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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-K/A

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

For the Fiscal Year Ended Commission File Number
December 31, 1997 0-19903

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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 20, 1998 was
$182,763,557.

The number of shares of Common Stock outstanding as of March 20, 1998 was
18,507,702.

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SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This Annual Report on 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."

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the Metricom, Inc. Proxy Statement relating to the annual
meeting of stockholders to be held on June 22, 1998 (the "Proxy Statement") are
incorporated by reference into Part III of this Annual Report on Form 10-K.

PART I

ITEM 1 - BUSINESS

Metricom, Inc. ("Metricom" or the "Company") 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 the "Company"
refer to Metricom, Inc. and its subsidiaries. The Company's 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, the Seattle
and Washington, D.C. metropolitan areas, parts of Los Angeles, and in a number
of airports and corporate and university campuses. Ricochet's customers include
individuals, corporations, educational institutions and federal, state and local
governments. As of February 28, 1998, there were approximately 20,000 Ricochet
subscribers, and the Company estimates that its networks covered areas with an
aggregate population of approximately 11.4 million people.

The Company's current networks use unlicensed spectrum and provide end
users with speeds comparable to the most 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 networks and
design modems in order to provide end user speeds comparable to today's
high-speed ISDN telephone lines. This improvement in speed will be 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"). The Company purchased licenses
covering areas with an aggregate population of 127 million people. The licenses
consist 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 to increase end user speeds to 128
kbps. The Company's existing modems will work with, and enjoy a slight increase
in performance as a result of, the upgraded networks.

In January 1998, Vulcan Ventures Incorporated ("Vulcan"), the investment
organization of Paul G. Allen, acquired additional Common Stock bringing its
ownership to approximately 49.5%. This transaction was approved by the Company's
Stockholders. Vulcan had been an investor in Metricom since 1993. The Company is
currently working closely with Vulcan Ventures on the strategic plan through
which the Company plans to expand and extend its wireless networks after
completing the development of the high-speed network.

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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, such as Cisco Systems, Inc. and Microsoft Corporation, (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, state and local government users of
portable computers in metropolitan areas. In addition, the Company (i) through
its Industrial Communications Division, provides wireless wide area data
communications solutions to utility companies, (ii) in partnership with an
affiliate of Visa and SeaFirst Bank, is testing Ricochet for use in credit card
point-of-sale verification in the Seattle area, and, (iii) in conjunction with
IBM as the system integrator, is deploying its network in parts of Los Angeles
for use by the LA Police Department in police vehicles.

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.

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. 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 to circuit switched technology. In a packet-switched
network, capacity is based on the amount of data actually passing through the
network at a given time, rather than the number of users on the network. 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, subscribers 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 that eliminates the subscribers need for a
separate Internet connection while outside the network coverage area.

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SALES, MARKETING AND SUPPORT

The Company's sales are handled primarily through a staff of approximately
19 direct sales representatives, approximately 43 retail outlets and a limited
number of independent dealers. Direct sales representatives are primarily used
to target key corporate accounts, such as Cisco Systems, Inc. and Microsoft
Corporation, where users of portable computers are currently using Ricochet to
access the Internet, private intranets and LANs. Ricochet is sold to individuals
in metropolitan areas and to students, faculty and staff at educational
institutions through telephone sales, direct sales representatives and a limited
number of independent dealers and retail outlets. 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 Ricochet networks continues.

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, dial-in service 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 25 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 Ricochet networks grows.

THE RICOCHET NETWORK

NETWORK CHARACTERISTICS

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.

The Company believes Ricochet provides user data rates that are
significantly faster than its wireless competitors and at a rate comparable to
that of the most commonly used wired modems. Ricochet provides user data rates
of 10 to 30 kbps, depending on factors such as geography and network usage. The
Company estimates that the primary competing technologies, ARDIS, RAM and CDPD,
provide user data rates of approximately 1 to 4 kbps, 1 to 4 kbps and 5 to 10
kbps, respectively. A variety of high-speed (up to 1 Mbps) fixed-point wireless
data technologies are in various stages of development. In addition, it is
anticipated that in the future, PCS providers will offer higher speed solutions
by combining channels and refining their protocols, but the Company expects that
these services will not be price competitive. The most commonly used wired
modems operate at 28.8 to 56.6 kbps; however, the Company estimates that the
quality of a telephone line may decrease such rate under certain circumstances.
ISDN is currently the most frequently used method of accessing high-speed data
over telephone lines, but it does not offer portability. The Company plans to
upgrade its current network to increase end user speeds up to 128 kbps, which is
comparable to an ISDN telephone line.

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The primary elements of a Ricochet network are compact, inexpensive
network radios that are deployed on streetlights, 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 provides
service to clusters network radios. 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.

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 streetlights
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 streetlights 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 streetlights, it has been used on a
limited basis to reduce the delays historically experienced in the deployment
process.

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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. Companies offering portable data communications
services include CDPD, cellular analog, PCS, ARDIS, RAM and two-way paging. The
primary attributes distinguishing these competitors are speed, price and
availability. The Company estimates that user throughput speed for these
competitors range from 2 to 10 kbps. Pricing is typically based on per kilobyte
or per minute charges, making heavy usage very expensive. CDPD is either
installed or being installed in a number of metropolitan areas, but complete
coverage and roaming arrangements are not yet in place. Analog and digital
cellular networks are widely available throughout the United States and, with
the addition of a special modem, can also be used for sending data. ARDIS (owned
by American Mobile Satellite) and RAM (owned by BellSouth Corporation), are
widely installed and operating across the United States and in some foreign
countries. ARDIS, RAM and two-way paging are currently not compatible or fast
enough for standard Internet browsers.

Fixed-Point Access. A variety of fixed point high-speed (up to 1 Mbps)
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 AT&T's digital wireless service. These services are aimed at
providing data connectivity to the home or office at 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. 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 uncompetitive.

Internet Access Services. The Company's Internet access services compete
with those currently offered by a large number of companies. The Company
believes that existing competitors include numerous national and regional
independent Internet service providers, established on-line service providers
such as American 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'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 uncompetitive. 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 communications services has not
yet developed. In order for the market to develop and for wireless services to
compete effectively with widely available wired solutions, 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

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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.

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.

The Company's current networks were designed to take advantage of FCC
regulations that permit license-free, spread spectrum operation, currently in
the 902 to 928 MHz frequency band. The Company recently acquired inexpensive
licensed spectrum that it plans to use together with unlicensed spectrum to
upgrade its existing network architecture.

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 plans to upgrade its existing
networks and design modems in order to provide end user speeds comparable to
today's high-speed ISDN telephone lines. This improvement in speed will be in
part the result of the Company's acquisition of licensed spectrum in the 2.3 GHz
frequency band. The Company intends to use this licensed spectrum, 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 will work
with, and enjoy a slight increase in performance as a result of, the upgraded
networks. 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 $9.1
million, $9.9 million and $10.8 million in 1995, 1996 and 1997, respectively.
The Company expects research and development expenses to increase significantly
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 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 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.

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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.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

Although the Company has pursued and intends to continue pursuing patent
protection of inventions that it considers important, the Company does not
believe that its patent position has as much significance as other competitive
factors. However, these patents may not preclude competitors from developing
equivalent or superior products and technology to those of the Company.

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 Company also pays license fees to third parties, such as Counterpoint
Systems Foundry, Inc., NetManage, Inc., Netscape Communications Corporation and
RSA Data Security Inc., for rights to use or incorporate certain software or
technology in its products. Such payments are typically based on products
shipped. In addition, the Company pays a royalty to Southern California Edison
("SCE") based on sales and internal use of products incorporating technology
developed with funding from SCE pursuant to the Company's development agreement
with SCE.

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. Failure by the Company to obtain a license to any
technology that it may require to commercialize its products and services could
have a material adverse effect on the Company. Litigation, which could result in
substantial cost to the Company, may also be necessary 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

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2305 - 2315, 2350 - 2360, 2315 - 2320 and 2345 - 2350 MHz bands (the "2.3 GHz
Band") where the Company is proposing commercial operations in the near future.
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 FCC regulations for
the Wireless Communications Service ("WCS"), a licensed service governed by Part
27 of the FCC's regulations.

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 any non-Part 15 equipment operating in the band
and must accept interference from any of them, as well as from any 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. 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 that is type-accepted
by the FCC. While the Company believes it can develop type-accepted equipment
which performs satisfactorily with its 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, 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 rulemaking 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 adversely affected.

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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," which
was 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 to Part 15 operations. While the future
LMS auction (and resultant 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 or operating results.

In a pending Rulemaking, the FCC has solicited comments on a private
entity's proposal to authorize non-government, wind profiler radar systems in
the 900 MHz Band. While not currently the subject of proposed rules, 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 or operating results.

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.

