AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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METAWAVE COMMUNICATIONS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 3663 91-1673152
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

10735 WILLOWS ROAD NE
P.O. BOX 97069
REDMOND, WA 98073-9769
(425) 702-5600
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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ROBERT H. HUNSBERGER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
10735 WILLOWS ROAD NE
P.O. BOX 97069
REDMOND, WA 98073-9769
(425) 702-5600
(NAME, ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER INCLUDING AREA CODE, OF
AGENT FOR SERVICE)

COPIES TO:

WILLIAM W. ERICSON JEFFREY D. SAPER
SONYA F. ERICKSON PATRICK J. SCHULTHEIS
JOHN W. ROBERTSON ROBERT G. DAY
VENTURE LAW GROUP WILSON SONSINI GOODRICH & ROSATI
A PROFESSIONAL CORPORATION PROFESSIONAL CORPORATION
4750 CARILLON POINT 650 PAGE MILL ROAD
KIRKLAND, WA 98033-7355 PALO ALTO, CA 94304-1050
(425) 739-8700 (650) 493-9300

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective date of this Registration
Statement.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE

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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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Common Stock, par value $0.0001...... 5,750,000 Shares $11.50 $66,125,000 $19,507
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(1) Includes 750,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.

(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act.

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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
JULY 22, 1998

5,000,000 SHARES

[LOGO OF METAWAVE COMMUNICATIONS CORPORATION]

COMMON STOCK

All of the 5,000,000 shares of Common Stock offered hereby are being sold by
Metawave Communications Corporation ("Metawave" or the "Company"). Prior to
this offering, there has been no public market for the Common Stock of the
Company. It is currently estimated that the initial public offering price will
be between $9.50 and $11.50 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price. The
Company has applied to have the Common Stock listed on the Nasdaq National
Market under the symbol MTWV.

---------

THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.

---------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share....................... $ $ $
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Total(3)........................ $ $ $
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.

(2) Before deducting estimated expenses payable by the Company estimated at
$825,000.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 750,000 additional shares of Common Stock solely to cover over-
allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If the option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

---------

The shares of Common Stock are offered by the several Underwriters subject to
prior sale, when, as and if delivered to and accepted by them, receipt and
subject to the right of the Underwriters to reject any order in whole or in
part and certain other conditions. It is expected that delivery of the shares
of Common Stock will be made, at the offices of BT Alex. Brown Incorporated,
Baltimore, Maryland, on or about , 1998.

BT ALEX. BROWN
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC

, 1998

[Inside front cover and gatefold graphics:

The global communications infrastructure including wireless communications is
enabling the worldwide evolution to the digital information age.

The number of worldwide wireless users in 1997 was over 194 million and is
expected to grow to approximately 550 million by the year 2001.

Metawave is dedicated to providing spectrum management solutions to enable
this growth to continue operations to increase capacity, coverage and cell
quality.

Graphic of frequency spectrum and artwork using a depiction of cellular
telephones and the cellular Block A frequency illustrating the Company's
current and potential technology, products and markets.]

The Company's current product offerings are for AMPs and AMPs/CDMA dual-mode
networks. The Company is also developing solutions for GSM and may in the
future undertake product development for TDMA.]

The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS OR IMPOSING PENALTY BIDS, IN CONNECTION WITH
THE OFFERING, FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

Metawave, Metawave Communications, SpotLight 2000, LampLighter, SiteNet and
Metawave's stylized cube logo are trademarks and service marks of the Company.
All other trademarks or service marks appearing in this prospectus are the
property of their respective owners.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. See "Risk Factors." Unless otherwise indicated, the
information in this Prospectus assumes (i) no exercise of the Underwriters'
over-allotment option, (ii) no exercise of outstanding warrants, (iii) the
filing of the Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") authorizing a class of 15,000,000 shares of
undesignated Preferred Stock upon completion of this offering and (iv) the
automatic conversion of all outstanding shares of Series A, Series B, Series C
and Series D Preferred Stock into Common Stock upon completion of this
offering. See "Description of Securities" and "Underwriting." Each of the
Company's fiscal quarters is the 13-week period that ends on the Sunday nearest
the end of the last calendar month of such 13-week period. For convenience of
presentation, all fiscal periods in these financial statements are treated as
ending on a calendar month end. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual events or results could
differ materially from those expressed in or implied by these forward-looking
statements as a result of a number of factors, including those set forth under
"Risk Factors" and elsewhere in this Prospectus.

THE COMPANY

Metawave Communications Corporation ("Metawave" or the "Company") designs,
develops, manufactures and markets spectrum management solutions for the
wireless communications industry. Metawave's spectrum management solutions,
consisting of smart antenna systems, applications software and engineering
services, enable cellular network operators to increase overall network
capacity, reduce network operation costs, better manage network infrastructure
and stimulate end user demand through improved system quality.

The Company's smart antenna systems utilize fixed beam-switching hardware and
software algorithms to reduce system interference in order to enable more
efficient utilization of finite radio frequency spectrum or "wireless
bandwidth." The Company's products offer highly integrated system solutions
that can reduce the need for costly infrastructure upgrades and additional cell
site deployments, thereby enabling cellular network operators to reduce
otherwise capital intensive outlays and to keep pace with subscriber growth.
The Company's technology is designed to be leveraged across a variety of the
market segments in the wireless communications industry, including the AMPS,
CDMA, GSM, PCS, TDMA and wireless local loop ("WLL") segments. The Company's
customers include ALLTEL Communications Inc. ("ALLTEL"), 360(degrees)
Communications Company ("360(degrees) Communications") and Millicom
International Cellular S.A. ("Millicom") affiliates, Telefonica Celular del
Paraguay S.A. ("Telefonica Celular") and OJSC St. Petersburg Telecom ("St.
Petersburg Telecom"). The Company has completed a field trial with AirTouch
Communications, Inc. ("AirTouch") and is currently conducting a field trial
with GTE Corporation ("GTE").

The worldwide demand for wireless communications services has grown
significantly, largely as a result of technological advancements, deregulation
and economies of scale that have substantially reduced the cost and improved
the quality and reliability of wireless services for the business and consumer
mass market. Increased demand for wireless services places a significant strain
on wireless network operators which have a fixed amount of radio frequency
spectrum or wireless bandwidth available to deliver wireless services. Unlike
traditional data and telephony communications bandwidth, which is an expandable
physical medium, wireless spectrum is generally allocated in fixed amounts by
governments in U.S. and foreign markets. Thus, the fundamental challenge for
wireless network operators is to increase capacity, coverage and call quality
within a fixed amount of wireless spectrum.

To address capacity, coverage and call quality issues, cellular network
operators have begun to deploy more spectrum-efficient digital technologies.
However, because analog and digital technologies share the same fixed amount of
spectrum in a cellular network, cellular network operators must remove analog
channels to implement digital technologies, while simultaneously providing
analog cellular service to increasing numbers of subscribers. Traditionally,
cellular network operators have addressed capacity, coverage and call quality
problems by building new cell sites or adopting variations on antenna design
such as sectorized antennas.

Metawave's spectrum management platform, the Spotlight 2000 system, is a
multibeam smart antenna technology that enables the transition from traditional
wireless network infrastructure design to an architecture which actively
optimizes finite spectrum or wireless bandwidth. The SpotLight 2000 system is
compatible with the Motorola, Inc. ("Motorola") HDII and Lucent Technologies
Inc. ("Lucent") Series II base stations and AMPS and CDMA air interface
protocols. Metawave's spectrum management solutions provide cost-effective
capacity expansion, efficient conversion to digital network capability and
improved network performance. Metawave's SpotLight 2000 system is currently
deployed in cellular networks in North America, South America and Europe.

Metawave's objective is to be a leading provider of spectrum management
solutions to the worldwide wireless communications market. Key elements of the
Company's strategy include: (i) identifying rapidly growing wireless markets
and developing highly integrated solutions to their spectrum management
problems; (ii) building and expanding strategic customer relationships; (iii)
leveraging its proprietary core technology, which includes eight issued U.S.
patents and 25 pending patent applications, by investing substantial resources
in the research and product development necessary to address additional
markets; and (iv) offering system level solutions, including pre-sales system
planning, configurable products and on-site installation and optimization, that
enhance the performance of cellular operators' networks.

Metawave sells its products through a technical direct sales force supported
by systems engineers. Direct sales personnel are assigned on a customer account
basis and are responsible for generating product sales and providing product
and customer support. As of June 30, 1998, the Company had 200 employees,
including 43 in sales, marketing and customer support, located in the Company's
Redmond, Washington, Washington, D.C. and Dallas, Texas offices.

The Company's principal executive offices are located at 10735 Willows Road
NE, Redmond, Washington 98073-9769, and its telephone number is (425) 702-5600.
The Company was originally incorporated in the state of Washington in January
1995 and was reincorporated in the state of Delaware in July 1995.

THE OFFERING

Common Stock offered by the Company........... 5,000,000 shares
Common Stock to be outstanding after the
offering..................................... 21,166,277 shares(1)
Use of proceeds............................... Repayment of approximately
$16.2 million of outstanding
debt for working capital and
general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol........ MTWV

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM
JANUARY 19,
1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------- -------------------
1995 1996 1997 1997 1998
-------------- -------- ---------- ------- ----------

STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501
Gross profit (loss)..... -- 194 (278) (124) 105
Total operating
expenses............... 1,135 11,324 22,228 8,976 14,541
Loss from operations.... (1,135) (11,130) (22,506) (9,100) (14,436)
Other income (expense),
net.................... 135 335 402 173 (1,747)
------- -------- ---------- ------- ----------
Net loss................ $(1,000) $(10,795) $ (22,104) $(8,927) $ (16,183)
======= ======== ========== ======= ==========
Pro forma net loss per
share(2)............... $ (1.54) $ (1.01)
========== ==========
Weighted average common
shares and equivalents
pro forma(2)........... 14,383,284 16,060,815
========== ==========

JUNE 30, 1998
------------------------
ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 20,311 $ 52,111
Working capital........................................ 3,787 51,787
Total assets........................................... 46,557 78,357
Senior Secured Bridge Notes(3)......................... 29,708 13,508
Other debt, including capital lease obligations........ 5,392 5,392
Convertible and redeemable preferred stock............. 49,282 --
Convertible and redeemable preferred stock warrants.... 4,423 --
Accumulated deficit.................................... (50,082) (50,082)
Stockholders' equity (deficit)......................... $(48,797) $ 52,908

- --------
(1) Based on the number of shares outstanding on June 30, 1998. Excludes as of
June 30, 1998, (i) 3,277,760 shares issuable upon exercise of outstanding
options at a weighted average exercise price of $1.49 per share (ii)
657,005 shares issuable upon exercise of outstanding warrants at a weighted
average exercise price of $0.60 per share and (iii) an aggregate of
2,010,639 shares available for future issuance of such options under the
Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock
Option Plan"), 1998 Stock Option Plan (the "1998 Stock Option Plan"), 1998
Directors' Stock Option Plan (the "Directors' Plan") and 1998 Employee
Stock Purchase Plan (the "Purchase Plan"). See "Management--Stock Plans,"
"Certain Relationships and Related Transactions," "Description of
Securities" and Notes 4 and 6 of Notes to Financial Statements.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
method employed to determine the number of shares used to compute per share
amounts.
(3) In April 1998, the Company issued $29.0 million in aggregate principal
13.75% Senior Secured Bridge Notes due April 28, 2000 (the "13.75% Senior
Secured Bridge Notes"). In connection with the 13.75% Senior Secured Bridge
Notes, the Company issued warrants to purchase an aggregate of 537,500
shares of Series D Preferred Stock at a purchase price of $0.01 per share
(the "Note Warrants"). See "Certain Relationships and Related
Transactions," "Description of Securities" and Note 4 of Notes to Financial
Statements.
(4) Adjusted to reflect (i) the sale and issuance of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price
of $10.50 per share and the application of the estimated net proceeds
therefrom; (ii) the conversion of convertible and redeemable Preferred
Stock into Common Stock and the conversion of Preferred Stock warrants into
Common Stock warrants, and (iii) the application of the estimated net
proceeds of the offering including the repayment of approximately $16.2
million of outstanding principal and the estimated accrued interest on the
Company's 13.75% Senior Secured Bridge Notes. See "Use of Proceeds" and
"Capitalization."

RISK FACTORS

An investment in the shares offered hereby involves a high degree of risk.
The following risk factors should be considered carefully in addition to the
other information in this Prospectus before purchasing the shares of Common
Stock offered hereby. The discussion in this Prospectus contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed elsewhere
herein.

Limited Operating History; Accumulated Deficit; Anticipated Losses. The
Company was incorporated in 1995 and was in the development stage until late
1997, when it commenced shipments for commercial sale of its first spectrum
management system. From inception through June 30, 1998, the Company generated
total revenues of approximately $9.2 million, of which $6.5 million, or 70.6%,
was generated in the six months ended June 30, 1998. For the quarters ended
March 31, 1998 and June 30, 1998, the Company's net losses were $7.0 million
and $9.2 million, respectively and, at June 30, 1998, the Company had a
cumulative net loss of approximately $50.1 million. The revenue and profit
potential of the Company's business is unproven and the Company's limited
operating history makes its future operating results difficult to predict. The
Company believes that its growth and future success will be dependent upon the
widespread acceptance of the SpotLight 2000 system by cellular network
operators. Because the SpotLight 2000 system was only recently introduced, the
Company is unable to predict with any degree of certainty whether the system
will achieve market acceptance. There can be no assurance that the Company
will ever achieve profitability or significant revenues on a quarterly or an
annual basis. The Company intends to continue to make significant investments
in its operations, particularly to support product development, to increase
manufacturing capacity and to market new products. Accordingly, the Company
expects to continue to generate losses for the foreseeable future, even if
revenues increase. In view of the Company's limited production history, an
investment in the Common Stock offered hereby must be considered in light of
the problems, expenses, complications and delays frequently encountered in
connection with the development of new technologies, products, markets and
operations. As a result of the Company's net losses and limited operating
history, period-to-period comparisons of operating results may not be
meaningful and operating results from prior periods may not be indicative of
future performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Significant Fluctuations in Operating Results. The Company will likely
experience significant fluctuations in its operating results on a quarterly
and an annual basis in the future. In connection with its efforts to increase
production of its recently introduced SpotLight 2000 system, the Company
expects to continue to make substantial investments in capital equipment, to
recruit and train additional personnel and to invest in facilities and
management information systems. These expenditures may be made in advance of,
and in anticipation of, increased sales and, therefore, gross profits may be
adversely affected by short-term inefficiencies associated with the addition
of equipment, personnel or facilities, and costs may increase as a percentage
of revenues from time-to-time on a periodic basis. As a result, the Company's
operating results will vary from period to period. Because of the limited size
of the Company's customer base and the large size of customer orders, revenues
derived from a small number of customers will likely represent a significant
portion of revenue in any given period. Accordingly, a decrease in demand for
the Company's systems from any customer for any reason is likely to result in
significant periodic fluctuations in revenue. In addition, most of the
Company's contracts contain conditional acceptance provisions for certain
product sales and the Company delays recognition of revenues that are subject
to such contingencies until all such conditions are satisfied. If the Company
could not satisfy conditions in such

contracts or satisfaction of conditions were delayed for any reason, revenues
in any particular period could fall significantly below the Company's
expectations.

A delay in a shipment or customer acceptance of the Company's product near
the end of a particular quarter, due to, for example, an unanticipated
shipment rescheduling, cancellation or deferral by a customer, competitive or
economic factors, unexpected manufacturing, installation or other
difficulties, failure to satisfy customer acceptance conditions,
unavailability or delays in deliveries of components, subassemblies or
services by suppliers, or the failure to receive an anticipated order, may
cause revenue in a particular period to fall significantly below the Company's
expectations and may materially adversely affect the Company's business and
operating results for such period. A significant portion of the Company's
expenses are fixed in advance and based in large part on revenue forecasts. If
revenues do not meet the Company's expectations in any given period, the
adverse impact on operating results of such a shortfall may be magnified by
the Company's inability to adjust spending to compensate for the shortfall. In
addition, the Company plans to increase operating expenses to fund additional
research and development, sales and marketing and general and administrative
activities. To the extent that these expenses are not accompanied by an
increase in revenues, the Company's business and operating results would be
materially adversely affected.

Other factors that may cause the Company's revenue, gross profits and
results of operations to vary significantly from period to period include:
gain or loss by the Company of significant customers; delays in, or
prohibition of, installing the Company's systems due to topological or zoning
issues or customer installation schedules; the Company's ability to reduce
costs; existing and new product development; market acceptance and the timing
of availability of new products by the Company or its customers; changes in
pricing by the Company, its customers or suppliers; introduction and
enhancement of products by the Company and its competitors; increases in
warranty and customer support expenses; limitations on manufacturing capacity;
inventory obsolescence; introduction of new distribution and sales channels;
fluctuations in foreign currency exchange rates; delays or changes in
regulatory approval of the Company's systems or those of its customers;
natural disasters or adverse weather; and general economic and political
conditions. In addition, the Company's results of operations have been, and
will continue to be, influenced significantly by competitive factors including
the pricing and availability of, and demand for, competitive or substitute
products. It is likely that, in a future period, the Company's operating
results will not meet the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, while the
Company's revenues have not been impacted by seasonality to date, the
telecommunications industry historically has been subject to some degree of
seasonality, with lower sales in the first calendar quarter. There can be no
assurance that the Company's business and operating results will not be
adversely affected by such seasonal fluctuations in the future.

The Company's current backlog consists of a relatively small number of
orders for its SpotLight 2000 system. Purchase orders are received and
accepted in advance of shipment and are generally cancelable prior to
shipment. As a result, backlog may not result in revenues and, as of any
particular date, may not be a reliable indicator of sales for any future
period. Furthermore, the Company intends to increase production capacity in
order to reduce the period of time between receipt and shipment of orders.
Thus, the Company does not expect backlog will remain at current levels as a
percentage of sales. Furthermore, due to the many factors affecting decisions
by customers to place orders and the impact of a small number of large orders,
backlog at any given time may fluctuate significantly. Such fluctuations may
adversely affect the Company's business and operating results. See "Business--
Sales, Marketing and Customer Support."

Significant Customer Concentration. The Company has derived a substantial
portion of its revenue from sales of the SpotLight 2000 system to a limited
number of cellular network operators, and the

Company expects this customer concentration to continue for the foreseeable
future. To date, four customers have accounted for all of the Company's
product sales. For the six months ended June 30, 1998, three customers, St.
Petersburg Telecom, Telefonica Celular and ALLTEL, accounted for approximately
27.4%, 24.0% and 44.2%, respectively, of the Company's net revenues. Due to
the highly concentrated nature of the cellular industry and industry
consolidation, the Company believes that the number of potential customers for
future products, if any, will be small. In this regard, on July 1, 1998,
ALLTEL completed the acquisition of 360(degrees) Communications, another
customer of the Company. Failure by the Company to capture a significant
number of the cellular network operators as customers could have a material
adverse effect on the Company's business and operating results. The Company
expects that a small number of customers will continue to represent a
significant percentage of its total revenues for the foreseeable future,
although the companies that comprise the largest percentage of sales in any
given quarter may change from quarter to quarter. Because of the small size of
the Company's customer base, the loss of any customer or reduced demand for
systems from any customer, could have a material adverse effect on the
Company's business and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Customers."

Uncertainty of Market Acceptance; Lengthy Sales Cycle. The Company's future
success will depend upon the degree of market acceptance of the Company's
spectrum management solutions. The Company believes that substantially all of
its revenues in the foreseeable future will be derived from sales of its
SpotLight 2000 system. In light of the recent introduction of the SpotLight
2000 system and the rapidly evolving nature of the wireless communications
industry, the Company is unable to predict with any degree of assurance
whether its current or future products will achieve market acceptance. There
can be no assurance that the Company will be able to reduce its reliance on
sales of its SpotLight 2000 system by developing interfaces to other wireless
protocols or base stations manufactured by vendors other than Motorola or
Lucent, or that if developed, such new system versions will achieve market
acceptance. If the SpotLight 2000 system fails to achieve broad market
acceptance, the Company's business and operating results would be materially
adversely affected. See "Business--Metawave Products."

In order for its spectrum management solutions to achieve market acceptance,
the Company must demonstrate to cellular network operators that the systems
provide a spectrum management solution that addresses the cellular network
operators' challenges of capacity, coverage and call quality in a cost-
effective manner. The Company must demonstrate product performance to a
cellular network operator based on such operator's unique network
configuration and specifications. The Company's ability to optimize its
product in any given cell site varies greatly depending on such operator's
specifications and the local geographical terrain. Typically, performance of
the Company's product must be accepted in an initial cell site or cluster of
cell sites prior to completing any additional sales to such cellular network
operator. If the Company's spectrum management solutions are not accepted by
cellular network operators in a timely manner, or at all, the Company's
business and operating results could be materially adversely affected. See "--
Risks Related to Base Station Manufacturers," "--Competition" and "Business--
Metawave Products."

Because the SpotLight 2000 system represents a new approach to increasing
network capacity and affects the key function of a cellular operator's
network, purchase of the SpotLight 2000 system is typically a strategic
decision that requires approval at senior levels of customers' organizations,
significant technical evaluation and a substantial commitment of customers'
personnel, financial and other resources. Historically, the Company has
conducted field trials and has been required to satisfy performance conditions
prior to the completion of a sale. For these and other reasons, the sales
process associated with the purchase of the Company's systems is typically
complex, lengthy and subject to a number of significant risks, including
changes in customers' budgets and approval at senior levels of customers'
organizations and approval by governmental agencies. In addition, given the
regional divisions of many cellular networks, an order from one region does
not necessarily result in subsequent orders from other regions of the same
cellular network without additional trials and substantial selling efforts by
the

Company. The Company's sales cycle can last up to 18 months or more and varies
substantially from customer to customer. Because of the lengthy sales cycle
and the dependence of the Company's quarterly revenues upon a small number of
orders that represent large dollar amounts, if revenues from any order
forecasted for a particular quarter are not received in that quarter, the
Company's business and operating results could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Sales, Marketing and Customer Support."

Dependence on Cellular Network Operator Capital Spending. The Company
expects that it will derive substantially all of its revenues for the
foreseeable future from sales of its SpotLight 2000 system to cellular network
operators. These operators are located in the United States and foreign
markets. Demand for the Company's products will depend to a significant degree
upon the magnitude and timing of capital spending by cellular network
operators for constructing, rebuilding or upgrading their systems. The capital
spending patterns of cellular network operators depend on a variety of
factors, including access to financing, the status of federal, local and
foreign government regulation and deregulation, changing standards for
cellular technology, overall demand for analog and digital cellular services,
competitive pressures and general economic conditions. In addition, capital
spending patterns in the cellular industry can be subject to some degree of
seasonality, with lower levels of spending in the first calendar quarter,
based on annual budget cycles. Capital spending levels in the U.S. cellular
industry have fluctuated significantly in the past, and there can be no
assurance that such fluctuations will not occur in the future. Any substantial
decrease or delay in capital spending by cellular network operators in the
United States or abroad would have a material adverse effect on the Company's
business and operating results.

Risk of Declining Prices; No Assurance of Cost Reductions. The Company
believes that for its systems to achieve broad market acceptance and to
compete effectively with alternative systems, the Company's average selling
prices must decline. The Company may be subject to price competition from base
station manufacturers which could lower base station prices thereby making the
addition of new base stations a more cost-effective alternative for cellular
network operators seeking increased capacity. In order to achieve lower
average selling prices without adversely affecting gross margins, the Company
must successfully reduce the manufacturing costs of its product through
engineering improvements and economies of scale in production and purchasing.
There can be no assurance that the Company will achieve cost savings at a rate
needed to keep pace with competitive pricing pressures. In addition, if the
cellular industry does not shift to digital protocols that yield higher
product margins for the Company, the Company's gross margins could be
adversely affected in future periods. To the extent that the Company is unable
to reduce costs sufficiently to offset declining average selling prices or the
mix of the Company's sales is comprised substantially of analog-based
technologies, the Company may not achieve positive gross margins. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Research and Development."

Risks Related to Base Station Manufacturers. The Company's product strategy
relies on ensuring the compatibility of the Company's systems with base
stations sold by cellular equipment manufacturers. The Company's product
strategy is competitive in some respects with such manufacturers, and it may
be difficult or impossible for the Company to obtain technical cooperation
from such manufacturers, which may be required to make the Company's systems
compatible with their base stations. The initial version of the SpotLight
system relied on analog technologies and did not require significant
cooperation from such base station manufacturers. As the cellular industry
continues the conversion to digital technologies, increased signal and
connection complexity may require the Company, at a minimum, to obtain
customer or manufacturer cooperation on technical specifications and may
possibly require the Company to obtain manufacturer cooperation to embed the
Company's systems in the base station equipment. There can be no assurance
that the Company will be able to obtain cooperation to make the Company's
products compatible with manufacturers' base stations on reasonable terms, or
at all, and the failure to do so could materially and adversely affect the
Company's business and operating results.

Competition. The market for spectrum management solutions is relatively new
but is expected to become increasingly competitive. The Company's products
compete with other smart antenna systems and alternative wireless
infrastructure devices such as repeaters, cryogenic filters and tower-top
amplifiers. The Company believes the principal competitive factors are the
cost-effective delivery of increased capacity, expanded coverage and improved
call quality to cellular network operators. There can be no assurance that the
Company will compete favorably with respect to the foregoing factors.

The Company believes that base station manufacturers, who provide cellular
network capacity through sales of additional base stations, represent a
significant competitive threat to the Company. These manufacturers, including
Ericsson LM Telephone Co. ("Ericsson"), Lucent, Motorola, Nokia Corporation
("Nokia"), Northern Telecom, Ltd. ("Northern Telecom") and Siemens Corporation
("Siemens"), have long-term, established relationships with the cellular
network operators. Deployment of the Company's SpotLight 2000 system by
cellular network operators can improve base station performance, and therefore
may result in fewer sales opportunities for base station manufacturers. Smart
antenna technology represents an area of opportunity for such manufacturers.
The Company believes that certain of these manufacturers are developing smart
antenna systems and are likely to offer smart antenna capabilities in the
future. In addition to having more established relationships with cellular
network operators, these manufacturers have significantly greater financial,
technical, manufacturing, sales, marketing and other resources than the
Company and have significantly greater name recognition for their existing
products and technologies than has the Company.

The Company's current primary direct competitors for spectrum management
solutions are Celwave (a division of Radio Frequency Systems Inc., which is an
affiliate of Alcatel Alsthom S.A.), ArrayComm, Inc. and GEC-Marconi Hazeltine
Corporation. In addition, other companies, such as Raytheon E-Systems,
Watkins-Johnson Company, Texas Instruments Incorporated and ARGOSystems, Inc.
(a subsidiary of The Boeing Company), offer systems that utilize digital
signal processing and interference cancellation techniques to extend cell site
coverage and improve call quality. Several companies offer alternative
technologies such as cryogenic filters, tower-top low noise amplifiers and
repeaters that can be used to provide service in network coverage holes and
improve call quality. The Company may also face competition in the future from
new market entrants offering competing technologies.

The Company believes that its ability to compete in the future will depend
in part on a number of competitive factors outside its control, including the
development by others of products that are competitive with the Company's
products and the price at which others offer comparable products. To be
competitive, the Company will need to continue to invest substantial resources
in engineering, research and development and sales and marketing. There can be
no assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological
advances necessary to remain competitive. Accordingly, there can be no
assurance that the Company will be able to compete successfully in the future.
See "Business--Competition."

Management of Growth; New Management Team. The growth of the Company's
operations has placed, and is expected to continue to place, a significant
strain on the Company's financial and management resources as well as its
product design, manufacturing, sales and customer support capabilities. In May
1998, the Company moved to significantly larger facilities to accommodate the
Company's expanded research and development and manufacturing needs. As the
Company expands its operations to multiple locations, including
internationally, management of the Company's operations will become
increasingly complex. To manage its anticipated growth, the Company must,
among other things, continue to implement and improve its operational,
financial and management information systems, hire and train additional
qualified personnel, continue to expand and upgrade core technologies and
effectively manage multiple relationships with various customers, suppliers
and other third parties. The Company recently upgraded its financial and
accounting software to an enterprise resource planning software package that
integrates manufacturing, finance and sales order management. The Company
anticipates that additional upgrades to its management information systems
will be required in the near future to address

the expected increased volume and complexity of the Company's transactions.
There can be no assurance that the Company will successfully integrate the
newly purchased software with its existing systems or that the integration of
the new systems will not cause unanticipated system disruptions, slower
response times, degradation in levels of performance or reliability, impaired
quality of production, and delays in reporting accurate financial information.
Failure to successfully implement and integrate these systems, procedures and
controls to effectively manage the Company's growth in operations in a timely
manner could have a material adverse effect on the Company's business and
operating results.

From January 1, 1997 to June 30, 1998, the Company expanded from 91 to 200
employees. A majority of the Company's executive officers joined the Company
within the last 18 months and many of these officers have no prior experience
as executive officers of publicly traded companies. The Company's new
employees include the Chief Executive Officer and Chief Financial Officer as
well as a number of other key managerial, technical and operations personnel
who have not yet been fully integrated into the Company, and the Company
expects to add additional key personnel in the near future. There can be no
assurance that the Company's current and planned personnel will be adequate to
support the Company's future operations, that management will be able to hire,
train, retain, motivate and manage required personnel or that Company
management will be able to successfully identify, manage and exploit existing
and potential market opportunities. If the Company is unable to manage growth
effectively, its business and operating results will be materially adversely
affected.

Rapid Technological Change and Requirement for Frequent New Product
Introductions. The Company's future success will depend in large part on its
ability to develop new products designed to operate with different digital
technologies such as CDMA and GSM as well as across other principal
manufacturer base stations. There can be no assurance that the Company will
successfully develop and introduce such products in a timely manner. In this
regard, the Company is currently conducting trials of its recently developed
dual-mode AMPS/CDMA based SpotLight 2000 system. There can be no assurance
that the trials will be successful or that the cellular network operators will
accept the product.

The market for the Company's current products and planned future products is
subject to rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in customer requirements and
evolving industry standards. To be competitive, the Company must successfully
develop, introduce and sell new products or product enhancements that respond
to changing customer requirements on a timely and cost-effective basis. The
Company's success in developing new and enhanced products will depend on a
variety of factors, many of which are beyond the Company's control. Such
factors include the timely and efficient completion of system design; the
timely and efficient implementation of assembly, calibration and test
processes; sourcing of components; the development and completion of related
software; the reliability, cost and quality of new products; the degree of
market acceptance; and the development and introduction of competitive
products by competitors. The Company has experienced and may continue to
experience delays in development and introduction of products. In addition,
the Company may be required to obtain licenses to intellectual property rights
held by third parties to develop new products or product enhancements and
there can be no assurance that such licenses will be available on acceptable
terms, if at all. The inability of the Company to introduce in a timely manner
new products or product enhancements that contribute to sales could have a
material adverse effect on the Company's business and operating results. In
addition, changes in manufacturing operations to incorporate new products and
processes could cause disruptions in production of existing products, which,
in turn, could adversely affect customer relationships and the market's
acceptance of the Company's products, and have a material adverse effect on
the Company's business and operating results. See "Business--Research and
Development" and "--Manufacturing."

Limited Manufacturing Experience; No Assurance of Successful Expansion of
Operations. The Company's manufacturing operations consist primarily of
supplier and commodity management and assembling finished goods from
components and subassemblies purchased from outside suppliers.

