NETRO CORP, S-1/A, 1999-08-06

NETRO CORP
S-1/A, 1999-08-06
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1999

REGISTRATION NO. 333-81325
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2 TO

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

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

<TABLE>
<S> <C> <C>
CALIFORNIA 3663 77-0395029
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

3860 N. FIRST STREET
SAN JOSE, CA 95134
(408) 216-1500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-------------------------
GIDEON BEN-EFRAIM
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NETRO CORPORATION
3860 N. FIRST STREET
SAN JOSE, CA 95134
(408) 216-1500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-------------------------

COPIES TO:

<TABLE>
<S> <C>
TAE HEA NAHM LAIRD H. SIMONS III
LAURA A. GORDON KATHERINE TALLMAN SCHUDA
SANJAY K. KHARE WILLIAM L. HUGHES
J.D. FAY FENWICK & WEST LLP
GENE YOON TWO PALO ALTO SQUARE
VENTURE LAW GROUP PALO ALTO, CA 94306
A PROFESSIONAL CORPORATION (650) 494-0600
2800 SAND HILL ROAD
MENLO PARK, CA 94025
(650) 854-4488
</TABLE>

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

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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE

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<S> <C> <C> <C> <C>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT PRICE(1) REGISTRATION FEE(2)
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Common Stock........... 5,750,000 $9.00 $51,750,000 $14,387
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</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) under the Securities Act.
(2) $15,985 has been previously paid by the Registrant in connection with the
filing of the Registration Statement on June 22, 1999.
-------------------------

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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- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED AUGUST 6, 1999

PROSPECTUS

5,000,000 SHARES
[NETRO LOGO]

COMMON STOCK

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

This is Netro Corporation's initial public offering of common stock.

We expect the public offering price to be between $7.00 and $9.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the common stock will trade on the Nasdaq National
Market under the symbol "NTRO."

INVESTING IN THE COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price.................................... $ $
Underwriting discount.................................... $ $
Proceeds, before expenses, to Netro Corporation.......... $ $
</TABLE>

The underwriters may also purchase up to an additional 750,000 shares at
the public offering price, less the underwriting discount, within 30 days from
the date of this prospectus to cover over-allotments.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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

MERRILL LYNCH & CO.
BANCBOSTON ROBERTSON STEPHENS

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED

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

The date of this prospectus is , 1999.
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[INSIDE FRONT COVER]

[COLOR ARTWORK]
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TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 11
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Capitalization.............................................. 13
Dilution.................................................... 14
Selected Consolidated Financial Data........................ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 16
Business.................................................... 26
Management.................................................. 38
Certain Transactions........................................ 49
Principal Shareholders...................................... 51
Description of Capital Stock................................ 53
Shares Eligible for Future Sale............................. 55
Underwriting................................................ 57
Legal Matters............................................... 60
Experts..................................................... 60
Where You Can Find More Information......................... 60
Index to Consolidated Financial Statements.................. F-1
</TABLE>

INFORMATION IN PROSPECTUS

Unless specifically stated, the information in this prospectus has been
adjusted to reflect the automatic conversion of all outstanding shares of our
preferred stock into shares of our common stock, but does not take into account
the possible sale of additional shares of common stock to the underwriters to
cover over-allotments.

You should rely only on the information contained in this prospectus.
Neither we nor the underwriters have authorized any person to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. Information contained on our Web site is
not part of this prospectus. We and the underwriters are not making an offer to
sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
is accurate as of the date on the front cover of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.

i
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PROSPECTUS SUMMARY

This summary is not complete and does not contain all the information that
may be important to you. You should read the entire prospectus carefully,
including the financial data and related notes, before making an investment
decision.

NETRO CORPORATION

We are a leading provider of wireless networking equipment used by
telecommunications service providers to provide businesses with high-speed
telecommunications connections. Our wireless system, called AirStar, features a
single central radio providing telecommunications services to multiple points.
This point-to-multipoint architecture allows a service provider to connect many
of its customers using a single radio. AirStar is designed to allow
telecommunications service providers to offer voice and high-speed data
connections to business customers rapidly and cost-effectively. We have
engineered AirStar to support broad service rollouts and to operate at radio
frequencies licensed for these applications in different countries. AirStar's
point-to-multipoint architecture reduces equipment requirements. AirStar also
increases efficient use of transmission capacity; instead of allocating a static
amount of capacity to every subscriber, AirStar dynamically allocates capacity
based on each subscriber's needs at any given moment. We believe that AirStar,
which we recently began shipping in limited quantities, is one of the first
commercially available high-speed wireless telecommunications systems providing
integrated voice and high-speed data connections using a point-to-multipoint
architecture.

We began shipping a trial version of the AirStar system to service
providers in the third quarter of 1998. The AirStar system is currently deployed
in trials or limited commercial deployments in 17 service providers and
enterprises worldwide. Most of these service providers are served through our
relationships with Lucent and Siemens/Italtel.

In recent years, the volume of high-speed data traffic across
communications networks worldwide has grown dramatically as the public Internet
and private corporate intranets have become essential for communications and
e-commerce. This traffic growth has created demand for cost-effective,
high-speed telecommunications connections, as business users increasingly rely
on applications and content that require higher-speed connections. In many
countries, the telecommunications industry has been deregulated, which has
created the opportunity for new competitors to offer telecommunications services
to subscribers. There are a number of alternatives that deliver high-speed
connections through existing wire-based technologies, but technical,
performance, cost or availability issues often limit the ability of these
alternatives to satisfy the needs of service providers and businesses worldwide.
High-speed, wireless, point-to-multipoint technology offers providers of
telecommunication services that are new to a particular market the ability to
rapidly serve many businesses without the constraints of existing wire-based
networks.

Telecommunications service providers deploying high-speed wireless
networks today must differentiate their services to a wide base of business
users and compete effectively with services offered through fiber optic cable,
digital subscriber lines, cable modems and wires leased from the traditional
telecommunications service provider in a given locale. Our system is designed to
address these needs and deliver the following benefits to service providers:

Service Integration and Bandwidth on Demand. AirStar can dynamically
allocate capacity among subscribers and support both voice and high-speed data
services. This enables service providers to increase revenue from the radio
frequency licensed to them. AirStar allows service providers to offer
symmetrical high-speed telecommunications services, with on-demand peak
transmission rates of up to 8 Mbps.

Cost-Effective Deployment and Operation. AirStar allows a service
provider to compete effectively in the market to provide subscribers with
high-speed telecommunications connections. AirStar is designed to provide for
low overall system costs and to enable service providers to invest capital in
additional equipment only when new subscribers are added. Additionally, the
AirStar system allocates capacity dynamically based on usage patterns. This
feature allows a service provider to optimize the use of radio frequencies and
the deployment of equipment by expanding effective transmission capacity.

1
<PAGE> 6

Quality of Service and Reliability. Service providers using AirStar can
deploy voice and high-speed data services at different prices to different
market segments with the option for guaranteed quality of service levels and up
to 99.999% availability. The AirStar system is engineered to enable service
providers that are new to a market to offer the same high reliability and
availability that wire-based solutions have historically offered.

Rapid Time to Market. Service providers using AirStar can achieve rapid
time to market for integrated voice and high-speed data connections through
AirStar's efficient installation, network management software and ability to
dynamically allocate capacity among subscribers. By installing a single AirStar
base station, the service provider can attain coverage of many potential
subscribers. For example, a typical base station at frequencies of 10 GHz or 26
GHz can cover ranges from 110 to 275 square miles or 5 to 15 square miles,
respectively, depending on local conditions, and has an aggregate transmission
capacity of over 600 Mbps.

We intend to capitalize on early design wins with key service providers to
increase sales as these service providers deploy high-speed services more
widely. Furthermore, as this occurs, we intend to utilize reference sales and
new product offerings to drive sales in new markets. We intend to leverage our
architecture to offer new features that will provide competitive advantages to
service providers. We are currently developing new products at new frequencies
to meet the needs of service providers in additional countries. Additionally, we
intend to build upon the success that we have achieved through our relationships
with Lucent and Siemens/Italtel to meet the needs of service providers seeking
to deploy large-scale networks and to expand our customer base.

Netro was incorporated in California in November 1994. Our principal
executive offices are located at 3860 N. First Street, San Jose, California
95134, and our telephone number is (408) 216-1500.

THE OFFERING

Common stock offered................ 5,000,000 shares

Common stock to be outstanding after
this offering....................... 43,913,772 shares. The number of shares
that will be outstanding after the
offering is based on the actual number
outstanding as of June 30, 1999. It
excludes:

- options to purchase 5,784,667
shares of common stock outstanding
as of June 30, 1999 at a weighted
average exercise price of $2.56 per
share; and

- 57,028 shares of preferred stock
issuable upon exercise of
outstanding warrants at a weighted
average exercise price of $7.39 per
share that will convert into the
same number of shares of common
stock upon completion of this
offering.

Use of proceeds..................... We intend to use the offering proceeds
for general corporate purposes,
including research and development,
expansion of our sales and marketing
organizations and working capital.

Proposed Nasdaq National Market
symbol.............................. NTRO

2
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data below should be read together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the related notes
included elsewhere in this prospectus. The information as of June 30, 1999 and
for the six months ended June 30, 1998 and 1999 is derived from unaudited and
audited consolidated financial statements included elsewhere in this prospectus.

Basic and diluted net loss per
share......................... $(10.61) $ (4.66) $ (5.11) $ (4.07) $ (2.11) $ (1.72)
Shares used to compute basic and
diluted net loss per share.... 195 2,610 4,798 7,087 6,475 8,315

Pro forma basic and diluted net
loss per share................ $ (0.84) $ (0.38)
Shares used to compute pro forma
basic and diluted net loss per
share......................... 34,391 37,628
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $19,887 $56,087
Working capital............................................. 16,435 52,635
Total assets................................................ 32,910 69,110
Long-term debt and capital leases, net of current portion... 4,282 4,282
Total shareholders' equity.................................. 17,341 53,541
</TABLE>

For an explanation of the determination of the number of shares used to
compute basic and diluted net loss per share and pro forma basic and diluted net
loss per share, see note 2 of notes to consolidated financial statements.

The consolidated balance sheet data as of June 30, 1999, as adjusted,
reflects our sale of the 5,000,000 shares of common stock offered by this
prospectus at an assumed initial public offering price of $8.00 per share, after
deducting the estimated underwriting discount and offering expenses that we will
pay. See "Use of Proceeds" and "Capitalization."

3
<PAGE> 8

RISK FACTORS

Before investing in our common stock, you should be aware that there are
various risks inherent in our business, including those described below. The
value of your investment may increase or decline and could result in a loss. You
should carefully consider the following factors as well as other information
contained in this prospectus before deciding to invest in our common stock.

WE HAVE A HISTORY OF LOSSES, EXPECT FUTURE LOSSES AND MAY NEVER ACHIEVE
PROFITABILITY

As of June 30, 1999, we had an accumulated deficit of $82.0 million, and
we expect to continue to incur net losses. We anticipate continuing to incur
significant sales and marketing, research and development and general and
administrative expenses and, as a result, we will need to generate significantly
higher revenues to achieve and sustain profitability. Our financial results to
date are largely based on sales of AirMAN, a predecessor product, which we
discontinued in September 1998, and customer trials of AirStar. Although our
AirStar revenues have grown in recent quarters, our past results should not be
relied on as indications of future performance. We cannot be certain that we
will realize sufficient revenues to achieve and sustain profitability. We
incurred net losses of approximately $12.2 million, $24.5 million, $28.8 million
and $14.3 million in 1996, 1997 and 1998 and the six months ended June 30, 1999.

DUE TO OUR LIMITED OPERATING HISTORY AND OUR PRIOR DEPENDENCE ON A DISCONTINUED
PRODUCT, IT IS DIFFICULT TO PREDICT FUTURE OPERATING RESULTS OR OUR STOCK PRICE

We have generated only limited revenues to date, most of which have come
from sales of AirMAN. Due to our limited operating history and our prior
dependence on AirMAN, it is difficult for us to predict future results of
operations. Investors in our common stock must consider our business and
prospects in light of our historical dependence on a discontinued product line.

OUR FUTURE OPERATING RESULTS ARE DEPENDENT ON THE SALES OF A SINGLE PRODUCT; IF
THERE ARE UNEXPECTED CHANGES IN REVENUES FROM THIS PRODUCT, WE WILL NOT HAVE
OTHER PRODUCTS TO OFFSET THE NEGATIVE IMPACT ON OUR OPERATING RESULTS

We currently derive substantially all of our revenues from our AirStar
products and expect that this will continue for the foreseeable future. If there
are unexpected changes in revenues from this product, we will not have other
products to offset the negative impact on our operating results. Many of the
risk factors listed in this section could negatively affect sales of our
products.

OUR BUSINESS IS SUBJECT TO MANY FACTORS THAT COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO FLUCTUATE AND OUR STOCK PRICE TO BE VOLATILE

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future due to the risk factors
described in this section. It is likely that in some future quarter our
operating results will fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock could
significantly decline.

WE HAVE NOT MANUFACTURED OUR PRODUCTS IN SUBSTANTIAL VOLUMES. IF WE ARE UNABLE
TO DO SO IN A COST-EFFICIENT WAY, OUR BUSINESS WILL BE ADVERSELY AFFECTED

Our products are commercially available only in limited quantities. We
have only recently begun low-volume manufacturing runs with two contract
manufacturers. If we or our manufacturers are unable to develop processes by
which we can manufacture substantial volumes of our products at the required
quality and expected costs in relatively short periods of time, our financial
results will suffer. Manufacturing our products, particularly the radio elements
of our products, is complex and difficult. One of our contract manufacturers
does not have a history of producing radio elements on a large scale. In
addition, many of our contracts with distributors and system integrators provide
for financial penalties in the event of a delay in delivery of products.

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IF WE ARE UNABLE TO DEPLOY OUR PRODUCTS ON A LARGE SCALE OR INTEGRATE THEM INTO
A LARGE-SCALE NETWORK ENVIRONMENT, WE COULD LOSE SALES OPPORTUNITIES, SUFFER
INJURY TO OUR REPUTATION, OR EXPERIENCE WARRANTY CLAIMS

To date, we have launched our products only in small-scale installations
and trial deployments. If our products fail, or do not function adequately, in a
large-scale deployment or in a network environment, we could experience:

- delays in or losses of sales opportunities;

- diversion of development resources;

- injury to our reputation; and

- increased service, warranty and replacement costs.

In addition, our products may contain undetected or unresolved errors when
they are first introduced or as a result of changes we make to reduce
manufacturing costs. Our products are integrated with other network elements.
There may be incompatibilities between these elements and our products that
adversely affect the service provider or its subscribers.

IF WE CANNOT REDUCE OUR PRODUCT COSTS, POTENTIAL CUSTOMERS WILL NOT PURCHASE OUR
PRODUCTS AND OUR RESULTS OF OPERATIONS WILL SUFFER

Market acceptance of our products will depend in part on reductions in the
unit cost of our products. If we cannot reduce the cost of our products, our
product sales, and consequently our results of operations, will suffer. If
prices for alternative high-speed telecommunications services continue to
decline, we may not become profitable. We believe that the price for high-speed
wireless telecommunications equipment is driven by the prevailing price for
other high-speed connection technologies, especially the cost of leasing a
high-speed wire from the traditional telecommunications service provider in a
given locale. Recently, the price of these leased connections has declined
significantly in many countries. In addition, if this trend continues, service
providers might be more likely to use this kind of leased connection than to
introduce new technology such as our products, which would adversely affect our
market share and pricing. Our cost reduction efforts may not allow us to keep
pace with competitive pricing pressures or may not lead to improved gross
margins.

WE DEPEND ON TWO CONTRACT MANUFACTURERS. IF THESE MANUFACTURERS ARE UNABLE TO
FILL OUR ORDERS ON A TIMELY BASIS, AND WE ARE UNABLE TO FIND ALTERNATIVE
SOURCES, WE MAY BE UNABLE TO DELIVER PRODUCTS TO MEET CUSTOMER ORDERS

We currently have relationships with two contract manufacturers of our
products. We manufacture only small quantities of products at our own
facilities. If our manufacturers are unable or unwilling to continue
manufacturing our components in required volumes, we would have to identify and
train acceptable alternative manufacturers, which could take as long as six
months and cause our results of operations to suffer.

Our experience with these manufacturers provides us with no basis to
project their delivery schedules, yields or costs. In addition, few
manufacturers produce radios like ours on a large scale. It is possible that a
source may not be available to us when needed, and we may not be able to satisfy
our production requirements at acceptable prices and on a timely basis, if at
all. Any significant interruption in supply would affect the allocation of
products to customers, which in turn could have an adverse effect on our
business.

BECAUSE SOME OF OUR KEY COMPONENTS ARE FROM SOLE SOURCE SUPPLIERS OR REQUIRE
LONG LEAD TIMES, OUR BUSINESS IS SUBJECT TO UNEXPECTED INTERRUPTIONS, WHICH
COULD CAUSE OUR OPERATING RESULTS TO SUFFER

Many of our key components have long lead times, are purchased from sole
source vendors for which alternative sources are not currently available, and
are complex to manufacture. In the event of a reduction or interruption of
supply, or a degradation in quality, as many as six months could be required

5
<PAGE> 10

before we would begin receiving adequate supplies from alternative suppliers, if
any. As a result, product shipments could be delayed and our revenues and
results of operations would suffer.

For example, we purchase our base station shelf from Cisco Systems, Inc.
under an agreement that terminates in February 2000. Cisco has recently acquired
interests in companies with high-speed wireless technology, and we cannot be
certain that Cisco will continue to supply us after the termination of the
current agreement. In addition, we purchase most of our electronic boards from
Solectron, one of our contract manufacturers, and other components from other
sole source and long lead time vendors.

IF WE DO NOT DEVELOP NEW PRODUCTS AND PRODUCT FEATURES IN RESPONSE TO CUSTOMER
REQUIREMENTS OR IN A TIMELY WAY, CUSTOMERS WILL NOT BUY OUR PRODUCTS

Our inability to develop new products or product features on a timely
basis, or the failure of new products or product features to achieve market
acceptance, could adversely affect our business. We may experience design or
manufacturing difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements, any of which could
cause us to incur unexpected expenses or lose revenues. For example, the first
trial shipments of AirStar were delayed for almost one year due to technical
problems. In addition, some of our customers have conditioned their future
purchases of our products on the addition of product features. Furthermore, in
order to compete in many markets, we will have to develop different versions of
our existing products that operate at different frequencies and comply with
diverse, new or varying governmental regulations in each market.

WE DEPEND ON TWO SYSTEM INTEGRATORS FOR MOST OF OUR REVENUES. IF THESE SYSTEM
INTEGRATORS DO NOT PROMOTE OR PURCHASE OUR PRODUCTS, OUR BUSINESS WILL BE
ADVERSELY AFFECTED

We sell most of our products through two system integrators. The loss of
either of these system integrators or the delay of significant orders from these
system integrators, even if only temporary, could, among other things:

- reduce or delay our revenues;

- harm our reputation in the industry; or

- reduce our ability to predict our cash flow accurately.

Aggregate sales through these two system integrators accounted for
approximately 31% of our revenues for 1998, and approximately 80% of our
revenues for the six months ended June 30, 1999. Accordingly, unless and until
we diversify and expand our customer base, our future success will significantly
depend on the timing and size of future purchase orders, if any, from these two
system integrators. There are a limited number of system integrators that have
the financial resources or technical expertise to sell, or to integrate, our
products globally. If one or both of our system integrators will not sell,
service or integrate our products, and we cannot identify other system
integrators as replacements, we would be limited in our ability to sell our
products.

Our relationships with our system integrators are non-exclusive and do not
contain minimum purchase commitments. Should either of our system integrators
cease to emphasize systems that include our products, choose to emphasize
alternative technologies or promote products of our competitors, our revenues
and consequently results of operations would be adversely affected. For example,
Siemens has an equity interest in, and a commercial relationship with, one of
our competitors, which may motivate Siemens to select this competitor's
solutions over our own in the future.

IF HIGH-SPEED WIRELESS TELECOMMUNICATIONS TECHNOLOGY OR OUR IMPLEMENTATION OF
THIS TECHNOLOGY IS NOT ACCEPTED BY SERVICE PROVIDERS, WE WILL NOT BE ABLE TO
SUSTAIN OR GROW OUR BUSINESS

Our future success is substantially dependent on whether high-speed
wireless telecommunications equipment gains market acceptance as a means to
provide telecommunications voice and data services. All of our products are
based on this technology. In the event that service providers adopt technologies
other than the high-speed wireless technology that we offer, we may not be able
to sustain or grow our business.

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<PAGE> 11

Service providers continuously evaluate alternative high-speed access
technologies, including wire-based technologies such as digital subscriber line,
cable modem, optical fiber cable and high-speed wires leased from the
traditional service providers in a given locale, as well as different wireless
technologies. In addition, widespread acceptance of our technology may be
hindered by inherent technological limitations, such as a need for a clear
line-of-sight for transmissions and a reduction in coverage radius in areas that
experience heavy rain.

THE MAJORITY OF SERVICE PROVIDERS USING OUR PRODUCTS ARE EMERGING COMPANIES WITH
UNPROVEN BUSINESS MODELS. IF THESE SERVICE PROVIDERS DO NOT SUCCEED, THERE WILL
BE NO MARKET FOR OUR PRODUCTS

Most telecommunications service providers using our products are emerging
companies with unproven business models. If these new service providers do not
succeed, there will be no market for our products. Neither they nor we have
experience in integrating a complete telecommunications network that includes
our products. The inability of emerging service providers to acquire and keep
customers, acquire radio frequency licenses, successfully raise needed funds or
respond to any trends such as price reductions for their services or diminished
demand for telecommunications services generally, could cause them to reduce
their capital spending on network buildouts. If service providers defer or
curtail their capital spending programs, sales of our products might be
impacted, which would have an adverse effect on our business.

WE HAVE A LONG SALES CYCLE, WHICH COULD CAUSE OUR RESULTS OF OPERATIONS AND
STOCK PRICE TO FLUCTUATE

We believe our sales cycles are long and unpredictable. As a result, our
revenues may fluctuate from quarter to quarter and fail to correspond with our
expenses. This would cause our operating results and stock price to fluctuate.
System integrators and service providers typically perform numerous tests and
extensively evaluate products before incorporating them into networks. The time
required for testing, evaluation and design of our products into the service
provider's network typically ranges from six to twelve months. If a service
provider decides to supply commercial service with our products, it can take an
additional six to twelve months before a service provider commences deployment
of our products. Some additional factors that affect the length of our sales
cycle include:

- testing and evaluation;

- acquisition of roof rights;

- deployment and planning of network infrastructure;

- complexity of a given network;

- scope of a given project;

- availability of radio frequency; and

- regulatory issues.

In addition, the delays inherent in our sales cycle raise additional risks
of service provider decisions to cancel or change their product plans. Our
business could be adversely affected if a significant customer reduces or delays
orders during our sales cycle or chooses not to deploy networks incorporating
our products.

INTENSE COMPETITION IN THE MARKET FOR COMMUNICATIONS EQUIPMENT COULD PREVENT US
FROM INCREASING OR SUSTAINING REVENUES OR ACHIEVING OR SUSTAINING PROFITABILITY

7
<PAGE> 12

Motorola, as well as with smaller start-up companies. In addition, well
capitalized companies such as Nokia are potential entrants into the market. As a
technology for providing high-speed telecommunications services, high-speed,
wireless solutions compete with other high-speed, wire-based solutions, such as
digital subscriber lines, fiber optic cable, cable modems and high-speed wires
leased from traditional telecommunications service providers and satellite
technologies.

We expect our competitors to continue to improve the performance of their
current products and to introduce new products or new technologies that may
supplant or provide lower cost alternatives to our products. To be competitive,
we must continue to invest significant resources in research and development,
sales and marketing and customer support. We cannot be sure that we will have
sufficient resources to make these investments or that we will be able to make
the technological advances necessary to be competitive. As a result, we may not
be able to compete effectively against our competitors.

BECAUSE WE MUST SELL OUR PRODUCTS IN MANY COUNTRIES THAT HAVE DIFFERENT
REGULATORY SCHEMES, IF WE CANNOT DEVELOP PRODUCTS THAT WORK WITH DIFFERENT
STANDARDS, WE WILL BE UNABLE TO SELL OUR PRODUCTS

If our sales are to grow, we must sell our products in many different
countries. Many countries require communications equipment used in their country
to comply with unique regulations, including safety regulations, radio frequency
allocation schemes and standards. If we cannot develop products that work with
different standards, we will be unable to sell our products. If compliance
proves to be more expensive or time consuming than we anticipate, our business
would be adversely affected. Some countries have not completed their radio
frequency allocation process and therefore we do not know the standards with
which we would be forced to comply. We have not completed all activities
necessary to comply with existing regulations and requirements in most of the
countries in which we intend to sell our products. Furthermore, standards and
regulatory requirements are subject to change. For example, standards for
antenna design expected to be established by the European Telecommunications
Standards Institute are currently in flux.

IF WE ARE UNABLE TO MANAGE OUR INTERNATIONAL OPERATIONS EFFECTIVELY, OUR
BUSINESS WOULD BE ADVERSELY AFFECTED

Sales in foreign countries accounted for 76% of our revenues in 1998 and
36% in the six months ended June 30, 1999. In addition, most equipment purchased
by domestic customers has been shipped to international service providers. Our
international operations are subject to a number of risks and uncertainties,
including:

- the difficulties and costs of obtaining regulatory approvals for our
products;

- unexpected changes in regulatory requirements; and

- legal uncertainties regarding liability, tariffs and other trade
barriers.