The FCC adopted a rule making proceeding and inquiry to determine, among
other things, whether to permit local exchange carriers to assess interstate
access charges on information service providers like the Company. The FCC has
tentatively concluded that access charges should not apply to information
service providers and left standing an earlier decision that such charges would
not apply to enhanced services, which includes access to the Internet and other
interactive computer networks. However, the FCC also sought comment on whether
to initiate a separate rulemaking proceeding and inquiry to consider additional
rules or actions that may be necessary relating to information services and the
Internet. There can be no assurance that the final rules adopted, if any, will
reflect the FCC's tentative conclusion with regard to the imposition of access
charges or that the outcome of any rulemaking proceeding and inquiry concerning
information services and the Internet would not have a material adverse effect
on the Company's business, financial condition and results of operations.

Wireless networks such as the Company's are subject to certain Federal
Aviation Administration and FCC guidelines regarding the location, lighting,
construction and modification of structures and antennas used in connection with
the radio spectrum. In addition, 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.

The FCC has issued 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.

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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
operating results.

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 operating results.

BACKLOG

The Company had backlog of $1.1 million and $600,000 as of December 31,
1996 and 1997, 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, 1997, the Company employed approximately 217 people,
all of whom were based in the United States. Of the total employees, 37 were in
manufacturing, 45 were in network operations and deployment, 33 were in research
and development, 61 were in sales, marketing and customer support and 41 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 who
might impede the achievement of the Company's development, deployment and
commercialization of the Company's products and services. 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

UNCERTAINTY REGARDING DEPLOYMENT OF RICOCHET 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 deployment of the network in a
portion of a metropolitan area that is large enough to justify commencement of
marketing and sales efforts. The deployment process consists of 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 include additional
portions of the metropolitan area. Any inability or delays in execution in its
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, there can be no assurance as to the timing or extent of the
deployment of Ricochet.

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 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 the street lights to provide power
for the Company's network radios. The process of obtaining these agreements is
complex and 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

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Company must then meet with various municipal organizations to discuss issues
such as pricing, health and safety concerns, traffic disruption, aesthetics and
citizen concerns. In the event 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 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.

UNCERTAINTY OF MARKET ACCEPTANCE

Commercialization of Ricochet is subject to market acceptance risks. A
broad market for wide area wireless data communications services has not yet
developed. As a result, the extent of the potential demand for Ricochet service
cannot be reliably estimated. In addition, the Company has limited experience
marketing its Ricochet service. As of February 28, 1998, the Company had
approximately 20,000 subscribers. The Company believes that market acceptance
depends principally on cost competitiveness, data rate, ease of use, including
compatibility with existing applications, cost and size of Ricochet modems,
extent of coverage, customer support, marketing, distribution and pricing
strategies of the Company and competitors, Company reputation and 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. There can be no assurance that the Company will
be able to retain existing or future customers.

CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company intends to continue the development, deployment and
commercialization of its Ricochet networks. The timing and amount of capital
expenditures may vary significantly depending on numerous factors including
market acceptance of Ricochet, availability and financial terms of site
agreements for the Company's network infrastructure, technological feasibility,
availability of Ricochet radios and modems and 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. There can be no
assurance that such funds will be sufficient to fund such deployment as planned.
In addition, no assurance can be given that additional financing will be
available or that, if available, such funding can be obtained on terms favorable
to the Company. Should the Company be unable to obtain additional financing, it
may be required to 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.

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 upon which a
prospective investor could perform an evaluation. 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,
no assurance can be given as to the timing and extent of revenue receipts and
expense disbursements or the Company's ability to successfully complete all of
the tasks associated with developing and maintaining a successful enterprise. 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.

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The Company has incurred cumulative net losses through December 31, 1997
of approximately $149.3 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 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.

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 Band") currently used by the Company's radio products,
and the 2400 - 2483.5 MHz band (the "2.4 GHz Band") and 2305 - 2315, 2350 -
2360, 2315 - 2320 and 2345 - 2350 MHz bands (the "2.3 GHz Band") where the
Company is proposing commercial operations in the near future. 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 FCC regulations for the Wireless
Communications Service ("WCS"), a licensed service governed by Part 27 of the
FCC's regulations.

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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 rulemaking 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 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, sometime toward the end of 1998,
the FCC is proposing to auction licenses for this spectrum. 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," which was
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 to Part 15 operations. While the future
LMS auction (and resultant 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 or operating results.

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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 remains.
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
operating results.

RISKS OF DEVELOPING TECHNOLOGY

The Company's networks have not been in commercial operation for an
extended period of time. There can be no assurance that unforeseen problems will
not develop with respect to the Company's technology or products or that the
Company will be successful in completing the development of its technology and
products. Significant risks remain as to the technological performance of the
Company's services and products. These include, for example, firmware failures,
problems associated with large-scale deployment, inability of networks to meet
expected performance in data rate, latency, capacity and range, hardware
reliability and performance problems, problems associated with links between
Ricochet network radios, WAPs, the wired backbone and other wired networks,
excessive interference with or by the Company's networks, failure to receive FCC
certification, inability to reduce product size and cost, timing of completion
of development and preclusion from commercialization by proprietary rights of
third parties. Given the limited deployment of Ricochet to date, there can be no
assurance that selected Ricochet network components will be adequate to meet the
geographic and radio frequency propagation characteristics of new areas of
development. For example, in mid-1995, because of network performance problems
discovered during the initial deployment of the Ricochet network in the Silicon
Valley, the Company had to redesign certain portions of its Ricochet radios and
modems to improve transmission and reception quality and upgrade all of the
radios that had been deployed to date. Delays in implementation of the Company's
networks as a result of technical difficulties could have a material adverse
effect on the Company's business, financial condition and operating results.

HIGHLY COMPETITIVE INDUSTRY

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.

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kilobyte or per minute charges, making heavy usage very expensive. CDPD is
either installed or being installed in a number of metropolitan areas, but
complete coverage and roaming arrangements are not yet in place. Analog and
digital cellular networks are widely available throughout the United States and,
with the addition of a special modem, can also be used for sending data. ARDIS
(owned by American Mobile Satellite) and RAM (owned by BellSouth Corporation),
are widely installed and operating across the United States and in some foreign
countries. ARDIS, RAM and two-way paging are currently not compatible or fast
enough for standard Internet browsers.

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.

CONTROL OF VOTING STOCK BY VULCAN

In January, 1998, Vulcan acquired 4,650,000 shares of the Company's Common
Stock bringing Vulcan's beneficial ownership to 49.5% of the Company's
outstanding Common Stock. As a result, Vulcan is able to 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 is able to control or significantly influence
actions taken by the Board or the Company and to 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, (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 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.

NO FUTURE FUNDING COMMITMENT

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. The Stock Purchase Agreement contains no commitment on
Vulcan's part to provide additional financing to the Company. Based on the
Company's current business plan, the funds provided by Vulcan, together with
cash and investments on hand, are adequate to meet the Company's planned needs
only through the third quarter of 1998. There can be no assurance that
additional financing will be available on terms favorable to the Company, if at
all. In addition, it is possible that Vulcan's control position may deter or
discourage investors who may otherwise have provided financing to the Company.
Should the Company be unable to obtain additional financing, it may be required
to scale back its development and commercialization activities, which could have
a material adverse effect on the Company's business, financial condition and
results of operations.

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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.

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.

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.

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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.

Vulcan has previously indicated in filings with the Commission its
interest in enhancing the Company's management team. The Company is dependent to
a large extent on the services of its management personnel and any inability on
the part of the Company to attract and retain new, highly qualified persons to
fill key management positions could have a material adverse effect on the
Company. It is possible that, due to the Acquisition, certain key technical,
management and other personnel may elect to leave the employ of the Company,
which could have a material adverse effect on the Company's business. In
addition, if the Company is to realize the anticipated benefits of the
Acquisition, any new personnel must be integrated into the Company efficiently.
The integration of new personnel will result in some disruption to the Company's
ongoing operations and any failure to complete such integration in an efficient
manner could have a material adverse effect on the Company's business, financial
condition and results of operations.

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.

QUARTERLY FLUCTUATIONS

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

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.

18
19
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
79%, 84%, 72%, 51% and 12% of the Company's total revenues in 1993, 1994, 1995,
1996 and 1997, respectively. As of December 31, 1997, 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 1998 and
thereafter.

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. The existence of 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 security holders 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 January 2004 to January 2007. The Company believes
that it will be required to obtain additional office and manufacturing space in
order to meet 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 lease that expires in the
year 2000. The Company maintains small offices in Washington and Virginia.

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 the Company's security holders
during the fourth quarter of 1997.

19
20

PART II

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 20, 1998 was $9.87.

PRICE RANGE OF
COMMON STOCK
-----------------------------
HIGH LOW
---------- ----------

Year Ending December 31, 1996:
1st Quarter ....................................... $ 14.375 $ 9.25
2nd Quarter ....................................... 19.75 10.75
3rd Quarter ....................................... 18.625 11.375
4th Quarter ....................................... 18.625 11.25

Year Ending 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

As of March 20, 1998, there were approximately 443 holders of record of
the Company's 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.

