the option and that the option is
        exercised and sold on the last day of its term for the appreciated stock
        price. The 5% and 10% assumed rates of appreciation are derived from the
        rules of the SEC and do not represent the Company's estimate or
        projection of future Common Stock price. No gain to the optionee is
        possible unless the stock price increases over the option term, which
        will benefit all stockholders.

(2)     Options granted under the Company's employee stock option plans
        typically vest at the rate of 25% after one year and approximately two
        percent per month thereafter, such that the options are fully vested in
        four years.

(3)     Based on options covering a total of 2,334,301 shares of Common Stock
        granted to employees in fiscal 1998.

(4)     Includes 511,457 shares subject to a nonstatutory option granted to Mr.
        Dreisbach outside of the Company's regular employee plans. Approximately
        25% of the shares subject to the option vested on the first anniversary
        of the date of commencement of his employment, with the remaining shares
        vesting monthly, at a declining rate, such that the option is fully
        vested in four years. Vesting will be accelerated upon certain changes
        of control. In addition, the option may be exercised for up to two years
        following certain terminations of employment. See "Change in Control
        Arrangements -- Employment Arrangements."

(5)     Options granted to Messrs. Dilworth, Green, Swain, Wood and Ms. Wittman
        expire 12 months following their termination of employment under the
        terms of the Key Employee Severance Plan. See "Change in Control
        Arrangements".


   49






                 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                        AND FISCAL YEAR-END OPTION VALUES



                    Number of
                    Shares of                  Number of Shares of Common           Value of Unexercised
                     Common                  Stock Underlying Unexercised         In-The-Money Options at
                      Stock         Value      Options at Fiscal Year-End(1)           Fiscal Year-End(1)(2)
                    Acquired      Realized     ------------------------------       ------------------------
      Name         on Exercise       (3)       Exercisable       Unexercisable         Exercisable   Unexercisable
      ----            --------    --------    ------------    ---------------      --------------   --------------
                                                                                  
Mr. Dreisbach           --           --              --            550,000                 --                 --
Mr. Gopadze             --           --           8,750             76,250           $  3,007           $  3,867
Mr. Marquart            --           --              --             75,000                 --                 --
Mr. Mott                --           --              --             75,000                 --                 --
Mr. Wernke .            --           --              --             75,000                 --                 --
Mr. Dilworth            --           --         404,579                 --             16,406                 --
Mr. Green               --           --         233,078                 --           $178,281                 --
Mr. Swain               --           --          97,910                 --                 --                 --
Mr. Wood                --           --         242,623                 --                 --                 --
Ms. Wittman             --           --          65,625                 --                 --                 --

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

(1)     Includes repriced options. See "Option Repricing Information."

(2)     Value is based on the fair market value of the Company's Common Stock at
        December 31, 1998 of $5.188 (based on the closing sale price reported on
        the Nasdaq National Market on such date) minus the exercise price of the
        option.

(3)     Value realized is based on the fair market value of the Company's Common
        Stock on the date of exercise (the closing sale price reported on the
        Nasdaq National Market on such date) minus the exercise price, and does
        not necessarily indicate that the optionee sold such stock.

CHANGE IN CONTROL ARRANGEMENTS

        Key Employee Severance Plan

        In October 1997, in light of the transactions being negotiated with
Vulcan Ventures, the Compensation Committee of the Board adopted the Company's
Key Employee Severance Plan (the "Severance Plan"). An employee is eligible to
participate in the Severance Plan if (a) such employee is notified in writing
that he or she is eligible to participate in the Severance Plan and (b) such
employee's employment with the Company is terminated due to an involuntary
termination or a constructive termination (generally, a voluntary termination
following an adverse change in the employee's position, circumstances or
compensation) within 12 months following a


   50




Designated Event (other than for cause). Such 12-month period may be extended to
18 months for executive officers who are so notified in writing. "Designated
Event" means any transaction or series of transactions having a significant
effect on the ability of any person or group to direct or cause the direction of
the Company's management and policies that is specifically declared by the Board
to be a Designated Event. The Board declared the sale of Common Stock to Vulcan
in January 1998 as the "Designated Event" for the Severance Plan. Approximately
32 employees, including those Named Executive Officers who were employed by the
Company as of January 1998, were notified of their eligibility to participate in
the Severance Plan. Approximately 16 employees, including Messrs. Dilworth,
Green, Swain, Wood and Ms. Wittman were receiving benefits under the Severance
Plan as of December 31, 1998.