Because the Company configures each SpotLight 2000 system to meet customer
specifications, the Company's ability to achieve manufacturing efficiencies by
assembling products before orders are received is limited. The Company intends
to expand its manufacturing capacity by purchasing additional equipment,
hiring additional personnel, further developing its proprietary test software
to improve productivity, increasing the efficiency of its production
processes, and, in certain instances, subcontracting additional assembly,
calibration and testing processes. If the Company is to achieve its
objectives, it will also be required to significantly expand its sales,
marketing and customer support capabilities. The Company intends to
subcontract a significant portion of its field installation work to third
parties. There can be no assurance that the Company will be successful in
identifying subcontractors with adequate experience or will be able to retain
experienced subcontractors on acceptable terms, if at all, or that the Company
will effectively manage multiple subcontractors working on multiple
installation projects. Due to the Company's limited experience with large
scale operations, there can be no assurance that the Company will be able to
develop internally, or contract with third parties for, additional
manufacturing capacity and field support on acceptable terms, that it will be
able to maintain the quality of its products as production increases, or that
it will develop the administrative and other structures necessary to support
expanded operations. The Company's success depends on its ability to
significantly increase its production capacity and field support.

The Company's arrangements with its customers typically require that orders
be shipped not more than 90 days after the order. There can be no assurance
that the Company will be able to increase its production capacity at an
acceptable cost or rapidly enough to fill its orders. The failure to assemble
and ship products on a timely basis could damage relationships with customers
and result in cancellation of orders or lost orders, which would have a
material adverse effect on the Company's business and operating results. See
"Business--Manufacturing."

The Company currently manufactures all of its products in a single facility
in Redmond, Washington. If the Company's facilities or the facilities of its
suppliers were incapable of operating, even temporarily, or were unable to
operate at or near full capacity for any extended period, the Company's
business and operating results could be materially adversely affected. In
connection with its capacity expansion, the Company may seek to develop one or
more additional manufacturing facilities, including, possibly, facilities
located outside the Redmond, Washington area. Although there can be no
assurance that such a facility will be added, the operation of any such
facility would significantly increase the complexity of the Company's
operations.

No Assurance of Product Quality, Performance and Reliability. Manufacturing
and installing the Company's SpotLight 2000 system is a complex process and
requires significant expertise. Because of the Company's limited operating
history and the short time that the SpotLight 2000 system has been in
production, the Company's personnel have limited experience in installing and
integrating the Company's systems. If the Company were unable to successfully
and efficiently deploy its systems in the field, or were unable to attract and
retain the required trained technicians to deploy products in the field, the
Company's business and operating results would be materially adversely
affected.

The Company's ability to achieve future revenue growth will depend in
significant part upon its ability to obtain and fulfill orders from, maintain
good relationships with and provide support to existing and new customers, and
to manufacture products on a timely and cost-effective basis to meet stringent
customer performance requirements and shipment and delivery dates. Because of
the Company's limited operating history and the short time that the SpotLight
2000 system has been in production, there can be no assurance that problems
will not occur with respect to the integration, quality, performance and
reliability of the Company's systems. If such problems occur, the Company
could experience significant warranty claims or increased costs or delays in,
cancellations of, or rescheduling of orders or shipments, any of which could
have a material adverse effect on the Company's business and operating
results.

Dependence on Attraction and Retention of Key Personnel. The Company's
future operating results depend in significant part upon the continued
contributions of each of its key technical and senior

management personnel, including Douglas O. Reudink, the Company's founder and
Chief Technical Officer, each of whom would be difficult to replace, as there
is a limited number of people with the necessary skills and experience to
develop and manufacture the Company's products. The Company has not entered
into employment agreements with any of its employees other than severance
arrangements with Richard Henderson, Robert H. Hunsberger, Vito E. Palermo and
Dr. Reudink. See "Management--Severance Arrangements." Except for Dr. Reudink,
the Company has not entered into any non-competition agreements with any of
its employees. The Company does not maintain key-man life insurance on any of
its key technical or senior management personnel. In addition, the Company
anticipates that it will need additional management personnel if it is to be
successful in increasing production capacity and the scale of its operations.
There can be no assurance that it will be able to obtain and retain such
personnel on acceptable terms.

The Company's future operating results also depend in significant part upon
its ability to attract and retain qualified engineering, manufacturing,
quality assurance, sales, marketing and customer support personnel.
Competition for such personnel, particularly qualified engineers, is intense.
The Company has experienced difficulties in recruiting sufficient numbers of
qualified engineers, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. There may be only a
limited number of persons with the requisite skills to serve in these
positions, particularly in the market where the Company is located, and it may
be increasingly difficult for the Company to hire such personnel over time. As
the Company's product development efforts relate to cellular standards that
are widely deployed in foreign countries, the Company may be required to
recruit foreign engineers who have expertise in such standards. Current U.S.
immigration laws restrict the Company's ability to hire foreign employees,
which could have a material adverse effect on the Company's product
development efforts. The loss of any key employee, the failure of any key
employee to perform in his or her current position, the Company's inability to
attract and retain skilled employees as needed or the inability of the
officers and key employees of the Company to expand, train and manage the
Company's employee base could materially adversely affect the Company's
business and operating results. See "Business--Employees" and "Management."

Sole Source Suppliers; Dependence on Key Suppliers. Certain parts and
components used in the Company's products, including linear power amplifiers
supplied by Powerwave Technologies, Inc. ("Powerwave") are presently only
available from a sole source. In addition, the Company is currently dependent
upon Sanmina Corporation ("Sanmina") as the primary source for the supply of
the Company's printed circuit board assemblies. Certain other parts and
components used in the Company's products are available from a limited number
of sources. The Company's reliance on these sole or limited source suppliers
involves certain risks and uncertainties, including the possibility of a
shortage or the discontinuation of certain key components and reduced control
over delivery schedules, manufacturing capability, quality and cost. Any
reduced availability of such parts or components when required could
materially impair the Company's ability to manufacture and deliver its
products on a timely basis and result in the cancellation of orders, which
could have a material adverse effect on the Company's business and operating
results. In addition, the purchase of certain key components involves long
lead times and, in the event of unanticipated increases in demand for the
Company's products, the Company may be unable to obtain such components in
sufficient quantities to meet its customers' requirements. The Company does
not have guaranteed supply arrangements with any of its sole or limited source
suppliers, does not maintain an extensive inventory of parts or components and
customarily purchases sole or limited source parts and components pursuant to
purchase orders. Business disruptions, quality issues, production shortfalls
or financial difficulties of a sole or limited source supplier could
materially and adversely affect the Company by increasing product costs, or
eliminating or delaying the availability of such parts or components. In such
event, 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 on a timely basis and could
have a material adverse effect on its business and operating results. See
"Business--Manufacturing."

Dependence on Growth of Cellular Communications Market. The future operating
results of the Company will depend to a significant extent upon the continued
growth and increased availability and acceptance of cellular communications
services internationally and in the United States. There can be no assurance
that the volume and variety of cellular services or the markets for and
acceptance of such services will grow, or that such services will create a
demand for the Company's systems. If the cellular communications market fails
to grow, or grows more slowly than anticipated, the Company's business and
operating results may be materially adversely affected.

The cellular communications industry has developed different technologies
and standards based on the type of service provided and geographical region.
There is uncertainty as to whether all existing cellular technologies will
continue to achieve market acceptance in the future. If a digital technology
for which the Company develops a product is not widely adopted, the potential
size of the market for the Company's product will be limited, and the Company
may not recover the cost of development of such product. Further, the Company
may not be able to re-direct its development efforts toward digital cellular
technologies that do sustain market acceptance in a timely manner, which would
have a material adverse effect on the Company's business and operating
results.

Need for Additional Capital. The Company requires substantial working
capital to fund its business and expects to use a portion of the net proceeds
of this offering to fund its operating losses. The Company has experienced
negative cash flow from operations since inception and expects to continue to
experience significant negative cash flow from operations for the foreseeable
future. The Company's future capital requirements will depend upon many
factors, including the success or failure of the Company's efforts to expand
its production, sales and marketing efforts, the status of competitive
products, and the requirements of the Company's efforts to develop new
products and product enhancements. The Company believes that current capital
resources, together with the estimated net proceeds from this offering, are
adequate to fund its operations for at least twelve months. Thereafter, the
Company may be required to raise additional capital. There can be no assurance
that additional financing will be available to the Company on acceptable
terms, if at all, or that such financing may not result in further dilution to
existing stockholders. The Company may be required to obtain funds through its
arrangements with partners or others that may require the Company to
relinquish rights to certain of its technologies or potential products or
other assets. If adequate funds are not available, the Company may be required
to delay, scale back or eliminate expansion of its production, administration
or research and development programs. Any inability to obtain needed financing
by the Company could have a material adverse effect on its business and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

Risks Associated with International Markets. Approximately 51.5% of net
revenue for the six months ended June 30, 1998 was from sales of the Company's
SpotLight 2000 system to customers located outside of the U.S. For the quarter
ended June 30, 1998, 39.0% of net revenue was related to the sale of the
SpotLight 2000 system to a single customer in Paraguay.

Although the Company believes that international sales will decline as a
percentage of net revenues over time, the Company anticipates that
international sales will continue to account for a significant portion of its
revenue for the foreseeable future. To date, the Company's international sales
have been denominated in U.S. dollars; however, in the future a portion of the
Company's international sales may be denominated in foreign currencies. The
Company does not currently engage in foreign currency hedging transactions as
all sales to date have been in U.S. dollars. However, if a material amount of
future sales are denominated in foreign currency, a decrease in the value of
foreign currencies relative to the United States dollar could result in losses
from such transactions. In such event, the Company might seek to limit its
exposure to foreign currency transactions by engaging in hedging activities.
There can be no assurance that any such activity would be successful in
avoiding exchange-related losses. With respect to the Company's international
sales that are United States dollar denominated, an increase in the relative
value of the U.S. dollar could make the Company's systems less price-
competitive, or could cause

customers to renegotiate prices for subsequent purchases, both of which could
have a material adverse effect upon the Company's business and operating
results. Additional risks inherent in the Company's international business
activities include delays due to customs inspections and procedures, changes
in regulatory requirements, tariffs and other trade barriers, political and
economic instability in developing countries, difficulties in staffing and
managing foreign operations, difficulties in managing distributors,
potentially adverse tax consequences, the burden of complying with a wide
variety of complex foreign laws and treaties, difficulties in obtaining
necessary equipment authorizations and the possibility of difficulty in
accounts receivable collections. Distribution and sales agreements entered
into with foreign customers may be governed by foreign laws which may differ
significantly from U.S. laws. Therefore, the Company may be limited in its
ability to enforce its rights under such agreements and to collect damages, if
awarded. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business and operating results.

To date, the Company has sold its products directly to cellular network
operators. In the future, it may be desirable to establish distribution
relationships in the international market. The Company has not established any
distribution relationships and there can be no assurance that the Company will
be able to establish such distribution relationships on acceptable terms, if
at all. The failure to establish any distribution relationships, or the
failure to implement an alternative distribution strategy in a cost-effective
manner, or any delays in establishing such channels, could reduce or eliminate
the Company's opportunity to sell its systems in foreign markets, which could
have a material adverse effect on the Company's business and operating
results. Further, if the Company is unable to produce and sell its systems at
margins that permit it to provide distribution partners with a sufficient
financial incentive to distribute the Company's systems without adversely
affecting the Company's profitability, the Company's distribution strategy
could adversely affect the Company's business and operating results.

Risks Associated with Potential Acquisitions. The Company intends to review
acquisition prospects that would complement its existing product offerings,
augment its market coverage or enhance its technological capabilities.
Although the Company has no current agreements or negotiations underway with
respect to any material acquisitions, the Company may make acquisitions of
businesses, products or technologies in the future. However, there can be no
assurance that the Company will be able to locate suitable acquisition
opportunities. Future acquisitions by the Company could result in potentially
dilutive issuances of equity securities, large write-offs, the incurrence of
debt and contingent liabilities or amortization expenses related to goodwill
and other intangible assets, any of which could materially adversely affect
the Company's operating results or the price of the Company's Common Stock.
Further, acquisitions entail numerous operational risks, including
difficulties in the assimilation of operations, potential loss of key
employees, technologies, products and the information systems of the acquired
companies, diversion of management's attention from other business concerns
and risks of entering geographic and business markets in which the Company has
no or limited prior experience. Since the Company has not made any material
acquisitions in the past, no assurance can be given as to the ability of the
Company to successfully integrate any businesses, products, technologies or
personnel that might be acquired in the future, and the failure of the Company
to do so could have a material adverse effect on the Company's business and
operating results.

Government Regulation. Wireless communications are subject to extensive
regulation by foreign and U.S. laws and international treaties. The Company's
systems must conform to certain international and domestic regulations
established to, among other things, avoid interference among users of
frequencies. In order for the Company's products to be used, regulatory
approval must be obtained. This governmental approval process frequently
involves substantial delay which could result in the cancellation,
postponement or rescheduling of orders by the Company's customers, which in
turn may have a material adverse effect on the sale of systems by the Company
to such customers. The Company believes that its SpotLight 2000 system
currently complies with all applicable U.S. and foreign regulations in
countries in which its sales are material. However, changes in these
regulations, the need to comply with regulations

in additional countries in the event of sales to cellular network operators in
those countries, or a failure to obtain necessary approvals or permits in
connection with sales to cellular network operators in a country could
preclude sales of the Company's products to such operators or could require
the Company to change the features of its SpotLight 2000 system and thereby
incur substantial costs and experience delays in system installation or
operation.

The regulatory environments in which the Company operates are subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly affect the Company's
operations by increasing or reallocating the amount of spectrum available to
wireless operators, restricting network development efforts by the Company's
customers or end users, making current systems obsolete, increasing the
opportunity for additional competition or requiring the Company's products to
comply with new regulations. Any such regulatory changes could have a material
adverse effect on the Company's business and operating results. The Company
might deem it necessary or advisable to modify its systems to operate in
compliance with such regulations. Such modifications could be expensive and
time-consuming. See "--Risks Associated with International Markets" and
"Business--Government Regulation."

Uncertainty Regarding Protection of Intellectual Property. The Company
relies on a combination of patent, trade secret, copyright and trademark
protection, nondisclosure agreements and other measures to protect its
proprietary rights. The Company currently has eight issued U.S. patents and 25
pending U.S. patent applications. The Company's future success will depend in
large part on its ability to obtain patent protection in the U.S. and foreign
markets, to defend patents once obtained, to maintain trade secrets and to
operate without infringing upon the patents and proprietary rights of others.
The patent positions of companies in the worldwide wireless communications
industry, including the Company, are generally uncertain and involve complex
legal and factual questions. There can be no assurance that any issued patents
owned by or licensed to the Company will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. Further, there can be no assurance that patents
will issue from any patent applications or that, if patents do issue, the
claims allowed would be sufficiently broad to protect the Company's
technology. In addition, there can be no assurance that patents issued in the
U.S. will receive corresponding patent protection in foreign markets or that
the Company will pursue similar patent protection in all foreign markets.

Patents and patent applications relating to products used in the wireless
communications industry are numerous and current and potential competitors and
other third parties may have filed or may in the future file applications for,
or may have been issued or in the future may be issued, patents or may obtain
additional proprietary rights relating to products used or proposed to be used
by the Company. The Company may not be aware of all patents or patent
applications that may materially affect the Company's ability to make, use or
sell any current or future products. From time to time, third parties have
asserted patent, copyright and other intellectual property rights to
technologies that are important to the Company. The Company expects that it
will increasingly be subject to infringement claims as the number of products
and competitors in the spectrum management market grows and the functionality
of products overlaps. Third parties may assert infringement claims against the
Company in the future, and such assertions could result in costly litigation
or require the Company to obtain a license to intellectual property rights of
such parties. There can be no assurance that any such licenses would be
available on terms acceptable to the Company, if at all. Any failure to obtain
a license from any third party asserting claims in the future or defense of
any third party lawsuit could have a material adverse effect on the Company's
business and operating results.

proprietary technology. Further, third parties may obtain patent rights to
such unpatented trade secrets, which patent rights could be used to assert
infringement claims against the Company. The Company also relies on
confidentiality agreements with its employees, suppliers, consultants and
customers to protect its proprietary technology. There can be no assurance
that these agreements will not be breached, that the Company would have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or be independently developed by competitors.
Failure to obtain or maintain patent and trade secret protection, for any
reason, could have a material adverse effect on the Company's business and
operating results. See "Business--Intellectual Property."

Year 2000 Compliance. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date
field, without considering the impact of the upcoming change in the century.
As a result, such systems and applications could fail or create erroneous
results unless corrected so that they can process data related to the year
2000. The Company relies on its systems, applications and devices in operating
and monitoring all major aspects of its business, including financial and
accounting systems, customer services, networks and telecommunications
equipment and end products. The Company also relies, directly and indirectly,
on external systems of business enterprises such as customers, suppliers,
creditors, financial organizations, and of governmental entities, both
domestic and international, for accurate exchange of data. The Company's
current estimate is that the costs associated with the year 2000 issue, and
the consequences of incomplete or untimely resolution of the year 2000 issue,
will not have a material adverse effect on the result of operations or
financial position of the Company in any given year. However, despite the
Company's efforts to address the year 2000 impact on its internal systems, the
Company has not fully identified such impact or whether it can resolve it
without disruption of its business and without incurring significant expense.
In addition, even if the internal systems of the Company are not materially
affected by the year 2000 issue, the Company could be affected through
disruption in the operation of the enterprises with which the Company
interacts.

No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock. The initial
public offering price of the Common Stock will be determined by negotiations
between the Company and the Representatives of the Underwriters and may not be
indicative of the market price for the Common Stock in the future. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. There can be no assurance that an active
trading market will develop or be sustained after this offering. The Company
believes that factors such as announcements of developments related to the
Company's business, announcements of technological innovations or new products
or enhancements by the Company or its competitors, sales by competitors,
including sales to the Company's customers, sales of the Company's Common
Stock into the public market, including by members of management, developments
in the Company's relationships with its customers, partners, distributors and
suppliers, shortfalls or changes in revenues, gross profits, earnings or
losses or other financial results from analysts' expectations, regulatory
developments, fluctuations in results of operations, and general conditions in
the Company's market, of the markets served by the Company's customers, or the
economy could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market, in
general, and the market for shares of small capitalization and technology
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. There
can be no assurance that the market price of the Company's Common Stock will
not experience significant fluctuations in the future, including fluctuations
that are unrelated to the Company's performance. Such fluctuations could
materially adversely affect the market price of the Company's Common Stock.

Broad Discretion of Management to Allocate Offering Proceeds. The Company
will use approximately $16.2 million to repay one-half of the outstanding
principal and estimated interest on its 13.75% Senior Secured Bridge Notes and
the remaining $31.8 million for working capital and other general corporate
purposes including working capital to fund anticipated operating losses and
capital

expenditures. The Company may, when and if the opportunity arises, use a
portion of the proceeds to acquire or invest in complimentary business,
products or technologies. The Company's management will have broad discretion
to allocate the remaining proceeds of this offering, and the amounts actually
expended for each use listed above may vary significantly depending on a
number of factors, including the amount of future revenues, the amount of cash
generated or used by the Company's operations, the progress of the Company's
product development efforts, technological advances, and the status of
competitive products. There can be no assurance that the proceeds will be
utilized in a manner that the stockholders deem optimal, or that the proceeds
can or will be invested to yield a significant return.

Shares Eligible for Future Sale After the Offering. Sales of substantial
amounts of Common Stock in the public market after this offering or the
anticipation of such sales could materially affect then prevailing market
prices. All of the 5,000,000 shares offered hereby may be resold immediately
in the public market. Beginning 90 days after the date of this Prospectus,
approximately 298,155 additional shares may be resold in the public market.
Beginning 180 days after the date of this Prospectus, upon expiration of pre-
existing lock-up agreements and lock-up agreements between the representatives
of the Underwriters and officers, directors and certain stockholders of the
Company, approximately 915,774 total shares will be eligible for sale without
restriction under Rule 144(k) or Rule 701 under the Securities Act of 1933, as
amended (the "Securities Act"), and 14,941,348 shares will be eligible for
sale subject to compliance with the restrictions of Rule 144 and, under
certain circumstances, Rule 701 under the Securities Act. Any early release of
the lock-up agreement by the Underwriters, which, if granted, could permit
sales of a substantial number of shares and could adversely affect the trading
price of the Company's shares, may not be accompanied by an advance public
announcement by the Company. Holders of approximately 15,338,305 shares of
Common Stock and the holders of the Note Warrants (the "Registrable
Securities") also will have the right to include such shares in any future
registration of securities effected by the Company and to require the Company
to register their shares for future sale, subject to certain exceptions. See
"Description of Securities--Registration Rights of Certain Holders" and
"Shares Eligible for Future Sale."

Control by Existing Stockholders. Following the completion of this offering,
members of the Board of Directors and the officers of the Company, together
with entities that may be deemed affiliates of or related to such persons or
entities, will beneficially own approximately 58.4% (approximately 56.5% on a
fully diluted basis, assuming the exercise of all warrants and vested and
unvested options held by such persons and outstanding at June 30, 1998) of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders are able to significantly influence the election of the members
of the Company's Board of Directors and significantly influence the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. This level of ownership may have a significant effect in
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of Common Stock.
See "Management--Directors and Executive Officers," "--Principal Stockholders"
and "Description of Capital Stock."

Effect of Certain Charter and Bylaw Provisions. Certain provisions of the
Company's Restated Certificate of Incorporation and Bylaws may have the effect
of making it more difficult for a third party to acquire or of discouraging a
third party from attempting to acquire, control of the Company. Such
provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue up to 15,000,000 shares of Preferred
Stock and fix the rights and preferences thereof without any vote or further
action by the stockholders, eliminate the right of stockholders to act by
written consent without a meeting and eliminate cumulative voting in the
election of directors. The rights of holders of Common Stock will be subject
to, and may be adversely affected by, the rights of holders of any Preferred
Stock that may be issued in the future. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company.
Certain provisions of Delaware law and Washington law applicable to the
Company could also delay or make more difficult a merger, tender offer or
proxy contest involving the Company. Such provisions include Section

203 of the Delaware General Corporation Law, which prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years unless certain conditions are met, and
Chapter 23B.19 of the Washington Business Corporation Act, which prohibits a
corporation operating in Washington from engaging in certain significant
business transactions with a person or group of persons who beneficially own
10% of the voting securities of such corporation for a period of five years
unless certain conditions are met. After the five-year period, such
significant business transaction must still comply with certain fair price
provisions of such statute. See "Management" and "Description of Securities--
Anti-Takeover Provisions of Delaware and Washington Law and Charter
Documents."

Immediate and Substantial Dilution. Investors in Common Stock in this
offering will experience immediate dilution in the net tangible book value of
their shares. At the initial public offering price of $10.50 per share,
dilution to new investors will be $8.00 per share. Additional dilution will
occur upon exercise of outstanding stock options and warrants. If the Company
seeks additional capital in the future, the issuance of shares or convertible
debt to obtain such capital may lead to further dilution. See "Dilution."

USE OF PROCEEDS

The net proceeds to the Company from the sale and issuance of the 5,000,000
shares of Common Stock offered hereby, at an assumed initial public offering
price of $10.50 per share, are estimated to be $48.0 million ($55.3 million if
the Underwriters' over-allotment option is exercised in full). The Company
will use approximately $16.2 million of the net proceeds to repay one-half of
the outstanding principal and estimated accrued interest on its 13.75% Senior
Secured Bridge Notes and the remaining proceeds for general corporate
purposes, including working capital to fund anticipated operating losses and
capital expenditures. The Company may, when and if the opportunity arises, use
a portion of the proceeds to acquire or invest in complimentary business,
products or technologies. The Company's management will have broad discretion
to allocate the remaining proceeds of this offering, and the amounts actually
expended for each use listed above may vary significantly depending on a
number of factors, including the amount of future revenues, the amount of cash
generated or used by the Company's operations, the progress of the Company's
product development efforts, technological advances, and the status of
competitive products. Pending such uses, the Company intends to invest such
funds in short-term, investment grade, interest-bearing obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its capital
stock or other securities. The Company currently anticipates that its will
retain all of its future earnings for use in the expansion and operation of
its business and does not anticipate paying cash dividends in the foreseeable
future. See Note 5 of Notes to Financial Statements.

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1998 (i) on an actual basis the conversion of convertible and redeemable
Preferred Stock to Common Stock and the conversion of Preferred Stock warrants
to Common Stock warrants, and the receipt by the Company of the net proceeds
from the sale of the 5,000,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $10.50 per share, (ii)
and as adjusted to give effect to the sale by the Company of the 5,000,000
shares of Common Stock offered hereby at an assumed offering price of $10.50
per share, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, and the
application of the estimated proceeds therefrom as set forth in "Use of
Proceeds." This table should be read in conjunction with the Financial
Statements and the Notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

AS OF JUNE 30,
1998
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)

13.75% Senior Secured Bridge Notes........................... $29,708 $13,508
Other debt, including capital lease obligations.............. 5,392 5,392
Convertible and redeemable preferred stock................... 49,282 --
Convertible and redeemable preferred stock warrants.......... 4,423 --
Stockholders' equity:........................................
Preferred stock, 20,000,000 shares authorized, 13,130,350
shares which have been designated as convertible and
redeemable, actual; 15,000,000 shares authorized, none
issued or outstanding, as adjusted........................ -- --
Common stock, 40,000,000 shares authorized, 3,035,927
shares issued and outstanding, actual; 150,000,000 shares
authorized, 21,166,277 shares issued and outstanding, as
adjusted(1)............................................... 2,162 103,867
Deferred stock compensation.................................. (877) (877)
Accumulated deficit.......................................... (50,082) (50,082)
------- -------
Total stockholders' equity (deficit)..................... (48,797) 52,908
------- -------
Total capitalization..................................... $40,008 $71,808
======= =======

- --------
(1) Based on the number of shares outstanding on June 30, 1998. Excludes as of
June 30, 1998 (a) 3,277,760 shares issuable upon exercise of outstanding
options at a weighted average exercise price of $1.49 per share as of June
30, 1998, (b) 657,005 shares issuable upon exercise of outstanding
warrants at a weighted average exercise price of $0.60 per share as of
such date and (c) an aggregate of 2,010,639 shares available for future
issuance of stock options under the 1995 Stock Option Plan, the 1998 Stock
Option Plan, the Directors' Plan and the Purchase Plan. See "Management--
Stock Plans" and Note 6 of the Notes to Financial Statements.

DILUTION

As of June 30, 1998, the Company had a pro forma net tangible book value of
approximately $4.9 million, or $0.30 per share of Common Stock. Pro forma net
tangible book value represents total tangible assets less total liabilities
divided by the pro forma number of shares of Common Stock outstanding,
assuming the conversion of convertible and redeemable Preferred Stock to
Common Stock and the conversion of Preferred Stock warrants to Common Stock
warrants. Without taking into account any other changes in the pro forma net
tangible book value after June 30, 1998, other than to give effect to the
receipt by the Company of the net proceeds from the sale of the 5,000,000
shares of Common Stock offered by the Company hereby at an assumed initial
public offering price of $10.50 per share, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the pro forma net tangible book value at June 30, 1998 would
have been approximately $52.9 million, or $2.50 per share. This represents an
immediate increase in net tangible book value of $2.20 per share to existing
stockholders and an immediate dilution of $8.00 per share to new investors
purchasing shares in this offering. The following table illustrates this per
share dilution:

Assumed initial public offering price per share................ $10.50
Pro forma net tangible book value per share as of June 30,
1998........................................................ $0.30
Increase per share attributable to new investors............. 2.20
-----
Pro forma net tangible book value per share after the offering. 2.50
------
Dilution per share to new investors............................ $ 8.00
======

The following table summarizes, on a pro forma basis, as of June 30, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by (i) existing
stockholders and (ii) new investors (before deducting estimated underwriting
discounts and commissions and offering expenses payable by the Company):

AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ -------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- -------

Existing stockholders(1).... 16,166,277 76.4% $ 49,562,804 48.6% $ 3.07
New investors............... 5,000,000 23.6 52,500,000 51.4% 10.50
---------- ----- ------------ -----
Total..................... 21,166,277 100.0% $102,062,804 100.0%
========== ===== ============ =====

- --------
(1) Based on the pro forma number of shares outstanding on June 30, 1998.
Excludes as of June 30, 1998 (a) 3,277,760 shares issuable upon exercise
of outstanding options at a weighted average exercise price of $1.49 per
share as of June 30, 1998, (b) 657,005 shares issuable upon exercise of
outstanding warrants at a weighted average exercise price of $0.60 per
share as of such date and (c) an aggregate of 2,010,639 shares available
for future issuance under the 1995 Stock Option Plan, the 1998 Stock
Option Plan, the Directors' Plan and the Purchase Plan. See "Management--
Stock Plans" and Note 6 of Notes to Financial Statements.

SELECTED FINANCIAL DATA

The statement of operations data for the period from January 19, 1995
(inception) to December 31, 1995, and for the years ended December 31, 1996
and 1997 and the balance sheet data as of December 31, 1996 and 1997, have
been derived from the audited financial statements of the Company included
elsewhere in this Prospectus that have been audited by Ernst & Young LLP,
independent auditors. The balance sheet data as of December 31, 1995 have been
derived from the audited financial statements of the Company not included
herein. The statement of operations data for the six months ended June 30,
1997 and 1998 and the balance sheet data at June 30, 1998 are derived from
unaudited financial statements included elsewhere in this Prospectus and
contain all adjustments, consisting of normal recurring accruals, necessary
for a fair presentation of the financial position and results of operations
for such periods. The results of operations for the six months ended June 30,
1998 are not necessarily indicative of results to be expected for the full
fiscal year. The data set forth below should be read in conjunction with the
financial statements of the Company, including the notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.

PERIOD FROM
JANUARY 19, 1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ -----------------
1995 1996 1997 1997 1998
---------------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501
Cost of sales........... -- 1,097 1,728 516 6,396
------- -------- -------- ------- --------
Gross profit (loss)..... -- 194 (278) (124) 105
------- -------- -------- ------- --------
Operating expenses:
Research and
development............ 883 7,186 13,083 5,365 8,025
Sales and marketing..... 84 1,704 5,383 2,244 4,087
General and
administrative......... 168 2,434 3,762 1,367 2,429
------- -------- -------- ------- --------
Total operating
expenses............... 1,135 11,324 22,228 8,976 14,541
------- -------- -------- ------- --------
Loss from operations.... (1,135) (11,130) (22,506) (9,100) (14,436)
Other income (expense),
net.................... 135 335 402 173 (1,747)
------- -------- -------- ------- --------
Net loss................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183)
======= ======== ======== ======= ========
Pro forma net loss per
share(1)............... $ (1.54) $ (1.01)
======== ========
Weighted average common
shares and equivalents
pro forma(1)........... 14,383 16,061
======== ========

DECEMBER 31, JUNE 30, 1998
--------------------------- ----------------------
1995 1996 1997 ACTUAL PRO FORMA(2)
------- -------- -------- -------- ------------
(IN THOUSANDS) (UNAUDITED)

BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 1,422 $ 19,092 $ 13,334 $ 20,311 20,311
Working capital........... 4,280 17,722 15,677 3,787 3,787
Total assets.............. 6,135 21,747 22,575 46,557 46,557
13.75% Senior Secured
Bridge Notes............. -- -- -- 29,708 29,708
Other debt................ 128 2,319 4,147 5,392 5,392
Convertible and redeemable
preferred stock.......... 5,500 30,100 49,282 49,282 --
Convertible and redeemable
preferred stock
warrants................. -- -- 128 4,423 --
Accumulated deficit....... (1,000) (11,795) (33,899) (50,082) (50,082)
Stockholders' equity
(deficit)................ (990) (11,785) (33,136) (48,797) 4,908

- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
method employed to compute per share amounts to determine the number of
shares used in computing pro forma net loss per share.
(2) Adjusted to reflect the conversion of convertible and redeemable Preferred
Stock into Common Stock and the conversion of Preferred Stock warrants to
Common Stock warrants. See "Description of Securities."