20
21
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------

STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues ........... $ -- $ 27 $ 789 $ 2,158 $ 6,642
Product revenues ........... 8,173 19,580 4,995 4,996 6,797
Development contract
revenues ................. 1,884 1,957 -- -- --
-------- -------- -------- -------- --------
Total revenues ........... 10,057 21,564 5,784 7,154 13,439
-------- -------- -------- -------- --------
Costs and expenses:
Cost of service revenues . -- 1,244 9,674 18,358 30,275
Cost of product revenues .. 6,401 15,116 3,134 2,528 4,558
Cost of development
contract revenues ....... 1,932 1,890 -- -- --
Research and development .. 3,256 8,668 9,145 9,896 10,803
Selling, general and
administrative .......... 5,027 9,695 11,715 17,724 21,189
Provision for Overall
Wireless................. -- -- -- -- 3,611
-------- -------- -------- -------- --------
Total costs and expenses . 16,616 36,613 33,668 48,506 70,436
-------- -------- -------- -------- --------
Loss from operations ..... (6,559) (15,049) (27,884) (41,352) (56,997)
Interest expense ............ -- -- -- (1,310) (4,151)
Interest income ............. 410 3,300 4,363 3,317 1,820
-------- -------- -------- -------- --------
Net loss ................ $ (6,149) $(11,749) $(23,521) $(39,345) $(59,328)
======== ======== ======== ======== ========
Basic and diluted
net loss per share ........ $ (0.74) $ (0.96) $ (1.79) $ (2.93) $ (4.35)
======== ======== ======== ======== ========
Weighted average shares
outstanding ................. 8,353 12,202 13,140 13,413 13,641
======== ======== ======== ======== ========

AS OF DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------

BALANCE SHEET DATA:
Cash and investments ......... $ 25,020 $ 89,588 $ 64,415 $ 65,221 $ 14,474
Working capital .............. 28,545 73,012 46,771 57,738 6,980
Property and equipment ....... 1,990 10,170 17,717 33,606 40,301
Total assets ................. 32,483 105,534 86,076 101,799 51,103
Long-term debt ............... -- -- -- 45,000 45,000
Stockholders' equity (deficit) 29,171 101,516 80,374 43,306 (13,817)

21
22
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. Prior to 1997, a significant portion of the Company's revenues had
been derived primarily from sales of customer-owned networks and related
products, known as UtiliNet, to Southern California Edison ("SCE") and other
utility companies. 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 a number of airports and corporate and university campuses. Ricochet's
customers include individuals, corporations, educational institutions and
federal, state and local governments. As of February 28, 1998, there were
approximately 20,000 Ricochet Network subscribers, and the Company estimates
that its networks covered areas with an aggregate population of approximately
11.4 million people.

The Company has incurred cumulative net losses through December 31, 1997
of approximately $149.3 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 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 or at all.

The Company's future success depends on the successful deployment of
Ricochet in major metropolitan areas of the United States. Deployment in each
metropolitan area will require significant expenditures, a substantial portion
of which is incurred before the realization of revenues from such area. Any
inability to execute, or delays in execution of, such deployment plan 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 deployment of Ricochet.

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 above entitled
"Risk Factors."

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,
----------------------------
1995 1996 1997
---- ---- ----

REVENUES:
Service revenues .................. 14% 30% 49%
Product revenues .................. 86 70 51
--- --- ---
Total revenues ................ 100% 100% 100%

COSTS AND EXPENSES:
Cost of service revenues .......... 167 257 225
Cost of product revenues .......... 54 35 34
Research and development .......... 158 138 80
Selling, general and administrative 203 248 158
Provision for Overall Wireless .... -- -- 27
--- --- ---
Total costs and expenses .............. 582 678 524
--- --- ---

Loss from operations .................. (482) (578) (424)
Interest expense ...................... -- (18) (31)
Interest income........................ 75 46 14
---- ---- ----
Net loss .............................. (407)% (550)% (441)%
==== ==== ====

22
23
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

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 $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 resulting from a larger
subscriber base. 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. Total revenues are
expected to continue to increase as a result of increases in the subscriber
base.

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 obtain site agreements for the Company's network
infrastructure. These costs are expended as incurred due to the uncertainties
regarding the realizability of these costs. Cost of service revenues increased
to $30.3 million in 1997 from $18.4 million in 1996. The increase is due to a
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 $4.8 million in 1997 from $450,000 in 1996, as a
result of the increase in the Ricochet subscriber base in 1997. These increases
were partially offset by a reduced level of activity to obtain site agreements
in 1997 as compared to 1996. Cost of service revenues are expected to increase
significantly as a result of the continued deployment of Ricochet networks and
are expected to be greater than Ricochet service revenues for the foreseeable
future.

Cost of product revenues increased to $4.6 million in 1997 from $2.5
million in 1996. The cost of product revenues as a percentage of product
revenues increased to 67% in 1997 from 51% in 1996. The increase was primarily
due to a higher percentage of product revenues in 1997 that were derived from
the sale of Ricochet modems that were sold for less than the cost to manufacture
them.

Research and Development. Research and development expenses increased to
$10.8 million in 1997 from $9.9 million in 1996. The increase was due to
development of an ISDN speed network and subscriber device and enhancements to
the technology employed by the Company's Ricochet networks. The Company expects
research and development expenses to increase significantly in absolute dollars
in future periods.

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. These
costs are expected to continue to increase as a result of efforts to obtain
Ricochet subscribers.

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.
The $3.6 million charge included $616,000 of warrants (valued at fair market
value) to purchase common stock that had been granted to a financial advisor for
investment banking services in connection with the acquisition of the option to
acquire Overall Wireless. In January 1998, Overall Wireless terminated the
option and the Company paid a termination fee of $1.8 million through
cancellation of the indebtedness of Overall Wireless.

23
24
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 of $45 million in principal amount of 8% Convertible
Subordinated Notes due 2003 in August 1996. 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 to 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

Revenues. Total revenues increased to $7.2 million in 1996 from $5.8
million in 1995 primarily due to increased service revenues, which increased to
$2.2 million in 1996 from $789,000 in 1995. This increase was due to increases
in Ricochet subscriber fees and modem rentals. Product revenues, derived
primarily from the sale of Utilinet products, were $5.0 million in 1996 and
1995. A significant portion of such revenue, 51% and 72% of total product
revenues in 1996 and 1995, respectively, was derived from SCE, the Company's
principal customer.

Cost of Revenues. Cost of service revenues increased to $18.4 million in
1996 from $9.7 in 1995. The increase is due to a higher level of Ricochet
network deployment in the San Francisco Bay Area and the Seattle and Washington,
D.C. metropolitan areas and activities to obtain necessary site agreements in
1996 as compared to 1995.

Cost of product revenues decreased to $2.5 million in 1996 from $3.1
million in 1995. The cost of product revenues as a percent of product revenues
decreased to 51% in 1996 from 63% in 1995. This decrease was primarily due to a
more favorable product mix of the Company's Utilinet products in 1996 and
provisions for the write-down of inventory related to certain Ricochet products
in the first quarter of 1995.

Research and Development. Research and development expenses increased to
$9.9 million in 1996 from $9.1 million in 1995. The increase was due to
development activities related to enhancements to the technology employed by the
Company's Ricochet networks and development of Ricochet modems.

Selling, General and Administrative. Selling, general and administrative
expenses increased to $17.7 million in 1996 from $11.7 million in 1995 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.

Interest Income and Expense. Interest expense increased to $1.3 million in
1996 as a result of the issuance of $45 million in principal amount 8%
Convertible Subordinated Notes due 2003 in August 1996. Interest income
decreased to $3.3 million in 1996 from $4.4 million in 1995 primarily due to a
lower level of cash and cash equivalents in 1996 as compared to 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed operations 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)
private placement of Common Stock with net proceeds to the company of $53.7
million in 1998.

24
25
Since the inception, the Company has devoted significant resources to the
development, deployment and commercialization of wireless network products and
services. 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 $8.4 million, $15.9 and $10.6
million in 1995, 1996 and 1997, respectively. The Company expects to make
significant capital expenditures in connection with the development, deployment,
upgrade and commercializaton of its Ricochet networks. The Company also expects
that to the extent the Ricochet subscriber base grows, significant capital
expenditures will be required to procure Ricochet modems. The amount and timing
of expenditures, however, may very significantly depending on numerous factors
including market acceptance; availability and financial terms of site agreements
for the Company's network infrastructure; technological feasibility;
availability of Ricochet radios and modems; and availability of sufficient
financial, management, marketing and technical resources. The Company
anticipates that its existing cash and investments, interest income from
investments, investments from Vulcan Ventures and contributions received from
its existing joint venture partner will be adequate to satisfy its capital
expenditure, operating loss and working capital requirements at least through
1997. The Company believes that additional capital will be required in the
future to fund further deployment and operating activities of Ricochet. There
can be no assurance that such funds would be available on commercially
reasonable terms or at all.