Any of these factors could have an adverse impact on our existing
international operations and business or impair our ability to expand into
international markets.

WE DEPEND ON A SMALL NUMBER OF CUSTOMERS. CHANGES IN TIMING AND SIZE OF THESE
CUSTOMERS' ORDERS MAY CAUSE OUR OPERATING RESULTS AND STOCK PRICE TO FLUCTUATE

We sell our products to a small number of customers. Unless and until we
diversify and expand our customer base, our future success will significantly
depend on:

- the timing and size of future purchase orders, if any, from our
largest customers;

- the product requirements of these customers;

- the financial and operational success of these customers; and

- the success of service providers that have deployed our products.

Sales to our largest customers have in the past fluctuated and may in the
future fluctuate significantly from quarter to quarter and year to year.

8
<PAGE> 13

MANY PROJECTS THAT INCLUDE OUR PRODUCTS REQUIRE SYSTEM INTEGRATION EXPERTISE AND
THIRD-PARTY FINANCING, WHICH WE ARE UNABLE TO PROVIDE. IF SOURCES FOR SYSTEM
INTEGRATION OR FINANCING CANNOT BE OBTAINED AS NEEDED, SERVICE PROVIDERS MAY NOT
SELECT OUR PRODUCTS

Some service providers using our products purchase them as a part of a
larger network deployment program that can require capital expenditures in the
hundreds of millions of dollars. In some circumstances, these service providers
require their equipment vendors to integrate equipment into these larger
networks and finance deployment. We will be unable to provide this integration
or financing and therefore will have to rely on the ability of our system
integrators or third parties to integrate or finance these transactions. In the
event that we are unable to identify distributors and system integrators that
are able to provide this integration or financing on our behalf, we would be
unable to compete for the business of some service provider accounts and our
business might be adversely affected.

IF WE ARE UNABLE TO HIRE OR RETAIN OUR PERSONNEL, WE MIGHT NOT BE ABLE TO
OPERATE OUR BUSINESS SUCCESSFULLY

Given our early stage of development, we are dependent on our ability to
attract, retain and motivate high caliber personnel. The loss of the services of
any key personnel or our inability to hire new personnel could restrict our
ability to compete effectively. Competition for qualified personnel in our
industry and in the Silicon Valley is intense, and we may not be successful in
attracting and retaining these personnel. For example, in 1998, both our Senior
Vice President, Research & Development and Engineering and our Chief Scientist
resigned to pursue other opportunities. There are only a limited number of
people with the requisite skills, particularly people with millimeter wave radio
expertise. We are also dependent on the continued contributions of our principal
sales, engineering and management personnel, many of whom would be difficult to
replace. We currently do not maintain key person life insurance on any of our
key executives.

CLAIMS THAT WE INFRINGE THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS COULD RESULT IN
SIGNIFICANT EXPENSES OR RESTRICTIONS ON OUR ABILITY TO SELL OUR PRODUCTS IN
PARTICULAR MARKETS

From time to time, third parties may assert patent, copyright, trademark
and other intellectual property rights to technologies and in various
jurisdictions that are important to our business. Any claims could be
time-consuming, result in costly litigation, divert the efforts of our technical
and management personnel, cause product shipment delays or require us to enter
into royalty or licensing agreements, any of which could have an adverse effect
on our operating results. Royalty or licensing agreements, if required, may not
be available on terms acceptable to us, if at all. In addition, in our sales
agreements, we agree to indemnify our customers for any expenses or liabilities
resulting from claimed infringements of patents, trademarks or copyrights of
third parties.

IF WE, OUR SUPPLIERS, SYSTEM INTEGRATORS, RESELLERS OR SERVICE PROVIDERS FAIL TO
BE YEAR 2000 COMPLIANT, OUR BUSINESS MIGHT BE SEVERELY DISRUPTED

The risk that software or hardware inaccurately processes dates following
the year 2000 presents several areas of risk for our business. In particular, we
are subject to:

- costs associated with the failure of our products to be year 2000
compliant, including potential warranty or other claims from our
customers, which may result in significant expenses to us;

- business shutdowns or slowdowns as a result of a failure of the
internal management systems we use to run our business, which could
disrupt our business operations;

- interruption of product or component supplies, or a reduction in
product quality, as a result of the failure of systems used by our
suppliers; and

- reductions or deferrals in sales activities as a result of year 2000
compliance issues of our distributors and system integrators.

9
<PAGE> 14

CONTROL BY OUR EXISTING SHAREHOLDERS COULD DISCOURAGE POTENTIAL ACQUISITIONS OF
OUR BUSINESS THAT OTHER SHAREHOLDERS MAY CONSIDER FAVORABLE

Upon completion of this offering, our executive officers, directors and 5%
or greater shareholders and their affiliates will own 20,085,523 shares or
approximately 45% of the outstanding shares of common stock. Acting together,
these shareholders would be able to control all matters requiring approval by
shareholders, including the election of directors. This concentration of
ownership could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have an adverse effect on the market price of
our common stock or prevent our shareholders from realizing a premium over the
market price for their shares of common stock.

OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DISCOURAGE POTENTIAL ACQUISITIONS
OF OUR BUSINESS BY THIRD PARTIES THAT SHAREHOLDERS MAY CONSIDER FAVORABLE

Some provisions of our articles of incorporation and bylaws and of
California law may discourage, delay or prevent a merger or acquisition that
shareholders may consider favorable. This may reduce the market price of our
common stock. A summary of these provisions is included in "Description of
Capital Stock -- Anti-Takeover Provisions."

SUBSTANTIAL NUMBERS OF SHARES OF OUR COMMON STOCK WILL BECOME AVAILABLE FOR SALE
IN THE PUBLIC MARKET SIMULTANEOUSLY, WHICH COULD CAUSE THE MARKET PRICE OF OUR
STOCK TO DECLINE

Sales of substantial amounts of common stock in the public market
following this offering, or the appearance that a large number of shares is
available for sale, could cause the market price of our common stock to decline.
Upon the expiration of lock-up agreements between our shareholders and us or
Merrill Lynch, 38,212,364 shares of common stock will become eligible for sale
simultaneously. Also, Merrill Lynch may, in its sole discretion and at any time,
release all or any portion of the securities subject to lock-up agreements. In
addition to the adverse effect a price decline could have on holders of common
stock, that decline would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity securities.

OUR STOCK PRICE MAY BE VOLATILE, AND YOU MAY BE UNABLE TO RESELL YOUR SHARES AT
OR ABOVE THE OFFERING PRICE

There previously has been no public market for our common stock. We cannot
predict the extent to which investor interest in us will lead to the development
of a liquid trading market. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market. The market price of our common stock could be subject to wide
fluctuations in response to many risk factors listed in this section.

10
<PAGE> 15

FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties and assumptions about us, including:

- uncertainty regarding the commercial acceptance of high-speed wireless
technologies;

- uncertainty regarding our future operating results;

- our ability to introduce new products;

- delays or losses of sales due to long sales and implementation cycles
for our products;

- the possibility of lower prices, reduced gross margins and loss of
market share due to increased competition; and

- increased demands on our resources due to anticipated growth.

In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur. We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information or future events.

11
<PAGE> 16

USE OF PROCEEDS

We estimate our net proceeds from the sale of the 5,000,000 shares of our
common stock offered in this offering to be approximately $36.2 million, or
approximately $41.8 million if the underwriters' over-allotment option is
exercised in full, based on an assumed initial public offering price of $8.00
per share and after deducting the estimated underwriting discount and offering
expenses.

We intend to use the net proceeds from this offering for general corporate
purposes, including research and development, expansion of our sales and
marketing organizations and working capital. Pending these uses, we intend to
invest the net proceeds from this offering in short-term, investment-grade,
interest-bearing securities.

DIVIDEND POLICY

We have never paid cash dividends on our common stock. We currently intend
to retain any future earnings to fund the development and growth of our
business. Therefore, we do not currently anticipate paying any cash dividends in
the foreseeable future. In addition, under our loan agreement with Silicon
Valley Bank, subject to limited exceptions, we may not pay dividends on our
capital stock.

12
<PAGE> 17

CAPITALIZATION

The following table summarizes our capitalization as of June 30, 1999 as
follows:

- on an actual basis;

- on a pro forma basis to give effect to the conversion of all
outstanding shares of preferred stock into common stock; and

- on a pro forma, as adjusted basis to reflect the receipt of the net
proceeds from our initial public offering and the conversion of all
outstanding shares of preferred stock into common stock.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments........... $ 19,887 $ 19,887 $ 56,087
======== ======== ========
Long-term debt and capital leases, net of current portion... $ 4,282 $ 4,282 $ 4,282
-------- -------- --------
Shareholders' equity:
Preferred stock, 32,692,517 shares authorized, 29,902,283
shares outstanding, actual; no shares outstanding, pro
forma; 5,000,000 shares authorized and no shares
outstanding, pro forma as adjusted..................... 97,908 -- --
Common stock, 60,000,000 shares authorized, 9,011,489
shares outstanding, actual; 38,913,772 shares
outstanding, pro forma; 100,000,000 shares authorized,
43,913,772 shares outstanding, pro forma as
adjusted(1)............................................ 6,451 104,359 140,559
Note receivable from shareholder.......................... (800) (800) (800)
Deferred stock compensation............................... (4,325) (4,325) (4,325)
Accumulated deficit....................................... (81,893) (81,893) (81,893)
-------- -------- --------
Total shareholders' equity............................. 17,341 17,341 53,541
-------- -------- --------
Total capitalization.............................. $ 21,623 $ 21,623 $ 57,823
======== ======== ========
</TABLE>

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

(1) The number of shares of common stock outstanding is based on the actual
number of shares outstanding as of June 30, 1999. It excludes:

- 5,784,667 shares of common stock issuable upon exercise of options
outstanding as of June 30, 1999 at a weighted average exercise price
of $2.56 per share; and

- 57,028 shares of preferred stock issuable upon exercise of warrants
outstanding as of June 30, 1999 at a weighted average exercise price
of $7.39 per share that will convert into the same number of shares of
common stock upon completion of this offering.

For more information regarding our equity benefit plans, see
"Management -- Stock Plans" and note 9 of notes to consolidated financial
statements.

13
<PAGE> 18

DILUTION

As of June 30, 1999, our net tangible book value was approximately $17.3
million, or $0.45 per share of common stock, after giving effect to the
conversion of all outstanding shares of preferred stock into common stock. Net
tangible book value represents the total amount of our tangible assets less
total liabilities divided by the number of shares of common stock outstanding.
Without taking into account any other changes in net tangible book value after
June 30, 1999, other than to give effect to the receipt by us of the net
proceeds from the sale of the 5,000,000 shares of common stock in this offering
at an assumed initial public offering price of $8.00 per share, our pro forma
net tangible book value as of June 30, 1999 would have been approximately $53.5
million, or $1.22 per share. This represents an immediate increase in net
tangible book value of $0.77 per share to existing shareholders and an immediate
dilution of $6.78 per share to new investors purchasing shares in this offering.
The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Net tangible book value per share as of June 30, 1999..... $0.45
Increase per share attributable to new investors.......... 0.77
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.22
-----
Dilution per share to new investors......................... $6.78
=====
</TABLE>

The following table summarizes, on a pro forma basis, as of June 30, 1999:

- the number of shares of common stock purchased from us;

- the total consideration paid to us;

- the average price per share paid by existing shareholders; and

- the average price per share paid by new investors, before deducting
the estimated underwriting discount and offering expenses payable by
us.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 38,913,772 88.6% $ 98,786,000 71.2% $2.54
New investors..................... 5,000,000 11.4 40,000,000 28.8 8.00
---------- ----- ------------ -----
Total........................... 43,913,772 100.0% $138,786,000 100.0%
========== ===== ============ =====
</TABLE>

If the underwriters' over-allotment option is exercised in full, the
number of shares held by new investors will increase to 5,750,000, or 12.9% of
the total shares of common stock outstanding after this offering.

The information in the above table excludes:

- 5,784,667 shares of common stock issuable upon exercise of options
outstanding as of June 30, 1999 at a weighted average exercise price
of $2.56 per share;

- an aggregate of 3,293,981 shares available for future issuance under
our 1996 stock option plan, 1997 directors' stock option plan, 1999
executive stock plan and 1999 employee stock purchase plan as of June
30, 1999. See "Management -- Stock Plans" and note 9 of notes to
consolidated financial statements.

14
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the years ended December 31, 1996, 1997 and 1998 and the six months
ended June 30, 1999, and the balance sheet data as of December 31, 1997 and 1998
and June 30, 1999, are derived from our audited consolidated financial
statements included elsewhere in this prospectus. The statement of operations
data for the period from November 14, 1994 (inception) to December 31, 1995 and
the balance sheet data as of December 31, 1995 and 1996 are derived from our
audited consolidated financial statements not included in this prospectus. The
statement of operations data for the six months ended June 30, 1998 are derived
from unaudited consolidated financial statements. These statements were prepared
on the same basis as the audited consolidated financial statements. In the
opinion of our management, they include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information set forth in those financial statements. The historical results
presented below are not necessarily indicative of the results to be expected for
any future fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 14,
1994 SIX MONTHS
(INCEPTION) TO YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, -------------------------------- -------------------
1995 1996 1997 1998 1998 1999
-------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues............................... $ -- $ 731 $ 5,601 $ 5,438 $ 3,273 $ 5,338
Cost of revenues....................... -- 619 8,273 9,640 4,273 4,171
------- -------- -------- -------- -------- --------
Gross profit (loss).................... -- 112 (2,672) (4,202) (1,000) 1,167
------- -------- -------- -------- -------- --------
Operating expenses:
Research and development............. 1,598 10,446 15,289 16,143 8,769 9,183
Sales and marketing.................. -- 1,293 3,776 4,819 2,330 2,563
General and administrative........... 664 1,189 3,500 3,968 1,900 3,103
Amortization of deferred stock
compensation....................... -- -- -- -- -- 509
------- -------- -------- -------- -------- --------
Total operating expenses........... 2,262 12,928 22,565 24,930 12,999 15,358
------- -------- -------- -------- -------- --------
Loss from operations................... (2,262) (12,816) (25,237) (29,132) (13,999) (14,191)
Other income (expense), net:
Interest income...................... 193 669 1,001 1,260 736 454
Interest expense..................... -- (26) (298) (956) (418) (552)
------- -------- -------- -------- -------- --------
Total other income (expense),
net.............................. 193 643 703 304 318 (98)
------- -------- -------- -------- -------- --------
Net loss............................... $(2,069) $(12,173) $(24,534) $(28,828) $(13,681) $(14,289)
======= ======== ======== ======== ======== ========
Basic and diluted net loss per share... $(10.61) $ (4.66) $ (5.11) $ (4.07) $ (2.11) $ (1.72)
Shares used to compute basic and
diluted net loss per share........... 195 2,610 4,798 7,087 6,475 8,315
Pro forma basic and diluted net loss
per share............................ $ (0.84) $ (0.38)
Shares used to compute pro forma basic
and diluted net loss per share....... 34,391 37,628
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
---------------------------------------- JUNE 30,
1995 1996 1997 1998 1999
------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $14,350 $13,913 $25,706 $15,128 $19,887
Working capital.......................................... 13,821 12,687 25,657 12,523 16,435
Total assets............................................. 15,114 19,833 37,708 26,788 32,910
Long-term debt and capital leases, net of current
portion................................................ -- 556 4,209 4,547 4,282
Total shareholders' equity............................... 14,538 16,127 27,005 13,893 17,341
</TABLE>

15
<PAGE> 20

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

This section contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ substantially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
The following discussion should be read together with our consolidated financial
statements and related notes included elsewhere in this prospectus.

OVERVIEW

We are a leading provider of wireless networking equipment used by
telecommunications service providers to provide businesses with high-speed
telecommunications connections. We were incorporated in 1994 and introduced our
first product, the AirMAN system, in 1996. Recognizing the competitiveness of
the market for AirMAN products, we decided to devote substantially all of our
product development efforts to the AirStar product from 1996 onward. The AirMAN
system was designed to provide a dedicated link to connect two high traffic
nodes in a network. Unlike the AirMAN system, the AirStar system allows multiple
subscribers to communicate with a single base station radio in a
point-to-multipoint architecture requiring more advanced technology. We began
initial sales of an early 26 GHz AirStar system in Europe in early 1998. With
the successful trial shipments of the AirStar system, we discontinued AirMAN in
September 1998. We shipped the first trial AirStar systems for 26 GHz in the
third quarter of 1998. We then shipped a trial version of a 10 GHz AirStar
product in November 1998. Based on our success in field trials and the receipt
of limited quantities of AirStar subsystems from our first contract
manufacturer, Solectron California Corporation, we made the 26 GHz AirStar
product commercially available in January 1999. However, the product was, and
continues to be, available only in limited quantities due to manufacturing and
capacity constraints.

All of our 1996 and 1997 revenues and approximately 47% of our 1998
revenues were derived from sales of the AirMAN system. Due to the product
transition, revenues declined to $5.4 million in 1998 from $5.6 million in 1997.
We had negative gross margins in each quarter of 1997 and 1998 as a result of
declining average selling prices in the market for the AirMAN system.

Currently, our revenues are generated from sales of AirStar systems
through system integrators that integrate our products, local resellers and our
direct sales force. In the first quarter of 1998, we entered into a product
supply agreement with Siemens/Italtel. In the third quarter of 1998, we signed a
product supply and joint development agreement with Lucent. For 1998 and the six
months ended June 30, 1999, international revenues represented approximately 76%
and 36% of total revenues. In addition, a substantial portion of our domestic
revenues is derived from systems intended for installation in international
locations.

Although we have historically assembled our products in-house, we are
currently in the process of outsourcing manufacturing and assembly to contract
manufacturers. Solectron began providing us with AirStar subsystems in the first
quarter of 1999. In January 1999, we also signed a manufacturing agreement with
Microelectronic Technology Inc. to obtain a second source for the AirStar radios
and to increase our manufacturing capacity. We expect these contract
manufacturers to be responsible for most of our volume production in the future.

System integrators and service providers typically perform numerous tests
and extensively evaluate products before incorporating them into networks. The
time required for testing, evaluation and design of our products into the
service provider's network typically ranges from six to twelve months. If a
service provider decides to supply commercial service with our products, it can
take an additional six to twelve months before a service provider commences
deployment of our products. During the trial period, we sell to service
providers a limited number of hubs, consisting of a base station and base radio
units, and corresponding subscriber equipment, consisting of the subscriber
access system and the subscriber radio unit. The successful completion of this
trial phase often results in another sale of additional hubs and subscriber
equipment intended for commercial service.

16
<PAGE> 21

Revenues. Our current revenues primarily consist of product revenues from
the sale of the AirStar system. Revenues from product sales are generally
recognized when:

- the product has shipped;

- we have the right to invoice the customer;

- collection of the receivable is probable; and

- we have fulfilled all contractual obligations to the customer.

Cost of Revenues. Our cost of revenues consists of contract manufacturing
costs, material costs, compensation costs, manufacturing overhead, warranty
reserves and other direct product costs.

Research and Development. Research and development expenses consist of
compensation costs, the cost of some software development tools, consultant fees
and prototype expenses related to the design, development and testing of our
products. Our policy is to expense all research and development expenses as
incurred. For certain projects we receive third-party research and development
funding, which is offset against the related expenses. Gross research and
development expenses are costs incurred before offset from third-party research
and development funding.

Sales and Marketing. Sales and marketing expenses consist primarily of
compensation costs, commissions, travel and related expenses for marketing,
sales and field service support personnel, as well as product management, trade
show and promotional expenses.

General and Administrative. General and administrative expenses consist
primarily of compensation costs and related expenses for executive, finance,
management information systems, human resources and administrative personnel.
These expenses also include professional fees, facilities and other general
corporate expenses.

Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation results from the granting of stock options to employees with
exercise prices per share determined to be below the estimated fair values per
share of our common stock at dates of grant. The deferred compensation that
results is being amortized to expense over the vesting periods of the individual
options, generally four years. We have recorded total deferred stock
compensation of $4.8 million through June 30, 1999.

Other Income (Expense), Net. Other income (expense), net consists
primarily of interest income earned on low-risk, short-term investments and
interest paid on outstanding debt.

Income Taxes. We have not recorded any provision for income taxes for any
of the periods presented because we have generated net losses since inception.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 AND 1999

Revenues. Revenues increased 63% from $3.3 million for the six months
ended June 30, 1998 to $5.3 million for the six months ended June 30, 1999. This
increase was primarily due to an increase in the number of sales of the 26 GHz
AirStar system and was partially offset by a decrease in sales of AirMAN
systems. Sales to three customers, Alpine-Energie, Italtel and Nortel,
represented 41%, 22% and 13% of revenues for the six months ended June 30, 1998.
Sales to two customers, Lucent and Italtel, represented 60% and 20% of revenues
for the six months ended June 30, 1999. Substantially all of the revenues for
these periods were generated from installations in international locations.

17
<PAGE> 22

Gross Profit. Gross profit increased from a loss of $1.0 million for the
six months ended June 30, 1998 to a profit of $1.2 million for the six months
ended June 30, 1999. This increase in gross profit was primarily due to lower
unit costs and lower labor costs associated with higher volume product sales and
greater product maturity of the AirStar system. Gross profit, as a percentage of
revenues, improved from negative 31% for the six months ended June 30, 1998 to
22% for the six months ended June 30, 1999. We anticipate that gross profit will
vary significantly from period to period until our sales and production volumes
stabilize.

Research and Development. Research and development expenses increased from
$8.8 million for the six months ended June 30, 1998 to $9.2 million for the six
months ended June 30, 1999. This increase was primarily due to an increase in
our research and development personnel, number of development projects and
related third-party design and consulting charges. These projects primarily
consisted of the development of the AirStar system at 26, 10 and 38 GHz. Gross
research and development expenses increased from $8.8 million for the six months
ended June 30, 1998 to $9.6 million for the six months ended June 30, 1999.

Sales and Marketing. Sales and marketing expenses increased from $2.3
million for the six months ended June 30, 1998 to $2.6 million for the six
months ended June 30, 1999. This increase was due to the continued expansion in
sales, technical assistance and field support personnel necessary to support
both the pre-sale and post-sale activities associated with the AirStar system.
Increased spending includes compensation costs, travel and increased sales
commissions due to higher sales.

General and Administrative. General and administrative expenses increased
from $1.9 million for the six months ended June 30, 1998 to $3.1 million for the
six months ended June 30, 1999. This increase was due to an increase in rent
expense resulting from additional office space assumed and the growth in general
and administrative personnel from 11 to 17.

Amortization of Deferred Stock Compensation. Amortization of deferred
stock compensation was $509,000 for the six months ended June 30, 1999. This
amortization is due to deferred compensation of approximately $4.8 million,
related to stock options granted in the year ended December 31, 1998 and the six
months ended June 30, 1999, which we are amortizing over the vesting periods of
the applicable options beginning in 1999.

Other Income (Expense), Net. Interest income decreased from $736,000 for
the six months ended June 30, 1998 to $454,000 for the six months ended June 30,
1999. This decrease was primarily due to less interest earned on lower average
cash balances. Interest expense increased from $418,000 for the six months ended
June 30, 1998 to $552,000 for the six months ended June 30, 1999. This increase
was primarily due to interest expense incurred due to greater utilization of
secured equipment loans and lease and bank financing for working capital.

Net Loss. Net loss increased from $13.7 million for the six months ended
June 30, 1998 to $14.3 million for the six months ended June 30, 1999. This
increase was primarily due to increases in operating expenses and other
expenses, which were offset in part by an increase in gross profit.

COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

Revenues. Revenues increased from $731,000 in 1996 to $5.6 million in 1997
due to increased sales of AirMAN in 1997 after its introduction in late 1996.

Revenues decreased from $5.6 million in 1997 to $5.4 million in 1998. This
decrease was primarily due to the discontinuation of the AirMAN system, which
resulted in declining revenues that more than offset the revenues generated from
the launch of the AirStar system. Substantially all of the revenues for

18
<PAGE> 23

these years were generated from installations in international locations. Sales
to major customers are as follows:

<TABLE>
<CAPTION>
REVENUES % OF TOTAL REVENUES
-------------------------- --------------------
1996 1997 1998 1996 1997 1998
------ ------ ------ ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Alpine-Energie...................... $ -- $ 655 $1,480 --% 12% 27%
Italtel............................. -- -- 799 -- -- 15
Lucent.............................. -- -- 873 -- -- 16
o.tel.o............................. 89 1,092 * 13 20 *
PanDacom............................ 580 2,181 * 79 39 *
Pele-Phone.......................... -- 1,172 541 -- 21 10
------ ------ ------ ---- ---- ----
Aggregate amount from 10% or
greater customers.............. $ 669 $5,100 $3,693 92% 92% 68%
====== ====== ====== ==== ==== ====
</TABLE>

- ---------------
* Sales less than 10%.

Gross Profit (Loss). Gross profit decreased from $112,000 in 1996 to a
loss of $2.7 million in 1997 due to sales discounts and inventory write-downs
related to the AirMAN system.