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
included elsewhere in this Prospectus. The discussion in this Prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere herein. See "Risk Factors."

OVERVIEW

Metawave designs, develops, manufactures and markets spectrum management
solutions for the wireless communications industry. Metawave's spectrum
management solutions, consisting of smart antenna systems, applications
software and engineering services, enable cellular network operators to
increase overall network capacity, reduce network operation costs, better
manage network infrastructure and stimulate end user demand through improved
system quality. Using its proprietary technologies, the Company has developed
products that address the capacity, coverage, and call quality problems faced
by cellular network operators.

The Company was incorporated in January 1995. Net revenue since inception
has been attributable to an engineering consulting contract in 1996, services
rendered by the Company's Network Services division during 1997 and sales of
the SpotLight 2000 system during the six months ended June 30, 1998. The
Company's Network Services division was discontinued during the first quarter
of 1998. Since inception, the Company has incurred significant losses and as
of June 30, 1998, had an accumulated deficit of $50.1 million.

From inception through June 30, 1998, the Company's operating activities
related primarily to conducting research and development, building market
awareness, recruiting management and technical personnel and building an
operating infrastructure. In 1997, the Company hired a new Chief Executive
Officer and a new Chief Financial Officer and added managerial personnel in
the engineering, product management, sales and administrative areas. Shipment
for commercial sale of the SpotLight 2000 system began late in the fourth
quarter of 1997. Since launching its SpotLight 2000 system, the Company has
increased operating expenditures in an effort to increase sales and expand
manufacturing capacity. In light of the progression of the Company from a
development stage to an operating stage during the past two years, the Company
believes that period to period comparisons of its financial results should not
be relied upon as an indicator of future performance.

There are two components of net revenue attributable to the SpotLight 2000
system, product revenue and service revenue. Product revenue is comprised of
both the sale of hardware and the licensing of software. Service revenue is
derived from installation, consulting services and maintenance contracts. The
Company believes that substantially all of its revenues in the foreseeable
future will be derived from sales of its SpotLight 2000 system. Sales cycles
can be lengthy and the related contracts typically include performance
specifications and customer acceptance conditions in connection with the
initial sale of each system to each customer. The Company recognizes net
revenue when the product has been shipped and all customer acceptance
conditions have been satisfied. The Company recognizes service revenue when
the services have been performed. If the Company does not satisfy conditions
in such contracts or satisfaction of conditions is delayed, revenues in any
particular period could fall significantly below the Company's expectations.
Contract terms, including pricing and acceptance criteria, will typically vary
depending upon the order, and the nature and extent of installation and
consulting services. Consequently, net revenue may vary from quarter to
quarter depending on the length of the sales cycle

and the applicable contract terms. If anticipated sales and shipments in any
quarter do not occur when expected, expenses and inventory levels could be
disproportionately high.

Cost of sales typically consists of material components, manufacturing
assembly and test, and overhead expenses. The Company believes that for its
SpotLight 2000 system to achieve broad market acceptance and compete
effectively with alternative systems, the Company's average selling prices
must decline. In order to achieve lower average selling prices without
adversely affecting gross profits, the Company must successfully reduce the
manufacturing costs of its product through engineering improvements and
economies of scale in production and purchasing. There can be no assurance,
however, that the Company will be able to achieve cost savings at a rate
necessary to keep pace with competitive pricing pressures. The Company expects
that its gross margins will continue to be affected by a variety of other
factors, including increased investment in manufacturing facilities and
equipment, changes in labor costs, changes in product mix due to a shift from
analog-only to analog/CDMA dual-mode system sales, changes in warranty expense
or inventory obsolescence, increased sourcing and changes in prices of
components and subassemblies from third party manufacturers and increased
price competition.

The Company's manufacturing operations consist primarily of supplier and
commodity management and assembling finished goods from components and
subassemblies purchased from outside suppliers. In May 1998, the Company moved
to significantly larger facilities to accommodate the Company's current
research, development and manufacturing needs in the near term. The Company
plans to further expand its manufacturing capacity in the future if and to the
extent the Company's products achieve market acceptance and demand increases.
If such expansion occurs, substantial investments in additional capital
equipment and the recruiting and training of additional personnel will be
required, which may include increased sourcing of components from third
parties as well as increased system integration and full-configuration testing
or investment in additional manufacturing facilities. See "Risk Factors--
Limited Manufacturing Experience; No Assurance of Successful Expansion of
Operations."

The Company recently upgraded its financial and accounting software to an
enterprise resource planning software package that integrates manufacturing,
finance and sales order management. The Company anticipates that additional
upgrades to its management information systems will be required in the near
future to address the expected increased volume and complexity of the
Company's transactions. See "Risk Factors--Management of Growth; New
Management Team."

Research and development expense consists principally of salaries and
related personnel expenses, consultant fees and prototype expenses related to
the design, development, testing and enhancement of the Company's SpotLight
2000 system. As of June 30, 1998, all research and development costs had been
expensed as incurred. The Company believes that continued investment in
research and development is critical to attaining its strategic product and
cost reduction objectives and, as a result, expects these expenses to increase
significantly in absolute dollars in the future. Sales and marketing expense
consists of salaries, sales commissions and related expenses for personnel
engaged in marketing, sales and field service support functions, as well as
promotional expenditures. The Company expects sales and marketing expense to
increase significantly in absolute dollars in the future. General and
administrative expense consists primarily of salaries and personnel related
expenses, recruiting expenses, professional fees and other general corporate
expenses. The Company expects general and administrative expense to increase
in absolute dollars as the Company adds personnel and incurs additional costs
related to the growth of its business and operation as a public company.

The revenue and profit potential of the Company's business is unproven and
the Company's limited operating history makes its future operating results
difficult to predict. The Company believes that its growth and future success
will be dependent upon the broad acceptance of the SpotLight 2000 system by
cellular network operators. Because the SpotLight 2000 system was only
recently introduced, the Company is unable to predict with any degree of
certainty whether it will achieve market acceptance.

There can be no assurance that the Company will ever achieve profitability or
significant revenues on a quarterly or an annual basis. Because of the limited
size of the Company's customer base and the large size of customer orders,
revenues derived from a small number of customers will likely represent a
significant portion of revenue in any given period. Thus, a decrease in demand
for the Company's systems from any customer for any reason is likely to result
in significant periodic fluctuations in revenue. Due to the highly
concentrated nature of the cellular industry, the Company believes that the
number of potential customers for future products, if any, will be small.
Failure by the Company to capture a significant number of the cellular network
operators as customers could have a material adverse effect on the Company's
business and operating results. See "Risk Factors--Limited Operating History;
Accumulated Deficit; Anticipated Losses," "--Significant Fluctuations in
Operating Results," "--Significant Customer Concentration" and "--Uncertainty
of Market Acceptance; Lengthy Sales Cycle."

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1998 AND 1997

Net Revenue. Net revenue for the six months ended June 30, 1998 was $6.5
million, substantially all of which was derived from sales of the Motorola
HDII analog version of the Spotlight 2000 system to three customers. Net
Revenue for the six months ended June 30, 1997 was $392,000 all of which was
service revenue. International sales were 51.5% of net revenue for the six
months ended June 30, 1998. Although the Company anticipates that
international sales will continue to account for a significant portion of its
sales, the Company expects international sales to decrease as a percentage of
net revenue.

Gross Profit (Loss). Cost of sales was $6.4 million and gross profit was
$105,000 for the six months ended June 30, 1998. Gross profit was adversely
affected by unabsorbed fixed manufacturing overhead costs due to the expansion
of manufacturing capacity in advance of unit sales volume increases.
Additionally, increases to the warranty and inventory obsolescence reserves
negatively impacted gross profit. Cost of sales was $516,000 and gross profit
(loss) was $(124,000) for the six months ended June 30, 1997. Cost of sales in
this period reflected the direct costs of the Network Services division
related supplies and expenses, and gross profit (loss) was adversely affected
by these relatively high fixed costs.

Research and Development. For the six months ended June 30, 1998, research
and development expense was $8.0 million, of which $5.0 million was payroll
and benefits. For the six months ended June 30, 1997, research and development
expense was $5.4 million, of which $3.4 million was payroll and benefits. The
increase in research and development expense was primarily attributable to
increased staffing, prototype material costs and other associated expenses
relating to enhancing the features and functionality of the SpotLight 2000
system.

Sales and Marketing. For the six months ended June 30, 1998, sales and
marketing expense was $4.1 million, of which $2.2 million was payroll and
benefits. For the six months ended June 30, 1997, sales and marketing expense
was $2.2 million, of which $1.4 million was payroll and benefits. The increase
in sales and marketing expense was primarily attributable to expansion of the
Company's direct sales force, as well as increased public relations and other
promotional expenditures.

General and Administrative. For the six months ended June 30, 1998, general
and administrative expense was $2.4 million, of which $1.8 million was
payroll, $360,000 was in connection with certain patent license agreements and
$255,000 was stock compensation charges. For the six months ended June 30,
1997, general and administrative expense was $1.4 million, of which
$1.2 million was payroll and related expenses. The increase in general and
administrative expense was primarily attributable to increased personnel and
facility expenses necessary to support the Company's growth. The stock
compensation charge for the six months ended June 30, 1998 also contributed to
the increase over the prior year.

Deferred Stock Compensation. In connection with the grant of certain stock
options during 1997, the Company recorded aggregate deferred stock
compensation of approximately $1.9 million,

representing the difference between the deemed value of the Common Stock for
accounting purposes and the option exercise price of such options at the date
of grant. Such amount is recorded as deferred stock compensation and amortized
ratably over the vesting period as stock compensation expense. For the six
months ended June 30, 1998, stock compensation expense was $328,000. For the
six months ended June 30, 1997, the Company recorded deferred stock
compensation of $224,000 and amortized a stock compensation expense of
$22,000. For the year ended December 31, 1997, the aggregate stock
compensation expense was $676,000.

Interest Expense and Net Other Income. Interest expense increased to $2.2
million for the six months ended June 30, 1998, compared to $236,000 for the
six months ended June 30, 1997. The increase was primarily attributable to the
$2.0 million interest expense and associated fees to secure the $29.0 million
of 13.75% Senior Secured Bridge Notes. Net other income consists primarily of
earnings on the Company's cash and cash equivalents and short-term
investments. Net other income increased to $484,000 for the six months ended
June 30, 1998, from $409,000 for the six months ended June 30, 1997. The
increase was attributable to higher average cash and cash equivalent balances.

Income Taxes. The Company has had a net loss for each period since
inception. As of June 30, 1998, the Company had approximately $39.3 million of
net operating loss carryforwards and $1.0 million of research and development
credit carryforward for federal income tax purposes, which begin to expire in
2009. The Company has provided a full valuation allowance on the deferred tax
asset, consisting primarily of net operating loss carryforward, because of
uncertainty regarding its realizability. See Note 7 of Notes to Financial
Statements.

YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INCEPTION PERIOD)

Net Revenue. Net revenue for 1997 and 1996 was $1.5 million and $1.3
million, respectively, and was attributable to services provided by the
Network Services division in 1997 and a one-time engineering consulting
contract in 1996. During 1995, the Company was primarily engaged in product
development and accordingly, recorded no revenue. The Network Services
division was discontinued in March 1998.

Gross Profit (Loss). Cost of sales was $1.7 million and gross profit (loss)
was $(278,000) for the year ended December 31, 1997. Gross profit (loss) in
1997 was adversely affected by the high fixed cost of the Network Services
division during its initial year of operation. Cost of sales in this period
consists primarily of direct labor and materials related to services rendered
in generating the revenue for the period. Cost of sales was $1.1 million and
gross profit was $194,000 for the year ended December 31, 1996. Gross profit
in 1996 was attributable to a one-time engineering consulting contract.

Research and Development. Research and development expense was $13.1
million, $7.2 million and $883,000 in 1997, 1996 and 1995, respectively. The
increases in research and development expense were primarily attributable to
increased staffing and associated costs related to product development. During
1997, research and development expense also included the design and
development of manufacturing infrastructure that was initially used for
prototyping activities.

Sales and Marketing. Sales and marketing expense was $5.4 million, $1.7
million and $84,000 in 1997, 1996 and 1995, respectively. The increases in
sales and marketing expense were primarily attributable to expansion of the
Company's direct sales force and costs associated with initial field trials of
the SpotLight 2000 system.

General and Administrative. General and administrative expense was $3.8
million, $2.4 million and $168,000 in 1997, 1996 and 1995, respectively. The
increases in general and administrative expense were primarily attributable to
increased payroll and related expenses in hiring additional personnel and
increased occupancy expenses necessary to support the Company's growth.

Interest Expense and Net Other Income. Interest expense was $449,000,
$150,000 and $22,000 in 1997, 1996 and 1995, respectively. The increases in
interest expense were primarily attributable to increased capital lease
obligations and notes payable. Net other income was $851,000, $485,000 and

$157,000 in 1997, 1996 and 1995, respectively. The increases in net other
income were primarily attributable to interest income resulting from higher
cash and cash equivalent balances and short-term investments.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly statement of
operations data for the six quarters ended June 30, 1998. In the opinion of
management, this information has been prepared substantially on the same basis
as the audited financial statements appearing elsewhere in this Prospectus,
and all necessary adjustments, (consisting only of normal recurring
adjustments) have been included in the amounts stated below to present fairly
the unaudited quarterly results. The quarterly data should be read in
conjunction with the audited financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. Such quarterly operating
results are not necessarily indicative of the operating results for any future
period.

THREE MONTHS ENDED
------------------------------------------------------
JUNE SEPT. DEC. JUNE
MARCH 31, 30, 30, 31, MARCH 31, 30,
1997 1997 1997 1997 1998 1998
--------- ------- ------- ------- --------- -------
(IN THOUSANDS)

Net revenue............. $ 129 $ 263 $ 547 $ 511 $ 2,538 $ 3,963
Cost of sales........... 114 402 557 655 2,910 3,486
------- ------- ------- ------- ------- -------
Gross profit (loss)..... 15 (139) (10) (144) (372) 477
------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development.......... 2,693 2,672 3,559 4,159 3,575 4,450
Sales and marketing... 922 1,322 1,753 1,385 1,996 2,091
General and
administrative....... 655 712 1,073 1,322 1,044 1,385
------- ------- ------- ------- ------- -------
Total operating
expenses........... 4,270 4,706 6,385 6,866 6,615 7,926
------- ------- ------- ------- ------- -------
Operating loss.......... (4,255) (4,845) (6,395) (7,010) (6,987) (7,449)
Other income, net....... 204 205 191 250 165 319
Interest expense........ (99) (136) (90) (124) (152) (2,079)
------- ------- ------- ------- ------- -------
Net loss................ $(4,150) $(4,776) $(6,294) $(6,884) $(6,974) $(9,209)
======= ======= ======= ======= ======= =======
Pro forma net loss per
share.................. $ (0.31) $ (0.36) $ (0.43) $ (0.43) $ (0.44) $ (0.57)
======= ======= ======= ======= ======= =======

The Company's net revenue for the quarters in 1997 consisted primarily of
service revenue. Net revenue for the quarters ended March 31, 1998 and June
30, 1998 was primarily attributable to sales of the Company's SpotLight 2000
system.

The significant fluctuations in the Company's historical quarterly operating
results are principally a function of the fact that the Company was a
development stage company through the latter part of the fourth quarter of
1997. These fluctuations are largely explained by significant increases and
large variations in expenses incurred in connection with the transition from
development stage to operating stage. Operating expense increased in each
quarter, primarily reflecting the increased expenditures related to the
Company's product development and its expanding workforce.

The Company will likely experience significant fluctuations in its operating
results on a quarterly and an annual basis in the future. In connection with
its efforts to increase production of its recently introduced SpotLight 2000
system, the Company expects to continue to make substantial investments in
capital equipment, to recruit and train additional personnel and to invest in
facilities and management information systems. These expenditures may be made
in advance of, and in anticipation of, increased sales and, therefore, gross
profits may be adversely affected by short-term inefficiencies associated with
the addition of equipment, personnel or facilities and costs may increase as a
percentage of revenues from time to time on a periodic basis. As a result, the
Company's operating results will vary from period to

period. Because of the limited size of the Company's customer base and the
large size of customer orders, revenues derived from a small number of
customers will likely represent a significant portion of revenue in any given
period. Accordingly, a decrease in demand for the Company's systems from any
customer for any reason is likely to result in significant periodic
fluctuations in revenue. In addition, most of the Company's contracts contain
conditional acceptance provisions for certain product sales and the Company
delays recognition of revenues that are subject to such contingencies until
all such conditions are satisfied. If the Company could not satisfy conditions
in such contracts or satisfaction of conditions were delayed for any reason,
revenues in any particular period could fall significantly below the Company's
expectations. Many other factors may affect the Company's business and
operating results in future periods. See "Risk Factors--Limited Operating
History; Accumulated Deficit; Anticipated Losses" and "--Significant
Fluctuations in Operating Results."

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need
to be upgraded to comply with such year 2000 requirements. In 1998 the Company
installed an enterprise resource planning system that the vendor warrants is
year 2000 compliant. The Company's current estimate is that the costs
associated with the year 2000 issue, and the consequences of incomplete or
untimely resolution of the year 2000 issue, will not have a material adverse
effect on the result of operations or financial position of the Company in any
given year. However, despite the Company's efforts to address the year 2000
impact on its internal systems, the Company has not fully identified such
impact or whether it can resolve it without disruption of its business and
without incurring significant expense. In addition, even if the internal
systems of the Company are not materially affected by the year 2000 issue, the
Company could be affected through disruption in the operation of the
enterprises with which the Company interacts. See "Risk Factors--Year 2000
Compliance."

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company has financed its operations primarily through
private sales of Preferred Stock and Common Stock, the issuance of debt
instruments, capital leases arrangements and borrowings under various lines of
credit. Net proceeds from these transactions totaled $85.8 million as of June
30, 1998.

For the six months ended June 30, 1998, net cash used in operating
activities was $20.8 million resulting from a net loss of $16.2 million and
increases of $8.1 million in inventories offset by decreases of $4.9 million
in accounts payable, accrued liabilities and other liabilities. Net cash used
in operating activities was $23.6 million, $10.2 million and $309,000 in 1997,
1996 and 1995, respectively. For 1997, cash used in operating activities
resulted from a net loss of $22.1 million and increases of $4.1 million in
inventories, $1.3 million in accounts receivable and $34,000 in prepaid
expenses and deposits partially offset by increases of $926,000 in accounts
payable, accrued liabilities and other liabilities and $1.8 million in
depreciation and amortization. For 1996, cash used in operating activities
resulted from a net loss of $10.8 million and increases of $67,000 in accounts
receivable and $222,000 in prepaid expenses partially offset by increases of
$906,000 in accounts payable, accrued liabilities and other liabilities and
$520,000 in depreciation and amortization. Cash used in operating activities
in 1995 was attributable to a net loss of $1.0 million and an increase of
$55,000 in prepaid expenses partially offset by an increases of $206,000 in
accounts payable, accrued liabilities and other liabilities and $19,000 in
depreciation and amortization.

Net cash provided by (used in) investing activities of $(504,000),
$(621,000), $3.1 million and $(3.8 million) for the six months ended June 30,
1998 and the years ended December 31, 1997, 1996 and 1995, respectively, was
primarily related to purchases of property and equipment and purchases of
short term investments offset by maturities of short term investments. The
large increases in working capital on a period-to-period basis are a direct
result of the rapid growth of the Company in support of the product
development and sales and marketing efforts as well as the development of an
operational infrastructure to

support the sales of product in the recent quarters. Such growth has required
the Company to purchase additional equipment and software and increase purchase
of materials, which resulted in corresponding increases in inventories and
accounts payable.

Cash provided by (used in) financing activities of $28.2 million for the six
months ended June 30, 1998 consisted of $29.0 million in proceeds from issuance
of 13.75% Senior Secured Bridge Notes offset by $130,000 in payments on debt
securities and $717,000 in principal payments on capital lease obligations.
Cash provided by financing activities of $18.4 million in 1997 consisted
primarily of $19.2 million in net proceeds from the issuance of Series D
Preferred Stock. Cash provided by financing activities of $24.8 million in 1996
was primarily from net proceeds of $24.6 million from the issuance of Series B
and C Preferred Stock and $500,000 of proceeds from the issuance of a note
payable. Cash provided by financing activities of $5.5 million in 1995
consisted primarily of $5.5 million in net proceeds from the issuance of Series
A Preferred Stock.

In April 1998, the Company issued $29.0 million in aggregate principal 13.75%
Senior Secured Bridge Notes due April 28, 2000 to certain institutional and
corporate investors. The 13.75% Senior Secured Bridge Notes are secured by the
Company's personal property and intellectual property. The Company is required
to comply with certain covenants and certain reporting requirements determined
by the noteholders. On April 28, 1999 and each 180-day period thereafter until
the 13.75% Senior Secured Bridge Notes are repaid in full, the interest rate
will increase by 200 basis points up to a maximum of 18.0%. In addition, the
Company issued the Note Warrant to purchase an aggregate of 537,500 shares of
Series D Preferred Stock at a purchase price of $0.01 per share. The Note
Warrants expire on April 28, 2000. Pursuant to the terms of the 13.75% Senior
Secured Bridge Notes, upon the closing of this offering, the Company is
obligated to repay one-half of the aggregate principal amount of the 13.75%
Senior Secured Bridge Notes outstanding, together with accrued but unpaid
interest thereon. The remaining outstanding 13.75% Senior Secured Bridge Notes
are redeemable at the Company's option at any time prior to the maturity date.
Upon the closing of this offering, the Company has the right to redeem all of
the 13.75% Senior Secured Bridge Notes, Note Warrants and to repurchase any
stock issued upon exercise of the Note Warrants for an aggregate redemption
price of $40.6 million.

The Company has a credit facility with a commercial bank, which provides for
a revolving credit line of $7.5 million to support working capital with a $3.0
million sublimit for issuance of trade-related commercial and standby letters
of credit, which matures on October 14, 1999. Outstanding balances on the
credit line bear interest at the bank's prime rate and are secured by the
Company's accounts receivable and inventory. As of the date hereof, no amounts
were outstanding under this revolving credit line secured by accounts
receivable and $2.5 million is outstanding related to issuance of a standby
letter of credit. See Note 4 of Notes to Financial Statements.

The Company has several capital leases with terms ranging from 36 to 48
months. At June 30, 1998, the Company's outstanding capital lease obligations
were $5.1 million, accruing interest at rates ranging from 7.25% to 14.50%. On
April 17, 1998, the Company entered into an additional $3,500,000 capital lease
line with a 36 month term. See Note 8 of Notes to Financial Statements.

As of June 30, 1998, the Company had $20.3 million of cash and cash
equivalents. As of June 30, 1998, the Company's principal commitments consisted
of accounts payable, current debt payable, convertible and redeemable preferred
stock and obligations outstanding under operating and capital leases. Although
the Company has no material commitments for capital expenditures, management
anticipates a substantial increase in its capital expenditures and lease
commitments consistent with anticipated growth in operations, infrastructure
and personnel. The Company may establish additional field service and customer
support locations, which would require it to commit to additional lease
obligations. In the future, the Company may support larger inventories in order
to provide shorter lead times to customers and achieve purchasing efficiencies.

The Company will use approximately $16.2 million of the net proceeds
received from this offering to repay one-half of the outstanding principal and
estimated accrued interest on the 13.75% Senior Secured Bridge Notes and the
remaining proceeds of $31.8 million will be used for general corporate
purposes, including working capital to fund anticipated operating losses and
capital expenditures. See "Use of Proceeds." Following the expected
application of the estimated net proceeds of this offering together with
repayments of debt prior to this offering the Company will have $14.5 million
in outstanding principal 13.75% Senior Secured Bridge Notes.

The Company believes that the net proceeds from this offering, together with
its cash and cash equivalents, will be sufficient to meet its capital
requirements for at least twelve months. The Company's future capital
requirements will depend upon many factors, including the success or failure
of the Company's efforts to expand its production, sales and marketing
efforts, the status of competitive products and the requirements of the
Company's efforts to develop new products and product enhancements. To the
extent that the funds generated by this offering, together with existing
resources and future earnings, are insufficient to fund the Company's future
activities, the Company may need to raise additional funds through public or
private financing. There can be no assurance that additional financing will be
available to the Company on acceptable terms, or at all, or that such
financing would not result in further dilution to existing stockholders. See
"Use of Proceeds."

BUSINESS

OVERVIEW

Metawave designs, develops, manufactures and markets spectrum management
solutions for the wireless communications industry worldwide. Metawave's
spectrum management solutions, consisting of smart antenna systems,
applications software and engineering services, enable cellular network
operators to increase overall network capacity, reduce network operation costs,
better manage network infrastructure and stimulate end user demand through
improved system quality. Using its proprietary technologies, the Company has
developed products that address the capacity, coverage and call quality
problems faced by cellular network operators.

The Company's customers include ALLTEL, 360(degrees) Communications and
Millicom affiliates, Telefonica Celular and St. Petersburg Telecom. The Company
has completed a field trial with AirTouch and is currently conducting a field
trial with GTE.

INDUSTRY BACKGROUND

The worldwide demand for wireless communications services has grown
significantly in recent years, largely as a result of technological
advancements and economies of scale that have substantially reduced the cost
and improved the quality and reliability of wireless services for the business
and consumer mass market. In addition, worldwide deregulation of the wireless
communications industry and increased government allocation of spectrum have
resulted in wider availability of wireless radio frequency and increased
competition among existing and new wireless network operators, further reducing
cost to the end user and stimulating demand. According to Dataquest, the number
of cellular and PCS subscribers increased 45% in 1997, from 134 million to 194
million, and is projected to be approximately 550 million by 2001.

The demand for wireless communications services is expected to continue to
grow rapidly, as communications technology is driving the evolution of the
digital information age. The convergence of data communications, telephony and
wireless communications is straining public and private networks worldwide and
requiring the development of new technologies in order to enable the rate of
change to continue. Devices with wireless access such as mobile phones and palm
computers and the combination of wireless and internet protocol-based LAN
infrastructure may enable mobile customers to access services such as web
initiated telephony, unified messaging and advanced conferencing.

The need for mobile communications ubiquity places a significant strain on
wireless service providers given the fixed amount of radio frequency spectrum
or wireless bandwidth available to deliver wireless services. Unlike
traditional data and telephony communications bandwidth, which is a physical
medium, wireless spectrum is an invisible medium and is generally allocated in
fixed amounts by governments in U.S. and foreign markets. Traditional methods
used in data and telephony networks for increasing available bandwidth through
the adoption of new technologies, such as frame or cell based switching or
dense wave division multiplexing, generally do not apply in wireless networks.
Thus, the fundamental challenge for wireless network operators is to increase
capacity, coverage and call quality within a fixed amount of wireless spectrum.

To address capacity, coverage and call quality issues, wireless operators
have begun to deploy more spectrum-efficient digital technologies such as CDMA,
GSM and TDMA since the late 1980s. However, because analog and digital cellular
networks share the same fixed amount of spectrum, cellular network operators
must remove analog channels to implement digital technology. To install one
CDMA carrier into a network, an operator must clear 15 percent of its existing
analog spectrum. Removal of analog spectrum creates additional capacity
constraints within an existing analog network that is already nearing capacity
limits from the growing demand for analog minutes of use. As digital traffic
grows within analog systems, additional digital carriers must be added,
requiring more analog channels to be cleared. According to the Cahners In-Stat
Group, clearing analog spectrum to accommodate digital growth is expected to
continue for the next five to seven years as demand for digital capacity
increases.

The need to provide analog cellular service to increasing numbers of
subscribers while simultaneously clearing fixed spectrum for digital deployment
creates numerous challenges for cellular network operators. Traditionally,
operators of 800 MHz cellular networks addressed capacity, coverage and call
quality problems by building new cell sites. According to the Cellular
Telecommunication Industry Association ("CTIA"), wireless network operators
added approximately 21,000 new cell sites worldwide in 1997. However,
constructing a new site, including land, building and equipment, can cost up to
$1,000,000, and technical factors such as frequency reuse limitations diminish
the marginal benefits of adding cell sites to networks. For example, building
cell sites closer together increases interference and noise in the network,
which reduces capacity and call quality, exacerbating the very problems the
additional cell sites are intended to resolve. Cellular network operators also
face significant community resistance arising from environmental concerns and
aesthetic objections to the appearance of cell site towers.

In addition to building more cell sites, cellular network operators have
adopted variations on antenna design. Traditionally, operators used omni-
directional (360(degrees)) antennas, which receive and transmit in all
directions around a cell site. This has the advantage of making all radio
channels available to any cellular caller, but has the disadvantage of being
susceptible to interference from all directions. In areas where interference is
a problem, cellular network operators have often installed sectorized antennas,
usually consisting of a suite of three antennas, each covering a different
120(degrees) sector around a cell site. While sectorized antennas reject
signals from outside their sector, decreasing the overall level of interference
within a cell site, they can also reduce cell site capacity because each radio
channel is permanently allocated to a specific sector, and therefore cannot be
reused to cover other sectors.

The growing demand for wireless services and the difficulties encountered by
cellular network operators in building additional cell sites and implementing
digital technologies contribute to the need for a cost-effective solution to
capacity, coverage and call quality problems. Cellular network operators need
solutions that work within the framework of intense wireless service
competition and reduced capital budgets. As they seek to provide ubiquitous
wireless service and support increased subscriber demand, cellular network
operators must address the fundamental challenge of achieving maximum capacity
from finite spectrum resources. Metawave believes that the growing demand for
wireless services as well as the set of technological problems and economic
constraints imposed by finite spectrum resources presents an attractive market
opportunity for providers of spectrum management solutions.

THE METAWAVE SOLUTION

Metawave's spectrum management solutions, consisting of smart antenna
systems, applications software and engineering services, enable cellular
network operators to increase overall network capacity, reduce network
operation costs, better manage network infrastructure and stimulate end user
demand through improved system quality. The Company's initial spectrum
management platform, the SpotLight 2000 system, is a multibeam smart antenna
technology that is compatible with the Motorola HDII and Lucent Series II base
stations and AMPS and CDMA air interface protocols. The SpotLight 2000 system
divides the cell site coverage pattern into 12 fixed beams and incorporates
electronics and software to

create the optimum signal for each radio in the cell site. The Company's
spectrum management solutions provide cellular network operators with the
following benefits:

Cost-Effective Capacity Expansion. The SpotLight 2000 system enables cellular
network operators to increase the capacity of their networks without the
increased network complexity and expenses associated with new cell site
development. The SpotLight 2000 system integrates narrow-beam antennas with RF
signal-processing hardware and beam-switching algorithms to provide stronger
signal reception and reduced interference. This enables cellular network
operators to more efficiently allocate radio frequencies and thereby increase
network capacity. The SpotLight 2000 system can be installed in a single cell
site or in multiple sites in a network. The system can be used to increase
analog capacity only or can be deployed in a dual-mode configuration to
simultaneously increase both analog and CDMA capacity. Based on field trials,
the Company estimates that the SpotLight 2000 system, when installed in a
network of cell sites, can improve analog capacity by as much as 100% and, when
used in a dual-mode system, can improve CDMA capacity by up to 40%.

Efficient Conversion to Digital Network Capability. The SpotLight 2000 system
enables cellular network operators to use existing cell site infrastructure to
support current traffic levels with less of their allocated spectrum and fewer
channels. As a result, the SpotLight 2000 system facilitates the transition
from frequency-intensive analog service to more spectrum-efficient digital
service. Operators can use the SpotLight 2000 system to clear spectrum for the
first and each subsequent CDMA carrier while maintaining analog capacity and
service quality.