As of December 31, 1997, the Company had cash and cash equivalents and
short and long term investments of $14.5 million and working capital of $7.0
million. The Company's accounts receivable increased to $2.3 million as of
December 31, 1997 from $1.1 million as of December 31, 1996 due to increased
revenues in the fourth quarter of 1997 as compared to the fourth quarter of
1996. Inventories remained constant for December 31, 1997 as compared to
December 31, 1996. The Company believes that both accounts receivable and
inventories will increase in the future in order to support the deployment and
commercialization of Ricochet.

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, 1997, PepData had contributed $5.2 million to the
joint venture.

The Company is in the process of identifying anticipated costs, problems
and uncertainties associated with making the Company's internal-use software
applications Year 2000 compliant. In general, the Company expects to resolve the
Year 2000 issues through planned replacement or upgrades of its third party
software applications including updating its financial management system to
Oracle 10.7. Although management does not expect Year 2000 issues to have a
material impact on its business or future results of operations, there can be no
assurance that there will not be interruptions of operations or other
limitations of system functionality or that the Company will not incur
significant costs to avoid such interruptions or limitations.

NEW ACCOUNTING STANDARDS. In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", which established standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in non-condensed general-purpose financial statements. SFAS
No. 130 requires classification of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company believes the pronouncement will
not have a material effect on its financial statements.

In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), which
established standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. SFAS No. 131 is effective for fiscal years beginning after December
15, 1997, although earlier application is encouraged. The Company believes the
pronouncement will not have a material effect on its financial statements.

25
26
METRICOM, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

DECEMBER 31,
-------------------------
1996 1997
--------- ---------

ASSETS
Current assets:
Cash and cash equivalents .......................... $ 15,246 $ 9,784
Short-term investments ............................. 46,825 4,390
Accounts receivable, net ........................... 1,126 2,278
Inventories ........................................ 3,115 3,011
Prepaid expenses and other ......................... 1,744 1,124
--------- ---------
Total current assets ........................... 68,056 20,587

Property and equipment, net ............................ 26,776 25,875
Long-term investments .................................. 3,150 300
Other assets, net ...................................... 3,817 4,341
--------- ---------
Total assets ................................... $ 101,799 $ 51,103
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable ................................... $ 5,517 $ 3,143
Accrued liabilities ................................ 4,801 5,464
Notes payable ...................................... --- 5,000
--------- ---------
Total current liabilities .............................. 10,318 13,607
--------- ---------
Long-term debt ......................................... 45,000 45,000
--------- ---------
Other liabilities ...................................... 768 1,129
--------- ---------
Minority interest ...................................... 2,407 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 -
13,555,445 shares in 1996 and 13,819,276
shares in 1997 ................................. 14 14
Additional paid-in capital ............................. 133,298 135,466
Unrealized holding gain (loss) on investments .......... (36) 1
Accumulated deficit .................................... (89,970) (149,298)
--------- ---------
Total stockholders' equity (deficit) ........... 43,306 (13,817)
--------- ---------
Total liabilities and stockholders' equity
(deficit) .................................... $ 101,799 $ 51,103
========= =========

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

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27
METRICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- -------- --------

REVENUES:
Service revenues ................... $ 789 $ 2,158 $ 6,642
Product revenues ................... 4,995 4,996 6,797
-------- -------- --------
Total revenues .................. 5,784 7,154 13,439
-------- -------- --------
COSTS AND EXPENSES:
Cost of service revenues ........... 9,674 18,358 30,275
Cost of product revenues ........... 3,134 2,528 4,558
Research and development ........... 9,145 9,896 10,803
Selling, general and administrative 11,715 17,724 21,189
Provision for Overall Wireless ..... -- -- 3,611
-------- -------- --------
Total costs and expenses ........ 33,668 48,506 70,436
-------- -------- --------
Loss from operations ............... (27,884) (41,352) (56,997)
Interest expense ................... -- (1,310) (4,151)
Interest income .................... 4,363 3,317 1,820
-------- -------- --------
Net loss ........................... $(23,521) $(39,345) $(59,328)
======== ======== ========
Basic and diluted net loss per share $ (1.79) $ (2.93) $ (4.35)
======== ======== ========
Weighted average shares outstanding 13,140 13,413 13,641
======== ======== ========

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

27
28
METRICOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)

UNREALIZED
HOLDING
COMMON STOCK ADDITIONAL GAIN/(LOSS)
-------------------------- PAID-IN ON ACCUMULATED
SHARES AMOUNT CAPITAL INVESTMENTS DEFICIT TOTAL
---------- ---------- ---------- ----------- ----------- ----------

BALANCE, DECEMBER 31, 1994 ......... 12,978,677 $ 13 $ 129,280 $ (673) $ (27,104) $ 101,516

Exercise of common stock warrants... 72,896 -- 64 -- -- 64
Exercise of common stock options ... 198,566 -- 894 -- -- 894
Common stock issued to employees ... 40,886 -- 593 -- -- 593
Unrealized holding gain on
investments ....................... -- -- -- 828 -- 828
Net loss ........................... -- -- -- -- (23,521) (23,521)
---------- ---------- ---------- ---------- ---------- ----------
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 holding 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)
========== ========== ========== ========== ========== ==========

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

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29
METRICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- -------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $(23,521) $(39,345) $(59,328)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization ...................... 1,902 4,135 8,366
Provision for Overall Wireless ..................... -- -- 3,611
Provision for obsolete inventory ................... 523 -- 3,622
(Increase) decrease in accounts receivable,
prepaid expenses and other current assets ...... 1,333 (765) (93)
(Increase) decrease in inventories ................. (1,121) 1,352 (567)
Increase (decrease) in accounts payable,
accrued liabilities and other liabilities ........ 1,584 5,484 (1,350)
-------- -------- --------
Net cash used in operating activities ............. (19,300) (29,139) (45,739)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ................. (8,421) (15,910) (10,584)
Other .............................................. 69 (1,463) (3,580)
Purchase of investments ............................ (59,976) (58,675) (18,941)
Proceeds from the sale of investments .............. 55,718 67,723 64,263
-------- -------- --------
Net cash provided by (used in) investing activities (12,610) (8,325) 31,158
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............. 1,551 1,852 2,168
Proceeds from issuance of debt ..................... -- 45,000 5,000
Financing costs .................................... -- (1,650) (826)
Contribution from minority interest ................ 100 2,307 2,777
-------- -------- --------
Net cash provided by financing activities ......... 1,651 47,509 9,119
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (30,259) 10,045 (5,462)

Cash and cash equivalents, beginning of year ....... 35,460 5,201 15,246
-------- -------- --------
Cash and cash equivalents, end of year ............. $ 5,201 $ 15,246 $ 9,784
======== ======== ========

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

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30
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 Ricochet 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 Ricochet networks and
build its customer base. The ability of the Company to achieve profitability
will depend in part upon the successful and timely deployment of Ricochet in
major metropolitan areas of the United States and its successful marketing, as
to which there can be no assurance. A broad market for wide area wireless data
communications has not yet developed. As a result, the extent of the potential
demand for Ricochet 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 1997 presentation. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

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 1995 and 1996 for interest and
income taxes was not significant. In fiscal 1997, the Company paid $3.6 million
for interest. 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.

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31
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,
------------------
1996 1997
------ ------

Raw materials and component parts ........ $ 656 $1,660
Work-in-process .......................... 1,606 28
Finished goods and consigned inventory ... 853 1,323
----- -----
TOTAL $3,115 $3,011
===== =====

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. As of December 31, 1996
and 1997, network equipment included approximately $3.8 million and $3.6
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. Depreciation of this equipment will commence when it is
placed in service. Property and equipment consisted of the following (in
thousands):

DECEMBER 31,
-----------------------
1996 1997
-------- --------

Machinery and equipment .......................... $ 7,958 $ 9,150
Network equipment ................................ 19,118 24,603
Ricochet modems .................................. 4,158 3,317
Furniture and fixtures ........................... 1,290 2,071
Leasehold improvements ........................... 1,082 1,160
-------- --------
33,606 40,301
Less--Accumulated depreciation and amortization .. (6,830) (14,426)
-------- --------
TOTAL $ 26,776 $ 25,875
======== ========

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

DECEMBER 31,
------------------
1996 1997
------ ------

Interest ....................... $1,220 $1,050
Employee stock purchase plan ... 299 282
Deferred Revenue ............... 1,021 1,843
Payroll and related ............ 1,148 981
Royalties ...................... 244 332
State and local taxes .......... 338 453
Warranty ....................... 256 256
Other .......................... 275 267
------ ------
TOTAL $4,801 $5,464
====== ======

DEBT ISSUANCE COSTS. Debt issuance costs of $1.6 million and $1.3 million
at December 31, 1996 and 1997, respectively 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, as an adjustment to the yield on
the respective debt instruments.

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 consolidated balance sheet and will be
amortized over its life commencing with commercial use.

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32
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.

NET LOSS 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 Notes have been excluded from the calculation as their effect would
be anti-dilutive.

NEW ACCOUNTING STANDARDS. In June 1997, the Financial Accounting Standards
Board (FASB) issued SFAS No. 130 "Reporting Comprehensive Income" ("SFAS No.
130"), which established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in
non-condensed general-purpose financial statements. SFAS No. 130 requires
classification of other comprehensive income separately from retained earnings
and additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. The Company believes the pronouncement will not have a material effect
on its financial statements.