        The benefits provided by the Severance Plan are: (a) continuation of
salary for 12 months following termination of employment; (b) payment of any
bonus to which the employee would have been entitled under the Company's
incentive bonus plan for the 12 months following termination of employment,
assuming such employee's full employment with the Company during such 12-month
period and the achievement of certain incentive targets by the Company and the
employee; (c) continuation of health, life and other insurance benefits for the
employee (and any dependents covered as of the date of termination) for 12
months following the termination of employment (or five years for health
benefits, if the employee is age 55 or older upon termination of employment,
subject to earlier termination if the employee and his or her dependents become
covered by another group insurance plan providing similar benefits); and (d)
amendment of all stock options held by such employee upon termination of
employment so that (i) such options become vested for an additional 12 months on
the date of termination and (ii) the employee may exercise such options for 12
months following termination of employment. To receive the benefits provided by
the Severance Plan, an eligible employee must execute a release of claims in
favor of the Company, and such release must become effective in accordance with
its terms.

        Key Employee Retention Incentive Plan

        In October 1997, the Compensation Committee of the Board also adopted
the Company's Key Employee Retention Incentive Plan (the "Retention Plan").
Approximately 32 employees of the Company, including the Named Executive
Officers who were employed by the Company as of January 1998, were eligible to
participate in the Retention Plan.

        The Retention Plan provides the following benefits: (a) if an eligible
employee is employed by the Company on the date that is six months after the
Designated Event (as defined above), such employee will receive a lump sum
payment equal to 50% of the Bonus Amount (as defined below); and (b) if the
employee is also employed by the Company on the date that is 12 months after the
Designated Event, such employee will receive a lump sum payment for the
remaining 50% of the Bonus Amount.

        For purposes of the Retention Plan, bonus amount means the bonus to
which an eligible employee would be entitled under the Company's incentive bonus
plan if (a) the Company's incentive bonus plan for the 12 months following a
Designated Event were the same as during the full year most recently completed
prior to the Designated Event; (b) the eligible employee were to remain
continuously employed by the Company for 12 months following the Designated
Event and to the bonus payment date in the same capacity in which such employee
was employed on the date of the Designated Event; and (c) the employee and the
Company were to achieve 100% of any objectives affecting individual bonus
amounts under such incentive bonus plan.

        Employment Arrangements

        In May 1998, the Company entered into an employment agreement with Mr.
Dreisbach, which provided for salary, bonus and option grants for the ensuing
year. In addition, under the agreement, in the event that the Company were to
terminate Mr. Dreisbach's employment other than for cause (as defined in the
agreement) at any time or if Mr. Dreisbach were to voluntarily terminate his
employment for good reason (as defined in the agreement) within 90 days prior to
or 180 days after a change in control of the Company, the Company would pay to
Mr. Dreisbach, for a period of 12 months, the base compensation and health
benefits to which he was entitled on the date of his termination. In addition,
under Mr. Dreisbach's non-plan option, in the event of a change in control, the
option would come fully vested if, within 90 days prior to or 180 days following
such change in control, his employment were terminated for any reason other than
for cause or if he terminated his employment for good reason. In addition, under
the non-plan option, if Mr. Dreisbach were terminated without cause or
voluntarily terminated his employment for good reason, he could exercise his
options (to the extent exercisable) for up to two years following such
termination.

        In addition, the Company's employment arrangements with each of the
current executive officers, other than Mr. Dreisbach, provide that upon a change
in control of the Company that results in the elimination of, or a material
reduction in, the scope of the officers' responsibilities, they would be
entitled to severance benefits consisting of six months' salary and continuation
of benefits as well as the acceleration of vesting of their options for periods
ranging from one to two years.