Improved Network Performance. By providing a stronger signal and by reducing
interference, the SpotLight 2000 system can improve coverage in certain
portions of a cell site's geographic footprint, such as the interior of
buildings, where coverage is often insufficient. This stronger signal and
reduced interference can improve network quality. In addition, the SpotLight
2000 system provides RF engineers with the ability to measure and report
performance statistics in 30(degrees) increments around the cell site. Using
this data, engineers can better isolate specific network performance metrics
and determine optimum sector configurations.

STRATEGY

The Company's objective is to be a leading provider of spectrum management
solutions to the worldwide wireless communications market. The Company's
strategy to achieve this objective incorporates the following key elements:

Provide Solutions to High-Growth Wireless Communications Markets. The Company
seeks to identify rapidly growing wireless markets and to develop highly
integrated solutions to spectrum management problems in those markets. The
Company designed the SpotLight 2000 system initially for use in AMPS cellular
networks. In order to address the capacity and system quality problems facing
AMPS operators implementing CDMA digital technologies, the Company has
leveraged the SpotLight 2000 system technology to develop a dual-mode solution
that incorporates CDMA and AMPS protocols. The Company intends to explore other
high-growth markets such as GSM, PCS, TDMA and WLL and, if appropriate, to
develop similar solutions for such markets.

Build and Expand Strategic Customer Relationships. Metawave is dedicated to
serving those cellular network operators which the Company believes are most
likely to adopt and promote the Company's solution across their networks. The
Company uses a direct sales model and has established significant field
engineering expertise that enables the Company to install and optimize its
equipment within customers' cell sites. The Company's system engineers work
closely with the Company's direct sales personnel and customers to ensure that
the Company's product performance is optimized for each operator's network. In
addition, the Company has developed expertise in assisting cellular network
operators in planning and improving overall network performance.

Leverage Proprietary Core Technology. The Company seeks to continue to build
its core technology, which includes eight issued and 25 pending patents, and to
invest substantial resources in technology research and product development.
The Company has leveraged its core technology and expanded its customer base by
modifying its SpotLight 2000 system for use with the Lucent Series II base
station in addition to the Motorola HDII base station for which it was
initially developed. The Company is currently modifying the SpotLight 2000
system to interface with equipment made by other manufacturers, such as the
Ericsson 882 and Motorola SC2450 and SC9600 base stations, and intends to
expand into new technology markets by developing spectrum management solutions
for the GSM, PCS, TDMA and WLL markets, as appropriate. To facilitate the
adoption and deployment of the Company's spectrum management solutions, the
Company intends to develop stand-alone products and applications that are
readily installed in existing or new cell sites. The Company may establish
strategic relationships both to develop new technologies and to expand into new
markets.

Focus on Highly Integrated System Solutions. The Company seeks to offer
system level products that enhance the performance of cellular network
operators' base station equipment. The Company will provide highly integrated
solutions that include pre-sales system planning, products configurable to
specific base station requirements and on-site installation and optimization
services to ensure a high level of system performance. The Company's highly
integrated system approach differentiates it from the component level product
offerings currently available in the market.

MARKETS

Today's wireless communications industry is characterized by several
protocols that divide the industry into broad markets. Currently, networks
based on the AMPS and GSM protocols have the greatest number of subscribers
and, correspondingly, the largest number of cell sites. The Company expects
digital technologies to grow rapidly and account for increased levels of
infrastructure spending. Many analog cellular network operators are migrating
their analog networks to digital to increase capacity and improve their
competitive position relative to emerging PCS providers. Regardless of the
protocol adopted or the frequency band used, the Company believes wireless
network operators worldwide will need to address capacity, coverage or call
quality issues.

Analog Cellular Market. The analog cellular market consists of operators that
provide cellular service within the 800 MHz and 900 MHz frequency bands using
analog technology. The predominant analog protocol is AMPS, which according to
the Strategis Group serves 71.0% of total analog subscribers worldwide. In
areas of the world where digital technology has not yet been introduced, AMPS
networks are growing to serve continued subscriber demand. In areas where
deployment of digital service is underway or planned, maintaining analog
capacity, coverage and call quality during this transition is essential. In
addition to currently serving the majority of subscribers and minutes of use in
North America, AMPS technology will also serve digital customers in cases where
they roam to other networks, in areas where digital service is not yet in place
and in circumstances where digital capacity is not sufficient to carry the
level of traffic. AMPS cellular phones also remain significantly less expensive
than digital and dual-mode phones. For these reasons, the Company believes the
migration to digital service will be an extended process. Moreover, the Company
believes that cellular network operators may be reluctant to allow AMPS service
quality to deteriorate during this process due to the presence of significant
competition from other cellular and emerging PCS operators. The Company's
SpotLight 2000 system enables cellular network operators to provide enhanced
capacity, coverage and call quality to facilitate this transition to digital
service.

CDMA Digital Cellular Market. The CDMA digital cellular market consists of
operators overlaying CDMA technology onto existing AMPS technology in the 800
MHz frequency band. To deploy a single CDMA carrier, cellular network operators
must clear a portion of spectrum (approximately 15% in North and South America)
that was previously utilized for AMPS service. This involves taking analog
channels off the air, exacerbating capacity shortages and deteriorating network
quality. Approximately half of the

cellular networks in North America are ultimately expected to migrate to CDMA
technology as are many cellular network operators in South America. Cellular
network operators must separately optimize the CDMA portion of their network in
order to achieve the necessary capacity and performance. The Company's
SpotLight 2000 system provides additional analog capacity facilitating spectrum
clearing without adversely affecting capacity or network quality. The SpotLight
2000 system also provides additional CDMA capacity to manage the transition
from analog-only networks to dual-mode networks.

GSM Market. The GSM market consists of networks that operate at 900 MHz and
1800 MHz. GSM was the first widely implemented digital technology and is
deployed in 110 countries, predominantly in Europe and Asia. As the most widely
deployed digital technology, GSM served 48.5 million subscribers at the end of
1997, according to the Strategis Group, and Allied Business Intelligence
estimates that GSM will account for over 50% of worldwide wireless subscribers
by 2000. GSM is not as spectrally efficient as other digital technologies.
Consequently, GSM networks are beginning to experience capacity constraints,
particularly in heavily subscribed areas. The Company believes that these
capacity shortfalls will become more common. The Company is currently
developing a product to provide cost-effective spectrum management solutions
for GSM network operators.

TDMA Market. The TDMA digital cellular market consists of operators
overlaying TDMA technology onto existing AMPS technology in the 800 MHz
frequency band. The TDMA market represented approximately 50% of the North
American digital cellular market, as well as a significant portion of the South
American market at the end of 1997, according to the Strategis Group. TDMA
operates on analog channels, and therefore can reduce analog capacity. As
subscriber growth continues on these networks, the capacity gains of TDMA may
not be sufficient to accommodate subscriber growth. Although the Company
currently has no TDMA solution under development, the Company believes that its
technology is applicable to the issues facing TDMA operators. The Company
continues to evaluate the economic viability of a TDMA solution and may in the
future undertake product development for TDMA.

PCS Market. In 1995 and 1996, the U.S. government auctioned new licenses at
frequencies of 1900 MHz, known as PCS. These licenses represent 120 MHz of new
spectrum compared to 50 MHz of spectrum held by the existing cellular network
operators. In doing so, the government opened up each wireless market to new
competitors. These new PCS operators represent a significant competitive threat
to cellular network operators. Since entering the market in 1997, deployed PCS
networks currently provide coverage to geographic regions covering
approximately 75% of the U.S. population and, according to The Yankee Group,
PCS accounted for 20% of all new wireless accounts in the United States in
1997. PCS operators deploy digital networks, using CDMA, TDMA or GSM
technology, which offer enhanced services, better security and more capacity
than analog networks. In addition, customer churn has intensified as a result
of new consumer choices. As these networks grow, it is expected that they will
experience capacity and optimization issues similar to cellular networks. The
Company continues to evaluate potential spectrum management solutions for PCS.

The following table presents a summary of the principal wireless protocols,
geographic markets and estimated subscribers as of December 31, 1997.

PREDOMINANT
GEOGRAPHIC ESTIMATED SUBSCRIBERS
MARKET PROTOCOL REGIONS WORLDWIDE, 1997(2)

Analog Cellular AMPS (Advanced Mobile North America 68,421,482
Phone Services)(1) Latin America
Asia
----------------------------------------------------------------------------
TACS/ETACS (Total Access Europe 21,366,610
Communications System) Asia
----------------------------------------------------------------------------
NMT (Nordic Mobile Telephone) Europe 4,933,956
Asia
- -----------------------------------------------------------------------------------------------
Digital Cellular CDMA (Code Division Multiple Access)(1) North America 3,963,162
Latin America
Asia
----------------------------------------------------------------------------
TDMA (Time Division Multiple Access) North America 6,721,635
Latin America
Asia
----------------------------------------------------------------------------
GSM (Global System for Mobile Europe 48,495,238
Communications) Asia
----------------------------------------------------------------------------
PDC (Pacific Digital Cellular) Japan 21,959,350
- -----------------------------------------------------------------------------------------------
PCS/Other PCN/DCS-1800 (Digital Europe 5,065,119
Communications System) Asia
----------------------------------------------------------------------------
PCS 1900 North America 1,319,138
----------------------------------------------------------------------------
TDMA (1.9 GHz) North America 834,141
----------------------------------------------------------------------------
CDMA (1.9 GHz) North America 2,197,355
Asia
----------------------------------------------------------------------------
PHS (Personal Handyphone System) Asia 8,161,656
- -----------------------------------------------------------------------------------------------

(1) Indicates markets the Company's products currently address. There can be
no assurance that the Company will be successful in developing products
for other markets. See "Risk Factors--Rapid Technological Change and
Requirement for Frequent New Product Introductions."
(2) As reported by the Strategis Group, 1997.

METAWAVE PRODUCTS

The Company has developed spectrum management solutions, consisting of smart
antenna systems, applications software and engineering services, that enable
cellular network operators to increase overall network capacity, reduce network
operation costs, better manage network infrastructure and stimulate end user
demand through improved system quality. The Company's initial spectrum
management platform, the SpotLight 2000 system, is a multibeam smart antenna
technology that interfaces with Motorola HDII and Lucent Series II base
stations and is compatible with AMPS and CDMA air interface protocols.

Metawave's proprietary spectrum management solutions enable the transition
from traditional wireless network infrastructure designs to an architecture
which actively optimizes finite spectrum or wireless bandwidth, thereby
enhancing the performance and increasing overall network capacity of the
cellular

operator's network. The architecture, shown in the figure below, adds smart
antenna performance to the cellular operator's network.

[GRAPHIC APPEARS HERE]

SpotLight Platform. The Company's SpotLight 2000 smart antenna system was
initially designed for use in AMPS networks and was first shipped for
commercial sale in November 1997. The second generation SpotLight 2000 system
was designed as a dual-mode system and is currently in field trials. The
SpotLight 2000 system divides cell site antennas into 12 beams and incorporates
electronics and software to optimize the signal for each radio in the cell
site, resulting in increased network capacity and improved call quality.
Designed for 800 MHz networks, the SpotLight 2000 system currently provides
solutions for AMPS networks or dual-mode AMPS and CDMA networks.

Based on field trials, the Company estimates that the SpotLight 2000 system,
when installed in a network of cell sites, can improve analog capacity by as
much as 100% and, when used in a dual-mode system, can improve CDMA capacity by
up to 40% without increasing the number of cell sites. Accordingly, the
SpotLight 2000 system is a cost-effective tool for clearing spectrum of analog
use to accommodate the transition of networks to digital service. Capacity is
increased by allowing for tighter re-use of frequency or by obtaining increased
trunking efficiency or a combination of both.

The Spotlight 2000 system interfaces with base stations by coupling directly
to the I/O ports of base station radios and by processing transmit and receive
signals through its smart antenna spectrum management system. The Company
provides all necessary hardware and software to process transmit and receive
signals, including Spectrum Management Units ("SMUs"), linear power amplifiers,
filters and other equipment, including base station antennas.

As the SpotLight 2000 system reduces interference in a network through
implementation of smart antennas, more channels can be added to each cell site
because frequencies can be reused more times over a given area, thereby
increasing network capacity. In areas where interference is a problem, cellular
network operators have often installed sectorized antennas, usually consisting
of a suite of three antennas, each covering a 120(degrees) sector around a cell
site. Sectorization reduces the amount of interference received by a given cell
site radio. The SpotLight 2000 system's 12 beam smart antenna has four times
the interference rejection potential of a three-sector antenna. As shown in the
figure below, the 12 beam antenna rejects potential signal interference that is
outside the caller's narrow 30(degrees) beam, reducing network interference.
This enables a cellular network operator to reuse the same frequencies more
often over a given service area, thereby adding more channels to each cell
site.

INTERFERENCE ISOLATION

[GRAPHIC APPEARS HERE]

Trunking efficiency represents a statistical measure of the call carrying
capacity of a set of channels. Trunking efficiency is increased whenever a
greater number of channels is made available for use by a group of subscribers
at a given location and time. Conventional three-sector antennas tend to reduce
capacity because they restrict the callers in any given sector to the cell site
radio channels assigned to that sector. In contrast, the SpotLight 2000
system's SMU's permit any caller in any beam to be assigned to any cell site
radio, thereby increasing the trunking efficiency and the cell site's capacity.
The primary interface between the SpotLight 2000 system and the cell site is
the set of RF connections between the transmit and receive terminals on cell
site radios and the SpotLight 2000 system's SMUs, which contain the core of
SpotLight's smart antenna capability. While any call is active, the SMUs
continuously measure call quality and make adjustments in beam assignment to
maintain the best possible call quality.

Through the SpotLight 2000 system, cellular network operators deploying dual-
mode smart antenna systems can use a single set of antennas for both their
analog and CDMA networks, and can optimize each network's performance
independently.

The SpotLight 2000 system also increases CDMA capacity because it allows
operators to manage and distribute traffic loading more effectively. The
geographic distribution of traffic loading across a CDMA network or within a
single cell varies considerably. In a typical three-sector cell, the traffic
density in the most heavily loaded sector is often significantly higher than
the least-loaded sector. As a result, some cells may have sectors that are
fully loaded with cellular traffic while other sectors of the same cell are
well below peak loading and have spare capacity. On a network scale, high
cellular traffic areas, such as highway interchanges, urban centers and
shopping centers, can become "hot spots" that strain network capacity even as
network resources go unused in low cellular traffic areas. This variability in
traffic density creates network inefficiencies and lower network capacity,
particularly in CDMA networks.

To address traffic loading, the SpotLight 2000 system controls the
transmission and reception of CDMA radio signals by base stations through a
process called sector synthesis. The SpotLight 2000 system

adapts the sector coverage of the base stations' CDMA radios to the local
traffic patterns around cell sites. The system's phased-array antenna makes it
possible to create custom sector antenna patterns of varying degrees though an
embedded software-driven process. Optimization of the SpotLight 2000 system for
CDMA requires information about the CDMA signals on the network, which the CDMA
equipment within the system gathers through the antennas. Sector synthesis
occurs through software algorithms, which can be modified remotely to respond
to changing local traffic patterns in real time. Through sector synthesis,
cellular network operators also optimize their CDMA networks with increased
flexibility and precision, enhancing network capacity and performance in
response to changing traffic patterns as well as local terrain and variable RF
conditions, as illustrated in the following diagram.

SECTOR SYNTHESIS

[GRAPHIC APPEARS HERE]

Other Spectrum Management Products. The SpotLight 2000 system can be
administered and monitored locally or remotely through LampLighter, SpotLight
2000's system configuration product. LampLighter, a Windows-based software
tool, configures the SpotLight 2000 system for optimal cell site performance.
In addition, LampLighter allows real time monitoring of system performance
through graphical displays and log files.

In addition to the configuration capabilities of LampLighter, the Company
offers networked access to the SpotLight 2000 system configuration with its
SiteNet software product. SiteNet also provides a means for centralized
collection and analysis of RF performance statistics in analog and CDMA
networks. Cellular network operators can use the networked configuration
capability, as well as networked RF performance statistics, to attain remote
control of antenna operations across a network of SpotLight 2000 systems.

CORE TECHNOLOGY

The Company believes that one of its key competitive advantages is its
investment and expertise in the core technologies that enable efficient
spectrum management of wireless communications networks. Spectrum management
encompasses a number of technical components, including advanced antenna
concepts, radiowave propagation models, network performance monitoring tools,
common air interface knowledge and communications systems hardware
implementations. These core competencies, when applied in combination, allow
cellular network operators to optimize capacity, coverage and quality across
their networks. The Company has developed, and continues to expand upon, the
following four fundamental technical elements:

Phased-Array Antenna Systems. The Company has developed phased-array antenna
systems that provide compact beam-forming within a single structure. The
antenna systems make use of uniform linear

or cylindrical arrays with a combination of both ground-based and tower-based
feed networks. The Company has designed antennas to synthesize multiple narrow
fixed-beams, which can be used to track individual users within a cell site.
In addition, the Company has developed beam-forming techniques to allow the
coverage area of a cell site to be customized. The phased-array antenna
technology can be scaled to a variety of gains and to span a broad range of
frequencies. The basic implementations are protocol independent, and as such
can be applied to analog, TDMA and CDMA and other wireless networks. The
phased-array technology is extendible to as many as 128 simultaneous narrow
fixed-beams for high density applications or high bit rate services. Phased-
array antenna technology has potential applications in ground-based mobile
radio (cellular, PCS, enhanced specialized mobile radio ("SMR")), two-way
paging, local multipoint distribution service ("LMDS") as well as in emerging
satellite-based wireless services.

Multibeam Hardware Architectures. The Company has developed cost-effective
hardware implementations of the complex circuitry necessary to support the
operation of multibeam systems on high-traffic cell sites. The hardware
architecture can be organized into several key subsystems: beam switching
matrices, ultra-linear amplification, beam-forming feed structures, array
calibration circuitry and performance measuring receivers. The Company has
designed compact high-density RF switch matrices for use in fast beam-
switching applications. The Company's beam-switching technology is modular,
reliable and readily adaptable to both TDMA and analog protocols, where rapid
beam switching is required. The Company holds proprietary technology for the
implementation of modular, scalable architectures that support beam-switching
and beam-forming. The Company has developed proprietary hardware techniques
for feeding and calibrating phased-arrays integrated into existing cell site
configurations. To monitor the radio environment, the Company has developed
high-speed, frequency-agile scanning receivers designed to accurately operate
over various channel bandwidths. The Company's controlled impedance circuit
board designs implement low-loss routing of hundreds of microwave signal paths
while maintaining low voltage standing wave ratio ("VSWR") and minimal
crosstalk. Additionally, the Company has patents related to architectures to
implement beam-switching for the CDMA protocol. The Company's spatial
technology allows the simultaneous operation of multiple protocols (for
example AMPS/CDMA or AMPS/TDMA) through the same physical antenna structure,
while maintaining independent optimization of the performance for each
protocol.

Real-Time Network Control Algorithms. The Company has developed algorithms
to control beam switching hardware based upon extensive drive testing, data
gathering, statistical analysis and propagation modeling in complex, real-
world radio environments. These algorithms make real-time decisions about
which beams best serve each user, how often to update beam selections and how
to mitigate interference from other users on the same or adjacent channels.
The Company has patents related to cellular beam spectrum management and
forward-looking interference cancellation technology. In addition, the Company
has developed expertise in the optimization of cellular network performance
for AMPS/NAMPS and CDMA protocols. Such expertise allows network control
algorithms to be customized based on the specific protocol and network
deployment scenario. The Company has also developed internal software tools
for performance modeling cellular networks. These proprietary tools allow
evaluation of new algorithms for spectrum management on mixed analog and
digital cellular networks.

Adaptive Beam-Forming Techniques. The Company designs and builds antenna
systems with a broad range of standard and custom beam types and shapes using
adaptive beam-forming technology. With respect to CDMA, the Company's system
makes use of the phased-array antenna to create custom sector antenna patterns
though an embedded software-driven process known as sector synthesis. Under
software control, independent selection of sector azimuth pointing angles,
beamwidths and per-beam gains can provide flexibility to fine-tune network
performance. With sector synthesis, cellular network operators can create
completely different sector mappings for AMPS and CDMA, thus allowing
independent network optimization while sharing the cell site's equipment,
including antennas. Adaptive beam-forming systems can monitor traffic loading
and interference levels and then respond by implementing changes designed to
equalize traffic loads and reduce interference.

CUSTOMERS

Metawave works closely with its customers to establish long-term
relationships and to provide opportunities to expand the delivery of its
spectrum management solutions to these customers. Since 1996, the Company has
conducted field trials with a number of cellular network operators to test its
technology and to demonstrate the SpotLight 2000 system's capability to these
customers. These trials are an essential element in the Company's sales cycle.
Late in the fourth quarter of 1997, the Company began commercial shipment of
the Motorola HD-II analog-only version of its SpotLight 2000 system. In early
1998, the Company began field trials to demonstrate the capability of its
SpotLight 2000 Lucent Series II system for both analog and CDMA.

The following table sets forth a list of companies that have purchased or
are evaluating the purchase of the SpotLight 2000 system as of June 30, 1998.

CUSTOMER OR PROSPECTIVE
CUSTOMER LOCATION SALES STATUS

ALLTEL(1) Augusta, Georgia Commercial Sale
Columbia, South Carolina Commercial Sale(2)
Savannah, Georgia Commercial Sale
Springfield, Missouri Commercial Sale
- --------------------------------------------------------------------------------
360(degrees)
Communications(1) Ft. Walton, Florida Commercial Sale(2)
- --------------------------------------------------------------------------------
Millicom--Telefonica Paraguay Commercial Sale
Celular
- --------------------------------------------------------------------------------
Millicom--St. Petersburg
Telecom St. Petersburg, Russia Commercial Sale
- --------------------------------------------------------------------------------
AirTouch San Diego, California Field Trial Completed 1997
- --------------------------------------------------------------------------------
GTE Fremont, California Field Trial In Process
- --------------------------------------------------------------------------------

(1) On July 1, 1998, ALLTEL completed the acquisition of 360(degrees)
Communications.

(2) These sales are conditional upon the achievement of certain performance
criteria set forth in the sales contracts. No revenue is recognized by the
Company until all customer acceptance conditions have been met.

There can be no assurance that successful completion of a given field trial
will result in a system sale. The sale of the Company's products is subject to
numerous risks and uncertainties. In order for its products to achieve market
acceptance, the Company must demonstrate to cellular network operators that
the products provide a spectrum management solution that addresses the
cellular network operators' challenges of capacity, coverage and call quality
in a cost-effective manner. The Company must demonstrate product performance
to a cellular network operator based on such operator's needs and
specifications and the difficulty in optimizing the Company's product in any
given cell site varies greatly depending on such operator's specifications and
the geographical terrain. Typically, performance of the Company's product must
be accepted in an initial cell site or cluster of cell sites prior to
completing any additional sales to such cellular network operator. If the
Company's products are not accepted by cellular network operators in a timely
manner, or at all, the Company's business and operating results will be
materially adversely affected. See "Risk Factors--Uncertainty of Market
Acceptance; Lengthy Sales Cycle," "--Dependence on Cellular Network Operator
Capital Spending" and "--Competition."

During the six months ended June 30, 1998, sales to St. Petersburg Telecom,
Telefonica Celular and ALLTEL accounted for 95.7% of net revenue. Sales to
these three customers are expected to continue to account for a substantial
majority of sales through the remainder of fiscal 1998. The loss of any of
these customers, or a significant loss, reduction or rescheduling of orders
from any of these customers, could have a material adverse effect on the
Company's business and operating results. See "Risk Factors--Significant
Customer Concentration" and "--Dependence on Growth of Cellular Communications
Market."

SALES, MARKETING AND CUSTOMER SUPPORT

Metawave sells its products through a technical direct sales force supported
by systems engineers. Direct sales personnel are assigned on a customer
account basis and are responsible for generating product sales, providing
product and customer support and soliciting customer feedback for product
development. In addition, sales personnel receive support from the Company's
marketing organization.

The Company's marketing efforts are primarily focused on establishing and
developing long-term relationships with potential customers. As is customary
in the industry, sales are made through standard purchase orders which can be
subject to cancellation, postponement or other types of delays. While certain
customers provide the Company with forecasted needs, they are not bound by
such forecasts. Historically, the Company has conducted field trials and has
been required to satisfy performance conditions prior to the completion of a
sale. For these and other reasons, the sales process associated with the
purchase of the Company's systems is typically complex, lengthy (up to 18
months or more) and subject to a number of significant risks, including
changes in customers' budgets and approval at senior levels of customers'
organizations and approval by governmental agencies. See "Risk Factors--
Uncertainty of Market Acceptance; Lengthy Sales Cycle."

International sales of the Company's products accounted for 51.5% for the
six-month period ended June 30, 1998. There were no international sales for
the years ended December 31, 1995, 1996 and 1997. Foreign sales of the Company
products may be subject to national security and export regulations and may
require the Company to obtain a permit or license. See "Risk Factors--
Government Regulation." The Company has not experienced any material
difficulty in obtaining required permits or licenses. Installation and
operation of the Company's products may also require approval from
governmental agencies in these countries. Foreign sales are also subject to
risks related to political instability and economic downturns in foreign
nations. The Company's foreign customers typically pay for the Company's
products with U.S. dollars. As such, a strengthening of the U.S. dollar as
compared to a foreign customers' local currency would effectively increase the
price of the Company's products for that customer, thereby making the
Company's products less attractive to such customers. See "Risk Factors--Risks
Associated with International Markets."

The Company's customer support organization performs network design, product
installation, network optimization, training, consulting and repair and
maintenance services to support its SpotLight 2000 system. The Company offers
consulting services to optimize the network following the SpotLight 2000
system installation. Optimizing a network requires expertise in RF network
design, individual network peculiarities and knowledge of the SpotLight 2000
system capabilities. The Company offers repair and maintenance services. The
Company's warranties vary by customer and range from 12 to 18 months. Warranty
obligations and other maintenance services for the Company's products are
performed at the Company's headquarters in Redmond, Washington.

As of June 30, 1998, the Company had approximately $5.0 million of
unrecognized revenue for customer sales that are subject to the satisfaction
of customer acceptance conditions set forth in the sales agreements related
thereto. In addition, the Company's backlog of orders was approximately
$802,000 on June 30, 1998, compared to no backlog of orders on June 30, 1997.
The Company includes in backlog only customer commitments for which it has
received signed purchase orders and scheduled shipment dates within the
following six months. The Company intends to increase its manufacturing
capacity and believes that backlog will decrease, as a percentage of sales, as
the Company becomes able to fill orders on a more timely basis. Moreover,
product orders in the Company's current backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser without
significant penalty. Accordingly, although useful for scheduling production,
backlog as of any particular date may not be a reliable measure of sales for
any future period. See "Risk Factors--Significant Fluctuations in Operating
Results."

Because of the limited size of the Company's customer base and the
relatively large dollar amount of customer orders, revenues derived from a
small number of customers will likely represent a significant

portion of revenue in any given period. A decrease in demand for the Company's
systems from any customer for any reason is likely to result in significant
periodic fluctuations in revenue. Due to the highly concentrated nature of the
cellular industry, the Company believes that the number of potential customers
for future products, if any, will be small. Failure by the Company to capture
a significant number of the cellular network operators as customers could have
a material adverse effect on the Company's business and operating results. See
"Risk Factors--Significant Fluctuations in Operating Results," "--Significant
Customer Concentration."

RESEARCH AND DEVELOPMENT

The Company's research and development efforts focus primarily on enhancing
the features and functionality, improving the quality and reducing the
manufacturing cost of the SpotLight 2000 system. The Company's efforts also
focus on using existing product architecture and technology to maintain
commonality and minimize time-to-market for new product enhancements and
technology platforms. The Company is investing resources in extending the
SpotLight 2000 system to other principal manufacturers' base station equipment
both in the United States and abroad. The Company is also investing resources
in the development of a spectrum management platform for GSM and in early-
stage research regarding CDMA for PCS and TDMA.

Research and development expenses were approximately $883,000, $7.2 million
and $13.1 million for the fiscal years ended December 31, 1995, 1996 and 1997,
respectively, and $8.0 million for the six months ended June 30, 1998. The
Company believes that continued investment in research and development is
critical to attaining its strategic objectives and, as a result, expects
research and development expenses to increase in absolute dollars for the
foreseeable future. As of June 30, 1998, 91 employees were engaged in the
Company's research, development and product management efforts.

The market for the Company's current product and planned future products is
subject to rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in customer requirements and
evolving industry standards. To be competitive, the Company must successfully
develop, introduce and sell new products or product enhancements that respond
to changing customer requirements on a timely and cost-effective basis. The
Company's success in developing new and enhanced products will depend on a
variety of factors, many of which are beyond the Company's control. Such
factors include the timely and efficient completion of system design; the
timely and efficient implementation of assembly, calibration and test
processes; sourcing of components; the development and completion of related
software; the reliability, cost and quality of new products; the degree of
market acceptance; and the development and introduction of competitive
products by competitors. The inability of the Company to introduce in a timely
manner new products or product enhancements that contribute to sales could
have a material adverse effect on the Company's business and operating
results. See "Risk Factors--Rapid Technological Change and Requirement for
Frequent New Product Introductions."

MANUFACTURING

The Company relies to a substantial extent on outside suppliers to
manufacture many of the components and subassemblies used in the SpotLight
2000 system. The Company's manufacturing operations consist primarily of
supplier and commodity management and assembling finished goods from
components and subassemblies purchased from such outside suppliers. The
Company monitors quality at each stage of the production process, including
the selection of component suppliers, the assembly of finished goods and final
testing, packaging and shipping. The Company considers quality, cost and
timing of delivery in selecting its component suppliers. Final assembly,
system integration and full-configuration testing operations are performed at
the Company's headquarters in Redmond, Washington.

Certain parts and components used in the Company's products, including
linear power amplifiers supplied by Powerwave, are presently only available
from a sole source. In addition, the Company is

currently dependent upon Sanmina as the primary source for the supply of the
Company's printed circuit board assemblies. Certain other parts and components
used in the Company's products are available from a limited number of sources.
The Company's reliance on these sole source or limited source suppliers
involves certain risks and uncertainties, including the possibility of a
shortage or discontinuation of certain key components and reduced control over
delivery schedules, manufacturing capability, quality and cost. Any reduced
availability of such parts or components when required could materially impair
the Company's ability to manufacture and deliver its products on a timely
basis and result in the cancellation of orders which could have a material
adverse effect on the Company's business and operating results. See "Risk
Factors--Sole Source Suppliers; Dependence on Key Suppliers."

The Company has had only limited experience manufacturing and arranging for
the manufacture of its products, and there can be no assurance that the
Company or any manufacturer of the Company's products will be successful in
increasing its manufacturing volume. The Company may need to procure
additional manufacturing facilities and equipment, adopt new inventory
controls and procedures, substantially increase its personnel and revise its
quality assurance and testing practices, and there can be no assurance that
any of these efforts will be successful. See "Risk Factors--Limited
Manufacturing Experience; No Assurance of Successful Expansion of Operations"
and "--Risks Associated with International Markets."

COMPETITION

The market for spectrum management solutions is relatively new but is
expected to become increasingly competitive. The Company's products compete
with other smart antenna systems and alternative wireless infrastructure
devices such as repeaters, cryogenic filters and tower-top amplifiers. The
Company believes that the principal competitive factors are the cost-effective
delivery of increased capacity, expanded coverage and improved system quality
to cellular network operators. There can be no assurance that the Company will
compete favorably with respect to the foregoing factors.

The Company believes that base station manufacturers, who provide cellular
network capacity through sales of additional base stations, represent a
significant competitive threat to the Company. These manufacturers, including
Ericsson, Lucent, Motorola, Nokia, Northern Telecom and Siemens, have
long-term, established relationships with the cellular network operators.
Deployment of the Company's SpotLight 2000 system by cellular network
operators can improve base station performance, and therefore may result in
fewer sales opportunities for base station manufacturers. Smart antenna
technology represents an area of opportunity for such manufacturers. The
Company believes that certain of these manufacturers are developing smart
antenna systems and are likely to offer smart antenna capabilities in the
future. In addition to having more established relationships with cellular
network operators, these manufacturers have significantly greater financial,
technical, manufacturing, sales, marketing and other resources than the
Company and significantly greater name recognition for their existing products
and technologies than the Company.