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, 1996 and 1997, the difference between aggregate fair value
and cost basis was an unrealized holding loss of $36 and a holding gain of $1,
respectively. The value of the Company's investments by major security type is
as follows (in thousands):

DECEMBER 31,
--------------------
1996 1997
------- -------

SECURITY TYPE
United States Treasury and Agencies .. $23,309 $ 717
Corporate debt securities ............ 36,629 3,922
Certificates of Deposit ............. -- 1,300
------- -------
TOTAL ................................ $59,938 $ 5,939
======= =======

As of December 31, 1997, investments in obligations of the United States
Treasury and Agencies and corporate debt securities had remaining contractual
maturities of 6-12 months. Approximately $10 million and $1.3 million of the
total investments as of December 31, 1996 and 1997, respectively, are included
in cash and cash equivalents.

3. INVESTMENT IN METRICOM DC, L.L.C.

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

32
33
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, 1997,
PepData had contributed $5.2 million to the joint venture, which is reflected as
a minority interest in the accompanying consolidated financial statements.

4. SIGNIFICANT CUSTOMER.

In October 1992, the Company entered into a development and supply
agreement with Southern California Edison ("SCE") that superseded a prior
agreement in force since 1986. Under the terms of the new agreement, which
expired in December 1994, SCE provided the Company with funding for certain
development activities. Although SCE will be entitled to utilize the technology
for its own internal purposes, the Company retains title to the technology. For
the years ended December 31, 1995, 1996 and 1997, combined product and service
revenues from SCE accounted for 72%, 51% and 12%, respectively, of total
revenues. No other customers accounted for more than 10% of revenues.

5. COMMITMENTS.

The Company leases various facilities and equipment under operating lease
agreements. Rent expense under these agreements for the years ended December 31,
1995, 1996 and 1997, was approximately $1.1 million, $1.4 million and $1.8
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, 1996 and 1997, the Company had accrued approximately $469,000 and $428,000,
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,

1998 .................. $1,388
1999 .................. 1,215
2000 .................. 1,106
2001 .................. 909
2002 .................. 1,016
Thereafter ............ 1,131
------
TOTAL ................. $6,765
======

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, 1996 and 1997, was approximately $430,000 and $1.1 million, respectively.

On December 30, 1997 the Company, drew $5 million on a $10 million credit
facility provided by Vulcan Ventures, a current shareholder of the Company. The
$5 million was repaid on January 30, 1998 from the net proceeds of the sale of
Common Stock to Vulcan Ventures (see Note 11).

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

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34
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.

7. COMMON STOCK.

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 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 300,000 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 675,000 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 675,000 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

34
35
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 1995, 1996 and 1997, the Company issued members of the Board of
Directors and Advisory Board options to purchase 50,000, 53,000 and 42,000
shares, respectively, of common stock at fair market value of the stock at the
date of grant. These options vest 25% after the first year and ratably over the
following three years and will expire no later than ten years from the date of
grant.

Stock option activity under the 1988 Stock Option Plan, the 1993
Non-Employee Directors' Stock Option Plan, the 1997 Equity Incentive Plan, the
1997 Non-Officers Equity Incentive Plan and options issued to members of the
Board of Directors and Advisory Board for the fiscal years ended December 31,
1995, 1996 and 1997 was as follows:

SHARES WEIGHTED
AVAILABLE AVERAGE
FOR FUTURE OPTIONS EXERCISE
GRANT OUTSTANDING PRICE
---------- ---------- ----------

Balance, December 31, 1994 ..... 176,265 2,394,652 $ 13.33
Authorized ............. 950,000 -- --
Grants ................. (705,250) 705,250 $ 16.48
Exercises .............. -- (198,566) $ 4.53
Cancellations .......... 253,517 (253,517) $ 18.12
---------- ---------- ----------
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
========== ========== ==========

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36
The following table summarizes information concerning stock options
outstanding and exercisable as of December 31, 1997:

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 - $ 4.00 188,584 3.23 $ 3.12 188,584 $ 3.12
$ 4.01 - $ 4.70 1,363,439 7.52 $ 4.53 684,630 $ 4.53
$ 4.71 - $ 6.19 389,500 4.83 $ 5.71 375,000 $5.73
$ 6.20 - $ 6.36 846,250 9.33 $ 6.31 0 $0
$ 6.37 - $23.37 1,185,905 7.59 $11.33 693,176 $11.90
--------- ---- ------ --------- ------
3,973,678 7.46 $ 6.99 1,941,390 $ 7.26
========= ==== ====== ========= ======

STOCK PURCHASE PLAN. In 1991, the Board of Directors adopted the 1991
Employee Stock Purchase Plan (the "Purchase Plan"). An aggregate of 350,000
shares of common stock has 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. In 1995, 1996 and 1997, the Company issued 35,886, 49,994
and 103,056 shares, respectively, under this plan. In January, 1998 the Company
issued 37,177 shares under this plan, at a weighted fair value of $8.91 per
share.

STOCK-BASED COMPENSATION. In January 1996, the Company adopted FASB
Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS
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 SFAS 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 SFAS
123, net income and earnings per share would have been as follows (in thousands,
except per share amounts):

1995 1996 1997
---------- ---------- ----------

Net loss - As reported $ 23,521 $ 39,345 $ 59,328
Net loss - Pro forma $ 24,822 $ 44,178 $ 65,436
Basic and diluted net loss per share - As reported $ 1.79 $ 2.93 $ 4.35
Basic and diluted net loss per share - Pro forma $ 1.89 $ 3.29 $ 4.80

The weighted average fair value of stock options granted during 1995, 1996
and 1997 was $6.34, $4.51 and $2.02 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:

1995 1996 1997
---- ---- ----

Risk free interest rate 6.0% 6.0% 5.5%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor of expected market price
of the Company's stock 0.48 0.48 0.50
Weighted average expected option life from
vest date (in years) 0.68 0.68 1.11

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37
The weighted average fair value of employee stock purchase rights granted
during 1995, 1996 and 1997 was $1.69, $1.44 and $1.04 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:

1995 1996 1997
------- ------- -------

Risk free interest rate 5.0% 5.0% 5.2%
Dividend yield 0.0% 0.0% 0.0%
Volatility factor of expected market price
of the Company's stock 0.48 0.48 0.50
Weighted average expected life 0.50 0.50 0.50

COMMON STOCK RESERVED FOR FUTURE ISSUANCE. As of December 31, 1997 the
Company had reserved the following shares of common stock for future issuance:

Exercise of stock options .................................. 4,963,873
Conversion of 8% Convertible Subordinated Notes due 2003 ... 3,092,783
Exercise of common stock warrants .......................... 200,000
Employee stock purchase plan ............................... 89,989
---------
TOTAL ................................................... 8,346,645
=========

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 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,
-------------------------
1996 1997
-------- --------

Reserves and other $ 2,902 $ 5,485
Capitalized research and development 1,495 1,821
-------- --------
TOTAL 4,397 7,306
NOL and other credit carryforwards 31,993 51,916
Valuation allowance (36,390) (59,222)
-------- --------
TOTAL $ -- $ --
======== ========

As of December 31, 1996 and 1997, a valuation allowance was provided for
the net deferred tax assets as a result of uncertainties regarding their
realization. During 1997, the valuation allowance increased by approximately
$22.8 million due to increases in temporary differences and additional losses
incurred during the year. Approximately $2.6 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, 1997, the Company had net operating loss carryforwards
for Federal and California income tax purposes of approximately $136.0 million
and $55.9 million, respectively, and research and development tax credit
carryforwards of approximately $2.3 million. To the extent not used, these
carryforwards expire at various times through 2012. 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.

The Company adopted SFAS No. 128 as of December 31, 1997. The
reconciliation of the numerators and denominators of the basic and diluted
earnings per share computation are as follows:

37
38

PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------

FOR THE YEAR 1995
BASIC LOSS PER SHARE
Income available to common stockholders $(23,521) 13,140 $(1.79)

DILUTED LOSS PER SHARE
Income available to common stockholders $(23,521) 13,140 $(1.79)

FOR THE YEAR 1996
BASIC LOSS PER SHARE
Income available to common stockholders $(39,345) 13,413 $(2.93)

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

Basic and diluted earnings per share for the years ended December 31,
1997, 1996 and 1995 were computed using the weighted average number of common
shares outstanding. Potential common shares from outstanding options and
warrants to purchase common stock and from conversion of the Convertible
Subordinated Notes were excluded from the calculation of diluted earnings per
share as their effect would be anti-dilutive. As discussed in Note 10, in
January 1998, the Company issued an additional 4,650,000 shares of Common Stock
to Vulcan Ventures, Inc.