Gross loss increased from $2.7 million in 1997 to $4.2 million in 1998.
This increase was primarily due to pricing pressures for the AirMAN system in
its market and increased warranty reserves for the AirMAN system.

Research and Development. Research and development expenses increased from
$10.4 million in 1996 to $15.3 million in 1997. The increase was primarily due
to increases in personnel and related compensation costs, prototype material
expenses and third-party engineering charges. There were no offsets from
third-party funding in 1996 and 1997.

Research and development expenses increased from $15.3 million in 1997 to
$16.1 million in 1998. The increase was primarily due to increases in personnel
and related compensation costs, prototype material expenses, third-party
engineering charges and expenses related to the trial release of the initial
AirStar system. Gross research and development expenses increased from $15.3
million in 1997 to $17.0 million in 1998.

Sales and Marketing. Sales and marketing expenses increased from $1.3
million in 1996 to $3.8 million in 1997. This increase was primarily due to the
significant expansion in sales, technical assistance and field support personnel
necessary to support the increase in customers. Increased spending also included
compensation costs, travel and increased sales commissions due to higher sales.

Sales and marketing expenses increased from $3.8 million in 1997 to $4.8
million in 1998. The increase was primarily due to the significant expansion in
sales, technical assistance and field support personnel necessary to support
both the pre-sale and post-sale activities associated with the AirStar system.

General and Administrative. General and administrative expenses increased
from $1.2 million in 1996 to $3.5 million in 1997. The increase in general and
administrative expenses was primarily due to expansion in facilities expenses as
a result of relocating and, to a lesser extent, increases in personnel.

General and administrative expenses increased from $3.5 million in 1997 to
$4.0 million in 1998. The increase was primarily due to increased rent expense
due to relocation to larger facilities, as well as an increase in personnel from
8 to 15.

Other Income (Expense), Net. Interest income increased from $669,000 in
1996 to $1.0 million in 1997 principally due to higher average cash balances
than in 1996. Interest expense increased from $26,000 in 1996 to $298,000 in
1997 due to greater utilization of secured equipment loans and lease financing.

Interest income increased from $1.0 million in 1997 to $1.3 million in
1998 primarily due to higher average cash balances and greater short-term
investments than in 1997. Interest expense increased from

19
<PAGE> 24

$298,000 in 1997 to $956,000 in 1998 principally due to greater utilization of
secured equipment loans and lease and bank financing for working capital.

Net Loss. Net loss increased from $12.2 million in 1996 to $24.5 million
in 1997 primarily due to increases in operating expenses and negative gross
profit.

Net loss increased from $24.5 million in 1997 to $28.8 million in 1998
primarily due to increases in operating expenses and negative gross profit.

QUARTERLY RESULTS OF OPERATIONS

The following tables present unaudited quarterly operating results, in
dollars and as a percentage of revenues, for the six quarters ended June 30,
1999. We believe this information reflects all adjustments (consisting only of
normal recurring adjustments) that we consider necessary for a fair presentation
of such information in accordance with generally accepted accounting principles.
The results for any quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
MAR 31, JUNE 30, SEPT 30, DEC 31, MAR 31, JUNE 30,
1998 1998 1998 1998 1999 1999
------- -------- -------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
AirStar................................ $ 585 $ 650 $ 103 $ 1,574 $ 2,133 $ 3,072
AirMAN................................. 411 1,627 463 25 9 124
------- ------- ------- ------- ------- -------
Total revenues.................. 996 2,277 566 1,599 2,142 3,196
Cost of revenues......................... 1,310 2,963 2,523 2,844 1,649 2,522
------- ------- ------- ------- ------- -------
Gross profit (loss)...................... (314) (686) (1,957) (1,245) 493 674
------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............... 4,257 4,512 4,430 2,944 4,224 4,959
Sales and marketing.................... 1,051 1,279 1,262 1,227 1,332 1,231
General and administrative............. 913 987 990 1,078 1,752 1,351
Amortization of deferred stock
compensation......................... -- -- -- -- 168 341
------- ------- ------- ------- ------- -------
Total operating expenses........ 6,221 6,778 6,682 5,249 7,476 7,882
------- ------- ------- ------- ------- -------
Loss from operations..................... (6,535) (7,464) (8,639) (6,494) (6,983) (7,208)
Other income (expense), net:
Interest income........................ 412 324 301 223 233 221
Interest expense....................... (194) (224) (263) (275) (272) (280)
------- ------- ------- ------- ------- -------
Total other income (expense),
net........................... 218 100 38 (52) (39) (59)
------- ------- ------- ------- ------- -------
Net loss................................. $(6,317) $(7,364) $(8,601) $(6,546) $(7,022) $(7,267)
======= ======= ======= ======= ======= =======
PERCENT OF TOTAL REVENUES:
Revenues:
AirStar................................ 59% 29% 18% 98% 99% 96%
AirMAN................................. 41 71 82 2 1 4
------- ------- ------- ------- ------- -------
Total revenues.................. 100 100 100 100 100 100
Cost of revenues......................... 132 130 446 178 77 79
------- ------- ------- ------- ------- -------
Gross profit (loss)...................... (32) (30) (346) (78) 23 21
------- ------- ------- ------- ------- -------
Operating expenses:
Research and development............... 427 198 783 184 197 155
Sales and marketing.................... 105 56 223 77 62 39
General and administrative............. 92 43 175 67 82 42
Amortization of deferred stock
compensation......................... -- -- -- -- 8 11
------- ------- ------- ------- ------- -------
Total operating expenses........ 625 297 1,181 328 349 247
------- ------- ------- ------- ------- -------
Loss from operations..................... (656) (327) (1,527) (406) (326) (226)
Other income (expense), net.............. 22 4 7 (3) (2) (1)
------- ------- ------- ------- ------- -------
Net loss................................. (634)% (323)% (1,520)% (409)% (328)% (227)%
======= ======= ======= ======= ======= =======
</TABLE>

Revenues increased for the quarters ended March 31 and June 30, 1998 due
to increased sales volumes driven by AirMAN system discounts. During these
quarters, revenues also increased due to AirStar system sales to customers for
preliminary stages of our testing program. Revenues decreased for

20
<PAGE> 25

the quarter ended September 30, 1998 primarily due to the discontinuation of the
AirMAN system. Revenues increased for the quarters ended December 31, 1998,
March 31, 1999 and June 30, 1999 due to AirStar system sales. Gross profit
increased for the quarters ended September 30, 1998, December 31, 1998, March
31, 1999 and June 30, 1999 primarily due to increased sales of AirStar systems.
AirStar systems have a higher profit margin than AirMAN systems. Research and
development expenses decreased in the quarter ended December 31, 1998 primarily
due to third-party engineering funding and fluctuations in third-party design
and consulting charges and usage of prototype material. Research and development
expenses increased in the quarter ended June 30, 1999 due to fluctuations in
third-party design, consulting charges and usage of prototype materials with no
offset from third-party engineering funding. Sales and marketing expenses
fluctuate on a quarterly basis due to seasonal promotional and marketing
expenses for trade shows. General and administrative expenses increased in the
quarter ended March 31, 1999 due to an increase in rent expense resulting from
additional office space assumed and one-time vendor contract fees. Interest
income decreased from the quarter ended March 31, 1998 through the quarter ended
June 30, 1999, due to the decline in average cash balances. Interest expense
increased for the quarters ended June 30 and September 30, 1998 primarily due to
greater utilization of secured equipment loans and lease financing and bank
financing for working capital.

We believe that period-to-period comparisons of our operating results are
not necessarily meaningful. You should not rely on them to predict future
performance. The amount and timing of our operating expenses generally may
fluctuate significantly in the future as a result of a variety of factors. We
face a number of risks and uncertainties encountered by early stage companies,
particularly those in rapidly evolving markets such as the telecommunications
and data communications equipment industries. We may not be able to address
these risks and difficulties successfully. In addition, although we have
experienced revenue growth recently, our revenue growth may not continue, and we
may not achieve or maintain profitability in the future.

Our quarterly and annual operating results have fluctuated in the past and
are likely to fluctuate significantly in the future. It is likely that in some
future quarter our operating results will fall below the expectations of
securities analysts and investors. In this event, the market price of our common
stock could significantly decline.

Some of the factors that could affect our quarterly or annual operating
results include:

- our ability to reach the required production volumes and quality
levels for our products;

- our ability to obtain sufficient supplies of sole source or long
lead-time components for our products;

- our ability to achieve cost reductions;

- the size, timing and frequency of network buildouts, which are
typically large and infrequent;

- the timing and amount of, or cancellation or rescheduling of, orders
for our products, particularly large orders from system integrators;

- our ability to introduce and support new products and to manage
product transitions; and

- a decrease in the average selling prices of our products.

Our sales cycle, which is typically between six and twelve months,
contributes to fluctuations in our quarterly operating results. Further, the
emerging and evolving nature of the market for systems such as AirStar may lead
prospective customers to postpone their purchasing decisions. In addition,
general concerns regarding year 2000 compliance may further delay purchase
decisions by prospective customers.

Most of our expenses, such as employee compensation and lease payments for
facilities and equipment, are relatively fixed in the near term. In addition,
our expense levels are based, in part, on our expectations regarding future
revenues. As a result, any shortfall in revenues relative to our expectations
could cause significant changes in our operating results from quarter to
quarter. Due to the foregoing factors, we believe

21
<PAGE> 26

period-to-period comparisons of our revenue levels and operating results are not
meaningful. You should not rely on our quarterly revenues and operating results
to predict our future performance.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations primarily through the
sale of preferred equity securities and more recently through the use of secured
loans and leases for the purchase of capital equipment and bank financing for
working capital. As of June 30, 1999, we have raised aggregate cash proceeds of
$98.0 million, before offering expenses of $220,000, through the sale of
preferred stock.

As of June 30, 1999, cash and cash equivalents were $3.0 million and
short-term investments were $16.9 million. We have a $6.0 million bank line of
credit. As of June 30, 1999, borrowings outstanding were $3.3 million and
amounts utilized for outstanding letters of credit were $400,000 under this
agreement. The line of credit is secured by eligible outstanding accounts
receivable and inventory. The borrowings under the line are due in January 2000
and accrue interest at the 30-day LIBOR plus 2.25% or the bank's prime rate, at
our option. In addition, we have secured equipment financing with three lenders
which allows a maximum borrowing of $11.8 million of which $1.7 million was
available as of June 30, 1999. As of June 30, 1999, $4.3 million remained
outstanding under these arrangements. See note 6 of notes to consolidated
financial statements.

Cash used in operating activities was $12.7 million for the six months
ended June 30, 1999 and $13.7 million for the same period in 1998. Cash used for
operations for both periods was primarily due to the net loss, partially offset
by non-cash charges.

Cash used in investing activities was $8.9 million for the six months
ended June 30, 1999, primarily due to excess cash invested in short-term
investments. Cash used in investing activities was $9.5 million for the six
months ended June 30, 1998, primarily due to excess cash invested in short-term
investments and capital equipment purchases.

Cash provided by financing activities was $18.5 million for the six months
ended June 30, 1999. Cash provided by financing activities was $12.3 million for
the six months ended June 30, 1998. Cash provided by financing activities for
both periods was primarily due to issuances of preferred stock and, to a lesser
extent, capital lease and bank financing.

We have no material commitments other than obligations under our credit
facilities and operating and capital leases. See notes 6 and 7 of notes to
consolidated financial statements. Our future capital requirements will depend
upon many factors, including the timing of research and product development
efforts and expansion of our marketing efforts. We expect to continue to expend
significant but smaller amounts on property and equipment related to the
expansion of our facilities, and on research and development laboratory and test
equipment, as the capital required for volume manufacturing is being committed
by our contract manufacturers. We provide six or twelve month forecasts to our
contract manufacturers. We generally commit to purchase products to be delivered
within the most recent 60 days covered by these forecasts with cancellation
fees. As of June 30, 1999, we had committed to make purchases totaling $6.1
million from these manufacturers in the next 60 days. In addition, in specific
instances we may agree to assume liability for limited quantities of specialized
components with lead times beyond this 60-day period.

In future periods, we generally anticipate significant increases in our
working capital needs on a period-to-period basis primarily as a result of
planned increased product revenues. In conjunction with the expected increases
in revenues, we expect higher levels of inventory and trade accounts receivable.
While we also expect an increase in trade accounts payable and other
liabilities, we do not expect that they will offset the increases in inventory
and trade accounts receivable.

We believe that continued substantial investment in research and
development is critical to attaining our strategic product and cost-reduction
objectives. We also expect to expand our field sales and customer support
organizations as customers move from trials to large scale deployments, which
will in

22
<PAGE> 27

turn increase sales and marketing expenses. The growth of our business and
operation as a public company will require additional personnel and costs
resulting in increases in our general and administrative expenses.

We believe that the net proceeds from this offering together with our cash
and cash equivalents balances, short-term investments and funds available under
our existing line of credit will be sufficient to satisfy our cash requirements
for at least the next twelve months. Our management intends to invest our cash
in excess of current operating requirements in short-term, interest-bearing,
investment-grade securities.

IMPACT OF YEAR 2000

Many currently installed computer systems and software products are coded
to accept only two-digit entries in date code fields. 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. Any of our computer
programs or hardware that have date-sensitive software or embedded chips and
have not been upgraded to comply with these year 2000 requirements may recognize
a date using "00" as the year 1900 rather that the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.

General Readiness Assessment. The year 2000 problem affects the
computers, software and other equipment that we use, operate or maintain for our
operations. As a result, we have formalized our year 2000 compliance plan, to be
implemented by a team of our internal information technology staff responsible
for monitoring the assessment and remediation status of our year 2000 projects
and reporting that status to our executive staff. This project team is currently
assessing the potential effect and costs of remediating the year 2000 problem
for our internal systems. To date, we have not obtained verification or
validation from any independent third parties of our processes to assess and
correct any of our year 2000 problems or the costs associated with these
activities.

Assessment of Netro's Products. Beginning in 1998, we began assessing the
ability of our products to operate properly in the year 2000. We believe that
our current products are year 2000 compliant, other than software used in our
AirMAN product. We are in the process of notifying all of our customers that are
using our AirMAN product that we have a software upgrade that fixes the
non-compliant software. Additionally, as we design and develop new products, we
subject them to testing for year 2000 compliance and the ability to distinguish
between various date formats. We expect to continue to test our software and
products for year 2000 compliance and compliance when used with other standard
operating systems or computer platforms. Accordingly, we do not believe that the
year 2000 issue presents a material exposure as it relates to our products

Assessment of Internal Infrastructure. We believe that we have identified
most of the major computers, software applications and related equipment used in
connection with our internal operations that will need to be evaluated to
determine if they must be modified, upgraded or replaced to minimize the
possibility of a material disruption to our business. Based on a review of our
computer systems, we have determined that we will be required to modify or
replace some portions of our software so that those systems will properly
utilize dates beyond December 31, 1999. We presently believe that with
modifications or replacements of existing software through our maintenance
contracts with third-party vendors, year 2000 issues can be mitigated. We expect
to complete this process before December 31, 1999.

Systems Other than Information Technology Systems. In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, telephone switches, security systems and other common
devices, may be affected by the year 2000 problem. We are currently assessing
the potential effect and costs of remediating the year 2000 problem on our
office equipment and our facilities in San Jose, California. We expect to
complete this process before December 31, 1999.

Costs of Remediation. We estimate the total cost to us of completing any
required modifications, upgrades or replacements of our internal systems will
not exceed $100,000, most of which we expect to incur during calendar 1999. This
estimate is being monitored, and we will revise it as additional

23
<PAGE> 28

information becomes available. Based on the activities described above, we do
not believe that the year 2000 problem will have a material adverse effect on
our business or operating results. In addition, we have not deferred any
material information technology projects or equipment purchases as a result of
our year 2000 problem activities.

Suppliers. As part of our year 2000 plan, we have contacted third-party
suppliers of components and key subcontractors used in the delivery of our
products to identify and, to the extent possible, resolve issues involving the
year 2000 problem. However, we have limited or no control over the actions of
these third-party suppliers and subcontractors. Thus, while we expect that we
will be able to resolve any significant year 2000 problems with these third
parties, if these suppliers fail to resolve any year 2000 problems a material
disruption to the operation of our business may occur. Any failure on the part
of these third parties to resolve year 2000 problems with their systems in a
timely manner could have a material adverse effect on our business. We expect to
complete this process before December 31, 1999.

Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all year 2000 problems that could materially adversely affect our
business operations before December 31, 1999. However, we believe that it is not
possible to determine with complete certainty that all year 2000 problems
affecting us have been identified or corrected. The number of devices and
systems that could be affected and the interactions among these devices and
systems are too numerous to address. In addition, no one can accurately predict
which year 2000 problem-related failures will occur or the severity, timing,
duration or financial consequences of these potential failures. As a result, we
believe that the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies
for us, our contract manufacturers and our customers that will divert
management's time and attention and financial and human resources from
ordinary business activities;

- possible business disputes and claims, including claims under our
product warranty, due to year 2000 problems experienced by our
customers and incorrectly attributed to our products or performance,
which we believe will be resolved in the ordinary course of business;
and

- a few serious business disputes alleging that we failed to comply with
the terms of contracts or industry standards of performance, some of
which could result in litigation or contract termination.

Contingency Plans. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans before December 31, 1999. Depending on the systems affected, these plans
could include:

- accelerated replacement of affected equipment or software;

- short- to medium-term use of backup equipment and software or other
redundant systems;

- increased work hours for our personnel or the hiring of additional
information technology staff; and

- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate
solutions for information system deficiencies.

Our implementation of any of these contingency plans could have a material
adverse effect on our business.

Disclaimer. The discussion of our efforts and expectations relating to
year 2000 compliance are forward-looking statements. Our ability to achieve year
2000 compliance, and the level of incremental costs associated therewith, could
be adversely affected by, among other things, the availability and cost of
contract personnel and external resources, third-party suppliers' abilities to
modify proprietary software and unanticipated problems not identified in the
ongoing compliance review.

24
<PAGE> 29

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Hedging Instruments. We transact business in various
foreign currencies and, accordingly, we are subject to exposure from adverse
movements in foreign currency exchange rates. To date, the effect of changes in
foreign currency exchange rates on revenues and operating expenses have not been
material. Basically, all of our revenues are earned in U.S. dollars. Operating
expenses incurred by our German subsidiary are denominated primarily in European
currencies. We currently do not use financial instruments to hedge these
operating expenses. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.

We do not use derivative financial instruments for speculative trading
purposes.

Fixed Income Investments. Our exposure to market risks from changes in
interest rates relates primarily to corporate debt securities. We place our
investments with high credit quality issuers and, by policy, limit the amount of
the credit exposure to any one issuer.

Our general policy is to limit the risk of principal loss and ensure the
safety of invested funds by limiting market and credit risk. All highly liquid
investments with a maturity of less than three months at the date of purchase
are considered to be cash equivalents; all investments with maturities of three
months or greater are classified as held-to-maturity and considered to be
short-term investments.

25
<PAGE> 30

BUSINESS

We are a leading provider of wireless networking equipment used by
telecommunications service providers to provide businesses with high-speed
telecommunications connections. Our wireless system, called Air-Star, features a
single central radio providing telecommunications services to multiple points.
This point-to-multipoint architecture allows a service provider to connect many
of its customers using a single radio. AirStar is designed to allow
telecommunications service providers to offer voice and high-speed data
connections to business customers rapidly and cost-effectively. We have
engineered AirStar to support broad service rollouts and to operate at radio
frequencies licensed for these applications in different countries. AirStar's
point-to-multipoint architecture reduces equipment requirements. AirStar also
increases efficient use of transmission capacity; instead of allocating a static
amount of capacity to every subscriber, AirStar dynamically allocates capacity
based on each subscriber's needs at any given moment. We believe that AirStar,
which we recently began shipping in limited quantities, is one of the first
commercially available high-speed wireless telecommunications systems providing
integrated voice and high-speed data connections using a point-to-multipoint
architecture.

INDUSTRY BACKGROUND

In recent years, the volume of high-speed data traffic across
telecommunications networks worldwide has grown dramatically as the public
Internet and private corporate intranets have become essential for
communications and e-commerce. International Data Corporation forecasts that the
number of Internet users worldwide will grow from approximately 142 million in
1998 to approximately 502 million by the end of 2003. Network traffic volume is
increasing not only as a result of this growing user base, but also due to the
development of sophisticated multimedia content and the deployment of bandwidth-
consuming network applications such as e-commerce. International Data
Corporation estimates that 87% of worldwide e-commerce revenue will be generated
from business users or business-to-business transactions by 2003. These forms of
content and network applications require the transmission of large,
bandwidth-intensive files across networks. As users increasingly rely on
higher-bandwidth network applications and content for business and personal use,
they require cost-effective high-speed connections, which are often unavailable
or inadequate over the existing wire-based network.

Telecommunications deregulation worldwide is creating greatly expanded
opportunities for a larger group of service providers to meet the increasing
demand for high-speed telecommunications services. Increased deregulation has
enabled a large number of telecommunications service providers to provide local
telecommunications connections that historically were offered only by a single,
often monopolistic, provider in a given geographical region. This opportunity is
increasingly global as Europe, Latin America and Japan join the U.S. and the
United Kingdom in promoting competition in the market to provide comprehensive
local telecommunications services. Many of these new telecommunications service
providers are focusing on the deployment of wireless high-speed networks because
of the inherent ability of wireless technology to offer service quickly to a
large number of subscribers. Furthermore, regulators and local service providers
are focused on high-speed, wireless, point-to-multipoint products as a key
technology enabler for future high-speed networks, especially in countries where
the quality of existing wires would require substantial investment to enable it
to carry high-speed services. The Strategis Group estimates that the potential
market for high-speed wireless services, defined as licensed radio frequencies
from 2.5 GHz to 43 GHz, is approximately 60% of the total high-speed revenues
from urban areas.

In order to enable greater local competition and accelerate the deployment
of high-speed networks, the FCC and similar regulators abroad have recently
opened up various bands of wireless radio frequencies at 10 GHz and above. These
frequency bands have been allocated or awarded in large contiguous blocks and
have the potential to support both high-speed data and traditional voice
services. In comparison, other lower frequency bands are used for lower
transmission capacity cellular phone services. To obtain the rights to
frequencies suitable for high-speed services, many service providers have either
paid substantial upfront fees, committed to large capital deployments or
acquired companies that control these frequencies. Additionally, some cellular
phone service operators are seeking to leverage their existing infrastructure by
acquiring radio frequency suitable for high-speed services. This radio frequency
licensing has given

26
<PAGE> 31

telecommunications service providers and cellular phone service operators an
alternative means to provide high-speed services.

Although increased demand and deregulation have generated new
opportunities for service providers, bandwidth limitations of the last mile have
constrained service providers from exploiting these opportunities. The last mile
generally represents the link between the service providers' core network and
the subscriber. Although many wide area network backbones have been upgraded
with fiber optic cable and have utilized technologies that allow operation at
speeds up to 9 Gbps, the local access telephone network typically consists of
older copper wires originally designed to transmit fixed-speed voice signals at
a fraction of that speed. This last mile bottleneck is frustrating a broad base
of business users, many of which require symmetrical access to high-speed data
that requires transmission at varying speeds.

Wire-based technologies attempt to solve these bandwidth constraints, but
they do not meet the needs of many service providers that are seeking to offer
high-speed services to businesses worldwide. Digital subscriber lines and cable
modem services have recently been launched by owners of copper wire or coaxial
cable infrastructures, or by selected service providers in the U.S. that have
been granted regulatory access to those infrastructures. Most digital subscriber
line and cable modem deployments, however, offer high-speed, asymmetrical
services or slower speed symmetrical services. In the case of digital subscriber
lines, speeds can vary with distance and quality of the available wires. Neither
of these services satisfies the needs of many businesses that require
symmetrical high-speed connections. Additionally, because coaxial cable passes
more residences than businesses, and is not deployed in many countries, it is
not an alternative for many business users worldwide. High-speed wires leased
from the incumbent service provider are available to business users in many
countries, but the prices associated with these high-speed connections are often
prohibitive, especially outside the U.S. Similarly, fiber optic technology is
typically only deployed to solve the bandwidth needs of the largest businesses,
where high installation costs can be spread over many users. In short, these
wire-based technologies are not cost-effective for many businesses, or they
require either substantial upfront capital investment or a high-quality existing
wire-based infrastructure.

Telecommunications service providers and cellular phone operators with
licenses to radio frequencies suitable for high-speed wireless networks
worldwide are now seeking to capitalize on deregulation and increased demand to
offer high-speed services to subscribers. Many of these service providers target
business customers for which alternate high-speed services are unavailable,
inadequate or not cost-effective. High-speed wireless technologies can offer
immediate coverage of a metropolitan area and can be deployed rapidly without
dependence on the quality of or access to existing wire-based networks.

Although many service providers that have the right to use radio
frequencies suitable for high-speed wireless networks recognize the opportunity
to meet new demand for integrated voice and high-speed data services, many have
been constrained from cost effectively offering these services to a wide base of
business users. Historically, most high-speed wireless technologies were only
cost-effective for providing a single link to connect two high traffic nodes
such as large office buildings where high radio costs can be spread over many
users.