The Company's current primary direct competitors for spectrum management
solutions are Celwave (a division of Radio Frequency Systems Inc. which is an
affiliate of Alcatel Alsthom S.A.), ArrayComm, Inc. and GEC-Marconi Hazeltine
Corporation. In addition, other companies, such as Raytheon E-Systems,
Watkins-Johnson Company, Texas Instruments Incorporated and ARGOSystems, Inc.
(a subsidiary of the Boeing Company), offer systems that utilize digital
signaling processing and interference cancellation techniques to extend cell
site coverage and improve call quality. Several companies offer alternative
technologies such as cryogenic filters, tower-top low noise amplifiers and
repeaters that can be used to provide service in network coverage holes and
improve call quality. The Company may also face competition in the future from
new market entrants offering competing technologies.

be competitive, the Company will need to continue to invest substantial
resources in research and development and sales and marketing. There can be no
assurance that the Company will have sufficient resources to make such
investments or that the Company will be able to make the technological
advances necessary to remain competitive. Accordingly, there can be no
assurance that the Company will be able to compete successfully in the future.
See "Risk Factors--Competition."

INTELLECTUAL PROPERTY

The Company relies on a combination of patent, trade secret, copyright and
trademark protection, nondisclosure agreements and other measures to protect
its proprietary rights. The Company currently has eight issued U.S. patents
and 25 pending U.S. patent applications. The Company's future success will
depend in large part on its ability to obtain patent protection, in the U.S.
and other world markets to defend patents once obtained, to maintain trade
secrets and to operate without infringing upon the patents and proprietary
rights of others. The patent positions of companies in the worldwide wireless
communications industry, including the Company, are generally uncertain and
involve complex legal and factual questions. There can be no assurance that
any issued patents owned by or licensed to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will
provide competitive advantages to the Company. Further, there can be no
assurance that patents will issue from any patent applications or that, if
patents do issue, the claims allowed would be sufficiently broad to protect
the Company's technology. In addition, there can be no assurance that patents
issued in the U.S. will receive corresponding patent coverage in foreign
markets or that the Company will pursue similar patent coverage in all foreign
markets.

Patents and patent applications relating to products used in the worldwide
wireless communications industry are numerous and current and potential
competitors and other third parties may have filed or may in the future file
applications for, or may have been issued or in the future may be issued,
patents or may obtain additional proprietary rights relating to products used
or proposed to be used by the Company. The Company may not be aware of all
patents or patent applications that may materially affect the Company's
ability to make, use or sell any current or future products. From time to
time, third parties have asserted patent, copyright and other intellectual
property rights to technologies that are important to the Company. The Company
expects that it will increasingly be subject to infringement claims as the
number of products and competitors in the spectrum management market grows and
the functionality of products overlaps. Third parties may assert infringement
claims against the Company in the future, and such assertions could result in
costly litigation or require the Company to obtain a license to intellectual
property rights of such parties. There can be no assurance that any such
licenses would be available on terms acceptable to the Company, if at all. Any
failure to obtain a license from any third party asserting claims in the
future or defense of any third party lawsuit could have a material adverse
effect on the Company's business and operating results.

The Company also relies on unpatented trade secrets to protect its
proprietary technology, and there can be no assurance that others will not
independently develop or otherwise acquire the same or substantially
equivalent technologies or otherwise gain access to the Company's proprietary
technology or disclose such technology or that the Company can ultimately
protect its rights to such unpatented proprietary technology. Further, third
parties may obtain patent rights to such unpatented trade secrets, which
patent rights could be used to assert infringement claims against the Company.
The Company also relies on confidentiality agreements with its employees,
vendors, consultants and customers to protect its proprietary technology.
There can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach or that the Company's
trade secrets will not otherwise become known to or be independently developed
by competitors. Failure to obtain or maintain patent and trade secret
protection, for any reason, could have a material adverse effect on the
Company's business and operating results. See "Risk Factors--Uncertainty
Regarding Protection of Intellectual Property."

GOVERNMENT REGULATION

Wireless communications are subject to extensive regulation by foreign and
U.S. laws and international treaties. The Company's systems must conform to
certain international and domestic regulations established to, among other
things, avoid interference among users of frequencies. In order for the
Company's products to be used, regulatory approval must be obtained. This
governmental approval process frequently involves substantial delay which
could result in the cancellation, postponement or rescheduling of products by
the Company's customers, which in turn may have a material adverse effect on
the sale of systems by the Company to such customers. The Company believes
that its SpotLight 2000 system currently complies with all applicable U.S. and
foreign regulations in countries in which its sales are material, but changes
in these regulations, the need to comply with regulations in additional
countries in the event of sales into those countries, or a failure to obtain
necessary approvals or permits in connection with sales to service providers
in a country could require the Company to change the features of its SpotLight
2000 system and thereby incur substantial costs and experience delays in
system installation or operation. Regulatory bodies frequently promulgate new
standards and regulations for wireless communications systems and products. To
the extent that the Company's customers are delayed in deploying these
cellular systems as a result of such new standards or regulations, the Company
could experience delays in orders. These delays could have a material adverse
effect on the Company's business and operating results.

The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly affect the Company's
operations by restricting network development efforts by the Company's
customers or end users, making current systems obsolete or increasing the
opportunity for additional competition. Any such regulatory changes could have
a material adverse effect on the Company's business and operating results. The
Company might deem it necessary or advisable to modify its systems to operate
in compliance with such regulations. Such modifications could be expensive and
time-consuming. See "Risk Factors--Government Regulation."

EMPLOYEES

As of June 30, 1998, the Company had 200 employees of which 91 were
primarily engaged in research, development and product management, 34 in
manufacturing, 43 in sales, marketing and customer support and 32 in general
and administration. The Company has no collective bargaining agreement with
its employees and the Company has never experienced a work stoppage. The
Company believes that its employee relations are good. See "Risk Factors--
Management of Growth; New Management Team" and "--Dependence on Attraction and
Retention of Key Personnel."

FACILITIES

The Company is headquartered in Redmond, Washington, where it leases an
aggregate of approximately 96,000 square feet, housing its principal
administrative, sales and marketing, customer support and manufacturing
facilities. The Company's lease for such facility expires on May 31, 2005 and
the Company has an option to renew such lease for two additional five year
terms. In addition, the Company has sales and service offices in Dallas and
Washington, D.C. that are subject to short-term leases.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
June 30, 1998 are as follows:

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

President, Chief Executive Officer and
Robert H. Hunsberger..... 51 Director
Chief Technical Officer and Chairman of the
Douglas O. Reudink....... 59 Board
Senior Vice President, Chief Financial Officer
Vito E. Palermo.......... 34 and Secretary
Richard Henderson........ 37 Vice President of Sales and Marketing
Ray K. Butler............ 40 Vice President of Engineering
Mark P. Johnson.......... 39 Vice President of Manufacturing
Robert N. Shuman......... 37 Vice President of Product Management
Bandel L. Carano(1)...... 36 Director
Bruce C. Edwards(2)...... 44 Director
David R. Hathaway(1)..... 54 Director
Scot B. Jarvis(1)........ 37 Director
Jennifer Gill Roberts(2). 35 Director
David A. Twyver.......... 51 Director

- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.

Robert H. Hunsberger has served as President and Chief Executive Officer of
Metawave since July 1997. From 1995 to July 1997, Mr. Hunsberger served as
Senior Vice President and General Manager of Siemens Business Communications
Systems, Inc., a telecommunications company and a wholly owned subsidiary of
Siemens Corporation. From 1981 to 1995, Mr. Hunsberger held various executive
positions at Northern Telecom Inc. ("Nortel"), a telecommunications company,
including Vice President of Sales and Marketing of its wireless networks
division from 1993 to 1995 and Vice President of Market Development of its
wireless networks division and Vice President of Cellular Systems from 1991 to
1993. Mr. Hunsberger graduated from the University of Virginia with a B.S. in
Commerce and received an M.B.A. from Arizona State University.

Douglas O. Reudink co-founded Metawave in 1995 and has served as Chief
Technical Officer of the Company since its inception and as Chairman of the
Board of Directors of Metawave since April 1997. From 1991 to 1995, Dr.
Reudink served as Director of Wireless Planning at US WEST NewVector Group,
Inc., a wireless telecommunications company. From 1986 to 1991, he served as
Director of Laboratories of the High Technology Center at The Boeing Company,
an aerospace company. Prior to 1986, Dr. Reudink served 20 years at the Bell
Laboratories division of AT&T Corporation, a telecommunications company
("AT&T"), in various research and management positions. Dr. Reudink holds more
than 30 patents and has published more than 50 technical papers. He is
currently a Fellow of the Institute of Electrical and Electronics Engineers.
Dr. Reudink graduated from Linfield College with a B.S. in Physics and
received a Ph.D. in Mathematics from Oregon State University.

Vito E. Palermo has served as Senior Vice President, Chief Financial Officer
and Secretary of Metawave since January 1997. From 1992 to 1996, Mr. Palermo
served in various positions at Bay Networks, Inc., a networking communications
company, most recently serving as Vice President and Corporate Controller and
previously serving as Director of Technology Finance, Corporate Financial and
Planning Manager, and Manufacturing and Customer Service Controller. From 1986
to 1992, Mr. Palermo held several financial management positions at the
Digital Equipment Corporation, a computer hardware and software company. Mr.
Palermo graduated from California State University at Chico with a B.S. in
Business Administration and received an M.B.A. from St. Mary's College.

Richard Henderson has served as Vice President of Sales and Marketing of
Metawave since December 1997. From 1984 to 1997, Mr. Henderson held various
sales and marketing positions at Nortel, most recently serving as Vice
President of Marketing Operations from 1996 to 1997 and Sales Account Director
from 1992 to 1995. Mr. Henderson graduated from Texas A&M University with a
B.S. in Industrial Engineering and received an M.B.A. from the University of
Dallas.

Ray K. Butler has served as Vice President of Engineering of Metawave since
December 1997 and Director of Systems Engineering and Architecture from
January 1997 to December 1997. From 1985 to 1997, Mr. Butler held various
management positions at the Bell Laboratories division of AT&T (which division
became part of Lucent in 1996), most recently serving as Technical Manager of
the Cell Site HW Systems Engineering Group. Mr. Butler graduated from Brigham
Young University with a B.S. in Electrical Engineering and received an M.S. in
Electrical Engineering from Polytechnic University.

Mark P. Johnson has served as Vice President of Manufacturing of Metawave
since 1996 and as Director of Operations from 1995 to 1996. From 1994 to 1995,
Mr. Johnson was Director of Manufacturing at NeoPath, Inc., a medical products
company. From 1989 to 1994, he served in various management positions at
Motorola Inc., a telecommunications company, most recently serving as
Operations Manager. From 1980 to 1988, Mr. Johnson held various management
positions at Intermec Technologies Corporation, a computer hardware company,
most recently serving as Manufacturing Manager. Mr. Johnson graduated from the
University of Washington with a B.S. in Mechanical Engineering.

Robert N. Shuman has served as Vice President of Product Management of
Metawave since December 1997 and Director of Product Management from March
1997 to December 1997. From 1992 to 1997, Mr. Shuman held various positions at
Lucent, most recently serving as Product Team Leader for CDMA. Mr. Shuman
graduated from Tufts University with a B.S. in Mechanical Engineering and
received an M.S. in Mechanical Engineering from Stanford University.

Bandel L. Carano has served as a director of Metawave since 1995. Mr. Carano
has been a general partner of Oak Investment Partners, a venture capital firm
("Oak"), since 1987. Mr. Carano currently serves as a member of the Investment
Advisory Board of the Stanford University Engineering Venture Fund. Mr. Carano
also serves as a member of the Board of Directors of Netopia, Inc., Polycom,
Inc. and PulsePoint Communications, as well as several private companies. Mr.
Carano graduated from Stanford University with a B.S. in Electrical
Engineering and received an M.S. in Electrical Engineering from Stanford
University.

Bruce C. Edwards has served as a director of Metawave since May 1998. Mr.
Edwards has served as President, Chief Executive Officer and a member of the
Board of Directors of Powerwave since February 1996. Mr. Edwards was Executive
Vice President, Chief Financial Officer and a director of AST Research, Inc.
("AST"), a personal computer company, from 1994 to December 1995 and Senior
Vice President of Finance and Chief Financial Officer of AST from 1988 to
1994. Mr. Edwards also serves as a member of the Board of Directors of Diamond
Multimedia Systems, Inc. and HMT Technology Corporation. Mr. Edwards graduated
from Rider University with a B.S. in Commerce and received an M.B.A. from the
New York Institute of Technology.

David R. Hathaway has served as a director of Metawave since 1995. Mr.
Hathaway has been a general partner of the venture capital firms Venrock
Associates ("Venrock") and Venrock Associates II, L.P. since 1980 and 1995,
respectively. Mr. Hathaway serves as a member of the Board of Directors of
several private companies. Mr. Hathaway graduated from Yale University with a
B.A. in American Studies.

Scot B. Jarvis has served as a director of Metawave since February 1998. Mr.
Jarvis is a co-founder and managing member of Cedar Grove Partners, LLC, a
privately owned investment company. From 1994 to 1997, Mr. Jarvis was
Executive Vice President of Nextlink Communications, Inc., a wireless service

operator ("Nextlink"). From 1994 to 1996, Mr. Jarvis was Vice President-
Operations of Eagle River, Inc., an investment company. From 1985 to 1994, Mr.
Jarvis held several management positions at AT&T Wireless Services, Inc.,
formerly McCaw Cellular Communications Inc. ("McCaw Cellular"), most recently
serving as Vice President of McCaw Development Corporation from 1993 to 1994
and Vice President of McCaw Cellular from 1985 to 1994. Mr. Jarvis serves as a
member of the Board of Directors of Nextlink and PulsePoint Communications.
Mr. Jarvis graduated from the University of Washington with a B.A. in Business
Administration.

Jennifer Gill Roberts has served as a director of Metawave since 1995. Ms.
Roberts has been a general partner of Sevin Rosen Funds, a venture capital
firm ("Sevin Rosen"), since 1994. From 1993 to 1994, she was a senior
associate at Technology Venture Investors, a venture capital firm. Ms. Roberts
serves as a member of the Board of Directors of several private companies. Ms.
Roberts graduated from Stanford University with a B.S. in Electrical
Engineering and received an M.S. in Electrical Engineering from the University
of Texas and an M.B.A. from Stanford University.

David A. Twyver has served as a director of Metawave since May 1998. From
1996 to 1997, Mr. Twyver served as Chief Executive Officer of Teledesic
Corporation, a satellite telecommunications company. From 1984 to 1996, Mr.
Twyver served in several management positions at Nortel, most recently serving
as President of the Wireless Networks division from 1993 to 1996. Mr. Twyver
serves as a member of the Board of Directors of Innova Corporation. Mr. Twyver
graduated from the University of Saskatchewan with a B.S. in Mathematics and
Physics.

BOARD COMPOSITION

The Company's Bylaws currently provide for a Board of Directors consisting
of nine members. All directors hold office until the next annual meeting of
stockholders of the Company and until their successors have been duly elected
and qualified. The officers of the Company are appointed annually and serve at
the discretion of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The members of the Audit Committee are Mr. Edwards and Ms. Roberts. The
Audit Committee reviews the results and scope of the audit and other services
provided by the Company's independent accountants.

The members of the Compensation Committee are Messrs. Carano, Hathaway and
Jarvis. The Compensation Committee reviews and approves the compensation and
benefits for the Company's executive officers, administers the Company's stock
purchase and stock option plans and makes recommendations to the Board of
Directors regarding such matters.

BOARD COMPENSATION

Except for reimbursement for reasonable travel expenses relating to
attendance at Board meetings and the grant of stock options, directors are not
compensated for their services as directors, except for Messrs. Jarvis,
Edwards and Twyver who each receive $1,000 for each Board meeting attended and
$500 for each committee meeting attended. Directors who are employees of the
Company are eligible to participate in the 1995 Stock Option Plan, the 1998
Stock Option Plan and the Purchase Plan. Directors who are not employees of
the Company are eligible to participate in the Directors' Plan. See "Stock
Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of Messrs. Carano, Hathaway or Jarvis has at any time been an officer
or employee of the Company or any subsidiary of the Company. See "Certain
Relationships and Related Transactions" for a description of certain
transactions and relationships between the Company and Messrs. Carano,
Hathaway and Jarvis and entities affiliated with them.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by the Delaware General Corporation Law (the
"DGCL"). The DGCL provides that a director of a corporation will not be
personally liable for monetary damages for breach of such individual's
fiduciary duties as a director except for liability (i) for any breach of such
director's duty of loyalty to the Company or to its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or
a knowing violation of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases or redemptions or (iv) for any transaction from
which a director derives an improper personal benefit.

The Company's Bylaws provide that the Company shall indemnify its directors
and officers and may indemnify its other employees and agents to the fullest
extent permitted by law. The Company believes that indemnification under its
Bylaws covers at least negligence and gross negligence on the part of an
indemnified party. The Company's Bylaws also permit the Company to advance
expenses incurred by an indemnified party in connection with the defense of
any action or proceeding arising out of such party's status or service as a
director, officer, employee or other agent of the Company upon an undertaking
by such party to repay such advances if it is ultimately determined that such
party is not entitled to indemnification, such advancement of expenses is
subject to authorization by the Board of Directors in the case of non-
executive officers, employees and agents.

The Company has entered into separate indemnification agreements with each
of its directors and officers. These agreements require the Company, among
other things, to indemnify such director or officer against expenses
(including attorney's fees), judgments, fines and settlements (collectively,
"Liabilities") paid by such individual in connection with any action, suit or
proceeding arising out of such individual's status or service as a director or
officer of the Company (other than Liabilities arising from willful misconduct
or conduct that is knowingly fraudulent or deliberately dishonest) and to
advance expenses incurred by such individual in connection with any proceeding
against such individual with respect to which such individual may be entitled
to indemnification by the Company. The Company believes that its Certificate
of Incorporation and Bylaw provisions and indemnification agreements are
necessary to attract and retain qualified persons as directors and officers.
The Company also maintains directors' and officers' liability insurance.

At present the Company is not aware of any pending litigation or proceeding
involving any director, officer, employee or agent of the Company where
indemnification will be required or permitted. The Company is not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.

EXECUTIVE COMPENSATION

The following table sets forth certain compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer, the Company's four other
most highly compensated executive officers, the Company's former Chief
Executive Officer and two other former officers whose total cash compensation
exceeded $100,000 during the year ended December 31, 1997 (collectively, the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

ANNUAL
COMPENSATION LONG-TERM COMPENSATION
---------------- -----------------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION ($)(1) ($)(2) (#) ($)(3)
--------------------------- -------- ------- ---------- ------------

Robert H. Hunsberger, President and
Chief Executive Officer.............. $144,918 $ -- 900,000 $ 50,660
Douglas O. Reudink, Chairman and Chief
Technology Officer................... 173,545 2,100 -- 2,466
Vito E. Palermo, Senior Vice President
and Chief Financial Officer.......... 143,794 7,500 200,000 169,633
Ray K. Butler, Vice President of
Engineering.......................... 108,238 6,900 100,000 40,322
Robert N. Shuman, Vice President of
Product Management................... 67,649 5,600 100,000 60,129
Thomas Huseby, former Chief Executive
Officer(4)........................... 7,431 -- -- 121,807
James J. Daley, former Vice
President(4)......................... 107,953 -- -- 137,318
Harold Carey, former Vice
President(4)......................... 110,001 32,356 -- 63,026

- --------
(1) Mr. Hunsberger's employment began on July 28, 1997 and his base salary on
an annualized basis was $220,000 with additional monthly payments in the
aggregate amount of $54,167 for the year ended December 31, 1997. Mr.
Palermo's employment began on January 20, 1997 and his base salary on an
annualized basis, at year end, was $160,000 with additional monthly
payments in the aggregate amount of $7,500 paid in the first six months of
1997. Mr. Butler's employment began on January 27, 1997 and his base
salary on an annualized basis, at year-end, was $120,000. Mr. Shuman's
employment began on March 31, 1997 and his base salary on an annualized
basis, at year-end, was $120,000.
(2) Bonus represents the amount earned by the employee in 1997.
(3) Consists of relocation and temporary living expenses and life insurance
premiums paid by the Company, and with respect to Mr. Huseby and Mr.
Daley, includes severance payments of $121,281 and $97,268, respectively.
(4) Mr. Huseby resigned as Chief Executive Officer of the Company on January
7, 1997. Mr. Daley resigned from the Company on August 29, 1997. Mr. Carey
resigned from the Company on March 17, 1998.

The following table shows certain information regarding stock options
granted to the Named Executive Officers during the year ended December 31,
1997. No stock appreciation rights were granted to these individuals during
the year.

OPTION GRANTS IN LAST FISCAL YEAR

POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME(1) GRANTED(2) IN 1997(3) SHARE DATE 5% 10%
------- ---------- ------------- --------- ---------- ---------- ----------

Robert H. Hunsberger.... 900,000 44.3% $0.62 7/28/07 $2,374,010 $4,110,736
Vito E. Palermo......... 135,000 6.6% $0.62 1/20/07 52,638 133,396
65,000 3.2% $0.62 5/22/07 171,456 296,887
Ray K. Butler........... 14,000 0.7% $0.62 1/27/07 5,459 13,834
18,000 0.9% $0.62 4/01/07 18,160 35,527
68,000 3.3% $3.36 12/16/07 143,690 364,138
Robert N. Shuman........ 15,000 0.7% $0.62 4/01/07 15,133 29,606
10,000 0.5% $1.20 10/21/07 20,578 39,875
75,000 3.7% $3.36 12/16/07 158,481 401,623

- --------
(1) None of Dr. Reudink and Messrs. Huseby, Daley and Carey received any stock
option grants during the year ended December 31, 1997.
(2) These stock options, which were granted under the 1995 Stock Option Plan,
become vested at a rate of 25% of the total number of shares of Common
Stock subject to the option on the first anniversary of the date of grant,
and 1/48th of the total number of shares subject to the grant each month
thereafter, as long as the optionee remains an employee with, consultant
to, or director of the Company. The exercise price per share of each
option was equal to the fair market value on the date of grant as
determined by the Board of Directors at such time.
(3) Based on an aggregate of 2,031,268 options granted by the Company during
the year ended December 31, 1997 to employees of the Company, including
the Named Executive Officers.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock
prices.

OPTION EXERCISES AND HOLDINGS

There were no option exercises by the Named Executive Officers during fiscal
year 1997 other than an exercise by Mr. Daley of options to purchase 49,327
shares with a value realized of $41,928. The following table provides certain
summary information concerning the shares of Common Stock represented by
outstanding stock options held by each of the Named Executive Officers as of
December 31, 1997.

FISCAL YEAR-END OPTION VALUES

NUMBER OF
SHARES
UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, DECEMBER 31,
1997(2) 1997 ($)(3)
------------ -------------------
NAME(1) VESTED UNVESTED VESTED UNVESTED
------- ------ -------- -------- ----------

Robert H. Hunsberger....................... -- 900,000 -- $8,892,000
Douglas O. Reudink......................... -- -- -- --
Vito E. Palermo............................ -- 200,000 -- $1,976,000
Ray K. Butler.............................. -- 100,000 -- $ 801,680
Robert N. Shuman........................... -- 100,000 -- $ 776,700
Harold Carey............................... 35,578 78,272 $351,511 $ 773,327

- --------
(1) As a result of his separation from the Company, all unexercised options
held by Mr. Daley had expired as of December 31, 1997. Mr. Huseby did not
hold any options as of December 31, 1997.
(2) All options to be granted under the 1998 Stock Option Plan and all options
granted after July 15, 1997 under the 1995 Stock Option Plan may be
exercised immediately upon grant and prior to full vesting, subject to the
optionee's entering into a restricted stock purchase agreement with the
Company with respect to any unvested shares. Under such agreement, the
optionee grants the Company an option to repurchase any unvested shares at
their original purchase price in the event the optionee's employment or
consulting relationship with the Company is terminated. The Company's
right of repurchase lapses as the shares vest in a series of equal monthly
or annual installments in accordance with the vesting schedule of the
exercised options.
(3) Based on an assumed initial public offering price of $10.50 per share,
minus the exercise price, multiplied by the number of shares underlying
the option.

The Company has not granted options to purchase Common Stock to any of the
Named Executive Officers in 1998.

SEVERANCE ARRANGEMENTS

The Company has entered into severance arrangements with Douglas O. Reudink,
Chief Technical Officer, Robert H. Hunsberger, President and Chief Executive
Officer, Vito E. Palermo, Senior Vice President and Chief Financial Officer,
and Richard Henderson, Vice President of Sales and Marketing.

On July 7, 1995, in connection with the Series A Preferred Stock financing,
the Company entered into an agreement with Dr. Reudink which provides that if
the Company were to terminate his employment without cause after July 7, 1996,
the Company would be obligated to make a lump-sum payment to Dr. Reudink equal
to six months' of his then-current base salary and to provide benefits for six
months following termination. In connection with this agreement, Dr. Reudink
entered into a one-year non-competition agreement effective upon the
termination of his employment with the Company.

On June 27, 1997, in connection with the employment of Mr. Hunsberger, the
Company entered into an arrangement with Mr. Hunsberger which provides that if
the Company were to terminate his employment without cause, the Company would
be obligated to make a lump-sum payment to Mr. Hunsberger equal to twelve
months' of his then-current base salary and provide benefits for twelve months
following termination.

On July 23, 1997, in connection with the employment of Mr. Palermo, the
Company entered into an agreement with Mr. Palermo which provides that if the
Company were to terminate his employment without cause after January 20, 1998,
the Company would be obligated to make a lump-sum payment to Mr. Palermo equal
to six months' of his then-current base salary and 50% of his target bonus, if
any, for the year in which the termination occurs and to provide benefits for
six months following termination. In addition, Mr. Palermo's stock options
would continue to vest in accordance with the Company's 1995 Stock Option
Plan, as amended from time to time, during the period that Mr. Palermo would
receive continued benefits from the Company. Mr. Palermo's voluntary
resignation will not constitute termination without cause unless Mr. Palermo
were to resign for good reason, in which case the Company would be

obligated to make a lump-sum payment to Mr. Palermo equal to nine months' of
his then-current base salary and to pay for the reasonable cost of relocating
Mr. Palermo back to his primary residence. If the Company were to terminate
Mr. Palermo within six months following certain changes in control of the
Company, the Company would pay to Mr. Palermo an amount equal to twelve
months' of his then-current base salary and 100% of his target bonus for the
year in which the change in control transaction occurs. In addition, Mr.
Palermo's outstanding unvested stock options would vest during such period in
accordance with the Company's stock option plan as in effect at that time.

On October 29, 1997, in connection with the employment of Mr. Henderson, the
Company entered into an agreement with Mr. Henderson which provides that if
the Company were to terminate his employment without cause, the Company would
be obligated to make a lump-sum payment to Mr. Henderson equal to six months'
of his then-current base salary.

STOCK PLANS

1998 Stock Option Plan and 1995 Third Amended and Restated Stock Option
Plan. The 1998 Stock Option Plan (the "1998 Stock Option Plan") was adopted by
the Board of Directors in May 1998 and is expected to be approved by the
stockholders of the Company prior to the completion of this offering. A total
of 850,000 shares of Common Stock has been reserved for issuance under the
1998 Stock Option Plan, and, as of June 30, 1998, all such shares remained
available for grant under the 1998 Stock Option Plan. On the first trading day
of each of the five calendar years beginning in 1999 and ending in 2003, the
number of shares reserved for issuance under the 1998 Stock Option Plan shall
automatically be increased by an amount equal to three percent (3%) of the
Company's outstanding Common Stock, up to a maximum of 1,000,000 shares in any
calendar year, or such lower amount as determined by the Board of Directors.

The 1995 Third Amended and Restated Stock Option Plan (the "1995 Stock
Option Plan") was originally adopted by the Board of Directors in August 1995
and was approved by the stockholders of the Company in January 1996. The 1995
Stock Option Plan was amended by the Board of Directors in December 1995,
February 1997, July 1997 and May 1998 and such amendments were approved by the
stockholders in January 1996, February 1997 and July 1997. A total of
4,150,000 shares of Common Stock has been reserved for issuance under the 1995
Stock Option Plan, and, as of June 30, 1998, 435,189 options remain available
for grant under such plan.

Both the 1998 Stock Option Plan and the 1995 Stock Option Plan provide for
the grant to employees of the Company (including officers and employee
directors) of "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") and for the grant
of nonstatutory stock options to employees, officers, directors (including
non-employee directors) and consultants of the Company. To the extent an
optionee would have the right in any calendar year to exercise for the first
time one or more incentive stock options for shares having an aggregate fair
market value (under all plans of the Company and determined for each share as
of the date the option to purchase the share was granted) in excess of
$100,000, any such excess options shall be treated as nonstatutory options.

Both the 1998 Stock Option Plan and the 1995 Stock Option Plan are
administered by the Board of Directors or a committee of the Board of
Directors (the "Administrator"). The Administrator determines the terms of
options granted under the 1998 Stock Option Plan and 1995 Stock Option Plan,
including the number of shares subject to the option, exercise price, term and
exercisability. The exercise price of all incentive stock options granted
under either the 1998 Stock Option Plan or 1995 Stock Option Plan must be at
least equal to the fair market value of the Common Stock of the Company on the
date of grant. The exercise price of any incentive stock option granted to an
optionee who owns stock representing more than 10% of the voting power of the
Company's outstanding capital stock (a "10% Stockholder") must be at least
equal to 110% of the fair market value of the Common Stock on the date of
grant. The

exercise price of all nonstatutory stock options cannot be less than 85% of
the fair market value of the Common Stock of the Company on the date of grant,
except in the case of 10% Stockholders, in which case the exercise price
cannot be less than 110% of the fair market value of the Common Stock. Payment
of the exercise price, subject to approval by the Administrator, may be made
in cash, check, promissory note, delivery of shares of the Company's Common
Stock, subject to certain conditions, net exercise of the option, delivery of
an irrevocable subscription agreement that obligates the option holder to take
and pay for the shares issuable upon exercise not more than 12 months after
the date of delivery of the subscription agreement, any combination of the
foregoing, or other consideration approved by the Administrator. The term of
options granted under either the 1998 Stock Option Plan or the 1995 Stock
Option Plan may not exceed 10 years; provided, however, that the term of an
incentive stock option granted to a 10% stockholder may not exceed five years.
An option may not be transferred by the optionee other than by will or the
laws of descent or distribution. Each option may be exercised during the
lifetime of the optionee only by such optionee or by a permitted transferee.
Options granted to each employee under either the 1998 Stock Option Plan or
the 1995 Stock Option Plan generally become exercisable at the rate of 25% of
the total number of shares subject to the options after the first anniversary
following the date of grant, with 1/48th vesting monthly thereafter.

The Board of Directors has the authority to amend or terminate both the 1998
Stock Option Plan and the 1995 Stock Option Plan as long as such action does
not adversely affect any outstanding option and provided that, to the extent
necessary and desirable to comply with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or Section 422 of the Code,
stockholder approval shall be obtained for any amendment to either the 1998
Stock Option Plan or the 1995 Stock Option Plan. If not terminated earlier,
the 1998 Stock Option Plan will terminate in 2008 and the 1995 Stock Option
Plan will terminate in 2007.