11. SUBSEQUENT EVENTS

On January 30, 1998, the shareholders of the Company approved the sale of
4,650,000 shares of Common Stock to Vulcan Ventures Incorporated ("Vulcan") at a
per share price of $12.00. Upon closing of the transaction, Vulcan's ownership
interest in the Company was increased to 49.5% of the outstanding shares of
Common Stock. The net proceeds from the transaction were $53.7 million.

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. The $3.6 million charge included
$616,000 of warrants (valued at fair market value) to purchase stock that had
been granted to a financial advisor for investment banking services in
connection with the acquisition of the option to acquire Overall Wireless. 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.

38
39
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, 1996 and 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Metricom, Inc. and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

San Jose, California
February 9, 1998

39
40
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

Robert P. Dilworth ............................. 56 Chief Executive Officer and Chairman of the Board

Gary M. Green .................................. 57 Executive Vice President and Chief Operating Officer

William D. Swain ............................... 57 Vice President, Administration and Secretary

Vanessa A. Wittman ............................. 30 Vice President, Finance

Robert S. Cline ................................ 60 Director

Ralph Derrickson ............................... 39 Director

Justin L. Jaschke .............................. 40 Director

David E. Liddle ................................ 53 Director

William D. Savoy ............................... 33 Director

ROBERT P. DILWORTH has served as the Company's Chief Executive Officer
since September 1987, as a director since August 1987 and as Chairman of the
Board since February 1997. Mr. Dilworth also served as President from September
1987 to March 1997. 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 VLSI Technology, Inc. and Data Technology
Corporation.

GARY M. GREEN has served as the Company's Executive Vice President and
Chief Operating Officer since October 1991. Mr. Green joined the Company in
January 1991 as Vice President, New Products Division. Prior to joining the
Company, Mr. Green served as Senior Vice President and General Manager of Energy
Sciences Inc., a manufacturer of electron-beam processing systems, from April
1987 to January 1991. From 1984 to April 1987, Mr. Green served as General
Manager, Vacuum Products Division, of Varian Associates, Inc.

WILLIAM D. SWAIN has served as the Company's Vice President,
Administration since May 1997, and its Secretary since April 1992. Mr. Swain
served as the Company's Chief Financial Officer from February 1988 to May 1997.
Mr. Swain joined the Company as Director of Finance in January 1988. Prior to
joining the Company, Mr. Swain was Chief Financial Officer of Morrow Designs,
Incorporated, a computer manufacturer; Controller of the mini-computer division
of Unisys Corporation; and Controller of Varian Data Machines, the computer
division of Varian Associates, Inc.

VANESSA A. WITTMAN has served as the Company's Vice President, Finance
since May 1997. Prior to joining the Company, she was a Principal at Sterling
Payot Company, a strategic advisory company, from April 1996 to May 1997. Prior
to joining Sterling Payot, she was an associate in the Media Corporate Finance
and Mergers and Acquisitions Groups of Morgan Stanley & Co., Inc. from June 1993
to April 1996.

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 been a representative of Vulcan Northwest, Inc., a
venture capital firm affiliated with Vulcan Ventures, since December 1996. Since
June 1993, Mr. Derrickson has 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 E. LIDDLE has served as Chief Executive Officer of Interval
Research Corporation, a research and development company affiliated with Vulcan,
since March 1992.

WILLIAM D. SAVOY has served as the President of Vulcan Northwest, Inc.
since January 1990. Mr. Savoy is a director of c/net, Inc., Harbinger
Corporation, Telescan, Inc., U.S. Satellite Broadcasting, Inc., Ticketmaster
Group, Inc. and USA Network, 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, 1997, 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, 1997, the
total compensation paid to non-employee directors was $78,500. 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
shares to each non-employee director of the Company at an exercise price per
share of $14.5625. The fair market value of such Common Stock on the date of
grant was $14.5625 (based on the closing sale price reported on the Nasdaq
National Market for the date of grant). As of March 31, 1998, options to
purchase 14,000 shares of Common Stock had been exercised under the Directors'
Plan.

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

40
41
Summary of Compensation

The following table shows for the fiscal years ended December 31, 1997,
1996 and 1995 compensation awarded or paid to, or earned by, the Chief Executive
Officer, each of the other current executive officers of the Company and one
former executive officer who left the Company in January 1998 (the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION LONG-TERM
COMPENSATION
SHARES OF
COMMON STOCK
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (1) OPTIONS (2) COMPENSATION (3)
------------------ ---- ------ --------- ------------ ----------------

Robert P. Dilworth................ 1997 $305,000 $228,750 330,000 $10,400
Chief Executive Officer 1996 $281,960 $305,000 255,000 $12,396
1995 $255,766 $137,500 20,000 $7,375

Donald F. Wood (4)................ 1997 $223,748 $141,000 362,000 $2,357
President 1996 $179,846 $98,000 37,000 $1,118
1995 $167,313 $45,000 12,000 $1,989

Gary M. Green..................... 1997 $206,774 $81,000 121,000 $6,472
Executive Vice President 1996 $193,232 $72,000 86,000 $36,157
and Chief Operating Officer 1995 $182,310 $58,200 12,000 $34,053

William D. Swain.................. 1997 $155,695 $48,900 95,000 $5,050
Vice President, 1996 $145,424 $61,400 65,000 $4,789
Administration and Secretary 1995 $136,840 $22,500 10,000 $3,241

Vanessa A. Wittman (4)............ 1997 $94,058 $26,500 75,000 $1,258
Vice President, Finance

(1) 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. Also for fiscal 1997 and 1996,
includes shares of stock issued in connection with the Company's
year-end bonuses paid in cash and stock. Each of the Named Executive
Officers deferred the amount of the bonus received in stock. In fiscal
1996, Messrs. Dilworth, Wood, Green and Swain, respectively, received
$101,668, $32,675, $34,003 and $20,475 in stock, 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, Wood, Green and Swain and Ms. Wittman,
respectively, received $76,258, $47,003, $27,003, $16,301 and $8,835 in
stock, 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).

(2) 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

42
of $13.125 per share and certain extended vesting terms. Amounts for
fiscal 1996 include 205,000, 12,000, 61,000 and 45,000 shares subject to
repriced options for Messrs. Dilworth, Wood, Green and Swain,
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, 162,000, 86,000, and 65,000
shares subject to repriced options for Messrs. Dilworth, Wood, Green and
Swain, respectively. See "Option Repricing Information."

(3) Includes the Company's matching payment of $1,000 for each executive
officer under its 401(k) plan. For fiscal 1995, includes payments for
term life insurance in the amounts of $3,456, $989, $3,053 and $2,241
for Messrs. Dilworth, Wood, Green and Swain, 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 1996,
includes payments for term life insurance in the amounts of $5,400,
$1,117, $5,157 and $3,789 for Messrs. Dilworth, Wood, Green and Swain,
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, $1,357, $5,472, $4,050 and $258 for Messrs. Dilworth, Wood,
Green and Swain and Ms. Wittman, respectively.

(4) Mr. Wood left the Company in January 1998. Ms. Wittman joined the
Company in May 1997.

Compensation Pursuant to Plans

The following tables show for the fiscal year ended December 31, 1997,
certain information regarding options granted to, exercised by and held at year
end by the Named Executive Officers:

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
NAME NUMBER OF PERCENT VALUE AT ASSUMED ANNUAL
SHARES OF OF TOTAL RATES OF STOCK PRICE
COMMON STOCK OPTIONS GRANTED APPRECIATION
UNDERLYING OPTIONS TO EMPLOYEES EXERCISE FOR OPTION TERM (1)
GRANTED IN FISCAL PRICE PER EXPIRATION ----------------------------
(2)(3) YEAR (4) SHARE (3) DATE 5% 10%
------------------ --------------- --------- ---------- -------- --------

Mr. Dilworth....... 75,000 2.3% $ 6.3125 04/30/07 $297,742 $754,537
50,000 1.6% $ 6.7500 04/23/06 $186,037 $458,307
20,000 0.6% $ 6.7500 05/15/05 $64,456 $154,384
25,000 0.8% $ 6.7500 06/09/04 $68,698 $160,096
160,000 5.0% $ 6.7500 10/17/03 $367,303 $833,286
Mr. Wood........... 200,000 6.8% $ 6.3125 04/30/07 $793,979 $2,012,100
25,000 0.8% $ 6.7500 04/23/06 $93,037 $229,154
12,000 0.3% $ 6.7500 05/15/05 $38,674 $92,631
125,000 8.9% $ 6.7500 11/08/04 $343,491 $800,480

43
OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
NUMBER OF PERCENT VALUE AT ASSUMED ANNUAL
SHARES OF OF TOTAL RATES OF STOCK PRICE
COMMON STOCK OPTIONS GRANTED APPRECIATION
UNDERLYING OPTIONS TO EMPLOYEES EXERCISE FOR OPTION TERM (1)
GRANTED IN FISCAL PRICE PER EXPIRATION ----------------------------
NAME (2)(3) YEAR (4) SHARE (3) DATE 5% 10%
------------------ --------------- --------- ---------- -------- --------

Mr. Green.......... 35,000 1.1% $ 6.3125 04/30/07 $138,496 $352,117
25,000 0.8% $ 6.7500 04/23/06 $93,037 $229,154
12,000 0.3% $ 6.7500 05/15/05 $38,674 $92,631
14,000 0.4% $ 6.7500 05/09/04 $38,471 $89,654
35,000 1.1% $ 6.7500 10/17/03 $80,348 $182,281
Mr. Swain.......... 30,000 0.9% $ 6.3125 04/30/07 $119,097 $301,815
20,000 0.6% $ 6.7500 04/23/06 $74,429 $183,323
10,000 0.3% $ 6.7500 05/15/05 $32,228 $77,192
10,000 0.3% $ 6.7500 05/09/04 $27,479 $64,038
25,000 0.8% $ 6.7500 10/17/03 $57,391 $130,201
Ms. Wittman........ 75,000 2.3% $ 6.3750 05/04/07 $300,690 $762,008

- -----------------
(1) For new grants, the potential realizable value is calculated based on
the term of the option at its time of grant (ten years). For repriced
options it is based on the length of the original term remaining at the
time of repricing. See "Option Repricing Information." 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. No gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.