        Acceleration of Vesting Under Stock Option Plans

        The Company currently maintains three stock option plans for the benefit
of employees and consultants of the Company: the 1988 Stock Option Plan; the
1997 Equity Incentive Plan; and the 1997 Non-Officer Equity Incentive Plan.
Options to purchase approximately 2,009,621, 447,072 and 1,241,512 shares of
Common Stock, respectively, were outstanding under such plans as of March 31,
1999. The 1997 Equity Incentive Plan and the 1997 Non-Officer Equity Incentive
Plan provide that, in the event an optionee is terminated other than for cause
within 12 months after a Change in Control (as defined in such plans), the
options held by such optionee under such plans will become fully vested.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        For fiscal 1998, the Compensation Committee was composed of Messrs.
Cline and Liddle. Currently, Messrs. Cline and Moore serve on the Compensation
Committee.

        In January 1998, the Company sold 4,650,000 newly-issued shares of
Common Stock to Vulcan Ventures, a stockholder of the Company, for $12.00 per
share in cash. In connection with such transaction, the Company granted certain
contractual rights to Vulcan Ventures including the right to nominate up to four
members of the Board of Directors. As of July 31, 1999, Vulcan Ventures owned
approximately 43% of the outstanding Common Stock.

        In October 1998, the Company entered into an unsecured line of credit
agreement with Vulcan Ventures. The line of credit was due on October 29, 2000.
In addition, in June 1999 the Company entered into an additional $30 million
line of credit agreement with Vulcan Ventures. On November 15, 1999, the Company
sold 30 million shares of Series A1 Preferred Stock to MCI WorldCom and 30
million shares of Series A2 Preferred Stock to Vulcan Ventures, at a price of
$10 per share to each purchaser. The net proceeds of the sale of preferred stock
to Vulcan Ventures was used to repay the approximately $60.5 million (including
interest) outstanding on the lines of credit with Vulcan Ventures.

        Messrs. Savoy and Moore, directors of the Company, are affiliated with
Vulcan Ventures. In addition, Mr. Derrickson, a director of the Company, was
formerly affiliated with Vulcan Ventures, and David E. Liddle, who served as a
director of the Company from January 1998 to December 1998 is affiliated with
Vulcan Ventures.
   51









ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of March 31, 1999 by: (a) each
current director and nominee for director; (b) each of the executive officers
named in the Summary Compensation Table under the caption "Executive
Compensation" below (including five former executive officers); (c) all current
executive officers and directors of the Company as a group; and (d) all those
known by the Company to be beneficial owners of more than five percent of its
Common Stock.



STOCK OWNERSHIP                                         BENEFICIAL  OWNERSHIP(1)
- ---------------                                         ------------------------
NAME                                                 NUMBER OF SHARES       PERCENT OF TOTAL
- ----                                                 ----------------       ----------------
                                                                      
Vulcan Ventures Incorporated(2)..................         9,121,745                    48.1%
     110-110th Avenue NE, Suite 550
     Bellevue, WA  98004
Robert S. Cline(3)...............................            55,999                        *
Ralph Derrickson(3)(4)...........................             2,333                        *
Robert P. Dilworth(3)............................           455,563                     2.4%
Timothy A. Dreisbach(3)..........................           143,500                        *
Lee M. Gopadze(3)................................            17,735                        *
Gary M. Green(5).................................           242,524                     1.3%
Justin L. Jaschke(3).............................            40,165                        *
David E. Moore(4)................................         9,121,745                    48.1%
Dale W. Marquart.................................             2,702                        *
Robert W. Mott...................................                --                        *
William D. Savoy(3)(4)...........................         9,124,078                    48.1%
William D. Swain(5)..............................            74,162                        *
John G. Wernke...................................             2,500                        *
Vanessa A. Wittman(5)............................            64,711                        *
Donald F. Wood(5)................................             5,144                        *
Directors and current executive officers as a
group (11 persons)(3)(6).........................         9,844,575                    50.2%




   52








HOLDER OF 8% CONVERTIBLE NOTES                                      OWNERSHIP(1)
- ------------------------------                                      ------------
NAME                                                 NUMBER OF SHARES       PERCENT OF TOTAL
- ----                                                 ----------------       ----------------
                                                                      
Lindner Investments(7)...........................         1,546,390                     8.2%
     7711 Carondelet Avenue
     P.O. Box 16900
     St. Louis, MO  63105


- --------------
*       Less than one percent.