With respect to all options granted under the 1998 Stock Option Plan and
those options granted on or after February 12, 1997 under the 1995 Stock
Option Plan, in the event of certain changes in control of the Company (a
"Corporate Transaction"), an optionee is, provided such optionee is employed
at the time such Corporate Transaction occurs, entitled to accelerated vesting
of one year if such optionee has been employed by the Company less than two
years or accelerated vesting of two years if such optionee has been employed
by the Company for two years or more as of the date of the Corporate
Transaction; provided, however, this acceleration shall not occur if the
Administrator determines that the Board, the acquiring person or the surviving
corporation, as the case may be, has made equitable and appropriate provision
for the assumption of existing options or substitution of new options on terms
which are equivalent to the foregone option.

The Board has the discretion to authorize the issuance of unvested shares of
Common Stock pursuant to the exercise of all stock options granted under the
1998 Stock Option Plan and any stock options granted after July 15, 1997 under
the 1995 Stock Option Plan. If the optionee ceases to be employed by or
provide services to the Company, all shares of Common Stock issued on exercise
of a stock option which are unvested at the time of cessation shall be subject
to repurchase by the Company at the exercise price paid for such shares (the
"Company Repurchase Right"). The terms and conditions upon which the
repurchase rights are exercisable by the Company are determined by the Board
and set forth in the agreement evidencing such right. The Board has
discretionary authority to cancel the Company's outstanding repurchase rights
with respect to the shares purchased or purchasable under an option granted
pursuant to such plans. In the event of a Corporate Transaction, if vesting of
the options accelerates, the repurchase rights of the Company with respect to
shares previously acquired on exercise of options granted under such plans
shall terminate.

1998 Employee Stock Purchase Plan. The Company's Purchase Plan was adopted
by the Board of Directors in May 1998 and will be submitted for approval by
the stockholders prior to completion of this offering. A total of 500,000
shares of Common Stock has been reserved for issuance under the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the Code,
generally will be

implemented in a series of offering periods of 12 months duration with new
offering periods (other than the first offering period) commencing on or about
February 1 and August 1 of each year. Each offering period will consist of two
consecutive purchase periods of six months duration, with the last day of each
period being designated a purchase date. However, the first such offering
period is expected to commence on the date of this Offering and continue
through July 31, 1999, with the first purchase date occurring on January 31,
1999, and subsequent purchase dates to occur every six months thereafter. The
Purchase Plan will be administered by the Board of Directors or by a committee
appointed by the Board of Directors. Employees (including officers and
employee directors) of the Company, or of any subsidiary designated by the
Board of Directors, are eligible to participate if they are employed by the
Company or any such subsidiary for at least 20 hours per week and more than
five months per year. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of an
employee's compensation, at a price equal to the lower of 85% of the fair
market value of the Company's Common Stock at the beginning of the offering
period or the purchase date; provided, however, an employee shall not be
permitted to purchase more than 2,500 shares of Common Stock in any single
purchase period. If the fair market value of the Common Stock on a purchase
date is less than the fair market value at the beginning of the offering
period, a new 12-month offering period will automatically begin on the first
business day following the purchase date with a new fair market value.
Employees may end their participation in the offering at any time during the
offering period, and an employee's participation ends automatically on
termination of employment with the Company. In addition, participants may
decrease their level of payroll deductions once during an offering period.

The Purchase Plan provides that in the event of a merger of the Company with
or into another corporation or a sale of substantially all of the Company's
assets, each right to purchase Common Stock under the plan will be assumed or
an equivalent right substituted by the successor corporation unless the Board
of Directors shortens the offering period so that employees' rights to
purchase stock under the plan are exercised prior to the merger or sale of
assets. On the first trading day of each of the five calendar years beginning
in 1999 and ending in 2003, the number of authorized shares shall
automatically increase by an amount equal to two percent (2%) of the Company's
outstanding Common Stock, up to a maximum of 375,000 shares in any calendar
year, or such lower amount as determined by the Board of Directors. The Board
of Directors has the power to amend or terminate the Purchase Plan as long as
such action does not adversely affect any outstanding rights to purchase stock
thereunder. If not terminated earlier, the Purchase Plan will have a term of
20 years.

1998 Directors' Stock Option Plan. The Directors' Plan was adopted by the
Board of Directors in February 1998 and approved by the stockholders on April
20, 1998. A total of 300,000 shares of Common Stock has been reserved for
issuance under the Directors' Plan. The Directors' Plan provides for the
automatic grant of nonstatutory stock options to nonemployee directors of the
Company. The Directors' Plan is designed to work automatically without
administration; however, to the extent administration is necessary, it will be
performed by the Board of Directors.

The Directors' Plan provides that each person who becomes a nonemployee
director of the Company after the date of this offering shall be granted a
nonstatutory stock option to purchase 25,000 shares of Common Stock (the
"First Option") on the date on which the optionee first becomes a nonemployee
director of the Company. However, for individuals already serving as
nonemployee directors as of the date of this offering, the First Option shall
be an option to purchase 18,000 shares of Common Stock, except in the case of
Messrs. Jarvis, Edwards and Twyver who were granted options to purchase
25,000 shares of Common Stock on February 12, 1998, May 19, 1998 and May 19,
1998, respectively. Thereafter, on the date of each annual meeting of the
Company's stockholders following which a nonemployee director is serving on
the Board of Directors, each nonemployee director (including directors who
were not granted a First Option prior to the date of such annual meeting)
shall be granted an option to purchase 7,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she has served on the Company's
Board of Directors for at least six months.

The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one nonemployee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, or to a family trust or
family limited partnership established by the optionee, a member of optionee's
immediate family or to a partnership or other entity of which optionee is a
general partner or plays a similar role. Each option is exercisable, during
the lifetime of the optionee, only by such optionee or by a permitted
transferee. Provided an individual remains a director, the Directors' Plan
provides that each First Option and Subsequent Option shall become exercisable
in installments cumulatively as to 25% of the total number of shares subject
to the Option on the first anniversary of the date of grant of the Option and
1/48th of the total number of shares subject to the Option each month
thereafter. The exercise price of all stock options granted under the
Directors' Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant of the option. The fair market
value of any option granted concurrently with the initial effectiveness of the
Purchase Plan shall be the Price to Public set forth in the final prospectus
relating to this offering. Options granted under the Directors' Plan have a
term of ten years.

In the event of a Corporate Transaction, an optionee is, provided such
optionee continues to serve as a director until such Corporate Transaction
occurs, entitled to accelerated vesting of one year if such optionee has been
a director of the Company less than two years or accelerated vesting of two
years if such optionee has been a director of the Company for more than two
years as of the date of the Corporate Transaction; provided, however, this
acceleration shall not occur if the Administrator determines that the Board,
the acquiring person or the surviving corporation, as the case may be, has
made equitable and appropriate provision for the assumption or substitution of
new options on terms which are equivalent to the foregone option. The Board of
Directors may amend or terminate the Directors' Plan; provided, however, that
no such action may adversely affect any outstanding option, and the provisions
regarding the grant of options under the plan may be amended only once in any
six-month period, other than to comport with changes in the Code. If not
terminated earlier, the Directors' Plan will have a term of ten years.

401(k) Plan. The Company maintains a 401(k) plan that covers all employees
who satisfy certain eligibility requirements relating to minimum age, length
of service and hours worked. Under the profit-sharing portion of the plan, the
Company may make an annual contribution for the benefit of eligible employees
in an amount determined by the Board of Directors. The Company has not made
any such contribution to date. Under the 401(k) plan, eligible employees may
make pretax elective contributions of up to 15% of their compensation, subject
to maximum limits on contributions prescribed by law.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SALES OF EQUITY SECURITIES

Certain stock option grants to directors and executive officers of the
Company are described herein under the caption "Management--Executive
Compensation."

Since July 1995, the Company has issued, in private placement transactions,
shares of Preferred Stock as follows: an aggregate of 5,500,000 shares of
Series A Preferred Stock at $1.00 per share beginning in July 1995, an
aggregate of 2,740,743 shares of Series B Preferred Stock at $3.375 per share
beginning in May 1996, an aggregate of 2,491,880 shares of Series C Preferred
Stock at $6.16 per share beginning in October 1996 and an aggregate of
2,397,727 shares of Series D Preferred Stock at $8.00 per share in August
1997.

Listed below are those directors, executive officers and five percent
stockholders who have made equity investments in the Company during the last
three fiscal years. The Company believes that the shares issued in these
transactions were sold at the then fair market value and that the terms of
these transactions were no less favorable than the Company could have obtained
from unaffiliated third parties.

SERIES A SERIES B SERIES C SERIES D
COMMON PREFERRED PREFERRED PREFERRED PREFERRED AGGREGATE
INVESTOR(1) STOCK STOCK STOCK STOCK STOCK CONSIDERATION
----------- --------- --------- --------- --------- --------- -------------

Entities affiliated with
Venrock Associates(2).. -- 1,833,334 888,889 324,675 182,790 $ 8,295,652
Entities affiliated with
Oak Investment
Partners(3)............ -- 1,833,333 888,889 324,675 182,790 $ 8,295,651
Entities affiliated with
The Sevin Rosen
Funds(4)............... -- 1,833,333 888,889 324,675 182,790 $ 8,295,651
Entities affiliated with
Worldview Technology
Partners............... -- -- -- 811,688 46,825 $ 5,374,598
Entities affiliated with
Bowman Capital
Management............. -- -- -- -- 1,250,000 $10,000,000
Douglas O. Reudink...... 1,650,000 -- -- -- -- $ 16,500
Jennifer Gill
Roberts(4)............. -- 5,000 7,408 -- -- $ 30,002

- --------
(1) Shares held by affiliated persons and entities have been aggregated. See
"Principal Stockholders."
(2) David R. Hathaway, a director, is a general partner of Venrock.
(3) Bandel L. Carano, a director, is a general partner of Oak.
(4) Jennifer Gill Roberts, a director, is a general partner of the Sevin
Rosen. In addition to the equity investment made by entities affiliated
with Sevin Rosen, (i) Ms. Roberts purchased 5,000 shares of Series A
Preferred Stock and 7,408 shares of Series B Preferred Stock for her own
account and (ii) Steven L. Domenik, a general partner of Sevin Rosen,
purchased 5,926 shares of Series B Preferred Stock for his own account.

Holders of Preferred Stock and certain holders of Common Stock are entitled
to certain registration rights with respect to the Common Stock issued or
issuable upon conversion of the Preferred Stock. See "Description of
Securities--Registration Rights."

On May 2, 1997, Thomas S. Huseby, the former Chief Executive Officer of the
Company, sold a total of 200,000 shares of Common Stock to entities affiliated
with Sevin Rosen, Venrock and Oak at a price per share of $2.00. Sevin Rosen
and Venrock each purchased 66,666 shares of Common Stock and Oak

purchased 66,668 shares of Common Stock. On May 28, 1997, Douglas O. Reudink,
Chairman of the Board and Chief Technical Officer of the Company, sold 55,000
shares of Common Stock to each of Sevin Rosen, Venrock and Oak at a price per
share of $2.00.

On October 22, 1997, the Company made an unsecured loan of $75,000 to Vito
E. Palermo, Senior Vice President and Chief Financial Officer of the Company
pursuant to a Promissory Note bearing interest at a rate of 5.50% per annum.
Fifty thousand dollars of the principal amount of the loan is to be forgiven
over a three-year period provided that Mr. Palermo remains employed with the
Company with the remaining balance of $25,000 due on the earlier of October
22, 2000 or the date his employment terminates. The maximum indebtedness under
the Promissory Note during the six-month period ended June 30, 1998 was
$72,602. On October 28, 1997, the Company made a second loan of $162,500 to
Mr. Palermo pursuant to a Secured Promissory Note bearing interest at a rate
of 5.50% per annum, which is secured by a second deed of trust on his
principal residence and a pledge of up to 50,000 shares of Common Stock held
by Mr. Palermo. The secured loan is payable in full on October 28, 2002 or
earlier based upon certain events specified in the loan agreement. The maximum
indebtedness under the Secured Promissory Note during the six-month period
ended June 30, 1998 was $168,205.

On January 10, 1998, the Company repurchased 137,775 shares of Common Stock
from Mr. Huseby for nominal consideration pursuant to the Company's right of
repurchase set forth in a Stock Repurchase Agreement dated July 7, 1995 by and
between the Company and Mr. Huseby. The Stock Repurchase Agreement specified
that the price per share to be paid by the Company was to be equal to the
price per share paid by Mr. Huseby for the shares. The shares repurchased by
the Company were subsequently canceled. In addition, the Company repurchased
100,000 shares of Common Stock on May 5, 1997 from Mr. Huseby for nominal
consideration.

On April 3, 1998, Dr. Reudink sold 30,770 shares of Common Stock at a price
of $6.50 per share to Cedar Grove Investment L.L.C., a limited liability
corporation which is managed by Mr. Scot Jarvis, a director of the Company. On
April 17, 1998, Dr. Reudink sold 20,000 shares of Common Stock at a price of
$6.50 per share to Spinnaker Offshore Founders Fund, an entity affiliated with
Bowman Capital Management and related entities which are holders of Series D
Preferred Stock.

On April 28, 1998, the Company issued an aggregate principal amount of $29.0
million 13.75% Senior Secured Bridge Notes due April 28, 2000 to certain
institutional investors. On April 28, 1999 and at the end of each 180-day
period thereafter until the 13.75% Senior Secured Bridge Notes are repaid in
full, the interest rate will increase by 200 basis points up to a maximum of
18.0%. In addition, the Company issued Note Warrants to purchase an aggregate
of 537,500 shares of Series D Preferred Stock at a purchase price of $0.01 per
share. The Note Warrants expire on April 28, 2000. Pursuant to the terms of
the 13.75% Senior Secured Bridge Notes, upon the closing of this offering, the
Company is obligated to repay one-half of the aggregate principal amount of
the 13.75% Senior Secured Bridge Notes outstanding, together with accrued but
unpaid interest thereon. The remaining outstanding 13.75% Senior Secured
Bridge Notes are redeemable at the Company's option at any time. On or before
the closing of this offering, the Company has the right to redeem all of the
13.75% Senior Secured Bridge Notes and Note Warrants and to repurchase any
Series D Preferred Stock issued upon exercise of the Note Warrants for an
aggregate redemption and repurchase price of $40,600,000.

Bruce Edwards, a director of the Company, is President, Chief Executive
Officer and a member of the Board of Directors of Powerwave. Powerwave is
currently the Company's sole supplier of linear power amplifiers, a component
in the Company's products. From January 1, 1997 to June 30, 1998, the Company
purchased a total of $8,015,545 of linear power amplifiers and related
components from Powerwave. Powerwave purchased $2,500,000 in aggregate
principal amount of the 13.75% Senior Secured Bridge Notes and has been issued
a Note Warrant to purchase up to an aggregate of 46,336 shares of Series D
Preferred Stock at a purchase price of $0.01 per share.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of June 30, 1998, and as
adjusted to reflect the sale of Common Stock offered hereby, as to (i) each
person (or group of affiliated persons) known by the Company to own
beneficially more than 5% of the outstanding shares of the Company's Common
Stock (a "5% Stockholder"), (ii) each of the Company's directors, (iii) each
of the Named Executive Officers, and (iv) all directors and executive officers
of the Company as a group.

PERCENT OF SHARES
BENEFICIALLY
OWNED(1)
SHARES -----------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
---------------- ------------ -------- --------

Oak Investment Partners(2).................... 3,351,355 20.7% 15.8%
525 University Avenue, Suite 1300
Palo Alto, CA 94301-1902
Venrock Associates(3)......................... 3,342,352 20.7% 15.8%
30 Rockefeller Plaza
New York, NY 10112-0184
The Sevin Rosen Funds(4)...................... 3,333,020 20.6% 15.7%
550 Lytton Avenue, Suite 200
Palo Alto, CA 94301-1542
Douglas O. Reudink(5)......................... 1,404,230 8.7% 6.6%
Bowman Capital Management(6).................. 1,270,000 7.9% 6.0%
1875 South Grant Street, Suite 600
San Mateo, CA 94402
Robert H. Hunsberger(7)....................... 900,000 5.3% 4.1%
Worldview Technology Partners(8).............. 858,513 5.3% 4.1%
435 Tasso Street, Suite 120
Palo Alto, CA 94301-1546
Thomas Huseby(9).............................. 662,225 4.1% 3.1%
Vito E. Palermo(10)........................... 200,000 1.2% *
Robert N. Shuman(11).......................... 100,000 * *
Ray K. Butler(12)............................. 79,541 * *
James J. Daley................................ 49,327 * *
Harold Carey.................................. 42,694 * *
Bandel L. Carano(2)........................... 3,351,355 20.7% 15.8%
David R. Hathaway(3).......................... 3,342,352 20.7% 15.8%
Jennifer Gill Roberts(13)..................... 3,345,428 20.7% 15.8%
Scot B. Jarvis(14)............................ 55,770 * *
Bruce C. Edwards(15).......................... 25,000 * *
David A. Twyver(16)........................... 25,000 * *
All directors and officers as a group (13
persons)(17)................................. 13,174,135 75.0% 58.6%

- --------
* Less than 1%.
(1) Applicable beneficial ownership percentage is based on 16,166,277 shares
of Common Stock outstanding prior to this offering and 21,166,277 shares
outstanding after this offering, and assuming no exercise of the
Underwriters' over-allotment option, together with applicable options
and warrants for such stockholder. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission (the
"SEC Rules"). The number of shares beneficially owned by a person
includes shares of Common Stock subject to options and warrants held by
that person that are currently exercisable or exercisable within 60 days
of June 30, 1998. Such shares issuable pursuant to such options and
warrants are deemed outstanding for computing the percentage ownership
of the person holding such options but are not deemed outstanding for
the purposes of computing the percentage ownership of each other person.
A portion of the shares issued or issuable upon exercise of such stock
options is subject to repurchase by the Company at the original exercise
price in the event of termination of employment, which repurchase right
lapses over time. To the Company's knowledge, the persons named in this
table have sole voting and investment power with respect to all shares
of Common Stock shown as owned by them,

subject to community property laws where applicable and except as
indicated in the other footnotes to this table. Unless otherwise
indicated, the address of each 5% Stockholder is: c/o Metawave
Communications Corporation, 10735 Willows Road NE, P.O. Box 97069,
Redmond, WA 98073-9769.
(2) Includes 3,274,943 shares held by Oak Investment Partners VI, L.P. and
76,412 shares held by Oak VI Affiliates Fund, L.P. Bandel L. Carano, a
director, is a Managing Member of Oak Associates VI, L.L.C., a general
partner of Oak Investment Partners VI, L.P., a General Partner of Oak VI
Affiliates and a general partner of Oak VI Affiliates Fund, and as such
may be deemed to share voting and investment power with respect to such
shares. Mr. Carano disclaims beneficial ownership of such shares, except
to the extent of his pecuniary interest in such shares.
(3) Includes 2,123,970 shares held by Venrock Associates and 1,218,382 shares
held by Venrock Associates II, L.P. David R. Hathaway, a director, is a
general partner of Venrock Associates and Venrock Associates II, L.P.,
and as such, may be deemed to share voting and investment power with
respect to such shares. Mr. Hathaway disclaims beneficial ownership of
such shares, except to the extent of his pecuniary interest in such
shares.
(4) Includes 15,220 shares held by Sevin Rosen Bayless Management Co.,
2,573,428 shares held by Sevin Rosen Fund IV L.P., 713,853 shares held by
Sevin Rosen Fund V L.P. and 30,519 shares held by Sevin Rosen V
Affiliates Fund L.P. Jennifer Gill Roberts, a director, is a general
partner of Sevin Rosen Fund IV L.P., Sevin Rosen Fund V L.P. and Sevin
Rosen V Affiliates Fund L.P., and as such, may be deemed to share voting
and investment power with respect to such shares. Ms. Roberts disclaims
beneficial ownership of such shares, except to the extent of her
pecuniary interest in such shares.
(5) Includes 15,000 shares held in trust for Matthew Reudink, Dr. Reudink's
son.
(6) Includes 43,750 shares held by Spinnaker Clipper Fund, L.P., 400,000
shares held by Spinnaker Founders Fund, L.P., 431,250 shares held by
Spinnaker Technology Fund, L.P., 375,000 shares held by Spinnaker
Technology Offshore Fund Limited and 20,000 shares held by Spinnaker
Offshore Founders Fund Ltd.
(7) Includes 900,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Hunsberger, of which 243,750 shares of
which are fully vested within 60 days of June 30, 1998 and 656,250 shares
of which remain subject to the Company Repurchase Right.
(8) Includes 50,104 shares held by Worldview Strategic Partners I, L.P.,
226,718 shares held by Worldview Technology International I, L.P. and
581,691 shares held by Worldview Technology Partners I, L.P.
(9) Includes 7,900 shares held by Margaret D. Huseby, spouse of Mr. Huseby,
and 31,600 shares held in trust for Katheryn Huseby, Max Huseby, Conor
Huseby and Devin Huseby, Mr. Huseby's children.
(10) Includes 200,000 shares issuable upon the exercise of outstanding options
held by Mr. Palermo, of which 73,749 are exercisable and vested within 60
days of June 30, 1998. In accordance with the SEC Rules, Mr. Palermo is
the beneficial owner of 73,749 shares.
(11) Includes 3,750 shares owned by Mr. Shuman, and 96,250 shares issuable
upon the exercise of outstanding options held by Mr. Shuman, 85,000 of
which are immediately exercisable and subject to the Company Repurchase
Right, and an additional 1,250 shares of which are vested and exercisable
within 60 days of June 30, 1998. In accordance with the SEC Rules,
Mr. Shuman is the beneficial owner of 90,000 shares.
(12) Includes 100,000 shares issuable upon the exercise of outstanding options
held by Mr. Butler, 68,000 shares of which are immediately exercisable
and subject to the Company Repurchase Right and an additional 11,541
shares of which are vested and exercisable within 60 days of June 30,
1998. In accordance with the SEC Rules, Mr. Butler is the beneficial
owner of 79,541 shares.
(13) Includes the shares referenced in footnote (4) and 12,408 shares held by
Ms. Roberts. Ms. Roberts disclaims beneficial ownership of the shares
referenced in footnote (4), except to the extent of her pecuniary interest
in such shares.
(14) Includes 30,770 shares owned by Cedar Grove Investments, LLC ("Cedar
Grove") and 25,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Jarvis within 60 days of June 30, 1998,
all of which are subject to the Company Repurchase Right. Mr. Jarvis, a
managing member of Cedar Grove, disclaims beneficial ownership of such
shares, except to the extent of his pecuniary interest in such shares.
(15) Includes 25,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Edwards within 60 days of June 30, 1998,
all of which are subject to the Company Repurchase Right.
(16) Includes 25,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Twyver within 60 days of June 30, 1998,
all of which are subject to the Company Repurchase Right.
(17) Includes (i) shares referred to in footnotes (2)-(5), (7) and (10)-(16)
and (ii) 306,665 shares beneficially owned by two other executive
officers.

DESCRIPTION OF SECURITIES

Following the closing of the sale of the shares of Common Stock offered
hereby, the authorized capital stock of the Company will consist of
150,000,000 shares of Common Stock, $0.001 par value, and 15,000,000 shares of
Preferred Stock, $0.001 par value.

COMMON STOCK

As of June 30, 1998, there were 16,166,277 shares of Common Stock
outstanding that were held of record by approximately 41 stockholders. There
will be 21,166,277 shares of Common Stock outstanding (assuming no exercise of
outstanding options after June 30, 1998) after giving effect to the sale of
the shares of Common Stock offered hereby.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions available to the Common Stock. All
outstanding shares of Common Stock are fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized to issue up to 15,000,000 shares of
Preferred Stock in one or more series and to determine the powers, preferences
and rights and the qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued series of undesignated Preferred Stock,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
any further vote or action by the stockholders.

The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders and may adversely affect the voting and other rights of the
holders of Common Stock. In certain circumstances, such issuance could have
the effect of decreasing the market price of the Common Stock. As of the
closing of this offering, no shares of Preferred Stock will be outstanding and
the Company currently has no plans to issue any shares of Preferred Stock.

WARRANTS

As of June 30, 1998, the Company has warrants outstanding to purchase an
aggregate of 65,416 shares of Series A Preferred Stock, 19,999 shares of
Series B Preferred Stock, 34,090 shares of Series C Preferred Stock and
541,875 shares of Series D Preferred Stock.

In connection with an equipment lease line entered into in December 1995,
the Company issued a warrant to purchase up to an aggregate of 48,750 shares
of Series A Preferred Stock to Comdisco, Inc. ("Comdisco") at an exercise
price of $2.1875 per share. The warrant expires on the later of December 13,
2002 or three years following the effective date of this offering. In
connection with a second equipment lease line entered into in April 1996, the
Company issued a warrant to purchase up to an aggregate of 16,666 shares of
Series A Preferred Stock to Comdisco at an exercise price of $2.1875 per
share. The warrant expires on the later of April 9, 2003 or three years
following the effective date of this offering. In connection with a third
equipment lease line entered into in August 1996, the Company

issued a warrant to purchase up to an aggregate of 19,999 shares of Series B
Preferred Stock to Comdisco at an exercise price of $4.72 per share. The
warrant expires on the later of August 20, 2003 or three years following the
effective date of this offering. In connection with a fourth equipment lease
line entered into in June 1997, the Company issued a warrant to purchase up to
an aggregate of 34,090 shares of Series C Preferred Stock to Comdisco at an
exercise price of $6.16 per share. The warrant expires on the later of June 9,
2004 or 18 months following the effective date of this offering.

In connection with the issuance of the 13.75% Senior Secured Bridge Notes in
April 1998, the Company issued the holders of the 13.75% Senior Secured Bridge
Notes warrants to purchase an aggregate of 537,500 shares of Series D
Preferred Stock at a purchase price of $0.01 per share (the "Note Warrants").
The Note Warrants expire on April 28, 2000.

In connection with an equipment lease line entered into with Insight
Investments Corporation in April 1998, the Company issued a warrant to
purchase up to an aggregate of 4,375 shares of Series D Preferred Stock at an
exercise price of $8.00 per share. The warrant expires on the closing of this
offering and is expected to be net exercised simultaneously therewith.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

The holders of 15,338,305 shares of Common Stock (the "Registrable
Securities") or their transferees are entitled to certain rights with respect
to the registration of such shares under the Securities Act. These rights are
provided under the terms of an agreement between the Company and the holders
of Registrable Securities. Subject to certain limitations in the agreement,
certain holders of the Registrable Securities may require, on two occasions at
any time after six months from the effective date of this offering, that the
Company use its best efforts to register the Registrable Securities for public
resale, provided that the proposed aggregate offering price is at least
$7,500,000. If the Company registers any of its Common Stock either for its
own account or for the account of other security holders, the holders of
Registrable Securities are entitled to include their shares of Common Stock in
the registration. The holders of the Note Warrants are also entitled to
include shares issuable upon exercise of the Note Warrants in the
registration. A holder's right to include shares in an underwritten
registration is subject to the ability of the underwriters to limit the number
of shares included in the initial public offering. Subject to certain
conditions, all fees, costs and expenses of such registrations must be borne
by the Company and all selling expenses (including underwriting discounts,
selling commissions and stock transfer taxes) relating to Registrable
Securities must be borne by the holders of the securities being registered.

ANTI-TAKEOVER PROVISIONS OF DELAWARE AND WASHINGTON LAW AND CHARTER DOCUMENTS

The Company is subject to the provisions of Section 203 of the DGCL. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved
in a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale or other transaction resulting in a financial benefit to
the stockholder, and an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own)
15% or more of the corporation's outstanding voting stock. This provision may
have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders.

The laws of the State of Washington, where the Company's principal executive
offices are located, impose restrictions on certain transactions between
certain foreign corporations and significant stockholders. Chapter 23B.19 of
the Washington Business Corporation Act (the "WBCA") prohibits a "target
corporation," with certain exceptions, from engaging in certain "significant
business transactions"

with a person or group of persons who beneficially own 10% or more of the
voting securities of the target corporation (an "acquiring person") for a
period of five years after such acquisition, unless the transaction or
acquisition of such shares is approved by a majority of the members of the
target corporation's board of directors prior to the time of acquisition. Such
prohibited transactions include, among other things, a merger or consolidation
with, disposition of assets to, or issuance or redemption of stock to or from,
the acquiring person, termination of 5% or more of the employees of the target
corporation as a result of the acquiring person's acquisition of 10% or more
of the shares or allowing the acquiring person to receive disproportionate
benefit as a stockholder. After the five-year period, a significant business
transaction may take place as long as it complies with certain fair price
provisions of the statute. A target corporation includes a foreign corporation
if (i) the corporation has a class of voting stock registered pursuant to
Section 12 or 15 of the Exchange Act, (ii) the corporation's principal
executive office is located in Washington, and (iii) any of (a) more than 10%
of the corporation's stockholders of record are Washington residents, (b) more
than 10% of its shares are owned of record by Washington residents, (c) 1,000
or more of its stockholders of record are Washington residents, (d) a majority
of the corporation's employees are Washington residents or more than 1,000
Washington residents are employees of the corporation, or (e) a majority of
the corporation's tangible assets are located in Washington or the corporation
has more than $50.0 million of tangible assets located in Washington. A
corporation may not "opt out" of this statute and, therefore, the Company
anticipates this statute will apply to it. Depending upon whether the Company
meets the definition of a target corporation, Chapter 23B.19 of the WBCA may
have the effect of delaying, deferring or preventing a change in control of
the Company.

In addition, upon completion of this offering, certain provisions of the
Company's charter documents, including a provision eliminating the ability of
stockholders to take actions by written consent, may have the effect of
delaying or preventing changes in control or management of the Company, which
could have an adverse effect on the market price of the Company's Common
Stock. The Company's stock option and purchase plans generally provide that
upon a change in control or similar event optionees are entitled to
accelerated vesting credit equal to either twelve months or twenty-four months
of additional vesting beyond that otherwise scheduled, based on whether he or
she has been employed by the Company less than two years, or two years or
more, respectively, as of the date of such event unless in connection with the
change in control or similar event, outstanding options are assumed or
substituted for equivalent options of a successor corporation. The Board of
Directors has authority to issue up to 15,000,000 shares of Preferred Stock
and to fix the rights, preferences, privileges and restrictions, including
voting rights, of these shares without any further vote or action by the
stockholders. The rights of the holders of the 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. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company, thereby delaying, deferring or preventing a
change in control of the Company. Furthermore, such Preferred Stock may have
other rights, including economic rights senior to the Common Stock, and, as a
result, the issuance of such Preferred Stock could have a material adverse
effect on the market value of the Common Stock. The Company has no present
plan to issue shares of Preferred Stock.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services L.L.C.

LISTING

The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol "MTWV."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
21,166,277 shares of Common Stock, assuming no exercise of options after June
30, 1998. Of these shares, the 5,000,000 shares sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 of the Securities Act.

The remaining 16,166,277 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144 (the
"Restricted Shares") and may not be sold publicly unless they are registered
under the Securities Act or are sold pursuant to Rule 144 or another exemption
from registration. All directors and executive officers and certain other
stockholders of the Company, holding in the aggregate 15,838,492 of the shares
of Common Stock outstanding prior to this offering, are contractually
obligated not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus (the "Lockup Period")
without the prior written consent of BT Alex. Brown Incorporated or the
Company (the "Lockup"). See "Underwriting." The number of shares of Common
Stock available for sale in the public market is further limited by
restrictions under the Securities Act.

Because of the restrictions noted above, on the date of this Prospectus and
until 180 days after the date of this Prospectus (assuming no release of the
Lockup Period by the Company or by BT Alex. Brown Incorporated), no shares
other than the 5,000,000 shares offered hereby will be eligible for sale in
the public market and beginning 90 days after the effective date of this
offering, approximately 298,155 Restricted Shares will be eligible for sale in
the public market. Beginning 180 days after the effective date of this
Prospectus, approximately 15,892,122 Restricted Shares (as well as an
additional 123,880 shares of Common Stock issuable upon exercise of currently
outstanding warrants) will be eligible for sale in the public market, subject
in some cases to certain volume limitations.