Telecommunications service providers and cellular phone operators
deploying high-speed wireless networks today must differentiate their services
to a wide base of business users while effectively competing with services
offered by fiber optic cable, digital subscriber lines, cable modems and
high-speed wires leased from existing telecommunications service providers. For
example, a service provider deploying a high-speed wireless network could offer
multiple integrated voice and data services with guaranteed quality levels to
maximize revenue from its licensed radio frequency. A service provider that
could rapidly offer these services to a broad base of business customers would
often have an early-mover advantage in a particular metropolitan market.
High-speed wireless solutions implemented by these service providers, however,
would need to be reliable and cost-effective to deploy. Although a large market
opportunity exists to provide solutions that allow service providers to deploy
differentiated services, very few vendors commercially offer high-speed,
wireless, point-to-multipoint products to serve this market.

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<PAGE> 32

THE NETRO SOLUTION

We are a leading provider of wireless networking equipment used by
telecommunications service providers to provide businesses with high-speed
telecommunications connections. Our wireless system, called Air-Star, features a
single central radio providing telecommunications services to multiple points.
This point-to-multipoint architecture allows a service provider to connect many
of its customers using a single radio. AirStar is designed to allow
telecommunications service providers to offer voice and high-speed data
connections to business customers rapidly and cost-effectively. We have
engineered AirStar to support broad service rollouts and to operate at radio
frequencies licensed for these applications in different countries. AirStar's
point-to-multipoint architecture reduces equipment requirements. AirStar also
increases efficient use of transmission capacity; instead of allocating a static
amount of capacity to every subscriber, AirStar dynamically allocates capacity
based on each subscriber's needs at any given moment. We believe that AirStar,
which we recently began shipping in limited quantities, is one of the first
commercially available high-speed wireless telecommunications systems providing
integrated voice and high-speed data connections using a point-to-multipoint
architecture. We believe our AirStar system provides the following benefits to
service providers:

Service Integration and Bandwidth on Demand. Our AirStar system employs
our proprietary software protocol, CellMAC, which enables flexible and dynamic
sharing of capacity among a number of subscribers and services. Many existing
high-speed connection technologies are optimized for either voice or data
traffic. Voice traffic requires fixed-speed, low-capacity transmissions, while
data traffic requires variable-speed, high-capacity transmissions. Consequently,
network operators wishing to carry both types of traffic often must choose among
setting aside capacity to service peak transmission data traffic requirements,
allowing degradation of service during heavy usage, or servicing a smaller
number of subscribers. In contrast, service providers using the AirStar system
can support voice and high-speed data from the same system without these
performance compromises. Additionally, AirStar allows service providers to offer
symmetrical high-speed services, with peak transmission rates of up to 8 Mbps to
meet the needs of many business users that send and receive large files for
e-mail, application hosting, intranet access and e-commerce.

Cost-Effective Deployment and Operation. AirStar's cost-effective
deployment allows a service provider to compete effectively in providing their
customers with high-speed telecommunications services. By employing a
point-to-multipoint architecture, one AirStar hub radio can serve multiple
subscriber radios, which results in lower total radio costs than architectures
in which each radio can only communicate with one other radio. AirStar also uses
an advanced technology that allows voice and data traffic to be transmitted in
adjacent time slots. This architecture reduces duplicate network hardware
components such as modems, and thus further lowers overall system costs. In
addition, a significant portion of the cost to build an AirStar network is
directly related to subscriber growth, allowing the service provider to incur
costs concurrently with the subscriber growth. To add subscribers in a sector, a
provider simply installs equipment at the subscriber's premises and activates
the service remotely. Finally, the AirStar system allows a service provider to
optimize the use of radio frequencies and the deployment of equipment by
expanding effective transmission capacity.

Quality of Service and Reliability. Service providers using AirStar can
deploy voice and data services at different price points to different market
segments with the option for guaranteed quality of service levels and up to
99.999% availability. AirStar can prioritize transmissions depending on their
source and type, and fill available transmission capacity with lower priority
transmissions. Furthermore, the AirStar system is engineered to enable service
providers to offer the same high reliability and availability for services that
traditional service providers have historically offered for voice services.
Reliability is accomplished through an error correction algorithm, redundancy
and comprehensive network management software.

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<PAGE> 33

that we target have typically committed a high level of capital investment to
enter the high-speed wireless telecommunications services market, and thus are
focused on quickly realizing a return on their investment. Our AirStar system is
scalable and allows service providers to rapidly offer new services to existing
or incremental subscribers within a coverage area by a simple software command
and a radio installation that is automatically configured by the base station
with little technician intervention. By installing one AirStar base station, the
service provider can attain coverage of many potential subscribers. For example,
a typical cell at 10 GHz or 26 GHz can cover ranges from 110 to 275 square miles
or 5 to 15 square miles, respectively, depending on local conditions, and has a
transmission capacity of over 600 Mbps. Compared to other high-speed, wire-based
technologies that often require lengthy and expensive upgrades before offering
service or do not support integrated voice and symmetrical data services,
AirStar allows a service provider to rapidly deploy integrated voice and
high-speed data services as demand warrants.

STRATEGY

Our objective is to be the leading worldwide supplier of high-speed,
wireless, point-to-multipoint telecommunications equipment used by
telecommunications service providers. Key elements of our strategy include the
following:

Increase Deployments within Our Existing Service Provider Base. As the
needs of service providers evolve, we intend to extend product features to
leverage the success achieved at key service providers. We believe that,
although we have only recently begun shipping AirStar in limited quantities, it
is one of the first commercially available, high-speed wireless systems with a
point-to-multipoint architecture. To date, service providers have deployed the
AirStar system in limited commercial rollouts or trials. We intend to convert
early design wins within our existing service provider base into large-scale
commercial deployments. We expect the average time between trial and commercial
rollout to decrease as these service providers successfully deploy service to
subscribers and become more familiar with the system.

Drive Deployments by New Service Providers. We believe that our
visibility as a leading provider of high-speed, wireless, point-to-multipoint
products will provide additional customer trials and reference sales. Once
completed, we intend to utilize successful deployments at existing service
providers as reference accounts for new service providers. Our products are
designed to provide price and performance advantages that will help generate new
revenues rapidly for service providers that have obtained the right to use
frequencies suitable for high-speed transmissions. Consequently, we intend to
expand aggressively our product marketing and development beyond existing
service providers that use the 10 GHz and 26 GHz frequencies and into new
markets domestically and internationally to serve a broader service provider
base. For example, we intend to conduct 38 GHz trial installations in 1999,
allowing us to serve telecommunications service providers that operate at this
frequency in the U.S. market.

Provide Competitive Advantages to Service Providers. We intend to
continue to focus our product development efforts on features that would enable
service providers to deploy differentiated, profitable services to their
business subscribers. The AirStar system allows service providers to deploy
voice and data services rapidly and cost effectively when demand warrants. As
service providers begin to deploy AirStar on a broader basis, we expect they
will demand support for additional data and voice services and higher-speed
interfaces to increase their market share. We intend to offer new features that
will enable service providers to further differentiate their services. For
example, we expect to introduce support for additional data and voice services
and peak transmission rates of up to 16 Mbps later in 1999.

Strengthen and Expand Relationships with Leading Communications Equipment
Vendors. We intend to build on our success with Lucent and Siemens/Italtel to
meet the needs of service providers seeking to deploy large-scale networks and
to expand our service provider base. Our relationships with these two vendors
enable service providers deploying AirStar to receive services to integrate our
equipment in their network, and to receive an increased level of customer
service. We believe the provision of these services can facilitate broader
deployments worldwide. We further believe that leading communications equipment
vendors with a global sales presence are in the strongest position to provide
service providers

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<PAGE> 34

with integration services and support. Thus, we believe strengthening these
relationships and selectively establishing new relationships will facilitate
increased volume deployments of our products in the global market.

Capitalize on Technology Leadership to Introduce New Products Rapidly and
Cost Effectively. Our platform can allocate capacity dynamically because it
integrates a number of technical capabilities, including millimeter wave radio
design, data networking and network management software. We believe integrating
these capabilities is highly complex, and we intend to leverage our technology
expertise to introduce new products and features rapidly and cost effectively.
AirStar's design enables us to reuse protocol software and many common
networking elements. As a result, the introduction of products in a new
frequency typically requires only relatively simple modifications in the radio
elements rather than the extensive development time and costs of entirely
redesigned equipment.

Leverage Third-Party Customer Support to Scale Rapidly. We are actively
training our system integrators, other resellers and service providers
themselves in the operation and maintenance of the AirStar system. Many of our
service providers and system integrators have extensive experience in deploying
and provisioning high-speed networks for connecting subscribers on a large
scale. We plan to work closely with our system integrators and service providers
to enable them to provide their own primary and secondary tiers of support for
the AirStar system while our engineers and customer service personnel will
provide backup support on a 24-hour, 7-day basis. By educating our system
integrators' and service providers' personnel about support, we intend to be in
a position to scale our business rapidly as service providers worldwide
transition from trials to commercial deployments.

PRODUCTS

The AirStar system is typically deployed in a hub and spoke layout. Each
central hub can provide immediate wireless coverage of a particular area, with
the coverage area depending on the licensed frequency, local conditions and the
level of service availability chosen by the service provider. The AirStar system
consists of integrated network and millimeter wave radio components located at a
central hub and at multiple subscriber locations. AirStar components at the hub
consist of the base station and the base radio unit. AirStar components at a
subscriber's premises consist of a subscriber access system and a subscriber
radio unit. The AirView Link Explorer network management software is typically
used at the service provider's switching center, where it is used to remotely
monitor and manage the subscriber and the hub equipment. The table below shows
the coverage statistics for a typical installation and configuration of one hub
under common local conditions in the geographic regions where we expect many of
our products to be deployed.

<TABLE>
<CAPTION>
COVERAGE AREA
FREQUENCY (SQUARE MILES)
--------- --------------
<S> <C> <C> <C>
10 GHz 110 - 275
26 GHz 5 - 15
38 GHz 2 - 6
</TABLE>

The base radio units at the hub site send and receive simultaneous
high-speed transmissions from multiple subscriber radio units. The system
schedules transmissions from each subscriber on a packet-by-packet basis. The
base station prioritizes the transmissions and allocates just enough bandwidth
or time slots to complete the transfer of each packet. The base station and the
subscriber access system process and manage the information transmitted by the
radio components over the air. Security of the transmissions over the air is
achieved through discrete identifiers for each of the subscriber access systems
and scrambling of the digital transmission through our air interface protocol.
This traffic is processed and delivered to the service provider's switching
center, where the voice and data traffic is connected to the public switched
telephone network for voice, and to the Internet or other public networks for
data.

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<PAGE> 35

The following diagram depicts a high-speed wireless network using our
AirStar system.

[CHART]
Diagram and captions on page 35 of the S-1 form:
1. Left: A diagram depicting the "Subscriber Premises" with a "Netro AirStar
Subscriber Radio Unit" connected to a "Netro AirStar Subscriber Access System"
connected to a PBX (which in turn is connected to three telephones and a fax), a
Router (Frame Relay) and a Computer "LAN". We believe the Subscriber Radio Unit
points to a Netro AirStar Base Radio Unit in the adjacent Left Central Station.
2. Left Central Section A diagram depicting a "Netro AirStar Base Radio Unit"
connected to a Netro AirStar Base Station (with arrows noting the BMU, the BSC
and the BSS). The diagram depicts the "Central Hub". The Base Station is
connected through "fiber" to a cloud and a computer monitor. "Netro AirView Link
Explorer Network Management Software" is in the right Central Section.
3. Right Central Section and Right Section. A diagram depicting the
"backbone" with a cloud depicting traffic from the Base Station being converted
into several networks depicted by clouds: Internet, Frame Relay, PSTN, TDM,
Mobile Switching Center and ATM.

Base Station. Each hub can be configured to provide full redundancy, as
required by telecommunications service providers, for each of the base station
components and the base radio units. A typical base station configuration
requires a single base station shelf, which houses several base sector
controllers, and is connected to several base modem units. We believe the design
of the base station allows more redundant configurations compared to competing
solutions that require much more space.

- The base station shelf is a chassis that houses the base sector
controllers and is connected to the base modem unit. The base station
shelf aggregates traffic from multiple base sector controllers and
enables them to interface with public voice and data networks. It
provides network interfaces to these wide area networks at rates from
34 Mbps or 45 Mbps to 155 Mbps.

- The base sector controller controls activity within each sector of a
given hub coverage area by managing traffic received from multiple
subscribers. These functions combine to provide network management and
routing within sectors of the coverage area. The base station
controller supports the CellMAC protocol in hardware and software and
concentrates traffic to the external network. It has built-in remote
management agents that use the simple network management protocol to
manage and monitor network devices. The base station controller also
enables redundancy support and switching.

- The base modem unit works together with the base radio unit that
covers a particular sector. It converts air signals into a digital bit
stream.

Base Radio Unit. The base radio unit is a radio transceiver with a single,
built-in sector antenna. It is compact and lightweight, has a low profile and is
easy to install and align. The base radio unit transmits to and receives signals
from the subscriber radio unit. A typical base station configuration would
require four base radio units for 360-degree coverage. We are currently testing
a new release that supports smaller

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<PAGE> 36

sectors that will enable higher transmission capacity in some configurations. We
expect this release to be available to our customers in 1999.

Subscriber Radio Unit. The subscriber radio unit is a radio transceiver
with a single directional antenna. We offer the subscriber radio unit with
built-in or external antennas. It is compact and lightweight, has a low profile
and is easy to install and align. The subscriber radio unit transmits to and
receives signals from the base radio unit.

Subscriber Access System. The subscriber access system provides the
subscriber premises interfaces and translates voice and data traffic into
packets for air transmission in a CellMAC format to and from the base station.
It supports the following features:

- Software interfaces to several communications protocols and user
interfaces. We are currently testing a new release that adds dynamic
voice processing for additional protocols and data interfaces. We
expect this release to be available to our customers in 1999.

- Ability to request, through the CellMAC air interface protocol, and
support high-speed sustained transmission up to rates in excess of 500
Kbps to and from the base station and peak transmission rates of up to
8 Mbps. We are currently testing a new release that supports high-
speed sustained transmission up to rates in excess of 3 Mbps and peak
transmission rates of up to 16 Mbps. We expect this release to be
available to our customers in 1999.

- Remote monitoring of the subscriber radio units.

AirView LE. All components of the AirStar network are managed remotely by
our AirView Link Explorer software. With AirView LE, a subscriber radio unit can
be added to the network independently, saving configuration and installation
time, and subscriber access system software upgrades can be supported remotely.
AirView LE provides remote monitoring of all configuration items and alarms. We
are currently testing a new release that enables AirView to interface with
leading third-party network management systems, enabling service provisioning,
fault management, performance monitoring and simultaneous access by multiple
network operators. We expect this release to be available to our customers in
1999. This remote and simultaneous access capability supports the management of
regional or national networks.

TECHNOLOGY

We believe we have developed industry-leading technologies, including
CellMAC software and hardware implementations, an advanced networking
architecture, radio transmission technology and networking software
capabilities. We first commercialized these technologies in the form of our
AirStar family of products by focusing on the service provider's needs.

CellMAC Protocol. We believe our proprietary CellMAC protocol maximizes
the benefit of our point-to-multipoint architecture, and advanced peak traffic
management techniques. CellMAC schedules transmissions from each subscriber in
very small increments. It allows subscribers to request additional capacity from
the base station for peak demand data services through a capacity reservation
mechanism that requires little wasted radio frequency. The base station can
prioritize the requests according to service level agreements and allocates just
enough capacity or time slots to enable the transfer of each transmission.
Traffic from each subscriber terminal shares the capacity, as necessary, to
fulfill the quality of service for each subscriber.

Asynchronous Transfer Mode Architecture. We have implemented an air
interface that utilizes asynchronous transfer mode, a communications protocol,
to efficiently combine voice and data onto a single stream. CellMAC is our
implementation of this protocol over the air. We believe that we are using the
only standardized technology that can transport voice and data traffic
simultaneously and maintain a guaranteed quality of service for each traffic
type. Using this architecture, capacity for services can be provided based on
average throughput requirements rather than peak throughput requirements. As a
result, the capacity of the transmission is increased, resulting in better use
of radio frequency and thus lower equipment expenditures.

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<PAGE> 37

Peak Demand Modulation and Millimeter Wave Radio Technology. Since our
inception, we have worked extensively on radio designs and volume manufacturing
processes to create robust yet cost-effective radios that support advanced radio
technology and peak demand transmission capabilities. The current AirStar radios
are our third generation design.

System and Services Software. Our software architecture and use of
object-oriented design principles for both real-time and network management
software are key to making our AirStar software modular and adjustable to
additional communications protocols. Our software extends the ability of the
AirStar system to enable the inter-working of voice protocols and support the
concentration of voice traffic. In a release we are currently testing, our
software extends the capabilities of the CellMAC protocol to provide dynamic
allocation of capacity to voice services.

SALES AND MARKETING

We have sales representatives in France, Germany and the United Kingdom,
as well as in Atlanta, Georgia and in our corporate headquarters in San Jose,
California. We sell our products through worldwide system integrators, our
direct sales force and local resellers. We have established relationships with
two leading system integrators, Lucent and Siemens/Italtel. We have worked with
these system integrators in development of end-to-end network management systems
and radio planning tools. Our system integrators typically have the means to
provide vendor financing of equipment and may do so in situations where our
equipment is purchased as part of the total network. For some service providers,
this financing is a necessary part of the total solution.

We also target key strategic accounts with our direct sales force. In
determining which accounts to service directly, we try to identify those that
are key early adopters that can help drive our product feature sets in a manner
that will better address the needs of the marketplace as a whole. Regardless of
the actual distribution channel that services the account, our direct sales
force maintains contact with the service provider and the system integrator
account team. This contact keeps us close to the evolving needs of the service
providers and helps ensure that we are well positioned within each account. In
some markets, we have established distribution relationships with local
resellers that also provide support and maintenance to the service providers
they cover.

Our marketing group provides marketing support services for our executive
staff, our direct sales force and for our system integrators and resellers.
Through our marketing activities, we provide technical and strategic sales
support to our direct sales personnel and system integrators or resellers
including in-depth product presentations, technical manuals, sales tools,
pricing, marketing communications, marketing research, trademark administration
and other support functions.

Our marketing group is also responsible for product management activities
throughout each product's lifecycle. These include the definition of product
features, approval of product releases, specification of enhancements to our
product and service offerings, and determination of future product platforms.

SYSTEM INTEGRATOR ALLIANCES

We have established important relationships with two worldwide system
integrators to facilitate the deployment of our products and to meet the
requirements of service providers with end-to-end network integration as they
seek to deploy our high-speed wireless access solution.

- Lucent. Under a product supply agreement we signed with Lucent in
October 1998 after extensive qualifying and testing of our AirStar
product, Lucent will sell and market our AirStar equipment on a
non-exclusive basis for a period of up to three years, with an option
to extend this initial period. Lucent is currently marketing the
AirStar product under the name Lucent OnDemand. We have agreed to
manufacture and sell our products to Lucent and to provide Lucent with
technical support and assistance in the development of customer
proposals. Lucent plans to offer the OnDemand solution as part of an
end-to-end solution with a complete suite

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<PAGE> 38

of support services, NetCare(R), that includes planning, design and
consulting, network implementation and integration and administration
services and tools as well as comprehensive support. We have also
entered into an accelerated development agreement with Lucent to
collaborate on the development of the 38 GHz version of the AirStar.

- Siemens/Italtel. Italtel is an entity that is owned 50% by Siemens
and 50% by Telecom Italia. Siemens has advised us that Italtel serves
as the center of competence of radio technology in the Siemens group
of affiliated companies. Under a product supply agreement we entered
into with Italtel in January 1998, Siemens and some of its affiliates
will sell and market our products on a non-exclusive basis for a
period of up to five years and we will manufacture and sell these
products. Siemens is currently marketing the AirStar product under the
name Siemens SRA MP. Siemens/Italtel plans to sell our products as
part of an integrated network solution. Italtel has also made an
equity investment in Netro.

CUSTOMERS

We target service providers worldwide that have rights to wireless
spectrum suitable for high-speed services or are planning to acquire rights to
deliver high-speed services to subscribers. We began shipping the trial AirStar
system to service providers in the third quarter of 1998. Our direct sales in
most cases are to our system integrators, Lucent and Siemens/Italtel, or to
distributors that in turn sell to service providers. The following is a partial
list of service providers or enterprises that have purchased or deployed our
AirStar system, either as a trial system or to carry traffic to subscribers, and
the locations of their deployments. In each case, we have recognized revenues in
excess of $90,000.

<TABLE>
<S> <C>
Advanced Radio Telecom (Norway)
Airtel (Spain)
Albacom (Italy)
Broadnet (Belgium)
BTOcean (Ireland)
Byblos Bank (Lebanon)
COMSAT Peru, S.A.(Peru)
CTI Movil (Argentina)
Formus Communications, Inc. (Hungary)
Future Communications Company (Kuwait)
Infostrada (Italy)
KG Telecommunication Co. Ltd. (Taiwan)
Medunet (Saudi Arabia)
NTL (U.K.)
OTE (Greece)
Retevision (Spain)
RSL Communications (Austria)
TechTel (Argentina)
Winstar (Holland)
</TABLE>

In addition, we have trials with service providers in the U.S., Germany
and Japan and system integrators in the U.S. and Europe.

During 1996, 1997, 1998 and the first six months of 1999, our five largest
customers accounted for more than 50% of our revenues. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

OPERATIONS AND MANUFACTURING

Our manufacturing activities, based in our San Jose facility, consist
primarily of low-volume production and procurement. Our strategy is to outsource
manufacturing to contract manufacturers, which have the expertise and ability to
achieve cost reductions associated with volume manufacturing and to respond
quickly to customer orders while maintaining high quality standards. This also
serves to turn some of our fixed costs into variable costs and enables us to
enjoy the purchasing efficiencies of these larger manufacturers. We have
manufacturing contracts in place with Solectron California Corporation and
Microelectronic Technology Inc. of Taiwan. Microelectronic Technology Inc. will
manufacture millimeter wave radio equipment, and Solectron will manufacture both
millimeter wave radio equipment and digital system components. Our agreement
with Microelectronic Technology Inc. makes us their exclusive

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<PAGE> 39

customer for terrestrial point-to-multipoint millimeter wave radio equipment,
provided we meet annual purchase minimums.

Our operations and manufacturing groups will facilitate technology
transfer between our research and development group and the contract
manufacturers. We may also use our manufacturing operation to expedite the sales
cycle before the full product release to external manufacturers.

RESEARCH AND DEVELOPMENT

We believe that our extensive experience designing and implementing
high-quality network and radio components and system software has enabled us to
develop high-value integrated systems solutions. As a result of these
development efforts, we believe we have created an industry-leading platform for
cost-effective high-speed wireless voice and data delivery with dynamic
allocation of capacity.

We believe that our future success depends on our continued investment in
research and development in core radio, networking and software technologies,
and we expect to continue to invest a significant portion of revenues in this
area. Our research and development expenses for 1996, 1997, 1998 and the six
months ended June 30, 1999 were $10.4 million, $15.3 million, $16.1 million and
$9.2 million. We are committed to an ongoing new product development program
that is based on an assessment of service providers' needs and technological
changes in the communications market. We are currently investing significant
resources in enhancing our network management software, integrating base station
components, extending the capabilities, frequencies and capacity of AirStar's
transmission, improving performance and accelerating cost reduction.

CUSTOMER SERVICE

A high level of continuing service and support is critical to our
objective of developing long-term customer relationships. Our customer support
organization is based in our San Jose headquarters. We also have a customer
support presence in the United Kingdom and Germany. Our headquarters support
organization serves as the interface to our research and development group to
escalate certain problems and also provides information about customers' needs
to the marketing and research and development organizations. Our customer
support model consists of three tiers of support:

- local problem isolation, which provides for on-site problem
identification and resolution of relatively simple issues;

- fault isolation and repair, which provides for consultation and
instruction by technicians trained by product experts; and

- expert level support from product engineering experts for the
resolution of problems not remedied by the first two levels of
support.

Our main focus is to provide system integrators with the ability to
provide local support worldwide to service providers, including training, spare
parts, maintenance and installation. As most of the hands-on support is provided
through system integrators, local resellers or the service providers themselves,
we focus on offering various training courses to enable system integrators and
service providers to perform both local problem isolation and fault isolation
and repair. When the sale is direct to the service provider, the service
provider typically assumes responsibilities for both local problem isolation and
fault isolation and repair tiers. Currently, the majority of our service and
support activities are related to training and installation support for service
providers. These services are provided directly at customer installations by our
customer support group or remotely by our San Jose headquarters team.

We have a number of flexible hardware and software maintenance and support
programs available for products beyond the applicable warranty period, depending
on our customer preferences. In the case of trials, we offer an evaluation
support package, where training, installation and acceptance testing are
delivered within specific time frames. These activities are usually performed
on-site by our personnel. As more trials begin carrying commercial traffic, we
will migrate the support capabilities to off-hours, 24-hour, 7-day support, and
continue to provide expert level support for service providers and system
integrators.

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COMPETITION

The market for high-speed, wireless, point-to-multipoint
telecommunications equipment is rapidly evolving and highly competitive.
Increased competition is likely to result in price reductions, shorter product
life cycles, reduced gross margins, longer sales cycles and loss of market
share, any of which would adversely affect our business. As a provider of
high-speed wireless telecommunications equipment, we compete with a number of
large telecommunications equipment suppliers including Alcatel, Bosch, Ericsson,
Hughes, Newbridge, Nortel and Spectrapoint, a newly formed joint venture between
Cisco and Motorola, as well as with smaller start-up companies. In addition,
well capitalized companies such as Nokia are potential entrants into the market.
As a technology for providing telecommunications services to businesses and
consumers, high-speed wireless solutions compete with other high-speed
solutions, such as digital subscriber lines, fiber optic cable, cable modems and
high-speed wires leased from traditional telecommunications service providers
and satellite technologies.