(1)     This table is based upon information supplied by directors, officers and
        principal stockholders and Schedules 13D and 13G filed with the
        Securities and Exchange Commission (the "SEC"). Unless otherwise
        indicated below, the persons named in the table have sole voting and
        investment power with respect to all shares beneficially owned by them,
        subject to community property laws where applicable. For purposes of
        this table, shares held by stockholders include any shares held as
        tenants in common or joint tenants with spouses. Percentages are based
        on 18,948,916 shares outstanding on March 31, 1999, adjusted in
        accordance with the rules promulgated by the SEC.

(2)     Based on a Schedule 13D filed with the SEC on October 28, 1993 and most
        recently amended on January 30, 1998. Includes 25,000 shares held by
        Paul Allen, the sole stockholder of Vulcan.

(3)     Includes 52,999, 2,333, 404,579, 137,500, 13,541, 36,665, and 2,333
        shares of Common Stock subject to options exercisable within 60 days of
        the date of this table held by Messrs. Cline, Derrickson, Dilworth,
        Dreisbach, Gopadze, Jaschke and Savoy, respectively.

(4)     Includes 9,121,745 shares beneficially owned directly by Vulcan
        Ventures. Messrs. Derrickson, Moore and Savoy are affiliated with Vulcan
        Northwest, Inc., a venture capital fund affiliated with Vulcan Ventures.
        Messrs. Derrickson, Moore and Savoy disclaim beneficial ownership of
        these shares within the meaning of Rule 13d-3 under the Exchange Act.

(5)     Mr. Green, Mr. Swain, Mr. Wood and Ms. Wittman left the Company in 1998.
        Includes 232,578, 74,162, and 57,325 shares of Common Stock for Mr.
        Green, Mr. Swain and Ms. Wittman, respectively, subject to options
        exercisable within 60 days of the date of this table.

(6)     Includes shares subject to options and shares held by entities
        affiliated with certain officers and directors as described in the
        footnotes above. Does not include shares held by Messrs. Green, Swain
        and Wood and Ms. Wittman, each of whom left the Company in 1998.

(7)     Based on a Schedule 13D filed with the SEC on December 26, 1996 and most
        recently amended on October 12, 1997 and a Schedule 13G Amendment filed
        on August 28, 1996. Includes 1,546,390 shares of Common Stock issuable
        upon conversion of 8% Convertible Notes due 2003. Ryback Management
        Corporation has sole voting and dispositive power over the shares held
        by Lindner Investments. Ryback Management Corporation disclaims
        beneficial ownership of the shares in which it has no pecuniary
        interest.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        See the information contained under the caption "Compensation Committee
Interlocks and Insider Participation" contained in Item 11, which is
incorporated herein by reference.
   53




INDEMNIFICATION OF OFFICERS AND DIRECTORS

        The Company's By-laws provide that the Company will indemnify its
directors and executive officers and may indemnify its other officers, employees
and other agents to the fullest extent permitted by Delaware law. The Company is
also empowered under its By-laws to enter into indemnification agreements with
its directors and officers and to purchase insurance on behalf of any person
whom it is required or permitted to indemnify. Pursuant to these provisions, the
Company has entered into indemnification agreements with each of its directors
and officers and has obtained director and officer liability insurance.


                                     PART IV

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

        (a)    Financial Statements.

        The consolidated financial statements of the Company for each of the
three years ended December 31, 1998 and related notes, together with the report
thereon of Arthur Andersen LLP, independent public accountants.

        (b)    Reports on Form 8-K.

        No reports on Form 8-K were filed during the last quarter of the fiscal
year ended December 31, 1998.

        (c)    Exhibits.



EXHIBIT                               EXHIBIT
NUMBER
           
3.1(13)       Restated Certificate of Incorporation of the Company, as amended.

3.2(13)       Bylaws of the Company.

4.1(13)       Reference is made to Exhibits 3.1 and 3.2.