SHARES
DAYS AFTER DATE ELIGIBLE
OF THIS PROSPECTUS FOR SALE COMMENT
------------------ ---------- -------

Upon Effectiveness............... 5,000,000 Shares sold in offering
Upon Effectiveness............... none Freely tradable shares salable under
Rule 144(k) that are not subject to
the Lockup
91 days.......................... 298,155 Shares salable under Rules 701 and 144
and not subject to the Lockup
181 days......................... 15,857,122 Lockup released; shares salable under
Rules 144 and 701

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the number of shares of
Common Stock then outstanding or the average weekly trading volume of the
Common Stock as reported through the Nasdaq National Market during the four
calendar weeks preceding the filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned for at least two years the shares proposed to be
sold, would be entitled to sell such shares under Rule 144(k) without regard
to the requirements described above.

In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts commencing 90 days after the issuer
becomes subject to the reporting requirements of the Exchange Act in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirements, contained in Rule 144. During the Lockup Period,
the Company intends to register on a registration statement on Form S-8, (i) a
total of 3,638,399 shares of Common Stock reserved for issuance under the 1995
Stock Option Plan (assuming no exercise of options after June 30, 1998), (ii)
a total of 850,000 shares of Common Stock reserved for issuance under the 1998
Stock Option Plan, (iii) a total of 300,000 shares of Common Stock reserved
for issuance under the Directors' Plan and (iv) a total of 500,000 shares of
Common Stock reserved for issuance under the Purchase Plan. Such registration
will permit the resale of shares so registered by non-affiliates in the public
market without restriction under the Securities Act.

Prior to this offering, there has been no public market for securities of
the Company. No prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of Common Stock of the Company in the public market after the lapse of the
restrictions described below could adversely affect the prevailing market
price and the ability of the Company to raise equity capital in the future at
a time and price which it deems appropriate. In addition, after this offering,
the holders of 15,338,305 shares of Common Stock (the "Registrable
Securities") will be entitled to certain demand and piggyback rights with
respect to registration of such shares under the Securities Act. Registration
of such shares under the Securities Act would result in such shares becoming
freely tradable without restriction under the Securities Act (except for
shares purchased by affiliates of the Company) immediately upon the
effectiveness of such registration. See "Description of Securities--
Registration Rights of Certain Holders." If such holders, by exercising their
demand registration rights, cause a larger number of securities to be
registered and sold in the public market, such sales could have an adverse
effect on the market price for the Company's Common Stock. If the Company were
to include in a Company initiated registration any Registrable Securities
pursuant to the exercise of piggyback registration rights, such sales may have
an adverse effect on the Company's ability to raise needed capital.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their representatives, BT Alex. Brown
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
NationsBanc Montgomery Securities LLC (the "Representatives"), have severally
agreed to purchase from the Company the following respective numbers of shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:

NUMBER OF
UNDERWRITER SHARES
----------- ---------

BT Alex. Brown Incorporated........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
NationsBanc Montgomery Securities LLC..............................
---------
Total.............................................................. 5,000,000
=========

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the Common Stock offered hereby if any such shares are
purchased.

The Company has been advised by Representatives of the Underwriters that
they propose to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus
and to certain dealers at such price less a concession not in excess of $
per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial public offering of the shares, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to an aggregate
of 750,000 additional shares of Common Stock at the public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage of such additional shares as the number set forth next to such
Underwriters name in the above table bears to the total number of shares of
Common Stock offered hereby, and the Company will be obligated, pursuant to
the option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby. If purchased, the Underwriters will offer such additional shares on
the same terms as those on which the 5,000,000 shares are being offered.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

All officers and directors of the Company and certain stockholders have
agreed with the Underwriters that, until 180 days after the effective date of
this Prospectus, they will not directly or indirectly offer, sell, pledge,
contract to sell (including any short sale), grant any option to purchase or
otherwise dispose of any shares of Common Stock (including, without
limitation, shares of Common Stock of the Company which may be deemed to be
beneficially owned by the undersigned on the date hereof in accordance with
the rules and regulations of the Commission and shares of Common Stock which
may be issued upon exercise of a stock option or warrant) or enter into any
hedging transaction relating to the Common Stock.

The Company has also agreed not to sell, offer to sell, contract to sell,
grant any option to purchase or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or any rights to acquire Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of BT
Alex. Brown Incorporated, except that the Company may issue shares upon the
exercise of options granted prior to the date hereof, and may grant additional
options under its Plans, provided that, without the prior written consent of
BT Alex. Brown Incorporated, such additional options shall be exercisable, but
not transferable, during such period. The lockup agreements may be released at
any time as to all or any portion of the shares subject to such agreements at
the sole discretion of BT Alex. Brown Incorporated.

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. Among the factors to be considered in
such negotiations will be prevailing market conditions, the results of
operations of the Company in recent periods, the market capitalizations and
stages of development of other companies that the Company and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company and its industry in general
and the present state of the Company's development and other factors deemed
relevant.

BT Alex. Brown Incorporated acted as the placement agent in the private
placement of the Company's 13.75% Senior Secured Bridge Notes and Note
Warrants issued on April 28, 1998, and in connection with that placement
received cash compensation. BT Holdings (NY), Inc., an affiliate of BT Alex.
Brown Incorporated, purchased a 13.75% Senior Secured Bridge Note in the
principal amount of $4,500,000 and a Note Warrant to purchase 83,405 shares of
Series D Preferred Stock. See "Certain Relationships and Related Transactions"
for a description of the terms of the 13.75% Senior Secured Bridge Notes and
the Note Warrants.

In view of this relationship, the offering is being made in accordance with
Section 2720 of the Conduct Rules of the National Association of Securities
Dealers, Inc., which provides, among other things, that the price of the
Common Stock can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Merrill Lynch, Pierce, Fenner & Smith Incorporated is serving in
such role and will recommend the maximum public offering price of the Common
Stock, Merrill Lynch, Pierce, Fenner & Smith Incorporated has also
participated in the preparation of this Prospectus and has performed due
diligence with respect thereto.

The Company has been advised by the Representatives that during and after
this offering, the Underwriters may purchase and sell Common Stock in the open
market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover syndicate short positions created in
connection with this offering. Stabilizing transactions consist of certain
bids or purchases for the purpose of preventing or retarding a decline in the
market price of the Common Stock; and syndicate short positions involve the
sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in this offering. The
Underwriters also may impose penalty bids, whereby selling concessions allowed
to the syndicate members or other broker-dealers in respect of the Common
Stock sold in this offering for their account may be reclaimed by the
syndicate if such securities are repurchased by the syndicate in stabilizing
or short-covering transactions. These activities may stabilize, maintain or
otherwise affect the market price of the Common Stock, which may be higher
than the price that might otherwise prevail in the open market. These
transactions may be effected on the Nasdaq National Market or otherwise and
these activities, if commenced, may be discontinued at any time.

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm orders to any account over which they
exercise discretionary authority.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by its counsel, Venture Law Group, A Professional Corporation,
Kirkland, Washington. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.

EXPERTS

The financial statements and schedule of Metawave Communications Corporation
as of December 31, 1996 and 1997 and the related statements of operations,
shareholders' equity (deficit), and cash flows for the years then ended and
the period from January 19, 1995 (inception) to December 31, 1995 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports, given on the
authority of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement, of which this Prospectus constitutes a
part, under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus omits certain information contained in the
Registration Statement, and reference is made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
the Company and the Common Stock offered hereby. Statements contained herein
concerning the provisions of any documents are not necessarily complete, and
in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. Copies of the Registration Statement, including
exhibits and schedules filed therewith, may be inspected without charge at the
Commission's principal office in Washington, D.C. or obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a World Wide Web site
on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding companies that file
electronically with the Commission. The Company has filed the Registration
Statement, including the exhibits and schedules thereto, electronically with
the Commission via the Commission's EDGAR system. The Company intends to
distribute to its stockholders annual reports containing audited financial
statements and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.

GLOSSARY OF TECHNICAL TERMS

AMPLIFIER................... A device used to increase the signal strength of analog or
digital radio frequency (RF) signals.
AMPS (ADVANCED MOBILE PHONE
SERVICE)................... An analog wireless protocol adopted in North and South
America.
ANALOG...................... The traditional method of modulating radio signals to carry
information. The analog method employs a continuous signal
that varies the amplitude, frequency or phase of the radio
transmission.
ANTENNA..................... A device for transmitting and/or receiving radiowave
signals. Antennas can be designed to offer various radiation
patterns. Omni-directional antennas typically radiate
equally in all directions. Other antennas are more
directional, radiating largely in one area and not in
others.
ATTENUATION................. The weakening of a signal along some path, often due to
partial blocking or absorption.
BANDWIDTH................... The total frequency range of spectrum available.
BASE STATION................ A transmit and receive station that controls and relays
signals between a switch and the remote handset or
subscriber unit (fixed or mobile).
BSC (BASE STATION
CONTROLLER)................ Equipment that manages the radio transmission for a set of
base stations by handling radio channel management, message
transport and hand-offs.
BEAM........................ A directed RF signal radiating from an antenna in a narrow
pattern which carries cellular phone traffic.
CARRIER TO INTERFERENCE
RATIO (C/I)................ The ratio of strength in the carrier signal to the total
strength of interfering signals, expressed in dB.
CAPACITY.................... The maximum amount of call traffic that a cellular network
can handle.
CDMA (CODE DIVISION MULTIPLE
ACCESS).................... A digital wireless protocol adopted in North America and
Asia. In this protocol, each voice call is labeled with a
unique code and transmitted on the same frequency channel
with other calls.
CARRIER..................... A CDMA channel with 1.23 MHz bandwidth.
CELL........................ The term used to define a geographic area that is served by
a cell site.
CELL SITE................... The location of the base station equipment servicing the
cell.
CELL-SPLITTING.............. The splitting of one large cell into smaller ones. With
proper splitting and allocation of frequencies, channels can
be reused more frequently, making it possible to increase
capacity.

GLOSSARY OF TECHNICAL TERMS--(CONTINUED)

CELLULAR NETWORK............ A network of interconnected low-powered radio transceivers
that provides mobile telephone service.
CHANNEL..................... The communication path which transfers information between
elements in a wireless network. This radio channel requires
a unique RF frequency that is used for communication between
subscriber unit and cell site base station and is assigned
by the FCC.
COVERAGE AREA............... The geographic area in which the signal strength from a
cellular network is sufficient to provide service to users
of the wireless network.
DB.......................... Abbreviation for decibel, a unit for expressing the relative
strength of two signals.
DIGITAL..................... A method of storing, processing, and transmitting voice and
data that uses distinct electronic pulses to represent the
information.
DIGITAL CELLULAR............ A wireless protocol that breaks up cellular voice or data
transmission and sends them in a digital format. Common
digital cellular protocols include CDMA, GSM and TDMA.
DUAL-BAND................... A mobile or portable phone that is capable of operating in
more than one frequency band. An example of a dual-band
phone is a unit that operates on both a 900 MHz and 1.9 GHz
system.
DUAL-MODE................... A mobile or portable phone that is capable of operating
using more than one standard. An example of a dual-mode
phone is a unit that primarily operates on a digital system
and defaults to analog AMPS operation if the digital system
is unavailable.
FCC......................... The Federal Communications Commission; a U.S. government
agency which regulates wireless communications services and
equipment.
FOOTPRINT................... The coverage area of a cell site.
FREQUENCY................... The rate at which the electric and magnetic fields of a
radio wave oscillate, expressed as the number of cycles per
unit of time. Frequency is typically measured in Hertz (Hz),
or cycles per second.
GHZ (GIGAHERTZ)............. One gigahertz is equal to one billion cycles per second.
GSM (GLOBAL SYSTEM FOR
MOBILE COMMUNICATIONS)..... A digital wireless protocol which serves as the European
standard for digital cellular.
HZ (HERTZ).................. A measurement of frequency, equivalent to one "wave" or
cycle per second.
INFRASTRUCTURE.............. All parts of the wireless network, excluding the
subscriber's phone. Includes the Mobile Telephone Switching
Office, Base Stations, and all links between them.

GLOSSARY OF TECHNICAL TERMS--(CONTINUED)

INTERFERENCE................ Reception of unwanted signals which degrades call quality
and limits wireless capacity. Refers to undesired signals
from the standpoint of any particular listener.
KHZ (KILOHERTZ)............. One kilohertz is equal to one thousand cycles per second.
LAN (LOCAL AREA NETWORK).... A private data communications network linking a variety of
data services such as computers and printers within an
office or home environment.
LMDS (LOCAL MULTIPOINT
DISTRIBUTION SERVICE)...... A broadband wireless communications network that uses
millimeter wave frequencies around 28 to 38 GHz to transmit
video and data over a cellular-like network at distances
under a few miles.
LOCAL LOOP.................. A wired communications channel between the subscriber's
location and the subscriber's local central office, also
known as the subscriber loop.
MHZ (MEGAHERTZ)............. One megahertz is equal to one million cycles per second.
MSC (MOBILE SWITCHING
CENTER).................... A high-capacity, traffic handling device that routes
incoming and outgoing wireless calls by determining which
base station will handle each call and also provides inter-
system hand-offs.
MTSO (MOBILE TELEPHONE
SWITCHING OFFICE).......... The hub of a cellular network, which incorporates the mobile
switching center and the network operating software for the
switching, database, and maintenance functions.
NAMPS (NARROW-BAND AMPS)....
An analog wireless protocol which operates in the 800-MHz
band in the United States. Developed by Motorola, NAMPS
divides traditional 30-MHz channels into three 10-MHz
channels to add capacity.
PCS (PERSONAL COMMUNICATIONS
SERVICES).................. A two-way, digital, wireless telecommunications system
operating in the 1.8 GHz to 2.4 GHz range in the United
States.
PHASED-ARRAY................ A type of antenna design in which the relative phases of the
respective signals feeding the group of antennas are varied
to vary the radiation pattern of the antenna.
PSTN (PUBLIC SWITCHED
TELEPHONE NETWORK)......... Refers to the collection of networks providing public
telephone switching service; the wired or landline network.
RECEIVER.................... A device that receives signals.

GLOSSARY OF TECHNICAL TERMS--(CONTINUED)

REUSE/FREQUENCY REUSE....... The utilization of frequency (channels) more than once in a
wireless network. To minimize interference, cells are
assigned only a portion of an operator's available
frequencies; adjacent cells do not use the identical
channels. The reuse pattern determines how many cells the
available frequencies are divided among before being reused
and therefore how much distance separates cells using the
same frequency.
RF (RADIO FREQUENCY)........ The range of electromagnetic frequencies above the audio
range and below visible light. All broadcast transmission,
from AM radio to microwaves, falls into this range, which is
between 30-KHz and 300-GHz.
RF SIGNAL................... Information transmitted over a communications network by a
modulated RF channel.
ROAMING..................... The ability to use a wireless phone to make and receive
calls in places outside a user's home coverage area.
SECTORIZING................. The process of dividing a cell site into sectors by using
directional antennas. Sectorizing is typically used as a
means of reducing interference in order to increase
frequency reuse and therefore network capacity.
SECTOR SYNTHESIS............ A proprietary method incorporated into Metawave's smart
antenna system to better control the transmission and
reception of CDMA radio signals by cell sites, thereby
reducing interference.
SMART ANTENNA............... A system that can respond to changes in the radio frequency
environment through the use of software algorithms that
control an integrated antenna array.
SMR (SPECIALIZED MOBILE A two-way radio telephony service making use of macrocells
RADIO)..................... that cover an area up to 50 miles in diameter. Widely used
in dispatch operations by truck and taxi fleets. SMR systems
have much less radio spectrum than cellular systems, but
have a much greater range.
SPATIAL DIVERSITY........... An antenna configuration of two or more elements that are
physically spaced (spatially diverse) to combat signal
fading and improve signal quality. The desired spacing
depends on the frequency band and the RF environment.
SPECTRUM.................... A continuous range of frequencies, ranging from 30 Hz to
3000 GHz, available for radio transmission and reception.
The FCC has set aside fixed portions of the spectrum for
cellular service, PCS service, television, FM radio, and
satellite transmissions.
SPECTRUM ALLOCATION......... Federal government designation of a range of frequencies for
a category of use or uses.
SPECTRUM MANAGEMENT......... A way to improve a network's capacity, coverage, and call
quality by using hardware and software tools for network
configuration and RF enhancement.
SUBSCRIBER.................. A customer of a wireless service provider or other
communications company.
SWITCH...................... See MTSO.

GLOSSARY OF TECHNICAL TERMS--(CONTINUED)

TDMA (TIME DIVISION MULTIPLE
ACCESS).................... A method of digital wireless communications transmission by
which a large number of users can access, in sequence, a
single radio frequency channel without interference because
each user is allocated a unique time slot within each
frequency channel.
TRANSCEIVER................. Equipment that both receives and transmits radio waves.
TRANSMITTER................. A device that generates signals.
TRUNKING.................... Allowing a subscriber unit to be connected to any unused
channel in a group of channels for an incoming or outgoing
call. Trunking efficiency is increased whenever greater
numbers of channels can be made available to any group of
subscribers at a given location and time.
WIRELESS.................... Describing a type of technology using radio-based systems
that allows transmission of voice and data signals through
radio frequencies without a physical connection.
WLL (WIRELESS LOCAL LOOP)... A type of wireless technology which is used to provide
subscribers with standard telephone service. Eliminates the
need for a wire, or loop, connecting users to the PSTN by
transmitting voice communications over radio waves between
the end user and a base station that is connected to the
network equipment.

METAWAVE COMMUNICATIONS CORPORATION

INDEX TO FINANCIAL STATEMENTS

Report of Ernst & Young, LLP, Independent Auditors.......................... F-2

Balance Sheets.............................................................. F-3

Statements of Operations.................................................... F-4

Statements of Stockholders' Equity (Deficit)................................ F-5

Statements of Cash Flows.................................................... F-6

Notes to Financial Statements............................................... F-7

F-1

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Metawave Communications Corporation

We have audited the accompanying balance sheets of Metawave Communications
Corporation as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended and the period from January 19, 1995 (inception) to December 31, 1995.
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 Metawave Communications
Corporation at December 31, 1996 and 1997, and the results of its operations
and its cash flows for the years then ended and the period from January 19,
1995 (inception) to December 31, 1995, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Seattle, Washington
March 13, 1998, except for Note 13,
as to which the date is April 28, 1998.

F-2

METAWAVE COMMUNICATIONS CORPORATION

BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

PRO FORMA
DECEMBER 31, STOCKHOLDERS'
------------------ JUNE 30, EQUITY AT
1996 1997 1998 JUNE 30, 1998
-------- -------- ----------- -------------
(UNAUDITED) (UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents..... $ 19,092 $ 13,334 $ 20,311
Accounts and notes receivable,
net.......................... 120 1,444 3,792
Inventories................... -- 4,080 12,000
Debt issuance costs, net of
amortization of 1,275........ -- -- 4,545
Prepaid expenses and other
assets....................... 185 142 708
-------- -------- --------
Total current assets............ 19,397 19,000 41,356
Property and equipment--net
(Note 3)....................... 2,258 3,406 5,032
Other noncurrent assets......... 92 169 169
-------- -------- --------
Total assets.................... $ 21,747 $ 22,575 $ 46,557
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............. $ 484 $ 729 $ 3,581
Accrued liabilities........... 622 1,304 2,663
Current portion of notes
payable...................... 104 140 29,838
Current portion of capital
lease obligations............ 465 1,035 1,182
Deferred revenue.............. -- 115 305
-------- -------- --------
Total current liabilities....... 1,675 3,323 37,569
Notes payable, less current
portion........................ 321 263 143
Capital lease obligations, less
current portion................ 1,429 2,709 3,937
Other long-term liabilities..... 7 6 --
-------- -------- --------
Total liabilities............... 3,432 6,301 41,649
Commitments and contingencies
Convertible and redeemable
preferred stock, issued and
outstanding 10,732,623 shares
in 1996 and 13,130,350
in 1997 and June 30, 1998;
aggregate preference in
liquidation of $49,282 at
December 31, 1997 and June 30,
1998........................... 30,100 49,282 49,282 $ --
Convertible and redeemable
preferred stock warrants....... -- 128 4,423 --
Stockholders' equity (deficit):
Preferred stock, $.0001 par
value, authorized 20,000,000
shares, of which 13,130,350
have
been designated as
convertible and redeemable
at June 30, 1998 and December
31,1997...................... -- -- -- --
Common stock, $.0001 par
value, authorized 40,000,000
shares; issued and
outstanding
2,650,000 in 1996, 2,932,093
in 1997 and
3,035,927 at June 30, 1998
and 16,166,277
shares pro forma............. 10 1,968 2,162 55,867
Deferred stock compensation... -- (1,205) (877) (877)
Accumulated deficit........... (11,795) (33,899) (50,082) (50,082)
-------- -------- -------- -------
Total stockholders' equity
(deficit)...................... (11,785) (33,136) (48,797) $ 4,908
-------- -------- -------- =======
Total liabilities and
stockholders' equity (deficit). $ 21,747 $ 22,575 $ 46,557
======== ======== ========

See accompanying notes.

F-3

METAWAVE COMMUNICATIONS CORPORATION

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

PERIOD FROM
JANUARY 19, 1995 YEAR ENDED SIX MONTHS ENDED
(INCEPTION) TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ----------------------
1995 1996 1997 1997 1998
---------------- -------- -------- ----------- ----------
(UNAUDITED) (UNAUDITED)

Net revenue............. $ -- $ 1,291 $ 1,450 $ 392 $ 6,501
Cost of sales........... -- 1,097 1,728 516 6,396
------- -------- -------- ------- --------
Gross profit (loss)..... -- 194 (278) (124) 105
Operating expenses:
Research and
development.......... 883 7,186 13,083 5,365 8,025
Sales and marketing... 84 1,704 5,383 2,244 4,087
General and
administrative....... 168 2,434 3,762 1,367 2,429
------- -------- -------- ------- --------
Total operating
expenses............... 1,135 11,324 22,228 8,976 14,541
------- -------- -------- ------- --------
Operating loss.......... (1,135) (11,130) (22,506) (9,100) (14,436)
Other income, net....... 157 485 851 409 484
Interest expense........ (22) (150) (449) (236) (2,231)
------- -------- -------- ------- --------
135 335 402 173 (1,747)
------- -------- -------- ------- --------
Net loss................ $(1,000) $(10,795) $(22,104) $(8,927) $(16,183)
======= ======== ======== ======= ========
Pro forma net loss per
share.................. $ (1.54) $ (1.01)
======== ========
Shares used in
computation of
pro forma net loss per
share.................. 14,383 16,061
======== ========

See accompanying notes.

F-4

METAWAVE COMMUNICATIONS CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD FROM JANUARY 19, 1995 (INCEPTION) THROUGH JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

COMMON STOCK
--------------
DEFERRED TOTAL
STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------ ------ ------------ ----------- ---------------

Sale of common stock at
$.0036 per share for
cash................... 2,750 $ 10 $ -- $ -- $ 10
Net loss for the period
from January 19, 1995
to December 31, 1995... -- -- -- (1,000) (1,000)
----- ------ ------- -------- --------
Balance, December 31,
1995................... 2,750 10 -- (1,000) (990)
Shares surrendered to
Company for no
consideration......... (100) -- -- -- --
Net loss for the year
ended December 31,
1996.................. -- -- -- (10,795) (10,795)
----- ------ ------- -------- --------
Balance, December 31,
1996................... 2,650 10 -- (11,795) (11,785)
Exercise of stock
options............... 282 77 -- -- 77
Deferred stock
compensation.......... -- 1,881 (1,881) -- --
Stock compensation
expense............... -- -- 676 -- 676
Net loss for the year
ended December 31,
1997.................. -- -- -- (22,104) (22,104)
----- ------ ------- -------- --------
Balance, December 31,
1997................... 2,932 1,968 (1,205) (33,899) (33,136)
Repurchased restricted
stock *............... (138) -- -- -- --
Exercise of stock
options *............. 231 84 -- -- 84
Exercise of stock
warrants*............. 11 110 -- -- 110
Stock compensation
expense *............. -- -- 328 -- 328
Net loss for the period
ended June 30, 1998 *. -- -- -- (16,183) (16,183)
----- ------ ------- -------- --------
Balance, June 30, 1998
*...................... 3,036 $2,162 $ (877) $(50,082) $(48,797)
----- ------ ------- -------- --------

- --------
* Unaudited

See accompanying notes.

F-5

METAWAVE COMMUNICATIONS CORPORATION

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

OPERATING ACTIVITIES
Net loss................ $(1,000) $(10,795) $(22,104) $ (8,927) $ (16,183)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization expense. 19 520 1,841 756 2,441
Loss on disposal of
assets .............. -- -- -- -- 24
Stock compensation.... -- -- 676 22 438
Reserve for loss on
assets............... -- -- 425 -- --
Changes in operating
assets and
liabilities:
Increase in accounts
receivable.......... (53) (67) (1,323) (267) (2,349)
Increase in
inventories......... -- -- (4,080) (2,209) (8,091)
Increase in other
assets.............. (55) (222) (34) (63) (2,091)
Increase in accounts
payable, accrued
liabilities and
other liabilities... 206 906 926 878 4,864
(Increase) decrease
in projects in
process............. (717) 717 -- --
Increase (decrease)
in deferred revenue. 1,291 (1,291) 114 -- 191
------- -------- -------- -------- ---------
Net cash used in
operating activities... (309) (10,232) (23,559) (9,810) (20,756)
INVESTING ACTIVITIES
Purchases of securities. (3,612) -- -- -- --
Proceeds on sale of
securities............. -- 3,612 -- -- --
Proceeds on sale of
assets................. -- -- -- -- 78
Purchases of equipment.. (151) (549) (621) (870) (582)
------- -------- -------- -------- ---------
Net cash provided by
(used in) investing
activities............. (3,763) 3,063 (621) (870) (504)
FINANCING ACTIVITIES
Proceeds from issuance
of preferred stock..... 5,500 24,600 19,182 -- --
Proceeds from issuance
of common stock........ 10 -- 77 1 84
Proceeds from notes
payable................ -- 500 -- -- 29,000
Payments on notes
payable................ -- (81) (115) (60) (130)
Principal payments on
capital lease
obligations............ (16) (180) (722) (290) (717)
------- -------- -------- -------- ---------
Net cash provided by
(used in) financing
activities............. 5,494 24,839 18,422 (349) 28,237
------- -------- -------- -------- ---------
Net increase (decrease)
in cash................ 1,422 17,670 (5,758) (11,029) 6,977
Cash and cash
equivalents at
beginning of period.... -- 1,422 19,092 19,092 13,334
------- -------- -------- -------- ---------
Cash and cash
equivalents at end of
period................. $ 1,422 $ 19,092 $ 13,334 $ 8,063 $20,311
======= ======== ======== ======== =========
NONCASH TRANSACTIONS AND
SUPPLEMENTAL
DISCLOSURES
Capital lease
obligations incurred to
purchase assets........ $ 144 $ 1,952 $ 2,665 $ 1,458 $ 2,099
Inventories reclassified
to property and
equipment.............. -- -- -- -- 171
Deferred compensation on
stock option grants.... -- -- 1,881 224 --
Interest paid........... 22 150 450 304 214

See accompanying notes.

F-6

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Unaudited Interim Financial Information

The financial information as of June 30, 1998 and for the periods ended June
30, 1997 and 1998 is unaudited, but includes all adjustments (consisting only
of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such dates and the operations
and cash flows for the periods then ended. Operating results for the period
ended June 30, 1998 are not necessarily indicative of results that may be
expected for the entire year.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
Significant estimates made in preparing the financial statements include the
allowance for doubtful accounts, inventory reserves and warranty accruals.

Revenue Recognition

Product revenues are recognized when the product has been shipped and all
customer acceptance conditions have been satisfied. Service revenues,
generally installation and consulting, are recognized when the services have
been performed. Revenue from maintenance contracts is deferred and recognized
ratably over the term of the agreement (which is typically one year). Any
billings in excess of revenue are classified as deferred revenue and projects
in process are recorded as inventory.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property and Equipment

Property and equipment and leasehold improvements are recorded at cost.
Depreciation is provided on the straight-line method for financial statement
purposes and on accelerated methods for federal income tax purposes over
estimated useful lives of two to seven years. Leasehold improvements are
amortized over the lesser of the lease term or estimated useful life.

Pro Forma Net Loss per Share

Pro forma net loss per share is computed using the weighted average number
of shares of common stock outstanding and the weighted average convertible and
redeemable preferred stock outstanding as if such shares were converted to
common stock at the time of issuance. Common stock equivalents,

F-7

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

including stock options and warrants, are excluded from the computation as t
heir effect is antidilutive. For the periods presented, there is no difference
between the basic and diluted earnings per share. Historical basic and diluted
earnings per share are not presented because they are considered meaningless
due to the significant change in capital structure upon the mandatory
conversion of convertible redeemable preferred stock upon completion of the
initial public offering.

Warranty

The Company provides a 12 to 18 month warranty which may vary depending upon
specific contractual terms, on all products and records a related provision
for estimated warranty costs at the date of sale.

Advertising Costs

Advertising costs are charged to expense as incurred. The Company had no
material advertising expense for the periods ended December 31, 1995 and 1996,
while $535,000 and $342,000 were recorded for the year ended December 31, 1997
and the six months ended June 30, 1998, respectively

Cash Equivalents, Fair Values of Financial Instruments, and Concentration of
Credit Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents, and trade receivables.
The carrying value of financial instruments approximates market value.

Cash equivalents consist of investments with maturities of three months or
less when purchased. The Company invests with various high-quality
institutions and, by policy, limits the amount of credit exposure to any one
institution.

The Company sells its products and provides services to customers in the
wireless communications industry. The Company performs on-going credit
evaluations of its customers' financial condition and generally does not
require collateral. The Company maintains reserves for potential credit
losses, and such losses have been within management's expectations and have
not been material in any year.

Stock-Based Compensation

The Company has adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement No. 123 and applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. Accordingly, the Company's stock-based compensation expense is
recognized based on the intrinsic value of the option on the date of grant.
Recognition of stock-based compensation expense under Statement 123 requires
the use of a fair value method to value stock options using option valuation
models that were developed for purposes other than valuing employee stock
options. Pro forma disclosure of net loss under Statement 123 is provided in
Note 6.

Reclassifications

The Company adopted a manufacturing fiscal year in 1998. The fiscal year
1998 is the 52 week period that ends the Sunday following the calendar year
end. For convenience of presentation, all fiscal periods in these financial
statements are treated as ending on a calendar month end.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

F-8

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards

In 1997, the following accounting standards were issued: SFAS No. 129,
"Disclosure of Information About Capital Structure" requiring supplemental
disclosure of capital structure, SFAS No. 130, "Reporting Comprehensive
Income," (This statement establishes standards for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements), SFAS No. 131,
"Disclosures About Segments of an Enterprise and Required Information," and
SOP 97-2, "Software Revenue Recognition." Each of these standards became
effective for the Company on January 1, 1998. The adoption of these standards
did not impact the Company's financial statements or disclosures.

In March 1998, the AICPA issued SOP 98-1, Accounting For the Costs of
Computer Software Developed For or Obtained For Internal-Use. The SOP is
effective for the Company beginning on January 1, 1999 but earlier adoption is
encouraged. The SOP requires the capitalization of certain costs incurred
after the date of adoption in connection with developing or obtaining software
for internal-use. The Company elected to adopt the SOP in 1998. The SOP did
not have a material impact on the Company's operations or financial position.