We expect competition to persist and intensify in the future. Many of our
competitors are substantially larger than we are and have significantly greater
financial, sales and marketing, technical, manufacturing and other resources and
more established distribution channels. These competitors may be able to respond
more rapidly to new or emerging technologies and changes in customer
requirements or to devote greater resources to the development, promotion, sale
and financing of their products than we can. Furthermore, some of our
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties to increase their ability
to gain customer market share rapidly. These competitors may enter our existing
or future markets with solutions that may be less expensive, provide higher
performance or additional features or be introduced earlier than our solutions.
We also expect that other companies may enter our market with better products
and technologies. If any technology that is competing with ours is more
reliable, faster or less expensive or has other advantages over our technology,
then the demand for our products and services would decrease, which would
seriously harm our business.

INTELLECTUAL PROPERTY

We rely on a combination of patent, copyright, trademark and trade secret
laws, as well as confidentiality agreements and licensing arrangements, to
establish and protect our proprietary rights. We presently have two issued U.S.
patents, and two patent applications pending, with more in process. AirView and
AirMAN are our registered trademarks. AirStar, CellMAC, Netro and the Netro logo
are our trademarks. Every other trademark, trade name or service mark appearing
in this prospectus belongs to its holder.

Despite our efforts to protect our proprietary rights, existing copyright,
trademark and trade secret laws afford only limited protection. In addition, the
laws of some foreign countries do not protect our proprietary rights to the same
extent as do the laws of the United States. Attempts may be made to copy or
reverse engineer aspects of our products or to obtain and use information that
we regard as proprietary. Accordingly, we may not be able to protect our
proprietary rights against unauthorized third-party copying or use. Furthermore,
policing the unauthorized use of our products is difficult. Litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of the proprietary
rights of others. This litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our future
operating results.

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<PAGE> 41

PROPERTIES

We sublease an approximately 66,000 square foot facility in San Jose,
California, approximately 47,000 square feet of which we currently use for
executive offices and for administrative, engineering, product development,
manufacturing and sales and marketing purposes. The remaining space is available
for our use for general offices, light manufacturing, storage or other related
uses. The sublease for this facility expires in September 2001.

EMPLOYEES

As of June 30, 1999, we employed approximately 152 full-time employees and
23 contract personnel. Our full-time employees include 51 people in operations
and manufacturing, 62 in engineering, 22 in sales, marketing and customer
service, and 17 in finance and administration. None of our employees is
represented by collective bargaining agreements, and we consider relations with
our employees to be good.

LEGAL PROCEEDINGS

In March 1999, one of our former contract manufacturers, Quadrus
Manufacturing, at that time a division of Bell Microproducts Inc., filed for
binding arbitration in Santa Clara County, California with respect to a dispute
with us. The arbitration involves claims by Quadrus for approximately $950,000
for amounts allegedly owed by us for inventory purchased by Quadrus in
anticipation of our projected demand. In June 1999, we filed an answer and
counterclaim alleging damages of approximately $275,000 for product failures. We
believe we have meritorious defenses to their claim, and we intend to defend
this arbitration vigorously. However, we may not prevail in this arbitration.
The arbitration process is inherently uncertain. Our defense of this
arbitration, regardless of its eventual outcome, has been, and will likely
continue to be, time-consuming, costly and a diversion for our personnel. A
failure to prevail could result in our having to pay monetary damages to
Quadrus.

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<PAGE> 42

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers, directors and other key employees and their ages as
of July 15, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Richard M. Moley.......................... 60 Chairman of the Board of Directors
Gideon Ben-Efraim......................... 56 President, Chief Executive Officer and
Director
Michael T. Everett........................ 50 Executive Vice President and Chief
Financial Officer
Matthew Powell............................ 44 Senior Vice President, Worldwide Sales
John Perry................................ 51 Chief Technology Officer and Vice
President, Engineering
Cynthia M. Hillery........................ 45 Vice President, Marketing
Francis Ngai.............................. 47 Vice President, Customer Service
Man Wong.................................. 47 Vice President, Operations
Zohar Lotan............................... 51 Vice President, Technical Support
Stuart Feeney............................. 34 Vice President, Radio Engineering
James Hannigan............................ 54 Vice President, Software Engineering
Thomas R. Baruch.......................... 60 Director
Neal Douglas.............................. 40 Director
Irwin Federman............................ 63 Director
John L. Walecka........................... 39 Director
</TABLE>

Richard M. Moley has been a director since November 1997 and Chairman of
the Board of Directors since March 1998. Since August 1997, Mr. Moley has been a
private investor. From July 1996 to August 1997, he served as Senior Vice
President, Networking and as a director of Cisco Systems, Inc., following Cisco
Systems' purchase of StrataCom, Inc., where he was, from June 1986 to July 1996,
Chairman of the Board, Chief Executive Officer and President. Mr. Moley serves
on the boards of directors of Linear Technology Corporation, a designer and
manufacturer of linear integrated circuits, CIDCO Incorporated, a designer and
developer of subscriber telephone equipment, Echelon Corporation, a developer of
control network hardware and software products, CMC Industries, a manufacturer
of telecommunications systems and equipment, and several privately held
companies.

Gideon Ben-Efraim has served as our President, Chief Executive Officer and
a director since founding Netro in November 1994. From November 1994 to March
1998, Mr. Ben-Efraim was also Chairman of the Board of Directors. Prior to
joining Netro, Mr. Ben-Efraim was a founder of and Executive Vice President,
Engineering and Business Development at P-Com Inc., a digital microwave radio
company, from June 1991 to November 1994. Mr. Ben-Efraim received a B.S. in
Industrial Engineering and Management from Tel Aviv University.

Michael T. Everett has served as our Chief Financial Officer since joining
Netro in March 1997, at which time he was appointed Senior Vice President. He
has served as our Executive Vice President since January 1999. From December
1996 to February 1997, he served as Executive Vice President and Chief Financial
Officer at Diva Communications Inc. Mr. Everett spent ten years at Raychem
Corporation, a telecommunication and electronic components supplier, from April
1987 to November 1996, as General Counsel and Chief Financial Officer, and most
recently, Senior Vice President, Asia. Mr. Everett received a B.A. from
Dartmouth College and a J.D. from the University of Pennsylvania Law School.

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<PAGE> 43

Matthew Powell has served as our Senior Vice President, Worldwide Sales
since March 1998. Prior to joining Netro, Mr. Powell served as Director of
Marketing at Cisco Systems from February 1997 to March 1998 and in various sales
management positions at StrataCom from 1986 to February 1997. Mr. Powell
received a B.A. from Tulane University and an M.B.A. from The Wharton School,
University of Pennsylvania.

John Perry has served as our Chief Technology Officer and Vice President,
Engineering since joining Netro in September 1998. Prior to joining Netro, Mr.
Perry served as Vice President, Engineering at Diva Communications Inc. from
January 1996 to September 1998, and Vice President, Engineering at Ericsson
Raynet from October 1993 to December 1995. Mr. Perry received a Bachelor's
degree in Electrical Engineering and Device Electronics from the University of
Hertfordshire, England.

Cynthia M. Hillery has served as our Vice President, Marketing since April
1997. From May 1996 until April 1997, Ms. Hillery served as our Vice President,
Networking Products. Prior to joining Netro, Ms. Hillery served in various sales
and marketing positions at Network Equipment Technologies, a networking products
manufacturer, from January 1987 to May 1996, including as Senior Director of
Product Management from September 1994 to May 1996. Ms. Hillery received a B.A.
from the University of California, Berkeley and a Ph.D. from the University of
Chicago.

Man Wong has served as our Vice President, Operations since joining Netro
in May 1999. Prior to joining Netro, Mr. Wong was Director of Operations at
GaSonics International Corporation, a microwave plasma semiconductor equipment
manufacturing company, from March 1996 to May 1999. From October 1993 to March
1996, Mr. Wong was the Manufacturing Engineering and Advanced Development
Manager at Litton Electron Devices Division. Mr. Wong received a B.S. in Physics
from The Chinese University, Hong Kong, an M.B.A. from Golden Gate University,
and an M.Sc. and Ph.D. in Physics from the University of Waterloo (Canada).

Francis Ngai has served as our Vice President, Customer Service since July
1999. Prior to joining Netro, Mr. Ngai was Director of Customer Support at
Heuristic Physics Laboratory, from October 1998 to June 1999. From September
1995 to September 1998, he was the Director of Customer Satisfaction at GaSonics
International, a semiconductor equipment manufacturer. From October 1989 to
August 1995, Mr. Ngai was a Manager of Service Business for IBM. Mr. Ngai
received a B.Sc. from the University of South Carolina and a M.Sc. from Stanford
University in electrical engineering.

Zohar Lotan joined Netro in April 1995 as Director of Engineering and
acting Vice President, Engineering. In May 1996, he joined the marketing team as
Senior Director for Program Management and became Vice President, Customer
Service in September 1998 and Vice President, Technical Support in July 1999.
Prior to joining Netro, Mr. Lotan managed a software design team at Nortel from
August 1988 to April 1995, developing wireless and ISDN communications. Mr.
Lotan received a B.Sc. degree in Electrical Engineering from the Technion,
Israel Institute of Technology and M.Sc. degree in Engineering Economic Systems
from Stanford University, California.

Stuart Feeney has served as our Director, Radio Engineering and later as
our Vice President, Radio Engineering since May 1995. Prior to joining Netro,
Mr. Feeney served as Director of System Engineering at P-Com from June 1992 to
May 1995. Mr. Feeney received a Bachelor's degree in Engineering from the
University of Salford, England, and a general business education from the
University of Manchester Institute of Science and Technology.

James Hannigan has served as our Vice President, Software Engineering
since June 1999. Prior to joining Netro, Mr. Hannigan served as Vice President,
Software at Cisco Systems from May 1998 to May 1999. From March 1982 to June
1997, he was at Tandem Computer in the position of Vice President, Software
Development for the non-stop software division. Mr. Hannigan received a B.Sc. in
Mathematics from California Polytechnic University in San Luis Obispo.

Thomas R. Baruch has been a director since November 1994. Mr. Baruch has
been a General Partner in CMEA Ventures, a venture capital firm, since 1988. Mr.
Baruch is also a Special Partner in New Enterprise Associates, a venture capital
firm. Prior to joining CMEA, Mr. Baruch was the President

39
<PAGE> 44

and Chief Executive Officer of Microwave Technology, Inc., from 1983 to 1988.
Mr. Baruch serves on the boards of directors of Physiometrix Inc., a developer
and manufacturer of non-invasive advanced medical products, and several
privately held companies.

Neal Douglas has been a director since June 1995. Since January 1993, Mr.
Douglas has been a General Partner of AT&T Ventures, a venture capital firm.
From May 1989 to January 1993, Mr. Douglas was a partner of New Enterprise
Associates, a venture capital firm. Mr. Douglas currently serves on the boards
of directors of Software.com, a provider of scalable, high performance messaging
software applications for providers of Internet communications and services,
Cellnet Data Systems, Inc., a provider of fixed network wireless information
services, FVC.COM, an Internet video applications company, TUT Systems, a
provider of products that enable high speed data transmissions over copper
wires, and several privately held companies.

Irwin Federman has been a director since June 1995. Mr. Federman has been
a general partner of U.S. Venture Partners, a venture capital firm, since 1990.
Mr. Federman serves on the boards of directors of SanDisk Corporation, a
solid-state memory system company, Western Digital Corporation, a disk drive
manufacturer, Komag Incorporated, a thin film media manufacturer, CheckPoint
Software Technologies, Inc., a network security software company, and MMC
Networks, Inc., a developer and supplier of network processors.

John L. Walecka has been a director since November 1995. Since 1984, Mr.
Walecka has been at Brentwood Venture Capital, a venture capital firm, where he
has been a general partner since 1990. Mr. Walecka serves on the boards of
directors of Rhythms NetConnections Inc., a service provider using digital
subscriber line technology, and several privately held companies.

BOARD COMPOSITION

We currently have authorized six directors. In accordance with the terms
of our articles of incorporation, effective upon the closing of this offering,
the terms of office of the directors will be divided into two classes:

- class I, whose term will expire at the annual meeting of shareholders
to be held in 2000 or a special meeting held instead of that annual
meeting; and

- class II, whose term will expire at the annual meeting of shareholders
to be held in 2001 or a special meeting held instead of that annual
meeting.

The class I directors are Messrs. Baruch, Douglas and Federman; the class
II directors are Messrs. Ben-Efraim, Moley and Walecka. Each director will be
elected to serve from the time of election until the second annual meeting
following election or special meeting held instead of an annual meeting. Our
articles of incorporation provide that the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships will be distributed between the two classes so that, as nearly as
possible, each class will consist of one-half of the directors. Directors of
Netro may be removed for cause by the vote of the holders of a majority of the
common stock, and without cause by the holders of two-thirds of the common
stock.

BOARD COMPENSATION

We do not currently compensate our directors, but directors are reimbursed
for out-of-pocket expenses incurred in connection with Netro business. Our
directors are eligible to participate in our 1996 stock option plan and, to the
extent that a director is an employee of Netro, to participate in our 1999
employee stock purchase plan. Our directors who are not employees also receive
periodic stock option grants under our 1997 directors' stock option plan.

40
<PAGE> 45

BOARD COMMITTEES

Compensation Committee. Upon the effectiveness of this offering, the
compensation committee will consist of Messrs. Baruch and Walecka. The
compensation committee:

- reviews and approves the compensation and benefits for our executive
officers;

- grants stock options under our stock option plans; and

- makes recommendations to the board of directors regarding such
matters.

Audit Committee. Upon the effectiveness of this offering, the audit
committee will consist of Messrs. Douglas and Federman. The audit committee:

- makes recommendations to the board of directors regarding the
selection of independent auditors;

- reviews the results and scope of the audit and other services provided
by our independent auditors; and

- reviews and evaluates our audit and control functions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the compensation committee serves as a member of the board of
directors or the compensation committee of any entity that has one or more
executive officers serving as a member of our board of directors or compensation
committee. See "Certain Transactions" for a description of transactions between
Netro and entities affiliated with members of the compensation committee.

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<PAGE> 46

EXECUTIVE COMPENSATION

The following table provides certain summary information concerning the
compensation received for services rendered to Netro during the fiscal year
ended December 31, 1998 by:

- our Chief Executive Officer;

- each of our other four most highly compensated executive officers
serving as such as of December 31, 1998; and

- two other executive officers whose annual compensation exceeded
$100,000 in 1998, but whose employment with Netro terminated prior to
December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
- --------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Gideon Ben-Efraim.......................... $200,000 $ 50,000 -- $ --
Chief Executive Officer, President and
Director
Michael T. Everett......................... 165,077 45,000 -- --
Chief Financial Officer and Executive
Vice President
Matthew Powell............................. 100,000 120,000 400,000 --
Senior Vice President, Worldwide Sales
Cynthia M. Hillery......................... 132,956 20,000 40,000 --
Vice President, Marketing
Avram Caspi(1)............................. 138,606 25,000 120,000 13,441(1)
Vice President, Operations
Amir Makleff(2)............................ 163,863 -- -- --
Senior Vice President, Research and
Development and Engineering
Eli Pasternak(3)........................... 158,376 -- -- --
Chief Scientist
</TABLE>

- ---------------
(1) Mr. Caspi's employment with Netro terminated in June 1999. His other
compensation consisted of relocation expenses.

(2) Mr. Makleff's employment with Netro terminated in November 1998.

(3) Mr. Pasternak's employment with Netro terminated in November 1998.

42
<PAGE> 47

The following table provides summary information regarding stock options
granted to the persons named in the Summary Compensation Table from our 1996
stock option plan during the fiscal year ended December 31, 1998. The 5% and 10%
assumed annual rates of compounded stock price appreciation are mandated by the
rules of the SEC.

OPTION GRANTS IN FISCAL 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ---------- ------------ -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gideon Ben-Efraim............ -- --% $ -- -- $ -- $ --
Michael T. Everett........... -- -- -- -- -- --
Matthew Powell............... 400,000 25.0 2.00 3/3/08 503,116 1,274,994
Cynthia M. Hillery........... 40,000 2.0 2.00 6/2/08 50,312 127,499
Avram Caspi.................. 120,000 7.0 2.00 3/3/08 150,935 382,498
Amir Makleff................. -- -- -- -- -- --
Eli Pasternak................ -- -- -- -- -- --
</TABLE>

During 1999, the persons named in the Summary Compensation Table received
grants under our 1999 executive stock option plan as follows:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NAME UNDERLYING OPTIONS GRANTED
---- --------------------------
<S> <C>
Gideon Ben-Efraim........................... 300,000
Michael T. Everett.......................... 225,000
Matthew Powell.............................. 150,000
Cynthia M. Hillery.......................... 100,000
Avram Caspi................................. 20,000
</TABLE>

The following table provides summary information concerning the exercise
of options by the persons named in the Summary Compensation Table in 1998 and
the shares of common stock represented by outstanding stock options held by each
of them as of December 31, 1998. The value realized and the value of unexercised
in-the-money options uses the assumed initial public offering price of $8.00 per
share as the fair market value at December 31, 1998.

AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
NUMBER UNDERLYING IN-THE-MONEY
OF SHARES UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED FISCAL YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gideon Ben-Efraim........... -- $ -- 400,000 -- $2,400,000 $ --
Michael T. Everett.......... -- -- 183,750 236,250 1,102,500 1,417,500
Matthew Powell.............. -- -- -- 400,000 -- 2,400,000
Cynthia M. Hillery.......... 61,250 477,750 37,084 101,666 275,005 699,245
Avram Caspi................. -- -- -- 120,000 -- 720,000
Amir Makleff................ -- -- -- -- -- --
Eli Pasternak............... -- -- -- -- -- --
</TABLE>

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<PAGE> 48

EMPLOYMENT AND CHANGE-OF-CONTROL AGREEMENTS

In March 1995, Netro entered into an employment agreement with Gideon
Ben-Efraim, Netro's Chief Executive Officer, President and Director. The initial
base salary under this agreement was $120,000 per year, with an automatic
increase to $145,000 upon the closing of Netro's Series A preferred stock
financing. Mr. Ben-Efraim's base salary has since been increased pursuant to
annual review by the board of directors. Pursuant to the agreement, Mr.
Ben-Efraim receives a cash bonus equal to 20% of his base salary, in addition to
participation in any annual executive bonus plan of Netro. In the event of
termination other than for cause, the agreement entitles Mr. Ben-Efraim to
severance benefits equal to twelve months of his then-current base salary as
well as a lapse of 25% of Netro's repurchase option on unvested shares then held
by Mr. Ben-Efraim, including those held by his family trust. If Netro enters
into certain change-of-control transactions, the vesting of Mr. Ben-Efraim's
options and shares subject to repurchase, including those held by his family
trust, will become fully vested. The agreement also provides that, in the event
Netro grants registration rights to any officers or investors, Netro will grant
no less favorable rights to Mr. Ben-Efraim.

Netro has entered into change-of-control agreements with Richard M. Moley,
Michael T. Everett, James Hannigan, Francis Ngai, Matthew Powell, John Perry and
Man Wong as follows:

- Under Mr. Moley's agreement, in the event of a change of control, all
unvested shares and options held by Mr. Moley, or his affiliates,
will vest immediately as if he had been employed by Netro for two
additional years.

- Under Mr. Everett's agreement, if Mr. Everett's employment with Netro
is terminated without cause within one year following a change of
control or if he is not offered a comparable position by the
acquiror, all unvested options will vest as if he had been employed
by Netro for two additional years.

- Under Mr. Powell's agreement, in the event that Mr. Powell is
terminated without cause following a change of control or is not
offered a comparable position by the acquiror, unvested shares and
options held by Mr. Powell will vest immediately as if he had been
employed by Netro for one additional year.

- Under the agreements with Messrs. Hannigan, Ngai, Perry and Wong, in
the event the employee is terminated without cause following a change
of control or does not receive an offer of a comparable position with
the acquiror, and the termination occurs before the employee has
completed one year of employment, unvested shares and options held by
that employee will vest immediately as if he had been employed for
one full year.

STOCK PLANS

1995 and 1996 Stock Option Plans

Our 1996 stock option plan is intended to serve as the successor equity
incentive program to our 1995 stock option plan. No option grants will be made
under the 1995 stock option plan after this offering. The 1996 stock option plan
provides for the grant of incentive stock options, as defined in Section 422 of
the Internal Revenue Code, to employees and the grant of nonstatutory stock
options to employees, non-employee directors and consultants. The purposes of
the 1996 stock option plan are:

- to attract and retain the best available personnel;

- to provide additional incentives to our employees and consultants;
and

- to promote the success of our business.

The 1996 stock option plan was adopted by our board of directors in
December 1996 and approved by our shareholders in January 1997. Unless
terminated earlier by the board of directors, the 1996 stock option plan will
terminate in December 2006. The 1996 stock option plan was amended by our board
of directors in April 1999 and June 1999 to include some of the provisions
provided below. These

44
<PAGE> 49

amendments will be submitted to our shareholders for their approval on August 6,
1999. The number of shares reserved for issuance under the 1996 stock option
plan will be subject to an automatic annual increase on the first day of 2001
through 2005 equal to the least of:

- 750,000 shares;

- 3% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or

- a number of shares determined by the administrator.

As of June 30, 1999:

- a total of 6,341,978 shares had been reserved for issuance under the
1996 stock option plan;

- options to purchase an aggregate of 4,484,667 shares of common stock
were outstanding under the 1995 stock option plan and 1996 stock
option plan at a weighted average exercise price of $2.34;

- 2,216,352 shares had been issued upon exercise of outstanding
options, net of repurchases under the 1995 and 1996 stock option
plans; and

- 2,098,981 shares remained available for future grant.

As additional shares become available for grant under the 1995 stock
option plan, they will be automatically transferred to the 1996 stock option
plan.

The compensation committee currently administers the 1996 stock option
plan. The administrator of the 1996 stock option plan determines numbers of
shares subject to options, vesting schedules and exercise prices for options
granted under the 1996 stock option plan, provided, however, an individual
employee may not receive option grants for more than 1,000,000 shares in any
fiscal year.

The exercise price of incentive stock options must be at least equal to
100% of the fair market value of our common stock on the date of grant, and at
least equal to 110% of the fair market value in the case of incentive stock
options granted to an employee who holds, at the time the option is granted,
more than 10% of the total voting power of all classes of our stock or any
parent's or subsidiary's stock. Nonstatutory stock options will have an exercise
price of at least of 85% of the fair market value in the case of employees and
consultants and 100% in the case of executives. Payment of the exercise price
may be made in cash or other form of consideration approved by the
administrator. The administrator determines the term of options, which may not
exceed ten years, or five years in the case of an incentive stock option granted
to an employee who holds, at the time the option is granted, more than 10% of
the total voting power of all classes of our stock or any parent's or
subsidiary's stock. No option may be transferred by the optionee other than by
will or the laws of descent or distribution, provided, however, that the
administrator may in its discretion provide for the transferability of
nonstatutory stock options. The administrator determines when options become
exercisable. Options granted under the 1996 stock option plan generally become
exercisable at the rate of 1/4th of the total number of shares subject to the
options twelve months after the date of grant, and 1/48th of the total number of
shares subject to the options each month thereafter. 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 in
excess of $100,000 as of the date the options were granted, the excess options
will be treated as nonstatutory stock options.

In the event of a change of control of Netro, outstanding options will be
assumed or substituted by the successor corporation. If the successor
corporation does not agree to this assumption or substitution, the options will
terminate upon the closing of the transaction.

The board of directors may amend, modify or terminate the 1996 stock
option plan if any amendment, modification or termination does not impair
vesting rights of plan participants. Additionally, shareholder approval is
required for an amendment to the extent required by applicable law, regulations
or rules.

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<PAGE> 50

Options outstanding under the 1995 stock option plan are subject to
substantially the same terms as options under the 1996 stock option plan,
except:

- non-employee directors are not eligible to receive options under the
1995 stock option plan;

- the 1995 stock option plan does not impose an annual limitation on the
number of shares subject to options that may be issued to any
individual employee; and

- the 1995 stock option plan provides for a minimum per share exercise
price of 85% of the fair market value of our common stock on the grant
date for all employees, including executive officers.

1999 Executive Stock Plan

Our 1999 executive stock plan was adopted by the board of directors in
April 1999 and approved by the shareholders in May 1999. As of June 30, 1999:

- a total of 1,195,000 shares of common stock has been reserved for
issuance under the 1999 executive stock plan;

- options to purchase 1,175,000 shares with a weighted average exercise
price of $3.50 were outstanding; and

- 20,000 shares remained available for future option grants.

Unless terminated earlier, the 1999 executive stock plan will terminate in
April 2009. We do not expect to grant any additional options under the 1999
executive stock plan. The 1999 executive stock plan does not impose an annual
limitation on the number of shares subject to options that may be issued to any
individual employee.