4.2(1)        Registration Rights Agreement between the Company and the other
              parties named therein, dated as of June 23, 1986, as amended.

4.3(1)        Specimen stock certificate.



                                      44.
   54



EXHIBIT                               EXHIBIT
NUMBER
           
4.4(5)        Fifth Amendment to Registration Rights Agreement.

4.5(5)        Sixth Amendment to Registration Rights Agreement.

4.6(10)       Form of 8% Convertible Subordinated Note due 2003.

4.7(10)       Indenture, dated as of August 15, 1996, between the
              Company and U.S. Trust Company of California, N.A.

10.1a(1)      Form of Indemnity Agreement entered into between the
              Company and its directors and officers, with related schedule.

10.1b(14)     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)       Form of Restricted Stock Purchase Agreement and promissory note
              under the Option Plan.

10.7(1)       Form of Market Stand-Off Agreement between the Company and various
              holders of Common Stock.

10.8(1)(2)    1991 Employee Stock Purchase Plan.

10.9(1)       Form of Co-Sale Agreement between the Company and
              various holders of Common Stock, with related schedule.

10.10(1)      Form of Stock Repurchase Agreement between the Company and various
              holders of Common Stock, with related schedule.

10.11(1)      Form of Series C Preferred Stock Purchase Warrant between the
              Company and various investors, with related schedule.

10.12(1)      Manufacturing, Supply and Marketing Agreement between
              the Company, Mitsui & Co., Ltd., Mitsui Comtek Corp.
              and Oi Electric Co., Ltd. dated as of March 12, 1991.

10.13(1)      Standard Industrial Lease between the Company and Pen Nom I
              Corporation dated as of October 17, 1991.

10.14(3)      Agreement between the Company and Southern California Edison dated
              October 1, 1992.

10.15(2)(5)   1993 Non-Employee Directors' Stock Option Plan, as
              amended November 1, 1993 (the "Directors' Plan").

10.16(2)(3)   Form of Supplemental Stock Option under the Directors'
              Plan.

10.17(4)      Purchase Agreement, dated October 3, 1993, between the Company and
              Vulcan Ventures Incorporated.

10.18(4)      Warrant to Purchase 408,333 shares of Common Stock, dated October
              28, 1993.



                                      45.
   55




EXHIBIT                               EXHIBIT
NUMBER
           
10.19(4)      Purchase Agreement, dated October 8, 1993, between the
              Company and Donald H. Rumsfeld.

10.20(5)      Common Stock Purchase Warrant for 350,000 shares dated March 25,
              1993 granted to Sterling Payot Company.

10.21(5)      Common Stock Purchase Warrant for 100,000 shares dated February
              19, 1993 granted to Sterling Payot Company.

10.22(5)      Letter Agreements between the Company and Sterling Payot Company
              dated February 19, 1993 and September 15, 1993.

10.23(6)      Purchase Agreement, dated February 18, 1994, between the Company
              and Microsoft Corporation.

10.24(8)      Common Stock Purchase Agreement for 200,000 shares dated September
              27, 1994 granted to Sterling Payot Company.

10.25(8)      Letter Agreement between the Company and Sterling Payot Company
              dated October 31, 1994.

10.26(7)      Management Agreement of Metricom DC, L.L.C.

10.27(8)      Option Agreement and Agreement and Plan of
              Reorganization, dated as of February 7, 1996, among the Company,
              Overall Wireless and the sole stockholder of Overall Wireless.

10.28(8)      Loan and Security Agreement, dated as of February 7, 1996, among
              the Company, Overall Wireless and the sole stockholder of Overall
              Wireless.

10.29(10)     Registration Rights Agreement, dated as of August 28, 1996, among
              the Company, Furman Selz LLC and Feshbach Brothers Investor
              Services, Inc.

10.30(10)     Placement Agreement, dated as of August 20, 1996, among the
              Company, Furman Selz LLC and Feshbach Brothers Investor Services,
              Inc.

10.31(11)     Letter Agreement, dated as of January 23, 1997, between
              the Company and Sterling Payot Company

10.32(12)     Stock Purchase Agreement, dated as of October 10, 1997, between
              Metricom, Inc., a Delaware Corporation, and Vulcan Ventures
              Incorporated, a Washington Corporation.