(2) In September 1997, the Board approved the replacement of each
outstanding stock option held by an executive officer with a per-share
exercise price of $11.00 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 terms. All options listed
above with an exercise price of $6.75 per share are "repriced" options.
See "Option Repricing Information."

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

(4) Based on options covering a total of 3,201,650 shares of Common Stock
granted to employees and options covering 1,991,650 shares of Common
Stock issued to employees in option repricings in fiscal 1997.

44
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

NUMBER OF SHARES OF
NUMBER OF COMMON STOCK
SHARES OF UNDERLYING VALUE OF UNEXERCISED
COMMON UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
STOCK FISCAL YEAR-END (1) FISCAL YEAR-END (1) (2)
ACQUIRED VALUE ---------------------------------- -----------------------------
NAME ON EXERCISE REALIZED(3) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------

Mr. Dilworth... -- -- 122,500 330,000 $486,412 $877,612
Mr. Wood....... -- -- -- 362,000 -- $1,014,220
Mr. Green...... 25,000 $71,875 121,500 121,000 $679,165 $325,072
Mr. Swain...... -- -- 20,000 95,000 $31,225 $415,706
Ms. Wittman.... -- -- -- 75,000 -- $220,125

(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, 1997 ($9.625) (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, 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 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. Approximately 32 key employees of the Company,
including the Named Executive Officers, have been notified of their eligibility
to participate in the Severance Plan. "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

45
the Board to be a Designated Event. The Board has determined the sale of Common
Stock to Vulcan in January 1998.

The benefits provided by the Severance Plan are, subject to certain
limitations: (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, 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, have been notified of their eligibility 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.

46
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 2,852,140, 350,000 and 479,050 shares of
Common Stock, respectively, were outstanding under such plans as of March 31,
1998. The 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. In addition,
repriced options issued by the Company in 1997 under the 1988 Stock Option Plan
provide the same acceleration of vesting benefits.

Compensation Committee Report on Executive Compensation

The Company applies a consistent philosophy to compensation for all
employees, including senior management. It is based on the premise that
achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives focused on meeting customer and
stockholder expectations.

The goals of the Company's compensation program are to align
compensation with business objectives and performance while enabling the Company
to attract, retain and reward employees who contribute to the long-term success
of the Company. In all cases, attention is given to fairness in the
administration of compensation and to assuring that all employees understand the
related performance evaluation and administrative process.

The Company's compensation program for executive officers is based on
the principles described above and it is administered by the Compensation
Committee. For fiscal 1997, the Compensation Committee was composed of Mr.
Robert S. Cline, who is Chairman of the Committee, and Mr. Cornelius C. Bond,
Jr., both non-employee directors of the Company. In January 1998, Mr. Bond
ceased to be a member of such committee. In April 1998, David Liddle, a
non-employee director, joined the Compensation Committee. There were no
interlocking or other type of relationships affecting the independence of the
committee members during fiscal 1997.

The Company's executive compensation is intended to be consistent with
leading companies in the electronics and communications industries while being
contingent upon the Company's achievement of near- and long-term objectives and
goals. For fiscal 1997, the principal measures the Compensation Committee looked
to in evaluating the Company's progress towards these objectives and goals were
(1) efforts to attract Ricochet subscribers to target numbers, and (2) to raise
sufficient capital to sustain and continue operations. Other management
objectives considered by the Compensation Committee included expanding the
installation of Ricochet networks in current markets, and continuing the
development of the next generation network. The Company's executive compensation
is based on four components, each of which is intended to serve the overall
compensation philosophy.

47
Base Salary

Base salary is targeted toward the middle of the range established by
comparable companies in the electronics and communications industries. Base
salaries are reviewed annually to ensure that the Company's salaries are
competitive within the target range. For the purpose of establishing these
levels for fiscal 1997, the Company relied in part on American Electronics
Association salary surveys, on a survey conducted by a nationally recognized
compensation consultant of U.S.-based high technology companies and on data
obtained from executive search firms that place executives with Silicon Valley
companies. As a review of data for comparable companies is performed primarily
to establish target ranges for competitive compensation, the Company does not
consider the performance of the comparable companies. The comparison groups in
these surveys and data sources include a broader range of companies than the
sample represented in the Standard & Poor's 500 Communications Equipment Index
contained in the Performance Measurement Comparison because the Company competes
for talented executives with a broad range of companies in industries outside of
the communications equipment industry. The Company has been increasing executive
salaries gradually from a level that was significantly below the targeted range.
Recognizing the competitive environment in the Company's industry and in the
Silicon Valley area generally, the increases approved by the Compensation
Committee in 1997 were intended to keep salaries in the mid-range of targeted
companies in order to retain valuable employees.

Merit Increase

Merit increases are designed to encourage management to perform at
consistently high levels. Salaries for executives are reviewed by the
Compensation Committee on an annual basis and may be increased at that time
based on the Compensation Committee's agreement that the individual's overall
contribution to the Company merits recognition. The salary adjustments reflected
in the Summary Compensation Table were also affected, in the case of executive
officers other than the Chief Executive Officer, by the evaluation of individual
contributions to the Company as provided to the Compensation Committee by the
Chief Executive Officer.

Bonuses

Bonuses for executives are intended to be used as an incentive to
encourage management to perform at a high level or to recognize a particular
contribution by an employee or exceptional Company performance. Generally, the
higher the employee's level of job responsibility, the larger the portion of the
individual's compensation package that may be represented by a bonus. Whether a
bonus will be given, and the amount of any such bonus, is determined on a yearly
basis. Bonus awards must be approved by the Chief Executive Officer and the
Compensation Committee in the case of executives other than the Chief Executive
Officer and by the Compensation Committee alone in the case of the Chief
Executive Officer.

In determining the bonus element of compensation, the Compensation
Committee places particular emphasis on the Company's performance against the
management objectives and goals described above. The Compensation Committee
evaluated the Company's performance against these objectives as follows: In
fiscal 1997, the Company made substantial progress in attracting

48
new subscribers, ending the year with almost 19,000 subscribers, and in raising
capital, obtaining Vulcan's commitment to a private placement of $55.8 million
(before deducting expenses). The Company also made substantial progress in
building out its current markets, increasing population under coverage to 10
million in its three major markets. By the end of fiscal 1997, development of
the next generation high-speed network was well under way. In light of the
Company's success in achieving important objectives in fiscal 1997, the
Compensation Committee decided to award bonuses to executives at 75% of their
target levels.

In addition to the bonuses described above, certain employees engaged in
sales and marketing receive commissions based on the results of their efforts.

Stock Options

The Compensation Committee believes that stock ownership by management
is beneficial in aligning management and stockholders interests with respect to
enhancing stockholder value. Stock options are also used to retain executives
and motivate them to improve long-term stock market performance. Stock options
are granted at the prevailing market value and will only have value if the
Company's stock price increases. Generally, stock option grants vest 25% after
the first year and thereafter monthly in 36 equal amounts over three years.

The Compensation Committee determines the number of options to be
granted based upon the competitive marketplace, with a particular focus on
determining what level of equity incentive is necessary to retain a particular
individual. Outstanding historical performance by an individual is additionally
recognized through larger than normal option grants.

Chief Executive Officer

The Compensation Committee uses the same philosophy described above with respect
to other executive officers in setting the compensation for the Chief Executive
Officer, Mr. Dilworth. Recognizing that Mr. Dilworth's base salary in 1995 was
at a level below the average salary of comparable executives at the companies
covered by the surveys and other data described above, the Compensation
Committee approved the surveys and other data described above, the Compensation
Committee approved an increase in salary for Mr. Dilworth to $305,000 in fiscal
1996. Mr. Dilworth's salary remained at $305,000 in fiscal 1997. Based upon the
same factors considered with respect to the awarding of bonuses to executives in
the Company generally, the Compensation Committee awarded Mr. Dilworth a bonus
of $228,750. Mr. Dilworth was also granted options to purchase an aggregate of
75,000 shares of Common Stock in fiscal 1997, based upon the Compensation
Committee's view of the equity incentive level required to retain his services
in a competitive market, as well as the Compensation Committee's desire to
maintain a clear alignment of management and stockholder interests.