2. INVENTORIES

DECEMBER 31, JUNE 30,
1997 1998
------------ --------
(IN THOUSANDS)

Purchased parts........................................ $1,331 $ 6,766
Subassemblies.......................................... 274 472
Finished goods......................................... 2,475 4,762
------ -------
$4,080 $12,000
====== =======

Purchased parts include purchased components and partially assembled units.
Subassemblies primarily represent components that are assembled and ready for
final configuration pending the detailed requirements for the specific
customer. Finished goods are units representing projects-in-process at
customer locations.

3. PROPERTY AND EQUIPMENT

DECEMBER 31,
---------------- JUNE 30,
1996 1997 1998
------- ------- --------
(IN THOUSANDS)

Equipment........................................ $ 2,131 $ 4,738 $ 6,932
Furniture and fixtures........................... 394 605 796
Leasehold improvements........................... 272 315 693
------- ------- -------
2,797 5,658 8,421
Accumulated depreciation and amortization........ (539) (2,252) (3,389)
------- ------- -------
$ 2,258 $ 3,406 $ 5,032
======= ======= =======

F-9

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. NOTES PAYABLE

DECEMBER
31,
------------ JUNE 30,
1996 1997 1998
---- ---- --------
(IN THOUSANDS)

Senior Secured Bridge Notes maturing in April 2000,
bearing interest at 13.75% accrued semi-annually..... $ -- $ -- $ 29,708
Note payable to U.S. Bank with monthly payments of
$217 maturing in July 2000, bearing interest at 11%.. 7 6 4
Note payable to Comdisco with monthly payments of
$12,126, maturing in February 2000, bearing interest
at 8%, with a residual payment of $50,000 due
February 28, 2000, secured by the underlying
equipment............................................ 418 308 252
Notes payable to GMAC with monthly payments
aggregating $2,190, maturing between December 2001
and April 2002, bearing interest at rates between
3.9% and 8.75%....................................... -- 89 17
----- ----- --------
425 403 29,981
Current portion....................................... (104) (140) (29,838)
----- ----- --------
$ 321 $ 263 $ 143
===== ===== ========

Notes payable are secured by equipment and vehicles.

Future principal payments on notes payable at December 31, 1997 are as
follows: 1998--$139,439; 1999--$159,926; 2000--$84,929; 2001--$16,202; and
2002--$2,071.

The Company has a credit facility with a commercial bank, which provides for
a revolving credit line of $7.5 million to support working capital with a $3.0
million sublimit for issuance of trade-related commercial and standby letters
of credit, which matures on October 14, 1999. Outstanding balances on the
credit line bear interest at the bank's prime rate (8.5%) as of December 31,
1997 and June 30, 1998, respectively, and are secured by the Company's
accounts receivable and inventory. At December 31, 1997 and June 30, 1998, no
amounts were outstanding under this revolving credit line secured by accounts
receivable and $2.5 million was outstanding related to issuance of a standby
letter of credit.

On April 28, 1998, the Company issued $29 million of Senior Secured Bridge
Notes (Notes), which mature on April 28, 2000. The Notes accrue interest at
13.75%, payable semi-annually at the option of the Company in either
additional Notes or cash. Until the Notes are repaid in full, the interest
rate will increase by 200 basis points up to a maximum of 18.0%. On April 28,
1999 and at the end of each subsequent six-month period; to a maximum rate of
18.00%. One-half of the outstanding Notes and any accrued and unpaid interest
is due upon the occurrence of an Initial Public Offering (IPO). The other one-
half of the Notes may be redeemed at any time, prior to the maturity date, by
the Company by payment in cash of the principal and accrued interest.

The Notes are secured by personal property and intellectual property of the
Company. The Company is required to comply with certain covenants and certain
reporting requirements determined by the noteholders.

In connection with the Senior Secured Bridge financing, the noteholders
received warrants to purchase 537,500 shares of series D Preferred Stock at
$.01 per share. The Company recorded debt

F-10

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
issuance fees of approximately $5,820,000 related to the issuance of these
warrants. The fees are amortized over the two-year contractual life of the
Notes. The warrants have a two-year term. On April 28, 1999 and at the end of
each subsequent three-month period, the Company will issue the noteholders
200,000 additional warrants. This provision will terminate upon an IPO by the
Company and redemption of at least one-half of the issued and outstanding
Notes.

The Company may redeem the balance of the Notes and warrants on or before
the completion of an IPO or on April 28, 1999 for and aggregate redemption and
repurchase price of $40.6 million.

5. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK

In July 1995, the Company issued 5,500,000 shares of Series A Preferred
Stock (Series A) through a private offering. Proceeds from the financing
amounted to $5,500,000.

In May 1996, the Company issued 2,711,113 shares of Series B Preferred Stock
(Series B) through a private offering. Proceeds from the financing amounted to
$9,150,006. An additional 29,630 shares of Series B were issued in November
1996 with proceeds of $100,002.

In October and November 1996, the Company issued 2,491,880 shares of Series
C Preferred Stock (Series C) through a private offering. Proceeds from the
financing amounted to $15,349,980.

In August 1997, the Company issued 2,397,727 shares of Series D Preferred
Stock (Series D) through a private offering. Proceeds from the financing
amounted to $19,181,816.

Holders of Series A, B, C, and D have preferential rights to dividends
($.08, $.27, $.49, and $.64 per share per annum, respectively) when and if
declared by the Board of Directors. Dividends are not cumulative until July
1999. The holders are entitled to the number of votes equal to the number of
shares of common stock into which the preferred stock could be converted. Each
share of preferred stock is convertible into one share of common stock at the
option of the holder, or automatically upon the vote or written consent of the
holders of the majority of the shares of Series A, B, C, and D originally
issued or upon the closing of an initial public offering of the Company's
common stock from which the aggregate proceeds are not less than $15 million.
The conversion rate is subject to adjustment, as provided by the Company's
Amended and Restated Articles of Incorporation. In the event of liquidation,
the holders of Series A, B, C, and D have preferential rights to liquidation
payments of $1.00, $3.375, $6.16, and $8.00 per share, respectively, plus any
declared but unpaid dividends. The preferred stock has redemption rights for a
six-month period beginning on December 31, 2000 upon the election of at least
50% of the holders. The redemption price is equal to the original purchase
price plus any declared but unpaid dividends.

Convertible and Redeemable Preferred Stock Warrants

In connection with a Master Lease Agreement dated December 13, 1995, the
Company has issued two warrants providing for the purchase of 48,750 shares
and 16,666 shares of Series A Preferred Stock at an exercise price of $2.1875
per share, subject to adjustment as provided in the Warrant Agreements. The
Warrant Agreements expire after seven years or eighteen months to three years
from the effective date of an initial public offering, whichever comes later.

F-11

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
5. CONVERTIBLE AND REDEEMABLE PREFERRED STOCK (CONTINUED)

During 1996, the Company entered into an additional lease line to the
aforementioned Master Lease Agreement. The new lease included the issuance of
a warrant to purchase 19,999 shares of Series B Preferred Stock with an
exercise price of $4.72.

During 1997, the Company entered into an additional lease line to the
aforementioned Master Lease Agreement. The new lease included the issuance of
a warrant to purchase 34,090 shares of Series C Preferred Stock with an
exercise price of $6.16.

6. STOCKHOLDERS' EQUITY

Authorized Shares

In anticipation of the IPO of the Company's Common Stock, in May 1998, the
Board of Directors approved the amendment and restatement of the Certificate
of Incorporation to change the authorized number of shares of preferred stock
to 15,000,000 shares and increase the number of authorized shares of Common
Stock of the Company to 150,000,000 shares. These changes are to take effect
upon completion of the IPO.

Stock Repurchase Agreement

Prior to June 30, 1998, the Company had common stock repurchase agreements
with two founders, whereby if the shareholder ceases to be an employee of the
Company, the Company has the right to repurchase shares of common stock at the
original issuance price paid by the founder. The stock held by the founders,
and subject to the terms of these agreements, vested during each full fiscal
quarter commencing after June 30, 1995 at a rate of 33% per year and became
fully vested on June 30, 1998. As of December 31, 1997, there were 344,437
shares subject to repurchase with an aggregate purchase price of $1,240.
During 1996, one of the founders surrendered 100,000 shares to the Company for
no consideration. On January 10, 1998, the Company repurchased 137,775 shares
of common stock from one of the founders for $501.

Proforma Stockholders' Equity (Unaudited)

The proforma stockholders' equity in the accompanying balance sheet reflects
the conversion of convertible and redeemable Preferred Stock and the
conversion of Preferred Stock warrants to Common Stock warrants coincident
with the IPO.

Stock Option Plan

The Company's 1995 Stock Option Plan (the Plan) provides for the granting of
incentive stock options and nonqualified stock options to employees, officers,
directors, and consultants. Options under the Plan have been granted at fair
market value on the date of grant and expire between five and ten years.
Options granted under this Plan generally become exercisable at the rate of
25% of the total number of shares subject to the option after the first
anniversary following the date of grant, with 2.083% vesting monthly
thereafter, with all shares becoming fully vested on the fourth anniversary
date of the date of grant. The Company has reserved 4,150,000 shares of common
stock for issuance under the Plan.

In anticipation of an IPO of the Company's common stock, in May 1998, the
Board of Directors approved the 1998 Stock Option Plan and the 1998 Employees
Stock Purchase Plan, subject to stockholder approval. Shares reserved for
issuance under these plans were 850,000 shares and 500,000 shares,
respectively.

The 1998 Directors' Stock Option Plan was adopted by the Board of Directors
in February 1998 and approved by the stockholders on April 20, 1998. A total
of 300,000 shares of Common Stock has been

F-12

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
6. STOCKHOLDERS' EQUITY (CONTINUED)

reserved for issuance under the Directors' Plan. The Directors' Plan provides
for the automatic grant of nonstatutory stock options to nonemployee directors
of the Company upon joining the Board or upon the effectiveness of the
Company's initial public offering. Provided an individual remains a director,
the Directors' Plan provides that each option granted under the Plan shall
become exercisable in installments cumulatively as to 25% of the total number
of shares subject to the option on the first anniversary of the date of grant
of the option and 2.083% of the total number of shares subject to the option
each month thereafter. The exercise price of all stock options granted under
the Directors' Plan shall be equal to the fair market value of a share of the
Company's Common Stock on the date of grant of the option. The fair market
value of any option granted concurrently with the initial effectiveness of the
Purchase Plan shall be the Price to Public set forth in the final prospectus
relating to this Offering. Options granted under the Directors' Plan have a
term of ten years.

In 1997, deferred compensation of $1,881,382 was recorded for options
granted under the 1995 Plan. The deferred compensation was calculated as the
difference between the exercise price and the deemed value of the Company's
stock options granted under the 1995 Plan. The deferred compensation is
amortized over the vesting period of the related options. Amortized stock
compensation of $676,491 and $328,000 was recorded in the year ended December
31,1997 and the six months ended June 30, 1998, respectively.

Had the stock compensation expense for the Company's stock option plan been
determined based on the estimated fair value using the minimum value option
pricing model at the date of grant, the Company's net loss would have been
increased to these pro forma amounts (in thousands, except per share data):

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

Net loss:
As reported................................. $(1,000) $(10,795) $(22,104)
Pro forma................................... (1,002) (10,816) (22,109)
Pro forma net loss per share:
As reported................................. -- -- (1.54)
Pro forma................................... -- -- (1.54)

The fair value for these options was estimated at the date of grant using
minimum value option pricing models that take into account: (1) the stock
price at the grant date, (2) the exercise prices, (3) a one-year expected life
beyond the vest date, (4) no dividends, and (5) a risk-free interest rate of
between 5.42% and 6.43% during 1995 through 1997 over the expected life of the
options. Compensation expense recognized in providing pro forma disclosures
may not be representative of the effects on pro forma net income for future
years because the amounts above include only the amortization for the fair
value of 1997, 1996, and 1995 grants.

F-13

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

6. STOCKHOLDERS' EQUITY (CONTINUED)

A summary of the Company's stock option activity and related information
follows:

DECEMBER 31, 1995 DECEMBER 31, 1996 DECEMBER 31, 1997 JUNE 30, 1998
------------------- ------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- -------- --------- --------

Outstanding at beginning
of period.............. -- $.10 995,500 $.10 1,942,854 $ .24 3,148,794 $ .79
Granted at deemed
value................. 1,012,000 .10 1,189,454 .34 671,983 1.95 530,445 8.20
Granted at below deemed
value................. -- -- -- 1,359,285 .68 -- --
Canceled............... (16,500) .10 (242,100) .27 (543,236) .29 (171,970) 1.82
Exercised.............. -- -- -- (282,092) .27 (229,509) .36
--------- --------- --------- ---------
Outstanding at end of
period................. 995,500 .10 1,942,854 .24 3,148,794 .79 3,277,760 1.97
========= ========= ========= =========
Exercisable at end of
period................. -- -- 321,859 .10 2,140,002 .97 2,634,213 2.35
========= ========= ========= =========
Weighted average fair
value of options
granted during the
period.................
Granted at value....... $.10 $.34 $1.95 $8.20
Granted at below value. -- -- $1.89 --

The following information is provided for options outstanding and exercisable
at December 31, 1997:

OUTSTANDING EXERCISABLE
------------------------------ ------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
EXERCISE NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE
RANGE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE
-------- --------- -------- ----------- --------- --------

$ .10- .35................ 913,180 $ .14 7.98 500,104 $ .13
.62-1.20................ 1,800,314 .65 9.36 1,204,598 .67
2.00-3.36................ 435,300 2.73 9.91 435,300 2.73
--------- ---------
.10-3.36................ 3,148,794 .79 9.03 2,140,002 .96
========= =========

In connection with the Plans, 660,639 shares of common stock are available
for future issuance at June 30, 1998.

F-14

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

6. STOCKHOLDERS' EQUITY (CONTINUED)

Common Shares Reserved for Future Issuance. The Company has reserved shares
of common stock as follows:

DECEMBER 31, JUNE 30,
1997 1998
------------ ----------

Series A Preferred Stock............................. 5,500,000 5,500,000
Series B Preferred Stock............................. 2,740,743 2,740,743
Series C Preferred Stock............................. 2,491,880 2,491,880
Series D Preferred Stock............................. 2,397,727 2,397,727
Convertible redeemable preferred stock warrants...... 119,505 925,755
Stock options........................................ 3,667,908 5,288,399
---------- ----------
16,917,763 19,344,504
========== ==========

Weighted Average Shares and Pro Forma Net Loss Per share (unaudited). Pro
forma net loss per share is calculated as follows (in thousands, except share
and per share data):

DECEMBER 31, JUNE 30,
1997 1998
------------ ----------

Net loss........................................... $ (22,104) $ (16,183)
========== ==========
Weighted average outstanding:
Common stock..................................... 2,723,106 2,930,465
Convertible preferred stock...................... 11,660,178 13,130,350
---------- ----------
Total weighted average outstanding................. 14,383,284 16,060,815
========== ==========
Pro forma net loss per share....................... $ (1.54) $ (1.01)
========== ==========

7. INCOME TAXES

As of December 31, 1997, the Company had federal net operating loss
carryforwards (NOL) of approximately $28.5 million and research and
development tax credit carryforwards of approximately $677,500. The federal
net operating loss carryforwards will begin to expire in the year 2009 if not
utilized. As a result of changes in ownership coincident with the recent
financings, the utilization of a portion of the net operating loss
carryforward will be limited, pursuant to Section 382 of the Internal Revenue
Code of 1986, as amended. Approximately $9,200,000 of the NOL is limited to
$920,000 per year. The remaining NOL is not subject to limitation as of
December 31, 1997, but is estimated to be subject to annual limitation of
$8,000,000 upon completion of the IPO.

F-15

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

7. INCOME TAXES (CONTINUED)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance equal to the deferred tax assets due to the
uncertainty of realizing the benefits of the assets. Significant components of
the Company's deferred tax liabilities and assets as of December 31 are as
follows (in thousands):

1996 1997
------- --------

Deferred tax liabilities:
Prepaid assets.......................................... $ 18 $ 11
Deferred tax assets:
Net operating loss carryforwards........................ 3,865 9,674
Research and development tax credit carryforwards....... 210 678
Accrued compensation.................................... 82 167
Fixed assets............................................ 70 86
Accrued expenses and reserves........................... 1 431
Deferred revenue........................................ -- 906
Stock compensation...................................... -- 80
------- --------
Total deferred tax assets................................ 4,228 12,022
------- --------
4,210 12,011
Less valuation reserve................................... (4,210) (12,011)
------- --------
Net deferred taxes....................................... $ -- $ --
======= ========

8. COMMITMENTS

The Company has entered into capital lease agreements to acquire certain
furniture and equipment, with lease terms ranging from 36 to 48 months. The
furniture and equipment, which serves as collateral for the leases, was
recorded at $4,635,553 and had accumulated amortization of $1,639,816 at
December 31, 1997. Amortization of the assets was included in depreciation
expense.

Operating leases are for office and manufacturing facilities.

In September 1997, the Company entered into a build-to-suit lease
arrangement for 95,838 square feet that will replace the current facilities.
The Company occupied the new building in June 1998, at which time the lease
commenced, and expires May 31, 2005. The Company, at its option, may extend
the term of this lease for two successive periods of five years each. The
option must be elected twelve months prior to the expiration of the initial
lease term. In connection with this arrangement, the Company has issued
letters of credit to the landlord aggregating $2.5 million.

F-16

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

8. COMMITMENTS (CONTINUED)

Following is a summary of future minimum payments under capital leases and
operating leases, including the new facility, that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1997 (in
thousands):

CAPITAL OPERATING
LEASES LEASES
------- ---------

1998................................................. $ 1,302 $1,256
1999................................................. 1,333 1,461
2000................................................. 1,162 1,390
2001................................................. 475 1,557
2002................................................. -- 1,557
------- ------
4,272 $7,221
======
Less interest........................................ (528)
-------
3,744
Current portion...................................... (1,035)
-------
$ 2,709
=======

Rental expense for operating leases was $667,939, $304,619, and $21,167 for
the years ended December 31, 1997, 1996, and 1995, respectively.

The Company entered into agreements with certain leasing companies to
provide up to $2 million in 1996, $3 million in 1997 and $3.5 million at June
30, 1998 of financing to allow the Company to lease additional equipment.
Pursuant to these agreements, equipment leases would generally have a term of
three years and an implicit interest rate of 8.756% for 1996, 7.25% in 1997
and 14.5% at June 30, 1998 all are secured by the underlying equipment. The
Company issued warrants to purchase 4,375 shares of series D Preferred Stock
with an exercise price of $8 per share in conjunction with one of the lease
agreements.

9. RETIREMENT PLANS

The Company has a salary deferral 401(k) plan for its employees. The plan
allows employees to contribute a percentage of their pretax earnings annually,
subject to limitations imposed by the Internal Revenue Service. The plan also
allows the Company to make a matching contribution, subject to certain
limitations. To date, the Company has made no contributions.

10. RELATED-PARTY TRANSACTIONS

In October 1997, the Board authorized a secured loan of $162,500 and an
unsecured loan of $75,000 to the Company's Chief Financial Officer. Both loans
bear interest at 5.5%. The secured loan is payable in full on October 28, 2002
or earlier based upon certain events specified in the agreement. The unsecured
loan is forgiven over three years, with the remaining balance of $25,000 due
on October 22, 2000 or earlier based upon termination of employment.

F-17

METAWAVE COMMUNICATIONS CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF JUNE 30, 1998 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)

11. REVENUES AND OPERATIONS

The Company's customers are primarily cellular network operators in the
United States and certain international markets. As such, the Company's
primary market is made up of a limited number of customers operating within
the same industry, thereby subjecting the Company to business risks associated
with potential downturns of the industry. During 1997, two customers of the
Network Services division represented 63% and 27% of total revenue.

In addition, the Company's current product design includes two key
components that are each currently supplied by a single supplier. Purchases
from these key suppliers aggregated $2,046,975 and $1,565,086 during 1997.

In December 1997, the Company determined that it would discontinue the
Network Services division. Accordingly, the carrying value of these fixed
assets has been adjusted to estimated recoverable value, thereby resulting in
an impairment loss of $200,000, which is included in other expenses in the
accompanying 1997 Statement of Operations.

In June 1998, in connection with certain patent licenses, the Company issued
warrants and recorded fees for an aggregate amount of $360,000. This amount
was appropriately recorded as an operating expense for the period ended June
30, 1998.

F-18

[INSIDE BACK COVER ARTWORK:

MAP OF THE WORLD INDICATING THE LOCATION OF THE COMPANY'S
CUSTOMERS AND COMMERCIAL DEPLOYMENT AND A LIST OF CUSTOMER NAMES.]

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

NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Selected Financial Data................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 32
Management................................................................ 48
Certain Relationships and Related Transactions............................ 59
Principal Stockholders.................................................... 61
Description of Securities................................................. 63
Shares Eligible for Future Sale........................................... 66
Underwriting.............................................................. 68
Legal Matters............................................................. 70
Experts................................................................... 70
Additional Information.................................................... 70
Glossary of Technical Terms............................................... 71
Index to Financial Statements F-1

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

5,000,000 SHARES

[LOGO OF METAWAVE COMMUNICATIONS CORPORATION]

COMMON STOCK

-----------------
PROSPECTUS
-----------------

BT ALEX. BROWN

MERRILL LYNCH & CO.

NATIONSBANC MONTGOMERY SECURITIES LLC

, 1998

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

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market Listing Fee.

AMOUNT
TO BE PAID
----------

SEC Registration Fee.............................................. $15,000
NASD Filing Fee................................................... 7,113
Nasdaq National Market Listing Fee................................ 30,000
Printing Fees and Expenses........................................ 150,000
Legal Fees and Expenses........................................... 300,000
Accounting Fees and Expenses...................................... 200,000
Blue Sky Fees and Expenses........................................ 5,000
Transfer Agent and Registrar Fees................................. 10,000
Miscellaneous..................................................... 107,887
-------
Total........................................................... 825,000
=======

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the DGCL authorizes a court to award, or a corporation's
Board of Directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). Article IX of
the Registrant's Amended and Restated Certificate of Incorporation (Exhibit
3.1 hereto) provides for indemnification of its directors and officers to the
maximum extent permitted by the DGCL and Article IX of the Registrant's Bylaws
(Exhibit 3.2 hereto) provides for indemnification of its directors, officers,
employees and other agents to the maximum extent permitted by the DGCL. In
addition, the Registrant has entered into Indemnification Agreements (Exhibit
10.1 hereto) with its directors and officers containing provisions which are
in some respects broader than the specific indemnification provisions
contained in the DGCL. The indemnification agreements may require the Company,
among other things, to indemnify its directors against certain liabilities
that may arise by reason of their status or service as directors (other than
liabilities arising from willful misconduct of culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' insurance if available on
reasonable terms. Reference is also made to Section 8 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors
of the Company against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) Since January 1, 1995, the Registrant has issued and sold (without
payment of any selling commission to any person) the following unregistered
securities (as adjusted to reflect the automatic conversion of its outstanding
Preferred Stock into Common Stock upon completion of this Offering):

(1) In July and November 1995, the Registrant issued and sold shares of
Series A Preferred Stock convertible into an aggregate of 5,500,000 shares
of Common Stock to 6 investors for an aggregate purchase price of
$5,500,000.

(2) From May to September 1996, the Registrant issued and sold shares of
Series B Preferred Stock convertible into an aggregate of 2,740,743 shares
of Common Stock to 13 investors for an aggregate purchase price of
$9,250,008.

II-1

(3) In October and November 1996, the Registrant issued and sold shares
of Series C Preferred Stock convertible into an aggregate of 2,491,880
shares of Common Stock to 19 investors for an aggregate purchase price of
$15,349,981.

(4) In August 1997, the Registrant issued and sold shares of Series D
Preferred Stock convertible into an aggregate of 2,397,727 shares of Common
Stock to 17 investors for an aggregate purchase price of $19,181,816.

(5) The Registrant has issued to an equipment lease provider the
following warrants: (A) in December 1995, a warrant to purchase shares of
Series A Preferred Stock convertible into 48,750 shares of Common Stock for
an aggregate purchase price of $106,641; (B) in April 1996, a warrant to
purchase shares of Series A Preferred Stock convertible into 16,666 shares
of Common Stock for an aggregate purchase price of $36,457; (C) in August
1996, a warrant to purchase shares of Series B Preferred Stock convertible
into 19,999 shares of Common Stock for an aggregate purchase price of
$95,295; and (D) in June 1997, a warrant to purchase shares of Series C
Preferred Stock convertible into 34,091 shares of Common Stock for an
aggregate purchase price of $210,001.

(6) In April 1998, the Registrant issued an aggregate principal amount of
$29.0 million 13.75% Senior Secured Bridge Notes due April 28, 2000 to
certain institutional investors. In connection with the issuance of such
notes, the Registrant issued warrants to purchase shares of Series D
Preferred Stock convertible into 537,500 shares of Common Stock for an
aggregate purchase price of $5,375.

(7) In April 1998, the Registrant issued to an equipment lease provider a
warrant to purchase shares of Series D Preferred Stock convertible into
3,182 shares of Common Stock for an aggregate purchase price of $35,000.

(8) In June 1998, in connection with certain patent licenses, the
Registrant issued the licensor a warrant to purchase 11,000 shares of
Common Stock for an aggregate purchase price of $110. Such licensor
subsequently exercised the warrant and purchased 11,000 shares of Common
Stock for an aggregate purchase price of $110.

(9) As of June 30, 1998, an aggregate of 511,601 shares of Common Stock
had been issued upon exercise of options under the Registrant's 1995 Stock
Option Plan.

(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).

The issuances described in Items 15(a)(1) through 15(a)(8) were deemed to be
exempt from registration under the Securities Act in reliance upon Section
4(2) thereof as transactions by an issuer not involving any public offering.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends where affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationships with the Company,
to information about the Registrant. The issuances described in Items 15(a)(9)
were deemed to be exempt from registration under the Securities Act in
reliance upon Rule 701 promulgated thereunder in that they were offered and
sold either pursuant to written compensatory benefit plans or pursuant to a
written contract relating to compensation, as provided by Rule 701. In
addition, such issuances were deemed to be exempt from registration under
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering.

II-2

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

1.1 Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
Offering.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1 Form of Indemnification Agreement.
10.2 1995 Stock Option Plan, as amended, and form of stock option agreement.
10.3 1998 Stock Option Plan, as amended, and form of stock option agreement.
10.4 1998 Employee Stock Purchase Plan and form of subscription agreement.
10.5 1998 Directors' Stock Option Plan and form of stock option agreement.
10.6 Third Amended and Restated Registration Rights Agreement dated August
6, 1997 by and among the Registrant and certain holders of the
Registrant's capital stock.
10.7* Metawave Communications Corporation 401(k) Savings and Retirement Plan.
10.8+ Lease for Willow Creek Corporate Center dated September 29, 1997 by and
between the Registrant and Carr America Realty Corporation.
10.9+ Purchase Agreement dated October 21, 1997 by and between the Registrant
and 360 Degree Communications Company.
10.10+ Purchase Agreement dated December 12, 1997 by and between the
Registrant and Telefonica Celular de Paraguay S.A.
10.11+ Purchase Agreement dated March 4, 1998 by and between the Registrant
and ALLTEL Supply Inc.
10.12+ Purchase Agreement dated March 5, 1998 by and between the Registrant
and OJSC St. Petersburg Telecom.
10.13 Loan Agreement dated October 14, 1997 by and between Registrant and
Imperial Bank.
10.14 Amendment No. 1 to the Loan Agreement dated October 14, 1997 by and
between Registrant and Imperial Bank.
10.15 Metawave Communications Corporation Note Agreement dated as of April
27, 1998 Regarding $29,000,000 13.75% Senior Secured Bridge Notes due
April 28, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors on Financial
Statement Schedule.
99.2 Financial Statement Schedule.

- --------
* To be supplied by amendment.

+ Certain information in these exhibits has been omitted and filed separately
with the Securities and Exchange Commission pursuant to a confidential
treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406

II-3

(b) Financial Statement Schedules

The following financial statement schedule is filed herewith:

Schedule II--Valuation and Qualifying Accounts (see Exhibit 99.2).

Other financial statement sshedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4),
or 497(h) under the Act shall be deemed to be a part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Redmond, State of Washington, on July 22, 1998.

METAWAVE COMMUNICATIONS CORPORATION

/s/ Robert H. Hunsberger
By: _________________________________
Robert H. Hunsberger
President and Chief Executive
Officer

II-5

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert H. Hunsberger and Vito E. Palermo, and
each of them, as his or her attorneys-in-fact, each with full power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule
462 under the Securities Act of 1933, in connection with or related to this
Offering contemplated by this Registration Statement and its amendments, if
any, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof. This
Power of Attorney may be signed in several counterparts.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Robert H. Hunsberger President, Chief Executive July 22, 1998
____________________________________ Officer and Director
Robert H. Hunsberger (Principal Executive Officer)

/s/ Vito E. Palermo Senior Vice President, Chief July 22, 1998
____________________________________ Financial Officer and
Vito E. Palermo Secretary (Principal Financial
and Accounting Officer)

/s/ Douglas O. Reudink Chief Technical Officer and July 22, 1998
____________________________________ Chairman of the Board of
Douglas O. Reudink Directors

/s/ Bandel L. Carano Director July 22, 1998
____________________________________
Bandel L. Carano

/s/ Bruce C. Edwards Director July 22, 1998
____________________________________
Bruce C. Edwards

/s/ David R. Hathaway Director July 22, 1998
____________________________________
David R. Hathaway

/s/ Scot B. Jarvis Director July 22, 1998
____________________________________
Scot B. Jarvis

/s/ Jennifer Gill Roberts Director July 22, 1998
____________________________________
Jennifer Gill Roberts

/s/ David A. Twyver Director July 22, 1998
____________________________________
David A. Twyver

II-6

INDEX TO EXHIBITS

EXHIBIT
NO. DESCRIPTION
------- -----------

1.1 Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3* Form of Amended and Restated Certificate of Incorporation of the
Registrant, to be filed and effective upon completion of this
Offering.
10.1 Form of Indemnification Agreement.
10.2 1995 Stock Option Plan, as amended, and form of stock option
agreement.
10.3 1998 Stock Option Plan, as amended, and form of stock option
agreement.
10.4 1998 Employee Stock Purchase Plan and form of subscription agreement.
10.5 1998 Directors' Stock Option Plan and form of stock option agreement.
10.6 Third Amended and Restated Registration Rights Agreement dated August
6, 1997 by and among the Registrant and certain holders of the
Registrant's capital stock.
10.7* Metawave Communications Corporation 401(k) Savings and Retirement
Plan.
10.8+ Lease for Willow Creek Corporate Center dated September 29, 1997 by
and between the Registrant and Carr America Realty Corporation.
10.9+ Purchase Agreement dated October 21, 1997 by and between the
Registrant and 360 Degree Communications Company.
10.10+ Purchase Agreement dated December 12, 1997 by and between the
Registrant and Telefonica Celular de Paraguay S.A.
10.11+ Purchase Agreement dated March 4, 1998 by and between the Registrant
and ALLTEL Supply Inc.
10.12+ Purchase Agreement dated March 5, 1998 by and between the Registrant
and OJSC St. Petersburg Telecom.
10.13 Loan Agreement dated October 14, 1997 by and between Registrant and
Imperial Bank.
10.14 Amendment No. 1 to the Loan Agreement dated October 14, 1997 by and
between Registrant and Imperial Bank.
10.15 Metawave Communications Corporation Note Agreement dated as of April
27, 1998 Regarding $29,000,000 13.75% Senior Secured Bridge Notes due
April 28, 2000.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see page II-6).
27.1 Financial Data Schedule.
99.1 Report of Ernst & Young LLP, Independent Auditors on Financial
Statement Schedule.
99.2 Financial Statement Schedule.

- --------
*To be supplied by amendment.