10.33(15)     Loan Agreement, dated October 29, 1998, between
              Metricom, Inc. and Vulcan Ventures Incorporated

23.1          Consent of Independent Public Accountants.

24.1(15)      Power of Attorney

27.1(15)      Financial Data Schedule



                                      46.
   56
- -------------

(1)     Incorporated by reference from the indicated exhibit in the Company's
        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 the Company's Form 10-K for the year
        ended December 31, 1992.

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

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

(6)     Incorporated by reference from the Company's Form 10-K/A Amendment No. 1
        to the Company's Form 10-K for the year ended December 31, 1993.

(7)     Incorporated by reference from the Company's Form 10-Q for the quarter
        ended June 30, 1995.

(8)     Incorporated by reference from the Company's Form 10-Q for the quarter
        ended June 28, 1996.

(9)     Incorporated by reference from the Company's Form 10-Q for the quarter
        ended September 27, 1996.

(10)    Incorporated by reference from the Company's Form 8-K filed September
        11, 1996.

(11)    Incorporated by reference from the Company's Form 10-K for the year
        ended December 31, 1996.

(12)    Incorporated by reference from the Company's Form 8-K dated as of
        October 13, 1997.

(13)    Incorporated by reference from the Company's Form 10-K for the year
        ended December 31, 1997

(14)    Incorporated by reference from the Company's Form 10-Q for the quarter
        ended March 31, 1998

(15)    Incorporated by reference from the Company's Form 10-K for the year
        ended December 31, 1998
                                      47.
   57

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Amendment No. 2 to the Report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                     METRICOM, INC.



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


                                        Date: November 19, 1999

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Amendment No. 2 to the Report has been signed below by the following persons in
the capacities and on the dates indicated.




      Signature                               Title                            Date
- ------------------------       -------------------------------------     -----------------
                                                                   

/s/ TIMOTHY A. DREISBACH       President and Chief Executive Officer     November 19, 1999
- ------------------------       (Principal Executive Officer) and
Timothy A. Dreisbach           Director


/s/ JAMES E. WALL              Chief Financial Officer (Principal        November 19, 1999
- -----------------              Financial and Accounting Officer)
James E. WALL


/s/ ROBERT S. CLINE*           Director                                  November 19, 1999
- --------------------
Robert S. Cline


/s/ RALPH DERRICKSON*          Director                                  November 19, 1999
- --------------------
Ralph Derrickson


/s/ ROBERT P. DILWORTH*        Director                                  November 19, 1999
- ----------------------
Robert P. Dilworth


/s/ JUSTIN L. JASCHKE*         Director                                  November 19, 1999
- ---------------------
Justin L. Jaschke


/s/ DAVID MOORE*               Director                                  November 19, 1999
- ---------------
David Moore


/s/ WILLIAM D. SAVOY*          Director                                  November 19, 1999
- --------------------
William D. Savoy


*By:     /s/ TIMOTHY A. DREISBACH
         ------------------------
         Timothy A. Dreisbach
         President and CEO
         Attorney-in-fact

   58


                                                                     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, 1996:
   Accounts receivable allowances          $ 46       $  124       $ 49       $  121
                                           ====       ======       ====       ======


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
                                           ====       ======       ====       ======



                                      49.
   59
                               INDEX TO EXHIBITS


EXHIBIT                               EXHIBIT
NUMBER
           
3.1(13)       Restated Certificate of Incorporation of the Company, as amended.

3.2(13)       Bylaws of the Company.

4.1(13)       Reference is made to Exhibits 3.1 and 3.2.

4.2(1)        Registration Rights Agreement between the Company and the other
              parties named therein, dated as of June 23, 1986, as amended.

4.3(1)        Specimen stock certificate.

4.4(5)        Fifth Amendment to Registration Rights Agreement.

4.5(5)        Sixth Amendment to Registration Rights Agreement.

4.6(10)       Form of 8% Convertible Subordinated Note due 2003.