Section 162(m)

Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may be
deducted if it is "performance-based

49
compensation" within the meaning of the Code. The Compensation Committee has
determined that stock options granted under the Company's 1988 Stock Option Plan
with an exercise price at least equal to the fair market value of the Company's
common stock on the date of grant will be treated as "performance-based
compensation." As a result, the Company's stockholders were asked to approve,
and did approve in May 1995, an amendment to such plan that allows any
compensation recognized by a Named Executive Officer as a result of the grant of
such a stock option to be deductible by the Company.

49
50
Compensation Committee

Robert S. Cline, Chairman
David E. Liddle

Option Repricing Information

The following table shows certain information concerning the repricing
of options received by the Named Executive Officers during the last ten years.

TEN YEAR OPTION REPRICINGS

NUMBER OF LENGTH OF
SHARES OF ORIGINAL
COMMON STOCK MARKET PRICE OF OPTION TERM
UNDERLYING COMMON STOCK EXERCISE PRICE REMAINING AT
OPTIONS AT TIME OF AT TIME OF NEW EXERCISE DATE OF
NAME DATE REPRICED REPRICING REPRICING PRICE REPRICING
---- ------------ --------------- -------------- ------------ ------------

Mr. Dilworth..... 09/27/97 20,000 $6.750 $13.500 $6.750 8.6
45,000 $6.750 $13.125 $6.750 8.3
02/01/96 160,000 $13.125 $19.750 $13.125 7.7
25,000 $13.125 $19.625 $13.125 8.3
20,000 $13.125 $17.000 $13.125 9.3
Mr. Wood......... 09/27/97 125,000 $6.750 $11.875 $6.750 7.1
25,000 $6.750 $13.500 $6.750 8.6
12,000 $6.750 $13.125 $6.750 8.3
02/01/96 12,000 $13.125 $17.000 $13.125 9.3
Mr. Green........ 09/27/97 23,000 $6.750 $13.500 $6.750 8.6
61,000 $6.750 $13.125 $6.750 8.3
02/01/96 35,000 $13.125 $19.750 $13.125 7.7
15,000 $13.125 $19.625 $13.125 8.3
Mr. Swain........ 09/27/97 50,000 $6.750 $13.500 $6.750 8.6
205,000 $6.750 $13.125 $6.750 8.3
02/01/96 25,000 $13.125 $19.750 $13.125 7.7
10,000 $13.125 $19.625 $13.125 8.3
10,000 $13.125 $17.000 $13.125 9.3

Compensation Committee Report on Option Repricings

In January 1996, after a steady decline in the market price of the
Common Stock, the Board implemented a Company-wide repricing program pursuant to
which all employees (including executive officers) and consultants were offered
the opportunity to have those of their stock options with exercise prices
greater than $14.00, which was above the then-market value of the Common Stock,
replaced with non-qualified stock options with an exercise price of $13.125, the
fair market value of the Common Stock on the effective date of the repricing,
and certain delayed vesting terms. The Board took this action because it
determined that the purpose of the Company's stock option program of providing
an equity incentive for optionees to remain in the

51
employ of or service to the Company and work diligently in its best interests
would not be achieved for optionees holding options exercisable above the market
price, particularly in light of the intense competition in the Company's
industry for talented employees, and that retaining the services of such
employees was absolutely critical in fostering the best interest of the Company
and the stockholders.

In August 1997, the market price of the Common Stock continued to
decline, reaching a five-year low of $4.375 per share. In mid-August 1997, the
Board determined that a second option repricing was necessary in order to retain
and continue to provide the proper incentives to its non-officer employees. In
such repricing, all non-officer employees and consultants were offered the
opportunity to have those of their stock options with exercise prices greater
than $7.00 per share, which was above the then-market value of the Common Stock,
replaced with non-qualified stock options with an exercise price of $4.53 per
share, the fair market value of the Common Stock on the effective date of the
repricing, and certain delayed exercise provisions. In late September 1997, the
Board determined that it was imperative to effect a similar option repricing for
its executive officers in order to retain and continue to provide the proper
incentives to them. In such repricing, all executive officers were offered the
opportunity to have those of their stock options with exercise prices greater
than $11.00 per share, which was above the then-market value of the Common
Stock, replaced with non-qualified stock options with an exercise price of $6.75
per share, the fair market value of the Common Stock on the effective date of
the repricing, and certain delayed exercise provisions.

Performance Measurement Comparison

The following graph shows the total stockholder return of an investment
of $100 in cash on December 31, 1992 for (a) the Company's Common Stock, (b) the
Standards & Poor's 500 Communications-Equipment/Manufacturers Index and (c) the
Nasdaq-United States Index. All values assume reinvestment of the full amount of
all dividends and are calculated as of December 31 of each year:

Data Sheet

RESEARCH DATA GROUP, INC. TOTAL RETURN - DATA SUMMARY

MCOM CUMULATIVE TOTAL RETURN
-------------------------------------------------------
12/92 12/93 12/94 12/95 12/96 12/97
----- ----- ----- ----- ----- -----

METRICOM, INC. 100 369 231 210 231 148
NASDAQ STOCK MARKET (U.S.) 100 115 112 159 195 240
STANDARD & POOR'S COMMUNICATIONS E 100 96 110 164 192 251

51
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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, 1998 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 one former executive officer); (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.

BENEFICIAL OWNERSHIP (1)
------------------------------------
NUMBER OF SHARES PERCENT OF TOTAL
---------------- ----------------

NAME
Vulcan Ventures Incorporated (2).............................. 9,121,745 49.3%
110-110th Avenue NE, Suite 550
Bellevue, WA 98004

Lindner Investments (3)....................................... 1,546,390 8.4%
7711 Carondelet Avenue
P.O. Box 16900
St. Louis, MO 63105

Robert S. Cline (4)........................................... 45,999 *
Ralph Derrickson ............................................. -- --
Robert P. Dilworth (4)........................................ 187,073 1.0%
Gary M. Green (4)............................................. 160,133 *
Justin L. Jaschke (4)......................................... 23,916 *
David E. Liddle (4)........................................... -- --
William D. Savoy (2).......................................... 9,121,745 49.3%
William D. Swain (4).......................................... 51,530 *
Vanessa A. Wittman (4)........................................ 25,750 *
Donald F. Wood (5)............................................ 55,144 *
Directors and current executive officers
as a group (9 persons) (4) (5) (6)............................ 9,671,290 51.1%

* 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 a total of 18,507,702 shares outstanding on March 31, 1998 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) 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.

(4) Includes 45,999, 141,250, 130,250, 23,416, 50,098 and 18,750 shares of
Common Stock subject to options exercisable within 60 days of the date
of this table held by Messrs. Cline, Dilworth, Green, Jaschke and Swain
and Ms. Wittman, respectively.

(5) Mr. Wood left the Company in January 1998. Includes 50,000 shares of
Common Stock subject to options exercisable within 60 days of the date
of this table.

(6) Includes shares held by entities affiliated with certain officers and
directors as described in the footnotes above.

53
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Sale of Common Stock to Vulcan Ventures Incorporated

In January 1998, the Company sold 4,650,000 newly-issued shares of
Common Stock to Vulcan Ventures Incorporated, 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 including the right to nominate up
to four members of the Board of Directors. As of March 31, 1998, Vulcan owned
approximately 49.3% of the outstanding Common Stock. Messrs. Savoy, Liddle and
Derrickson directors of the Company, are affiliated with Vulcan.

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 and related notes, together with the
report thereon of Arthur Andersen LLP, independent public accountants.

(b) REPORTS ON FORM 8-K.

A report on Form 8-K was filed on October 17, 1997 relating to an
investment in the Company by Vulcan Ventures Incorporated.

EXHIBIT
NUMBER EXHIBIT
- ------- -------

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54
EXHIBIT
NUMBER EXHIBIT
- ------- -------

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.

54
55
EXHIBIT
NUMBER EXHIBIT
- ------- -------

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.
23.1 Consent of Independent Public Accountants.
24.1(5) Power of Attorney.
27.1 Financial Data Schedule.

- ----------

(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.

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56
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, as amended, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 29th day of
April 1998.

METRICOM, INC.

By: /s/ Vanessa Wittman
----------------------------------
Vanessa Wittman
Vice President Finance
(duly authorized representative)

56
57
INDEX TO EXHIBITS

EXHIBIT
NUMBER EXHIBIT
- ------- -------

3.1 Restated Certificate of Incorporation of the Company.
3.2 Bylaws of the Company, as amended.
4.1 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 Subordinate 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.
10.1(1) Form of Indemnity Agreement entered into between the
Company and its directors and officers, with related schedule.
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

57
58
EXHIBIT
NUMBER EXHIBIT
------- -------
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
23.1 Consent of Independent Public Accountants
24.1(5) Power of Attorney.
27.1 Financial Data Schedule.

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- ----------