The terms of options issued under the 1999 executive stock plan are
generally the same as those that may be issued under the 1996 stock option plan.
However, options granted under the 1999 executive stock plan, may be exercised
immediately after the grant date, subject to Netro's right to repurchase at cost
any shares that remain unvested at the time of the optionee's termination of
employment. Options granted under the 1999 executive stock plan generally vest
at the rate of 1/4th of the total number of shares subject to the options twelve
months after the date of grant and 1/48th of the total number of shares subject
to the options each month thereafter.

1997 Directors' Stock Option Plan

The 1997 directors' stock option plan was adopted by the board of
directors in December 1997 and amended in June 1999. These amendments will be
submitted to our shareholders for their approval on August 6, 1999. As of June
30, 1999:

- a total of 300,000 shares of common stock had been reserved for
issuance;

- options to purchase 125,000 shares of common stock were outstanding at a
weighted average price of $2.00; and

- 175,000 shares remained available for future grants.

Under the 1997 directors' stock option plan, each individual who first
becomes a non-employee director after the effective date of the amendment will
receive an automatic initial grant of an option to purchase 10,000 shares of
common stock. Initial grants to non-employee directors will be vested and
exercisable in full as of the date of grant. The 1997 directors' stock option
plan also provides for additional grants of fully vested options to purchase
10,000 shares of common stock on the first day of each fiscal year to each
non-employee director who has served on our board of directors for at least six
months. A non-employee director who received a 20,000 share initial grant under
the original version of the 1997 directors' stock option plan, however, will be
eligible to receive an annual grant of a fully vested option to purchase 5,000
shares of common stock until the first day of our fiscal year following the date
on which

46
<PAGE> 51

the initial 20,000 share option has fully vested under the terms of that option.
After that 20,000 share option has fully vested, each director will be eligible
to receive an annual grant of a fully vested option to purchase 10,000 shares of
common stock each year. The per share exercise price of all stock options
granted under the 1997 directors' stock option plan must be equal to the fair
market value of a share of Netro's common stock on the grant date. Options
granted under the 1997 directors' stock option plan have a term of ten years.
Unvested options, however, will terminate when the optionee ceases to serve as a
director and vested options will terminate if they are not exercised within 12
months after the director's death or disability or within 90 days after the
director ceases to serve as a director for any other reason.

In the event of change of control of Netro, each non-employee director
will be entitled to have his options assumed by the successor or else his
existing options will become fully vested.

The 1997 directors' stock option plan is designed to work automatically
without administration. However, to the extent administration is necessary, it
will be performed by the board of directors other than the director or directors
who have a personal interest at stake. Although the board of directors may amend
or terminate the 1997 directors' stock option plan, it may not take any action
that might adversely affect any outstanding option. The 1997 directors' stock
option plan will have a term of ten years unless terminated earlier.

1999 Employee Stock Purchase Plan

Our 1999 employee stock purchase plan was adopted by the board of
directors in June 1999 and will be submitted for approval by the shareholders in
August 1999. If approved, the 1999 employee stock purchase plan becomes
effective on the effective date of this offering. A total of 1,000,000 shares of
common stock has been reserved for issuance under the 1999 employee stock
purchase plan. The number of shares reserved for issuance under the 1999
employee stock purchase plan will be subject to an automatic annual increase on
the first day of each of 2001 through 2005 equal to the least of:

- 250,000 shares;

- 1% of our outstanding common stock on the last day of the immediately
preceding fiscal year; or

- a number of shares determined by the administrator.

The 1999 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, provides our employees with an
opportunity to purchase our common stock through accumulated payroll deductions.
The 1999 employee stock purchase plan will be administered by the board of
directors or by a committee appointed by the board of directors. The 1999
employee stock purchase plan permits an eligible employee to purchase common
stock through payroll deductions of up to 15% of that employee's compensation.
Employees, including officers and employee directors, of Netro, or of any
majority-owned subsidiary designated by the board of directors, are eligible to
participate in the 1999 employee stock purchase plan if they are employed by
Netro or any designated subsidiary for at least 20 hours per week and more than
five months per year. Unless the board of directors or its committee determines
otherwise, the 1999 employee stock purchase plan will be implemented by a series
of overlapping offering periods generally of 24 months' duration with new
offering periods commencing on February 1 and August 1 of each year. Each
offering period will be divided into four consecutive purchase periods of
approximately six months' duration. The first offering period is expected to
commence on the date of this offering and end on July 31, 2001; the initial
purchase period is expected to end on January 31, 2000. The price at which
common stock will be purchased under the 1999 employee stock purchase plan is
equal to 85% of the fair market value of the common stock on the first day of
the applicable offering period or the last day of the applicable purchase
period, whichever is lower. Employees may end their participation in an offering
period at any time, and participation automatically ends on termination of
employment.

Under the 1999 employee stock purchase plan, no employee may be granted an
option if immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or that of our

47
<PAGE> 52

subsidiaries. In addition, no employee may be granted an option under the 1999
employee stock purchase plan if the option would permit the employee to purchase
stock under all of our employee stock purchase plans in an amount that exceeds
$25,000 of fair market value for each calendar year in which the option is
outstanding at any time. In addition, no employee may purchase more than 2,000
shares of common stock under the 1999 employee stock purchase plan in any one
purchase period. If the fair market value of the common stock on a purchase date
other than the final purchase date of an offering period is less than the fair
market value at the beginning of the offering period, each participant in the
1999 employee stock purchase plan will automatically be withdrawn from the
offering period as of the purchase date and re-enrolled in a new 24-month
offering period on the first business day following the purchase date.

The 1999 employee stock purchase plan provides that, in the event of a
change of control of Netro, each right to purchase stock under the 1999 employee
stock purchase plan will be assumed or an equivalent right substituted by the
successor corporation. However, our board of directors will shorten any ongoing
offering period so that employees' rights to purchase stock under the 1999
employee stock purchase plan are exercised prior to the transaction if the
successor corporation refuses to assume each purchase right or to substitute an
equivalent right.

The 1999 employee stock purchase plan will terminate in June 2019 unless
terminated earlier in accordance with its provisions. The board of directors has
the power to amend or terminate the 1999 employee stock purchase plan if its
action does not adversely affect any outstanding rights to purchase stock
thereunder. However, our board of directors may amend or terminate the 1999
employee stock purchase plan or an offering period even if it would adversely
affect options in order to avoid our incurring adverse accounting charges.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

We have adopted provisions in our articles of incorporation that limit the
liability of our directors for monetary damages arising from a breach of their
fiduciary duty as directors to the fullest extent permitted by the California
Corporations Code. This limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.

Our bylaws provide that we will indemnify our directors and officers to
the fullest extent permitted by California law, including circumstances in which
indemnification is otherwise discretionary under California law. We have entered
into indemnification agreements with our directors and officers containing
provisions that are in some respects broader than the specific indemnification
provisions contained in the California Corporations Code. The indemnification
agreements may require us:

- to indemnify our directors and officers against liabilities that may
arise by reason of their status or service as directors or officers,
other than liabilities arising from willful misconduct of a 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' and officers' insurance if available on
reasonable terms.

We currently have a policy for directors' and officers' insurance, which
we intend to replace with a similar policy that provides coverage for matters
relating to public offerings. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent of ours in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for
indemnification. We believe that our charter provisions and indemnification
agreements are necessary to attract and retain qualified persons as directors
and officers.

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<PAGE> 53

CERTAIN TRANSACTIONS

Since January 1, 1996, Netro has not been a party to any transaction or
series of similar transactions in which the amount involved exceeds $60,000 and
in which any director, executive officer, or holder of more than 5% of our
common stock had or will have a direct or indirect material interest other than:

- normal compensation arrangements which are described under
"Management -- Executive Compensation" above; and

- the transactions described below.

PRIVATE PLACEMENT TRANSACTIONS

Since January 1, 1996, we have issued shares of preferred stock and
warrants for the purchase of shares of preferred stock in private placement
transactions involving related parties, as follows:

- An aggregate of 6,995,111 shares of Series C preferred stock at $7.00
per share in July, October and November 1996 and January, February,
April, July and November 1997 to 34 investors; and

- An aggregate of 4,190,512 shares of Series D preferred stock at $7.78
per share in January, April, July and October 1998 and January,
February, April and June 1999 to 26 investors.

The table below summarizes the shares of preferred stock purchased by our
executive officers, directors and 5% shareholders and persons and entities
associated with them in the above private placement transactions. Shares held by
affiliated persons and entities have been aggregated. See "Principal
Shareholders" for more information.

<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
INVESTOR SERIES C SERIES D
- -------- -------- --------
<S> <C> <C>
Venture Fund I, L.P. and Neal Douglas....................... 142,858 125,991
U.S. Venture Partners and Irwin Federman.................... 70,678 123,767
Brentwood Venture Capital and John Walecka.................. 328,572 89,698
o.tel.o. Communications GmbH................................ 230,000 --
Richard M. Moley............................................ 50,000 --
</TABLE>

TRANSACTIONS WITH DIRECTORS

We have loaned Richard M. Moley, the chairman of our board of directors,
funds according to the terms set forth in the table below. The note is secured
by shares of our common stock owned by Mr. Moley and a trust controlled by him.

<TABLE>
<CAPTION>
NOTE
ISSUE DATE DUE DATE AMOUNT INTEREST RATE
- ------------- -------------- ----------- --------------
<S> <C> <C> <C>
December 1998 April 17, 2002 $800,000 5.44% per year
</TABLE>

TRANSACTIONS WITH SHAREHOLDERS

o.tel.o Communications GmbH holds more than 5% of our common stock and
also was a significant customer, directly purchasing an aggregate of $89,000 and
$1,091,966 of AirMAN products in 1996 and 1997, and purchasing through a
reseller an aggregate of $580,000 and $2,181,104 of AirMAN products in 1996 and
1997.

EMPLOYMENT AND CHANGE-OF-CONTROL AGREEMENTS

Netro has entered into employment and change-of-control agreements with
some of its officers and directors. See "Management -- Employment and
Change-of-Control Agreements."

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<PAGE> 54

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with some of our officers
and directors. See "Management -- Limitation of Liability and Indemnification
Matters."

REGISTRATION RIGHTS AGREEMENTS

Some of our shareholders are entitled have their shares registered by us
for resale. See "Description of Capital Stock -- Registration Rights."

50
<PAGE> 55

PRINCIPAL SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of Netro's common stock as of June 30, 1999 and as adjusted to reflect
the sale of the common stock offered by Netro pursuant to this prospectus and
conversion of all outstanding shares of preferred stock into shares of common
stock by:

- each of our directors;

- each of the persons listed in the Summary Compensation Table;

- all directors and executive officers as a group; and

- each person who is known by us to own beneficially more than 5% of our
common stock.

Percentage of beneficial ownership is based on 38,913,772 shares of common
stock outstanding as of June 30, 1999, together with options that are
exercisable within 60 days of June 30, 1999 for each shareholder. Beneficial
ownership is determined in accordance with the rules of the SEC. The percentages
for beneficial ownership after offering assume that the underwriters do not
exercise their over-allotment option.

<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Gideon Ben-Efraim(1)...................................... 4,400,000 11.2% 9.9%
Venture Fund I, L.P.(2)................................... 4,216,071 10.8 9.6
U.S. Venture Partners(3).................................. 4,141,667 10.6 9.4
Brentwood Venture Capital(4).............................. 3,001,604 7.7 6.8
o.tel.o Communications GmbH(5)............................ 2,952,222 7.6 6.7
Eli Pasternak(6).......................................... 1,714,284 4.4 3.9
Richard M. Moley(7)....................................... 423,125 1.1 1.0
Amir Makleff.............................................. 450,000 1.2 1.0
Michael T. Everett(8)..................................... 245,000 * *
Thomas R. Baruch(9)....................................... 210,000 * *
Matthew Powell(10)........................................ 141,667 * *
Cynthia M. Hillery(11).................................... 137,500 * *
Avram Caspi............................................... 40,000 * *
Neal Douglas(12).......................................... 10,000 * *
Irwin Federman(13)........................................ 10,000 * *
John L. Walecka(14)....................................... 10,000 * *
All directors and executive officers as a group (15
persons)(15)............................................ 22,289,807 55.9 49.7
</TABLE>

- ---------------
* Less than 1%.

(1) Includes 400,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999, 2,800,000 shares held by a family trust
and 1,200,000 shares held by adult children of Mr. Ben-Efraim. Mr.
Ben-Efraim disclaims beneficial ownership with respect to the shares held
by his adult children.

(2) Represents 4,216,071 shares held by Venture Fund I, L.P. Neal Douglas, a
director of Netro, is a general partner of the general partner of this
partnership. He shares voting and investment power with respect to the
shares held by this entity, and disclaims beneficial ownership of shares in
which he has no pecuniary interest. See note 12. The address for Venture
Fund I, L.P. is 3000 Sand Hill Road, Building 1, Suite 285, Menlo Park, CA
94025.

(3) Represents 3,582,540 shares held by U.S. Venture Partners IV, L.P., 434,878
shares held by Second Ventures II, L.P. and 124,249 shares held by USVP
Entrepreneur Partners II, L.P. Irwin Federman,

51
<PAGE> 56

a director of Netro, is a general partner of the general partner of each of
these partnerships. He shares voting and investment power with respect to
the shares held by these entities, and disclaims beneficial ownership of
shares in which he has no pecuniary interest. See note 13. The address for
U.S. Venture Partners is 2180 Sand Hill Road, Suite 300, Menlo Park, CA
94025.

(4) Includes 2,962,302 shares held by Brentwood Associates VI, L.P. and 39,302
shares held by Brentwood Affiliates Fund, L.P. John L. Walecka, a director
of Netro, is a general partner of the general partners of each of these
partnerships. He shares voting and investment power with respect to the
shares held by these entities and disclaims beneficial ownership of shares
in which he has no pecuniary interest. See note 14. The address for
Brentwood Venture Capital is 3000 Sand Hill Road, Building 1, Suite 260,
Menlo Park, CA 94025.

(5) The address for o.tel.o Communications GmbH is Am Bonneshof 35, D-40474
Dusseldorf, Germany.

(6) Includes 100,000 shares held on behalf of a minor child.

(7) Includes 23,125 shares issuable upon exercise of options exercisable within
60 days of June 30, 1999. The vesting of 400,000 shares of common stock is
contingent upon Mr. Moley's continued service as a director of Netro.

(8) Represents 245,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.

(9) Includes 10,000 shares issuable upon exercise of options exercisable within
60 days of June 30, 1999. The address for Mr. Baruch is 235 Montgomery
Street, Suite 920, San Francisco, CA 94104.

(10) Represents 141,667 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999.

(11) Includes 76,250 shares issuable upon exercise of options exercisable within
60 days of June 30, 1999.

(12) Represents 10,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999. Excludes 4,216,071 shares held by Venture
Fund I, L.P. See note 2.

(13) Represents 10,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999. Excludes 4,141,667 shares held by U.S.
Venture Partners. See note 3.

(14) Represents 10,000 shares issuable upon exercise of options exercisable
within 60 days of June 30, 1999. Excludes 3,001,604 shares held by
Brentwood Venture Capital. See note 4.

(15) Includes 11,359,342 shares held by entities affiliated with certain
directors as described in notes 2, 3 and 4 and 932,709 shares issuable upon
exercise of options exercisable within 60 days of June 30, 1999.

Except as otherwise noted, the address of each person listed in the table
is c/o Netro Corporation, 3860 N. First Street, San Jose, CA 95134, and the
persons named in the table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them, subject to
community property laws where applicable.

52
<PAGE> 57

DESCRIPTION OF CAPITAL STOCK

Following the closing of the sale of the shares offered hereby, our
authorized capital stock will consist of 100,000,000 shares of common stock and
5,000,000 shares of undesignated preferred stock.

COMMON STOCK

As of June 30, 1999, there were 38,970,800 shares of common stock
outstanding that were held of record by approximately 182 shareholders assuming:

- the conversion of all outstanding shares of our preferred stock into
common stock at a one-to-one ratio;

- the exercise of 57,028 warrants currently outstanding; and

- assuming no exercise of any other outstanding options or warrants
after June 30, 1999.

Under the same assumptions, there will be 43,970,800 shares of common
stock outstanding after the sale of the shares of common stock in this offering.
The holders of common stock are entitled to one vote per share on all matters to
be voted upon by the shareholders. Subject to preferences that may be applicable
to any outstanding preferred stock, the holders of common stock are entitled to
receive dividends as declared by the board of directors. In the event of a
liquidation, dissolution or winding up of Netro, the holders of common stock are
entitled to share in all assets remaining after payment of liabilities, subject
to the 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.

PREFERRED STOCK

Effective upon the closing of this offering, Netro will be authorized to
issue 5,000,000 shares of undesignated preferred stock. The board of directors
will have the authority, without any further vote or action by the shareholders:

- to issue the undesignated preferred stock in one or more series;

- 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; and

- to fix the number of shares constituting any series and the
designation of that series.

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. We have no present plan to issue shares of
preferred stock.

REGISTRATION RIGHTS

Under an agreement dated June 21, 1999, the holders of 33,708,413 shares
of common stock and shares issuable upon the exercise of warrants are entitled
to have us register these shares under the Securities Act. Subject to the
limitations in this agreement, these holders may require, on two occasions, that
Netro use its best efforts to register these securities for public resale. If we
register any of our common stock either for our own account or for the account
of other security holders, the holders of these securities may include their
shares of common stock 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 this offering. Netro will bear all fees,
costs and expenses of these registrations. The holders of the securities being
registered will bear all selling expenses, including underwriting discounts,
selling commissions and stock transfer taxes.

53
<PAGE> 58

Additionally, holders of registrable securities may require, on no more
than one occasion in a twelve-month period, that we register their shares for
public resale on Form S-3 or similar short-form registration so long as the
value of the securities to be registered is at least $500,000. The holders of
the securities to be registered must bear all fees, costs and expenses of these
registrations on Form S-3 as well as all selling expenses, including
underwriting discounts, selling commissions and stock transfer taxes.

ANTI-TAKEOVER PROVISIONS

Upon completion of this offering, some provisions of our charter documents
may have the effect of delaying or preventing changes in control or management
of Netro, which could have an adverse effect on the market price of our common
stock. These include:

- authorizing the board to issue additional preferred stock;

- prohibiting cumulative voting in the election of directors;

- limiting the persons who may call special meetings of shareholders;

- establishing a classified board of directors;

- prohibiting shareholder actions by written consent; and

- establishing advance notice requirements for nominations for election
to the board of directors or for proposing matters that can be acted
on by shareholders at shareholder meetings.

Our stock option and purchase plans generally provide for assumption of
our benefit plans or substitution of equivalent options of a successor
corporation or, alternatively, at the discretion of the board of directors,
exercise of some or all of the options, including those for non-vested shares,
or acceleration of vesting of shares issued pursuant to stock grants, upon a
change of control or similar event.

WARRANTS

As of June 30, 1999, warrants were outstanding to purchase an aggregate of
57,028 shares of preferred stock at a weighted average exercise price of $7.39
per share. Warrants to purchase 23,750 shares at $7.00 per share will expire in
June 2002. Warrants to purchase 5,000 shares at $7.00 per share will expire in
September 2002. Warrants to purchase 8,997 shares at $7.78 per share will expire
in February 2003. Warrants to purchase 19,281 shares at $7.78 per share will
expire in March 2006. These warrants to purchase shares of preferred stock
outstanding following this offering will convert into warrants to purchase
shares of common stock on the closing of this offering on a one-to-one basis.
Generally, each warrant contains provisions for the adjustment of the exercise
price and the aggregate number of shares issuable upon the exercise of the
warrant under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications, consolidations and certain dilutive
issuances of securities at prices below the then-existing warrant exercise
price. In addition, under a manufacturing and engineering services agreement
with Microelectronics Technology Inc., Netro may issue stock to Microelectronics
Technology Inc. as consideration for engineering services instead of cash.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock
Transfer & Trust Company.

LISTING

We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "NTRO."

54
<PAGE> 59

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, we will have 43,913,772 shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants to
purchase common stock after June 30, 1999. Our current shareholders, holding in
the aggregate 38,913,772 shares of our common stock, have agreed that they will
not, without the prior written consent of Netro or Merrill Lynch on behalf of
the underwriters, offer, sell or otherwise dispose of any shares of common stock
or options to acquire shares of common stock during the 180-day period following
the date of this prospectus. See "Underwriting."

All of the 5,000,000 shares of common stock being sold in this offering
will be freely tradeable without restriction or further registration under the
Securities Act, except for shares held by our affiliates, as defined in Rule 144
under the Securities Act, which generally may be sold only in compliance with
the limitations of Rule 144 described below. We issued and sold the remaining
38,913,772 shares in private transactions. They are deemed restricted securities
under Rule 144. These shares may be sold in the public market only if registered
under the Securities Act or if exempt from registration under Rule 144, 144(k)
or 701 under the Securities Act, which rules are summarized below.

Assuming that this offering is effective on August 16, 1999, on the date
of the expiration of the lock-up agreements, 38,212,364 restricted shares that
will not then be subject to any repurchase option will be eligible for immediate
sale. The remaining 701,408 restricted shares will be eligible for sale under
Rule 144 after the expiration of the lock-up period. Following the completion of
this offering, warrants to purchase 57,028 shares of our common stock will be
outstanding, which if exercised would be saleable upon the expiration of the
lock-up period and various one-year holding periods under Rule 144.

In general, under Rule 144, beginning 90 days after the date of this
prospectus, a person who has beneficially owned restricted shares for at least
one year, is entitled to sell within any three-month period a number of shares
that does not exceed the greater of:

- 1% of the then-outstanding shares of common stock, approximately
439,138 shares immediately after this offering; or

- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks before the date of the
sale.

Sales under Rule 144 also are subject to requirements pertaining to the
manner and notice of the sales and the availability of current public
information concerning Netro.

Under Rule 144(k), a person who is not deemed to have been an affiliate of
Netro at any time during the 90 days before a sale and who has beneficially
owned the shares proposed to be sold for at least two years would be entitled to
sell these shares without regard to the requirements described above. To the
extent that shares were acquired from an affiliate of Netro, the transferee's
holding period for the purpose of effecting a sale under Rule 144(k) commences
on the date of transfer from the affiliate.

Rule 701 provides that, beginning 90 days after the date of this
prospectus, persons other than affiliates may sell shares of common stock
acquired from us in connection with written compensatory benefit plans,
including our stock option plans, subject only to the manner of sale provisions
of Rule 144. Beginning 90 days after the date of this prospectus, affiliates may
sell these shares of common stock subject to all provisions of Rule 144 except
the one-year minimum holding period.

Shortly after the closing of this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register all
shares of common stock issuable under the 1995 stock option plan, the 1996 stock
option plan, the 1997 directors' stock option plan, the 1999 executive stock
plan and the 1999 employee stock purchase plan. See "Management--Stock Plans."
This Form S-8 registration

55
<PAGE> 60

statement is expected to become effective immediately upon filing, and shares
covered by that registration statement will then be eligible for sale in the
public markets, subject to:

- the Rule 144 limitations applicable to affiliates;

- the expiration of the lock-up period; and

- vesting restrictions imposed by us.

After the closing of this offering, the holders of 33,708,413 shares of
our common stock, including shares issuable upon the exercise of warrants to
purchase shares of our preferred stock, will be entitled to have their shares
registered by us for resale. For a discussion of these rights, see "Description
of Capital Stock--Registration Rights."

56
<PAGE> 61

UNDERWRITING

GENERAL

Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancBoston Robertson
Stephens Inc., and Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated, are acting as representatives of each of the underwriters named
below. Subject to the terms and conditions set forth in a purchase agreement, we
have agreed to sell to each of the underwriters, and each of the underwriters,
severally and not jointly, has agreed to purchase from us, the number of shares
of our common stock set forth opposite its name below.

<TABLE>
<CAPTION>
NUMBER
OF SHARES
UNDERWRITERS ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
BancBoston Robertson Stephens Inc...........................
Dain Rauscher Wessels.......................................
---------
Total.......................................... 5,000,000
=========
</TABLE>

Subject to the terms and conditions set forth in the purchase agreement,
each of the underwriters is committed to purchase all of the shares of our
common stock being sold pursuant to the purchase agreement if any shares of our
common stock are purchased. Under certain circumstances, under the terms of the
purchase agreement, the commitments of the non-defaulting underwriters may be
increased or the purchase agreement may be terminated. We have agreed to
indemnify the underwriters against some liabilities, including some liabilities
under the Securities Act, or to contribute to payments the underwriters may be
required to make in respect of those liabilities.

The shares of common stock are being offered by the several underwriters,
subject to prior sale, when, as and if issued to and accepted by them, subject
to approval of certain legal matters by counsel for the underwriters and certain
other conditions. The underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part.

COMMISSIONS AND DISCOUNTS

The representatives have advised us that they propose initially to offer
the shares of our common stock to the public at the 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 of common stock. The
underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per share of common stock on sales to certain other dealers. After
the initial public offering, the public offering price, concession and discount
may be changed.

The following table shows the per share and total public offering price,
the underwriting discount to be paid by us to the underwriters and the proceeds
before expenses to us. This information is presented assuming either no exercise
or full exercise by the underwriters of their over-allotment options.

<TABLE>
<CAPTION>
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
<S> <C> <C> <C>
Public offering price.................. $ $ $
Underwriting discount.................. $ $ $
Proceeds, before expenses, to Netro.... $ $ $
</TABLE>

The expenses of the offering, exclusive of the underwriting discount, are
estimated at $1,000,000 million and are payable by us.