4.7(10)       Indenture, dated as of August 15, 1996, between the
              Company and U.S. Trust Company of California, N.A.

10.1a(1)      Form of Indemnity Agreement entered into between the
              Company and its directors and officers, with related schedule.

10.1b(14)     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)       Form of Restricted Stock Purchase Agreement and promissory note
              under the Option Plan.

10.7(1)       Form of Market Stand-Off Agreement between the Company and various
              holders of Common Stock.

10.8(1)(2)    1991 Employee Stock Purchase Plan.

10.9(1)       Form of Co-Sale Agreement between the Company and
              various holders of Common Stock, with related schedule.

10.10(1)      Form of Stock Repurchase Agreement between the Company and various
              holders of Common Stock, with related schedule.

10.11(1)      Form of Series C Preferred Stock Purchase Warrant between the
              Company and various investors, with related schedule.

10.12(1)      Manufacturing, Supply and Marketing Agreement between
              the Company, Mitsui & Co., Ltd., Mitsui Comtek Corp.
              and Oi Electric Co., Ltd. dated as of March 12, 1991.

10.13(1)      Standard Industrial Lease between the Company and Pen Nom I
              Corporation dated as of October 17, 1991.

10.14(3)      Agreement between the Company and Southern California Edison dated
              October 1, 1992.

10.15(2)(5)   1993 Non-Employee Directors' Stock Option Plan, as
              amended November 1, 1993 (the "Directors' Plan").

10.16(2)(3)   Form of Supplemental Stock Option under the Directors'
              Plan.

10.17(4)      Purchase Agreement, dated October 3, 1993, between the Company and
              Vulcan Ventures Incorporated.

10.18(4)      Warrant to Purchase 408,333 shares of Common Stock, dated October
              28, 1993.

10.19(4)      Purchase Agreement, dated October 8, 1993, between the
              Company and Donald H. Rumsfeld.

10.20(5)      Common Stock Purchase Warrant for 350,000 shares dated March 25,
              1993 granted to Sterling Payot Company.

10.21(5)      Common Stock Purchase Warrant for 100,000 shares dated February
              19, 1993 granted to Sterling Payot Company.

10.22(5)      Letter Agreements between the Company and Sterling Payot Company
              dated February 19, 1993 and September 15, 1993.

10.23(6)      Purchase Agreement, dated February 18, 1994, between the Company
              and Microsoft Corporation.

10.24(8)      Common Stock Purchase Agreement for 200,000 shares dated September
              27, 1994 granted to Sterling Payot Company.

10.25(8)      Letter Agreement between the Company and Sterling Payot Company
              dated October 31, 1994.

10.26(7)      Management Agreement of Metricom DC, L.L.C.

10.27(8)      Option Agreement and Agreement and Plan of
              Reorganization, dated as of February 7, 1996, among the Company,
              Overall Wireless and the sole stockholder of Overall Wireless.

10.28(8)      Loan and Security Agreement, dated as of February 7, 1996, among
              the Company, Overall Wireless and the sole stockholder of Overall
              Wireless.

10.29(10)     Registration Rights Agreement, dated as of August 28, 1996, among
              the Company, Furman Selz LLC and Feshbach Brothers Investor
              Services, Inc.

10.30(10)     Placement Agreement, dated as of August 20, 1996, among the
              Company, Furman Selz LLC and Feshbach Brothers Investor Services,
              Inc.

10.31(11)     Letter Agreement, dated as of January 23, 1997, between
              the Company and Sterling Payot Company

10.32(12)     Stock Purchase Agreement, dated as of October 10, 1997, between
              Metricom, Inc., a Delaware Corporation, and Vulcan Ventures
              Incorporated, a Washington Corporation.

10.33(15)     Loan Agreement, dated October 29, 1998, between
              Metricom, Inc. and Vulcan Ventures Incorporated

23.1          Consent of Independent Public Accountants.

24.1(15)      Power of Attorney

27.1(15)      Financial Data Schedule

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/A, 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 and
333-62557 and on Form S-3, File Nos. 33-78286 and 333-15169.



/s/ ARTHUR ANDERSEN LLP

San Jose, California

November 17, 1999