57
<PAGE> 62

OVER-ALLOTMENT OPTION

We have granted to the underwriters an option, exercisable for 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 set forth on the
cover of this prospectus, less the underwriting discount. The underwriters may
exercise this option solely to cover over-allotments, if any, made on the sale
of our common stock offered hereby. To the extent that the underwriters exercise
this option, each underwriter will be obligated, subject to certain conditions,
to purchase a number of additional shares of our common stock proportionate to
such underwriter's initial amount reflected in the foregoing table.

RESERVED SHARES

At our request, the underwriters have reserved approximately 350,000
shares of our common stock for sale at the public offering price to our
directors, consultants and certain other persons with relationships to Netro.
The number of shares of our common stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares which are not so orally confirmed for purchase within one
day of the pricing of the offering will be offered by the underwriters to the
general public on the same basis as the other shares offered by this prospectus.

NO SALES OF SIMILAR SECURITIES

We, our executive officers and directors, and most of our existing
shareholders have agreed, with certain exceptions, not to directly or
indirectly:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer
any shares of our common stock or any securities convertible into or
exchangeable or exercisable for our common stock, whether now owned
or later acquired by the person executing the agreement or with
respect to which the person executing the agreement later acquires
the power of disposition, or file any registration statement under
the Securities Act relating to any shares of our common stock for a
period of 180 days after the date of this prospectus; or

- enter into any swap or other agreement that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership
of our common stock, whether any such swap or transaction is to be
settled by delivery of our common stock or other securities, in cash
or otherwise,

without the prior written consent of Merrill Lynch on behalf of the underwriters
for a period of 180 days after the date of this prospectus. See "Shares Eligible
for Future Sale."

NASDAQ NATIONAL MARKET LISTING

Before this offering, there has been no public market for our common
stock. The public offering price will be determined through negotiations among
us and the representatives. Among the factors to be considered by us and the
representatives in determining the public offering price of our common stock, in
addition to prevailing market conditions, will be the trading multiples of
publicly traded companies that the representatives believe to be comparable to
us, certain of our financial information, the history of, and the prospects for,
our company and the industry in which we compete, and an assessment of our
management, our past and present operations, the prospects for, and timing of,
our future revenue, the present state of our development, the percentage
interest of Netro being sold as compared to the valuation for the entire company
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours. There can be
no assurance that an active trading market will develop for our common stock or
that our common stock will trade in the public market subsequent to the offering
at or above the public offering price.

We have applied for a listing of our common stock on the Nasdaq National
Market under the symbol "NTRO."

58
<PAGE> 63

The underwriters have advised us that they do not expect sales to accounts
over which the underwriters exercise discretionary authority to exceed 5% of the
total number of shares of our common stock offered by them.

PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS

Until the distribution of our common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters and
certain selling group members to bid for and purchase our common stock. As an
exception to these rules, the representatives are permitted to engage in certain
transactions that stabilize the price of our common stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of our common stock.

If the underwriters create a short position in our common stock in
connection with the offering, that is, if they sell more shares of common stock
than are set forth on the cover page of this prospectus, the representatives may
reduce that short position by purchasing common stock in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.

The representatives may also impose a penalty bid on certain underwriters
and selling group members. This means that, if the representatives purchase
shares of our common stock in the open market to reduce the underwriters' short
position or to stabilize the price of our common stock, they may reclaim the
amount of the selling concession from the underwriters and selling group members
that sold those shares as part of the offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of our common stock to the extent that it
discourages resales of our common stock.

Neither we nor any of the underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common stock. In addition, neither
we nor any of the underwriters makes any representation that the representatives
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.

OTHER RELATIONSHIPS

ML IBK Positions, an affiliate of Merrill Lynch, holds 642,674 shares of
our common stock. DRW Investors LLC, an affiliate of Dain Rauscher Wessels, a
division of Dain Rauscher Incorporated, holds 64,267 shares of our common stock.
BancBoston Robertson Stephens Inc. holds 28,572 shares of our common stock.

59
<PAGE> 64

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for
Netro by Venture Law Group, A Professional Corporation, Menlo Park, California.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Fenwick & West LLP, Palo Alto, California. Tae Hea Nahm, a
director of Venture Law Group, is the Secretary of Netro, and Sanjay Khare, an
attorney at Venture Law Group, is Assistant Secretary. Tae Hea Nahm and other
attorneys of Venture Law Group, together with an entity affiliated with Venture
Law Group, hold an aggregate of 153,963 shares of our common stock and options
to purchase 25,000 shares of our common stock.

EXPERTS

The audited consolidated financial statements and schedule included in
this prospectus and elsewhere in the registration statement to the extent and
for the periods indicated in their reports have been audited by Arthur Andersen
LLP, independent public accountants, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act. This prospectus, which is a part
of the registration statement, does not contain all of the information set forth
in the registration statement, including items contained in the exhibits to the
registration statement. For further information with respect to Netro and the
common stock being offered, you should see the registration statement and the
exhibits, financial statements and notes filed with the registration statement.
Statements made in this prospectus concerning other documents are not
necessarily complete. The registration statement, including exhibits, financial
statements and notes, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, NY 10048, and the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may
be obtained from the Commission upon payment of fees prescribed by the
Commission. Information on the operation of the public reference room may be
obtained by calling the Commission at 1-800-SEC-0330. These reports and other
information may also be inspected without charge at a Web site maintained by the
Commission at http://www.sec.gov.

60
<PAGE> 65

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Financial Statements:
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operations and Comprehensive
Loss................................................... F-4
Consolidated Statements of Shareholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE> 66

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Netro Corporation:

We have audited the accompanying consolidated balance sheets of Netro
Corporation (a California corporation) and subsidiaries as of December 31, 1997
and 1998, and June 30, 1999, and the related consolidated statements of
operations and comprehensive loss, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1998, and for the six months
ended June 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Netro Corporation and
subsidiaries as of December 31, 1997 and 1998, and June 30, 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, and for the six months ended June 30, 1999,
in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

San Jose, California
July 19, 1999

F-2
<PAGE> 67

NETRO CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, EQUITY
-------------------- JUNE 30, AT JUNE 30,
1997 1998 1999 1999 (NOTE 9)
-------- -------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................. $ 15,668 $ 6,094 $ 2,997
Short-term investments................................ 10,038 9,034 16,890
Trade accounts receivable, net of allowance of $47,
$509 and $100, respectively........................ 2,157 1,150 2,533
Inventory............................................. 3,927 4,315 4,651
Prepaid expenses and other............................ 361 243 603
-------- -------- --------
Total current assets.......................... 32,151 20,836 27,674
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net............... 5,516 5,634 4,996
OTHER ASSETS............................................ 41 318 240
-------- -------- --------
Total assets.................................. $ 37,708 $ 26,788 $ 32,910
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital
leases............................................. $ 1,487 $ 3,872 $ 5,557
Trade accounts payable................................ 2,870 1,327 2,129
Accrued liabilities................................... 2,137 3,114 3,553
-------- -------- --------
Total current liabilities..................... 6,494 8,313 11,239
LONG-TERM DEBT AND CAPITAL LEASES, net of current
portion............................................... 4,209 4,547 4,282
DEFERRED FACILITIES RENT................................ -- 35 48
-------- -------- --------
Total liabilities............................. 10,703 12,895 15,569
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7) SHAREHOLDERS'
EQUITY:
Convertible Preferred Stock, no par value:
Authorized -- 32,692,517 shares
Outstanding -- 25,711,771 shares, 27,732,235 shares
and 29,902,283 shares at December 31, 1997,
December 31, 1998 and June 30, 1999,
respectively; none outstanding pro forma at June
30, 1999 (unaudited); aggregate liquidation
preference at June 30, 1999 of $98,128........... 65,437 81,073 97,908 $ --
Common Stock, no par value:
Authorized -- 60,000,000 shares
Outstanding -- 8,078,957 shares, 8,530,238 shares
and 9,011,489 shares at December 31, 1997,
December 31, 1998 and June 30, 1999,
respectively; 38,913,772 shares outstanding pro
forma at June 30, 1999 (unaudited)............... 344 1,224 6,451 104,359
Note receivable from shareholder...................... -- (800) (800) (800)
Deferred stock compensation........................... -- -- (4,325) (4,325)
Accumulated deficit................................... (38,776) (67,604) (81,893) (81,893)
-------- -------- -------- --------
Total shareholders' equity.................... 27,005 13,893 17,341 $ 17,341
-------- -------- -------- ========
Total liabilities and shareholders' equity.... $ 37,708 $ 26,788 $ 32,910
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 68

NETRO CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................... $ 731 $ 5,601 $ 5,438 $ 3,273 $ 5,338
COST OF REVENUES....................... 619 8,273 9,640 4,273 4,171
-------- -------- -------- -------- --------
GROSS PROFIT (LOSS).................... 112 (2,672) (4,202) (1,000) 1,167
-------- -------- -------- -------- --------
OPERATING EXPENSES:
Research and development............. 10,446 15,289 16,143 8,769 9,183
Sales and marketing.................. 1,293 3,776 4,819 2,330 2,563
General and administrative........... 1,189 3,500 3,968 1,900 3,103
Amortization of deferred stock
compensation...................... -- -- -- -- 509
-------- -------- -------- -------- --------
Total operating expenses..... 12,928 22,565 24,930 12,999 15,358
-------- -------- -------- -------- --------
LOSS FROM OPERATIONS................... (12,816) (25,237) (29,132) (13,999) (14,191)
-------- -------- -------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest income...................... 669 1,001 1,260 736 454
Interest expense..................... (26) (298) (956) (418) (552)
-------- -------- -------- -------- --------
Total other income (expense),
net........................ 643 703 304 318 (98)
-------- -------- -------- -------- --------
NET LOSS AND COMPREHENSIVE LOSS........ $(12,173) $(24,534) $(28,828) $(13,681) $(14,289)
======== ======== ======== ======== ========
Basic and diluted net loss per share... $ (4.66) $ (5.11) $ (4.07) $ (2.11) $ (1.72)
======== ======== ======== ======== ========
Shares used to compute basic and
diluted net loss per share........... 2,610 4,798 7,087 6,475 8,315
======== ======== ======== ======== ========
Pro forma basic and diluted net loss
per share (unaudited)................ $ (0.84) $ (0.38)
======== ========
Shares used to compute pro forma basic
and diluted net loss per share
(unaudited).......................... 34,391 37,628
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 69

NETRO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED TOTAL
-------------------- ------------------ FROM STOCK ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHAREHOLDER COMPENSATION DEFICIT EQUITY
---------- ------- --------- ------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1995.................... 18,716,660 $16,541 7,851,284 $ 69 $ (3) $ -- $ (2,069) $ 14,538
Exercise of stock options
for cash................ -- -- 170,000 34 -- -- -- 34
Repurchase of Common Stock
for cash................ -- -- (207,878) (9) -- -- -- (9)
Issuance of Series C
Convertible Preferred
Stock for cash, net of
issuance costs of $36... 1,967,106 13,734 -- -- -- -- -- 13,734
Repayment of notes
receivable from
shareholders............ -- -- -- -- 3 -- -- 3
Net loss.................. -- -- -- -- -- -- (12,173) (12,173)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE, DECEMBER 31,
1996.................... 20,683,766 30,275 7,813,406 94 -- -- (14,242) 16,127
Exercise of stock options
for cash................ -- -- 111,301 15 -- -- -- 15
Issuance of Common Stock
for cash................ -- -- 158,000 235 -- -- -- 235
Repurchase of Common Stock
for cash................ -- -- (3,750) -- -- -- -- --
Issuance of Series C
Convertible Preferred
Stock for cash, net of
issuance costs of $36... 5,028,005 35,162 -- -- -- -- -- 35,162
Net loss.................. -- -- -- -- -- -- (24,534) (24,534)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE, DECEMBER 31,
1997.................... 25,711,771 65,437 8,078,957 344 -- -- (38,776) 27,005
Exercise of stock options
for cash................ -- -- 389,677 226 -- -- -- 226
Issuance of Common Stock
for cash................ -- -- 5,396 11 -- -- -- 11
Repurchase of Common Stock
for cash................ -- -- (343,792) (157) -- -- -- (157)
Issuance of Common Stock
for notes receivable.... -- -- 400,000 800 (800) -- -- --
Issuance of Series D
Convertible Preferred
Stock for cash, net of
issuance costs of $84... 2,020,464 15,636 -- -- -- -- -- 15,636
Net loss.................. -- -- -- -- -- -- (28,828) (28,828)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE, DECEMBER 31,
1998.................... 27,732,235 81,073 8,530,238 1,224 (800) -- (67,604) 13,893
Exercise of stock options
for cash................ -- -- 502,917 397 -- -- -- 397
Deferred stock
compensation............ -- -- -- 4,834 -- (4,834) -- --
Repurchase of Common Stock
for cash................ -- -- (21,666) (4) -- -- -- (4)
Issuance of Series D
Convertible Preferred
Stock for cash, net of
issuance costs of $48... 2,149,254 16,673 -- -- -- -- -- 16,673
Issuance of Series D
Convertible Preferred
Stock for services
rendered................ 20,794 162 -- -- -- -- -- 162
Amortization of deferred
stock compensation...... -- -- -- -- -- 509 -- 509
Net loss.................. -- -- -- -- -- -- (14,289) (14,289)
---------- ------- --------- ------ ----- ------- -------- --------
BALANCE, JUNE 30, 1999.... 29,902,283 $97,908 9,011,489 $6,451 $(800) $(4,325) $(81,893) $ 17,341
========== ======= ========= ====== ===== ======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 70

NETRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------ ----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................. $(12,173) $(24,534) $(28,828) $(13,681) $(14,289)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization......... 761 1,968 3,065 1,478 1,635
Provision for doubtful accounts....... -- 47 462 25 28
Loss on disposal of fixed assets...... 194 258 -- -- --
Amortization of deferred stock
compensation........................ -- -- -- -- 509
Non-cash issuance of Preferred
Stock............................... -- -- -- -- 162
Changes in operating assets and
liabilities:
Trade accounts receivable........... (543) (1,717) 545 326 (1,411)
Inventory........................... (1,257) (2,670) (388) (1,495) (336)
Prepaid expenses and other.......... (108) (191) (159) (141) (282)
Trade accounts payable and accrued
liabilities...................... 2,277 2,282 (566) (205) 1,254
-------- -------- -------- -------- --------
Net cash used in operating
activities..................... (10,849) (24,557) (25,869) (13,693) (12,730)
-------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold
improvements.......................... (3,104) (2,530) (3,183) (2,133) (997)
Purchases of short-term investments...... (17,944) (18,796) (34,085) (17,552) (25,955)
Maturities of short-term investments..... 8,208 18,494 35,089 10,175 18,099
-------- -------- -------- -------- --------
Net cash used in investing
activities..................... (12,840) (2,832) (2,179) (9,510) (8,853)
-------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and sale-leaseback transactions....... -- 4,577 4,553 2,766 3,256
Payments on notes payable and capital
leases................................ (246) (1,109) (1,795) (822) (1,836)
Proceeds from issuance of Preferred
Stock, net of issuance costs.......... 13,734 35,162 15,636 10,259 16,673
Proceeds from issuance of Common Stock... 34 250 237 125 397
Repurchases of Common Stock.............. (9) -- (157) (9) (4)
Repayment of note receivable from
shareholder........................... 3 -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities..................... 13,516 38,880 18,474 12,319 18,486
-------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS.............................. (10,173) 11,491 (9,574) (10,884) (3,097)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 14,350 4,177 15,668 15,668 6,094
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 4,177 $ 15,668 $ 6,094 $ 4,784 $ 2,997
======== ======== ======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................... $ 21 $ 360 $ 802 $ 344 $ 513
Non-cash transactions:
Notes receivable from the issuance of
common stock........................ $ -- $ -- $ 800 $ -- $ --
Equipment acquired under capital
leases.............................. $ 891 $ 1,083 $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 71

NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30 1998 IS UNAUDITED)

1. ORGANIZATION AND OPERATIONS OF THE COMPANY:

Netro Corporation (the "Company") was incorporated in California on
November 14, 1994 to develop, manufacture and sell broadband wireless access
systems.

During 1997, the Company commenced volume shipments of its products and
emerged from the development stage. Although no longer in the development stage,
the Company continues to be subject to a number of risks similar to other
companies in a comparable stage of development, including reliance on key
personnel, the challenges of successfully marketing its products in an emerging
market, competition from substitute products and other companies, the challenges
of successfully developing new products and the inability to secure adequate
financing to support future growth.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

UNAUDITED INTERIM FINANCIAL DATA

The unaudited interim consolidated financial statements for the six months
ended June 30, 1998, were prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial information set forth therein, in accordance with generally
accepted accounting principles.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company,
its wholly-owned subsidiary in Germany and a wholly-owned, dormant subsidiary in
Israel.

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's subsidiaries is the local
currency. Gains and losses resulting from the translation of the financial
statements have not been material to date.

Foreign exchange gains and losses resulting from foreign currency
transactions were not material in any of the periods presented.

USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

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

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of short-term, highly liquid investments
with original maturities of less than three months.

SHORT-TERM INVESTMENTS

The Company classifies its investments in debt securities as
"held-to-maturity." Accordingly, these investments, which mature at various
dates through September 1999, are valued using the amortized cost

F-7
<PAGE> 72
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

method. The fair value of the investments approximates amortized cost and, as
such, the gross unrealized holding gains and losses at December 31, 1997 and
1998 and June 30, 1999, were not material.

The carrying value of the Company's investments by major security type
consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
DESCRIPTION 1997 1998 1999
----------- ------- ------- --------
<S> <C> <C> <C>
United States Treasury Bills.......................... $10,042 $ 1,996 $ 4,988
Other federal agency securities....................... 12,046 6,945 6,933
Commercial paper...................................... -- 5,064 4,969
------- ------- -------
$22,088 $14,005 $16,890
======= ======= =======
</TABLE>

Approximately $12,050,000 and $4,971,000 of the total investments in debt
securities as of December 31, 1997 and 1998, respectively, were included in cash
and cash equivalents. The remaining balances were classified as short-term
investments. There were no investments included in cash and cash equivalents as
of June 30, 1999.

INVENTORY

Inventory includes materials and labor, is stated at the lower of cost
(first-in, first-out) or market and consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1997 1998 1999
------ ------ --------
<S> <C> <C> <C>
Raw materials.............................................. $1,188 $3,204 $2,110
Work-in-process............................................ 1,657 474 1,241
Finished goods............................................. 1,082 637 1,300
------ ------ ------
$3,927 $4,315 $4,651
====== ====== ======
</TABLE>

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment is recorded at cost and depreciated using the straight-line
method based upon the estimated useful lives of the assets, which range from
three to five years. Leasehold improvements are recorded at cost and are
amortized over the estimated lives of the improvements or the term of the lease,
whichever is shorter. Maintenance and repairs that do not improve or extend the
life of assets are expensed as incurred.

SOFTWARE DEVELOPMENT COSTS

Under the criteria set forth in Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of the product. The
establishment of technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. Amounts that could have been capitalized under this
statement after consideration of the above factors were immaterial and,
therefore, no software development costs have been capitalized by the Company to
date.

F-8
<PAGE> 73
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

REVENUE RECOGNITION

Revenues from product sales are generally recognized when all of the
following conditions are met: the product has shipped, the Company has the right
to invoice the customer, collection of the receivable is probable and the
Company has fulfilled all of its contractual obligations to the customer.
Provisions are made at the time of revenue recognition for estimated warranty
costs.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred and consist
primarily of payroll costs, other direct expenses and overhead. The Company
received third-party research and development funding of $900,000 and $450,000
in 1998 and the six months ended June 30, 1999. The Company offset research and
development expenses with the funding when agreed-upon milestones were met.

COMPUTATION OF HISTORICAL NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE

Historical net loss per share was calculated under SFAS No. 128, "Earnings
per Share." Basic and diluted net loss per share on a historical basis is
computed using the weighted average number of shares of common stock
outstanding. Potential common shares from conversion of convertible preferred
stock and exercise of stock options and warrants are excluded from diluted net
loss per share because they would be antidilutive. The total number of shares
excluded from diluted net loss per share relating to these securities was
22,260,942 shares, 29,777,846 shares, and 32,453,093 shares for 1996, 1997 and
1998, respectively, and 31,624,038 shares and 35,743,978 shares for the six
months ended June 30, 1998 and 1999, respectively.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, convertible preferred stock and common stock issued or granted for
nominal consideration prior to the anticipated effective date of an initial
public offering must be included in the calculation of basic and diluted net
loss per share as if they had been outstanding for all periods presented. To
date, the Company has not had any issuances or grants for nominal consideration.

Pro forma basic and diluted net loss per share is calculated assuming the
conversion of convertible preferred stock into an equivalent number of shares of
common stock, as if the shares had converted on the dates of their issuance.

F-9
<PAGE> 74
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents the calculation of historical and pro forma
net loss per share (in thousands, except per share data):

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------------------
1996 1997 1998 1998 1999
-------- -------- -------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss........................... $(12,173) $(24,534) $(28,828) $(13,681) $(14,289)
======== ======== ======== ======== ========
HISTORICAL:
Weighted average shares of common
stock outstanding................ 7,880 8,021 8,227 8,232 8,604
Less: Weighted average shares of
common stock subject to
repurchase....................... (5,270) (3,223) (1,140) (1,757) (289)
-------- -------- -------- -------- --------
Weighted average shares used to
compute basic and diluted net
loss per share................... 2,610 4,798 7,087 6,475 8,315
======== ======== ======== ======== ========
Basic and diluted net loss per
share............................ $ (4.66) $ (5.11) $ (4.07) $ (2.11) $ (1.72)
======== ======== ======== ======== ========
PRO FORMA:
Net loss........................... $(28,828) $(14,289)
======== ========
Shares used above.................. 7,087 8,315
Pro forma adjustment to reflect
weighted average effect of
assumed conversion of convertible
preferred stock (unaudited)...... 27,304 29,313
-------- --------
Weighted average shares used to
compute pro forma basic and
diluted net loss per share
(unaudited)...................... 34,391 37,628
======== ========
Pro forma basic and diluted net
loss per share (unaudited)....... $ (0.84) $ (0.38)
======== ========
</TABLE>

COMPREHENSIVE LOSS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which the Company adopted beginning on January
1, 1998. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income (loss) and its components in a full set of general purpose
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in equity of an enterprise that result from transactions and other
economic events of the period other than transactions with shareholders.
Comprehensive income (loss) is the total of net income (loss) and all other
non-owner changes in equity. For each of the periods presented, the Company had
no such transactions, therefore the comprehensive loss was equal to net loss.

STOCK-BASED COMPENSATION PLANS

Effective January 1, 1996, the Company adopted the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for stock options.

F-10
<PAGE> 75
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which requires
companies to value derivative financial instruments, including those used for
hedging foreign currency exposures, at current market value with the impact of
any change in market value being charged against earnings in each period. SFAS
No. 133 will be effective for and adopted by the Company in the first quarter of
the fiscal year ending December 31, 2000. To date, the Company has not entered
into any derivative financial instrument contracts. Thus, the Company
anticipates that SFAS No. 133 will not have a material impact on its
consolidated financial statements.

3. CONCENTRATIONS OF CREDIT RISK:

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables, cash
equivalents and short-term investments. As of December 31, 1998 and June 30,
1999, approximately 71% and 62%, respectively, of the Company's trade accounts
receivable balance was represented by two customers and one customer,
respectively. The Company does not require collateral on accounts receivable, as
the majority of the Company's customers are large, well-established companies.
The Company provides reserves for credit losses and such losses have been
insignificant in all periods presented in the accompanying consolidated
financial statements. With respect to cash equivalents and short-term
investments, the Company has cash investment policies that limit the amount of
credit exposure to any one issuer and restrict placement of these investments to
issuers evaluated as creditworthy.

4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Equipment and leasehold improvements consisted of the following (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Engineering and test equipment................ $ 5,975 $ 7,997 $ 8,651
Office and computer equipment................. 1,931 2,743 2,953
Furniture and fixtures........................ 202 345 457
Leasehold improvements........................ -- 206 227
------- ------- -------
8,108 11,291 12,288
Less: Accumulated depreciation and
amortization................................ (2,592) (5,657) (7,292)
------- ------- -------
Equipment and leasehold improvements, net..... $ 5,516 $ 5,634 $ 4,996
======= ======= =======
</TABLE>

5. ACCRUED LIABILITIES:

Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Accrued payroll and related benefits........... $ 584 $ 935 $ 938
Accrued moving expenses........................ 387 -- --
Warranty reserve............................... 171 1,250 905
Customer deposits.............................. -- 315 264
Other.......................................... 995 614 1,446
------- ------- ------
Total................................ $ 2,137 $ 3,114 $3,553
======= ======= ======
</TABLE>

F-11
<PAGE> 76
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT AND CAPITAL LEASES:

The following table summarizes obligations under long-term debt and capital
leases (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Borrowings under bank line of credit............ $ -- $ 1,839 $ 3,266
Secured note payable to lender, due in monthly
installments of $90,942 with interest at
12.5%......................................... 3,447 2,746 2,295
Capital leases, due through 2002................ 2,249 3,834 4,278
------- ------- -------
5,696 8,419 9,839
Less: current portion........................... (1,487) (3,872) (5,557)
------- ------- -------
$ 4,209 $ 4,547 $ 4,282
======= ======= =======
</TABLE>

In January 1998, the Company entered into a new bank line of credit under
which up to $6,000,000 is available for borrowings and letters of credit. This
arrangement was renewed in January 1999 and expires in January 2000. Borrowings
are limited to an aggregate amount equaling approximately 80% and 90% of
domestic and foreign eligible trade accounts receivables, respectively, and 50%
of eligible foreign inventories. The line of credit is secured by the Company's
outstanding trade accounts receivable and inventory. The borrowings under the
line are due in January 2000 and accrue interest at the 30-day LIBOR rate plus
2.25% or the bank's prime rate, at the Company's option. Under the agreement,
the Company must comply with certain financial and other covenants. As of June
30, 1999, borrowings outstanding under this agreement were $3,266,000 and
amounts utilized for outstanding letters of credit were $400,000.

In 1997, the Company borrowed $3,750,000 from a lender to finance purchases
of fixed assets. The loan accrues interest at 12.5% per annum from the date of
borrowing, and is secured by a purchase money lien on the equipment financed.
Principal payments due under the loan at June 30, 1999, are as follows (in
thousands):

<TABLE>
<S> <C>
1999................................................ $ 342
2000................................................ 898
2001................................................ 1,055
------
Total..................................... $2,295
======
</TABLE>

A significant portion of the Company's machinery and equipment is leased
under agreements accounted for as capital leases. The cost of equipment under
capital leases included in property and equipment at December 31, 1997 and 1998
and June 30, 1999 was approximately $3,122,000, $5,754,000 and $6,792,000
respectively.

F-12
<PAGE> 77
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum lease payments under all noncancelable capital lease
agreements as of June 30, 1999, are summarized as follows (in thousands):

<TABLE>
<S> <C>
1999................................................ $ 863
2000................................................ 1,721
2001................................................ 1,559
2002................................................ 1,026
------
Total minimum lease payments........................ 5,169
Less: amount representing interest at 10.0% to
13.4%......................................... (891)
------
Present value of lease payments..................... $4,278
======
</TABLE>

In March 1999, the Company entered into a new equipment lease agreement,
under which the Company can finance equipment purchases of up to $3,000,000. As
of June 30, 1999, the Company had borrowed approximately $1,298,000 against this
agreement. See Note 9 for information regarding warrants issued as part of this
agreement.

7. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company leases its facilities and certain equipment under noncancelable
operating lease agreements expiring at various dates through September 2001.
Future minimum lease payments under all noncancelable operating lease agreements
as of June 30, 1999, are summarized as follows (in thousands):

Rent expense for the operating leases was approximately $224,000, $538,000,
$922,000 and $681,000 in 1996, 1997, 1998 and in the six months ended June 30,
1999, respectively.

The Company issued a standby letter of credit of $400,000 to secure certain
of the Company's warranty obligations to one customer related to possible
damages resulting from downtime due to product performance issues. The letter of
credit is secured by a certificate of deposit for $125,000. The letter of credit
is subject to draw if the Company fails to meet its obligation for liquidated
damages to the customer.

CONTINGENCIES

In March 1999, one of the Company's former contract manufacturers filed for
binding arbitration in Santa Clara County, California with respect to a dispute
with the Company. The arbitration involves claims for approximately $950,000 for
amounts allegedly owed by the Company for inventory purchased by the plaintiff
in anticipation of the Company's projected demand. In June 1999, the Company
filed an answer and counterclaim alleging damages of approximately $275,000 for
product failures. The Company believes it has meritorious defenses to the
plaintiff's claim, and intends to defend this arbitration vigorously.

8. EMPLOYEE BENEFIT PLAN:

The Company maintains an employee savings plan for all of its full-time
employees. This plan qualifies under Section 401(k) of the Internal Revenue Code
(the "Code"). The plan allows employees to

F-13
<PAGE> 78
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

make pre-tax contributions in specified percentages up to the maximum dollar
limitations prescribed by the Code. The Company has the option to contribute to
the plan, but has not made contributions to date.

9. CAPITAL STOCK:

STOCK SPLIT

In December 1996, the Company's Board of Directors effected a two-for-one
stock split payable in the form of a dividend of one additional share of the
Company's capital stock for every share owned by shareholders. All share data
have been adjusted to retroactively reflect the stock split.

CAPITAL STOCK

The Company's capital stock is divided into two classes: Common Stock and
Convertible Preferred Stock. Convertible Preferred Stock consists of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock and Series D Convertible Preferred Stock.

At June 30, 1999, 38,037,959 shares of Common Stock were reserved,
including 8,078,648 shares for issuance under the Company's stock option plans,
29,902,283 shares for conversion of the outstanding Convertible Preferred Stock
and 57,028 for Convertible Preferred Stock warrants.

During 1998, the Company issued 400,000 shares of Common Stock in exchange
for a full recourse note in the amount of $800,000. The note bears interest at
5.44% per annum and is due in April 2002.

STOCK OPTION PLANS

1999 Executive Stock Plan

Our 1999 Executive Stock Plan was adopted by the board of directors in
April 1999 and approved by the shareholders in May 1999. A total of 1,195,000
shares of common stock has been reserved for issuance under the 1999 Executive
Stock Plan. As of June 30, 1999, options to purchase 1,175,000 shares of common
stock with a weighted average exercise price of $3.50 had been issued, and
20,000 shares remained available for future option grants. Unless terminated
earlier, the 1999 Executive Stock Plan will terminate in April 2009. The 1999
Executive Stock Plan does not impose an annual limitation on the number of
shares subject to options that may be issued to any individual employee.

The terms of options issued under the 1999 Executive Stock Plan are
generally the same as those that may be issued under the 1996 Stock Option Plan.
However, all options granted under the 1999 Executive Stock Plan may be
exercised immediately after the grant date, subject to the Company's right to
repurchase at cost any shares that remain unvested at the time of the optionee's
termination of employment. Options granted under the 1999 Executive Stock Plan
generally vest at the rate of 1/4th of the total number of shares subject to the
options twelve months after the date of grant and 1/48th of the total number of
shares subject to the options each month thereafter.

1997 Directors' Stock Option Plan

The 1997 Directors' Stock Option Plan (the "Directors' Plan") was adopted
by the Board of Directors in December 1997 and amended in June 1999. A total of
300,000 shares of common stock has been reserved for issuance under the
Directors' Plan, of which options to purchase 125,000 shares of common stock had
been granted. Under the Directors' Plan, as amended, each individual who first
becomes a non-employee director after the effective date of the amendment will
receive an automatic initial grant of an option to purchase 10,000 shares of
common stock upon appointment or election. Initial grants to non-employee
directors will be vested and exercisable in full as of the date of grant. The
Directors' Plan also provides for annual grants of options to purchase 10,000
shares of common stock on

F-14
<PAGE> 79
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the first day of each fiscal year to each non-employee director who has served
on the Board of Directors for at least six months, provided that a non-employee
director who received a 20,000 share initial grant under the original version of
the Directors' Plan will be eligible to receive an annual grant of an option to
purchase 5,000 shares of common stock until the first day of the fiscal year
following the date on which the initial option has fully vested under the terms
of that option, after which date each director will be eligible to receive an
annual grant of an option to purchase 10,000 shares of common stock. The annual
grants to non-employee directors will be vested and exercisable in full as of
the date of grant. The per share exercise price of all stock options granted
under the Directors' Plan must be equal to the fair market value of a share of
the Company's common stock on the date of grant of the option. Options granted
under the Directors' Plan have a term of ten years. However, unvested options
will terminate when the optionee ceases to serve as a director and vested
options will terminate if they are not exercised within 12 months after the
director's death or disability or within 90 days after the director ceases to
serve as a director for any other reason.

1995 and 1996 Stock Option Plans

During 1996, the Company established the 1996 Stock Option Plan (the "1996
Plan"). All shares previously available for issuance under the Company's 1995
Stock Option Plan are reserved for issuance under the 1996 Plan. As of June 30,
1999, 8,800,000 shares of Common Stock had been authorized for issuance under
the 1995 and 1996 Plan, of which 2,098,981 shares remained available for future
option grants. Under the 1996 Plan, the Company may grant incentive stock
options or nonstatutory stock options to employees, officers, directors and
consultants at an exercise price of not less than 100% of the fair market value
of the Common Stock on the date of grant, except that nonstatutory stock options
may be granted at 85% of such fair market value. Options granted generally
become exercisable at a rate of one-fourth of the shares subject to the option
at the end of the first year and 1/48 of the shares subject to the option at the
end of each calendar month thereafter. However, at the discretion of management,
the optionee may have the immediate right to exercise the option subject to a
restricted stock agreement that gives the Company the right to repurchase
unvested shares at the original issuance price in the event of termination of
employment. The maximum term of a stock option under the plans is ten years, but
if the optionee at the time of grant has voting power of more than 10% of the
Company's outstanding capital stock, the maximum term is five years.

F-15
<PAGE> 80
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes option activity under all option plans:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- --------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995................... 2,104,716 41,000 $0.045
Authorized................................... 1,500,000 -- --
Granted...................................... (2,288,800) 2,288,800 0.470
Exercised.................................... -- (170,000) 0.200
Terminated................................... 63,800 (63,800) 0.270
Unvested shares repurchased.................. 197,460 -- 0.045
---------- ---------
Balance at December 31, 1996................... 1,577,176 2,096,000 0.490
Authorized................................... 1,320,000 -- --
Granted...................................... (2,557,550) 2,557,550 1.980
Exercised.................................... -- (111,301) 0.213
Terminated................................... 504,924 (504,924) 1.022
Unvested shares repurchased.................. 3,750 -- 0.045
---------- ---------
Balance at December 31, 1997................... 848,300 4,037,325 1.360
Authorized................................... 500,000 -- --
Granted...................................... (1,605,800) 1,605,800 2.000
Exercised.................................... -- (389,677) 0.579
Terminated................................... 570,337 (570,337) 1.555
Unvested shares repurchased.................. 248,667 -- 0.064
---------- ---------
Balance at December 31, 1998................... 561,504 4,683,111 1.621
Authorized................................... 3,315,284 -- --
Granted...................................... (2,402,600) 2,402,600 3.740
Exercised.................................... -- (502,917) 0.790
Terminated................................... 798,127 (798,127) 1.743
Unvested shares repurchased.................. 21,666 -- 0.194
---------- ---------
Balance at June 30, 1999....................... 2,293,981 5,784,667 2.556
========== =========
</TABLE>

As of June 30, 1999, 10,833 shares purchased under the plans were subject
to repurchase.

Shares of common stock issued pursuant to options granted under the 1995
and 1996 stock option plans that had not vested at the date of employee
termination were repurchased by the Company at cost, as reflected in the table
above as "unvested shares repurchased." The repurchased shares were cancelled
and returned to the pool of options available for grant.

F-16
<PAGE> 81
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at June 30, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------- NUMBER
EXERCISE CONTRACTUAL VESTED AND
PRICES NUMBER LIFE EXERCISABLE
- -------- --------- ----------- -----------
<S> <C> <C> <C>
$0.045 21,000 6.13 years 21,000
$0.200 360,171 6.99 years 243,113
$1.000 19,652 7.13 years 14,090
$1.500 234,469 7.45 years 151,499
$2.000 3,426,525 8.73 years 901,902
$3.500 1,316,000 9.77 years --
$7.000 194,000 9.89 years --
$7.500 212,850 10.00 years --
--------- ---------
5,784,667 1,331,604
========= =========
</TABLE>

In January 1996, the Company adopted the provisions of SFAS No. 123, which
calls for companies to measure employee stock compensation expense based on the
fair value method of accounting. As allowed by SFAS No. 123, the Company elected
the continued use of APB Opinion No. 25, with pro forma disclosure of net loss
determined as if the fair value method had been applied in measuring
compensation cost. Had compensation cost been determined under the fair value
method consistent with SFAS No. 123, the Company's net loss would have resulted
in the following pro forma amounts:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------------ JUNE 30,
1996 1997 1998 1999
-------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
As Reported:
Net loss................................... $(12,173) $(24,534) $(28,828) $(14,289)
Net loss per share......................... (4.66) (5.11) (4.07) (1.72)
Pro Forma:
Net loss................................... (12,197) (24,670) (29,079) (14,539)
Net loss per share......................... (4.67) (5.14) (4.10) (1.75)
</TABLE>

The weighted average fair values of options granted during 1996, 1997, 1998
and June 30, 1999 were $0.58, $2.47, $2.48 and $4.66 per share, respectively.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option valuation model with the following assumptions:

<TABLE>
<S> <C>
Risk-free interest rate..................... 5.03% - 6.70%
Average expected life of option............. 5 years
Dividend yield.............................. 0%
Volatility of Common Stock.................. 0.01%
</TABLE>

1999 EMPLOYEE STOCK PURCHASE PLAN

In June 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), subject to shareholder approval. The
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code. A total of 1,000,000 shares of common stock have been reserved for
issuance under the Purchase Plan. The number of shares reserved for issuance
under the Purchase Plan will be subject to an automatic annual increase on the
first day of each of 2001 through 2005 equal to the least of: (1) 250,000
shares, (2) 1% of the outstanding common stock on the last day of the
immediately preceding fiscal year, or (3) a number of shares determined by the
administrator. The price of shares purchased under the plan will be equal to 85%
of the fair market value of the Common Stock on the first or last day of the
offering period, whichever is lower.

F-17
<PAGE> 82
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DEFERRED STOCK COMPENSATION

In connection with the grant of stock options to purchase 2,338,550 shares
of common stock with a weighted average exercise price of $2.84 per share to
employees during 1998 and the six months ended June 30, 1999, the Company
recorded deferred compensation of $4,834,000, representing the difference
between the estimated fair value of the common stock and the aggregate option
exercise price of such options at the date of grant. This amount is presented as
a reduction of shareholders' equity and amortized ratably over the vesting
period of the applicable options (generally four years). Amortization expense
related to fiscal 1998 was immaterial. Amortization expense of $509,000 was
recorded during the six months ended June 30, 1999. Compensation expense is
decreased in the period of forfeiture for any accrued but unvested compensation
arising from the early termination of an option holder's services.

CONVERTIBLE PREFERRED STOCK

The Company has authorized shares of each series of Convertible Preferred
Stock as follows:

<TABLE>
<CAPTION>
OUTSTANDING
--------------------------------------
DECEMBER 31,
------------------------ JUNE 30,
AUTHORIZED 1997 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Series A.......................... 13,466,660 13,466,660 13,466,660 13,466,660
Series B.......................... 5,250,000 5,250,000 5,250,000 5,250,000
Series C.......................... 8,475,857 6,995,111 6,995,111 6,995,111
Series D.......................... 5,500,000 -- 2,020,464 4,190,512
</TABLE>

The rights and preferences of the Series A, B, C and D Preferred Stock are
as follows:

- The holders of Series A, B, C and D Preferred Stock are entitled to
dividends of $0.036, $0.16, $0.56 and $0.62 per share, respectively,
payable annually, as and if declared by the Board of Directors. Dividends
declared are prior and in preference to payment of dividends on Common
Stock. No dividends had been declared as of June 30, 1999.

- In the event of a liquidation or winding up of the Company, the holders
of Series A, B, C and D Preferred Stock are entitled to receive, in
preference to holders of Common Stock, an amount that is equal to $0.45,
$2.00, $7.00 and $7.78 per share, respectively, plus any declared but
unpaid dividends on such shares. If amounts are not available to satisfy
the full preferential amounts, the entire assets of the Company will be
distributed to the preferred shareholders in proportion to the aggregate
liquidation preferences of the shares of Preferred Stock held.

- Each share of Preferred Stock is convertible, at the option of the holder
at any time after the date of issuance of such shares, into Common Stock
at the initial conversion rate of one fully paid and non-assessable share
of Common Stock. The conversion rate is subject to adjustments upon the
occurrence of certain events.

- Each share of Preferred Stock will convert into shares of Common Stock
immediately upon the consummation of an underwritten public offering
pursuant to an effective registration statement under the Securities Act
of 1933.

- Each holder of Preferred Stock has the right to one vote for each share
of Common Stock into which the Preferred Stock could then be converted.
Holders of Preferred Stock vote with holders of Common Stock except (i)
on matters required by law or otherwise to be voted upon by class and
(ii) for the election of members of the Board of Directors. Holders of
Preferred Stock as a group are entitled to elect three members of the
Board of Directors.

F-18
<PAGE> 83
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- Holders of at least a majority of the Preferred Stock are required to
consent to any action that: (i) alters or changes the rights, preferences
or privileges of that class of Preferred Stock; (ii) increases the
authorized number of shares of Preferred Stock; (iii) creates any class
of stock with preferences or priorities superior to or on a parity with
the preferences and priority of the Preferred Stock; or (iv) affects the
sale of all or substantially all of the assets of the Company, or any
consolidation or merger, or any sale of more than 50% of the Company's
capital stock.

In January 1999, the Company entered into an agreement with one of its
vendors to issue up to approximately 100,000 shares of Preferred Stock for
engineering work performed. The number of shares to be issued was determined by
dividing the dollar amount specified for the achievement of agreed-upon
milestones by the price per share of such series of Preferred Stock most
recently issued. In June 1999, the vendor achieved certain milestones under the
agreement; accordingly, the Company issued 20,794 shares of Series D Convertible
Preferred Stock valued at $7.78 per share pursuant to the terms of this
agreement. In the six months ended June 30, 1999, approximately $162,000 related
to the issuance of these shares is included in research and development expense
in the accompanying consolidated statements of operations and comprehensive
loss.

WARRANTS

In connection with one of the Company's capital lease financing
arrangements, the Company issued warrants to its lessor as follows:

<TABLE>
<CAPTION>
YEAR SHARE EXERCISE
CLASS OF STOCK GRANTED AMOUNT PRICE
- -------------- ------- ------ --------
<S> <C> <C> <C>
Series C Preferred Stock............................... 1997 28,750 $7.00
Series D Preferred Stock............................... 1998 8,997 $7.78
Series D Preferred Stock............................... 1999 19,281 $7.78
</TABLE>

The warrants to purchase 28,750 shares at $7.00 per share and 8,997 shares
at $7.78 per share are exercisable immediately upon issuance and expire two
years from the closing of an initial public offering or five years from the date
the warrants were granted, whichever is later. Warrants to purchase 19,281
shares at an exercise price of $7.78 per share are exercisable immediately upon
issuance and expire three years from the closing of an initial public offering
or seven years from the date the warrants were granted, whichever is later. The
fair value of the warrants was estimated at the date of grant using the Black-
Scholes model and the value was determined to be immaterial.

PRO FORMA SHAREHOLDERS' EQUITY (UNAUDITED)

In May 1999, the Board of Directors authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of the
Company's Common Stock in connection with a proposed initial public offering
("IPO"). If the offering is consummated under the terms presently anticipated,
all of the currently outstanding Convertible Preferred Stock will convert to
29,902,283 shares of common stock upon the closing of the IPO. The effect of
this conversion has been reflected as unaudited pro forma shareholders' equity
in the accompanying consolidated balance sheet as of June 30, 1999.

10. INCOME TAXES:

The Company provides for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires an asset and liability
based approach in accounting for income taxes. Deferred income tax assets and
liabilities are recorded to reflect the tax consequences on future years of
temporary differences of revenue and expense items for financial statement and
income tax purposes. Valuation allowances are provided against assets that are
not likely to be realized.

F-19
<PAGE> 84
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The provision for income taxes differs from the expected tax benefit amount
computed by applying the statutory federal income tax rate of 35% to loss before
income taxes as follows:

<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1996 1997 1998 1999
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Federal statutory rate............................ (35)% (35)% (35)% (35)%
State taxes, net of federal benefit............... (6) (6) (6) (6)
Change in valuation allowance..................... 41 41 41 41
---- ---- ---- ----
--% --% --% --%
==== ==== ==== ====
</TABLE>

The major components of the net deferred tax asset were as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net operating losses:
Federal.................................. $ 11,017 $ 20,363 $ 24,832
State.................................... 750 1,176 1,362
Tax credit carryforwards................... 1,535 2,842 3,586
Cumulative temporary differences:
Reserves................................. 1,376 1,774 1,354
Research and development costs........... 848 1,653 2,070
Start-up costs........................... 847 621 508
Other.................................... 295 457 1,078
-------- -------- --------
Total deferred tax asset......... 16,668 28,886 34,790
Valuation allowance........................ (16,668) (28,886) (34,790)
-------- -------- --------
Net deferred tax asset........... $ -- $ -- $ --
======== ======== ========
</TABLE>

The Company has established a valuation allowance for the total deferred
tax asset because, given the Company's limited operating history and accumulated
deficit, it is uncertain that the deferred tax asset will be realized.

As of June 30, 1999, the Company had Federal and State net operating loss
carryforwards of approximately $73,035,000 and $23,348,000, respectively. The
Company's net operating loss carryforwards expire at various dates through 2019.
Under current tax law, the net operating loss and tax credit carryforwards
available for use in any given year may be limited upon the occurrence of
certain events, including significant changes in ownership interest.

11. SEGMENT REPORTING:

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." The
Company adopted SFAS No. 131 in fiscal 1998. SFAS No. 131 establishes standards
for disclosures about operating segments, products and services, geographic
areas and significant customers. The Company is organized and operates as one
operating segment: the design, development, manufacturing, marketing and selling
of broadband wireless point-to-multipoint access systems.

F-20
<PAGE> 85
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company markets its products in the United States and in other foreign
countries through worldwide system integrators, its direct sales force and local
resellers. Revenue by country was as follows:

<TABLE>
<CAPTION>
SIXTH
YEARS ENDED MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1996 1997 1998 1999
---- ---- ---- ----------
<S> <C> <C> <C> <C>
United States.......................................... 8% 1% 24% 64%
Germany................................................ 92% 61% 2% 5%
Austria................................................ -- 13% 27% 3%
United Kingdom......................................... -- -- 16% 1%
Italy.................................................. -- -- 15% 20%
Israel................................................. -- 21% 10% --
Other.................................................. -- 4% 6% 7%
</TABLE>

The following customers accounted for 10% or more of revenues in the periods
indicated:

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1996 1997 1998 1999
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Customer A............................................. 79% 39% * *
Customer B............................................. 13% 20% * *
Customer C............................................. -- 21% 10% *
Customer D............................................. -- 12% 27% *
Customer E............................................. -- -- 16% 60%
Customer F............................................. -- -- 15% 20%
</TABLE>

- ---------------
* Customer below 10% in 1998 or 1999

F-21
<PAGE> 86

[INSIDE FRONT COVER PAGE]

PHOTOGRAPHS, DESCRIPTIONS AND CAPTIONS

1. Top: Color photo of three AirStar base radio units and a base station
shelf with base sector controllers with a base modem unit.

Caption: AirStar, Base Station Equipment -- base station, base radio unit.
AirStar's base station equipment aggregates traffic from subscribers for
transmission to and from the service provider's central office.

2. Center: Color photo of the AirStar subscriber access unit and subscriber
radio unit.

Caption: AirStar Customer Premises Equipment, Subscriber Radio Unit,
Subscriber Access System.

AirStar's customer premises equipment connects the subscriber and
translates voice and data traffic for air transmission.

3. Bottom: Color photo of a computer monitor with a picture of an AirView
LE screen on its screen.

Caption: AirView LE Network Management Software.

All components of the AirStar network are managed remotely by the network
management software, using industry standard protocols.

[INTERIOR FOLD-OUT OF FRONT COVER PAGE]

IMAGES, DIAGRAM, DIAGRAM DESCRIPTIONS AND CAPTIONS

1. Top Caption: AirStar Network Deployment.

2. Center: Diagram of a communications network of a metropolitan broadband
wireless point-to-multipoint deployment with our AirStar with a central office
of a Telecom Carrier/Service Provider, connecting through the public switched
telephone network to the various services and protocols as well as the use of
the Airview LE Network Management Software (one of the Company's products) in
that location.

The Central Office is connected through fiber to a building which houses
the AirStar base station. On the roof of that building are AirStar base radio
units covering a small business (with a subscriber radio unit and a subscriber
access system), a mid-sized business (with the same subscriber equipment) and a
multiple tenant building (with the same subscriber equipment). The base station
and base radio units transmit and receive packets to and from the three
subscribers, described above, with transmission depicted by arrows.

3. Top Left Corner: Three drawings of buildings with AirStar equipment
covering a cell, with sector coverage depicted as a pyramid consisting of five
cones.

6. Bottom: our Logo

[INSIDE BACK COVER PAGE]

IMAGES, A MAP AND CAPTIONS

1. Top: AirStar.

2. Map with flags depicting the location of AirStar trials at end user and
distributor locations.
<PAGE> 87

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

Through and including , 1999 (the 25(th) day after the date
of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

5,000,000 SHARES

[NETRO LOGO]

COMMON STOCK

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

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

MERRILL LYNCH & CO.

BANCBOSTON ROBERTSON STEPHENS

DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED

, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88

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 the
underwriting discount, payable by the Registrant 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.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
SEC registration fee........................................ $ 15,985
NASD filing fee............................................. 6,250
Nasdaq National Market listing fee.......................... 95,000
Printing and engraving expenses............................. 250,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 250,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous fees and expenses............................. 72,765
----------
Total............................................. $1,000,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 317 of the California General Corporation Law 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 "Act").
Article VI of the Registrant's Amended and Restated Articles of Incorporation,
to be filed and effective upon completion of this offering (Exhibit 3.3 hereto),
provides for indemnification of its directors and officers to the maximum extent
permitted by the California General Corporation Law, and Section 6.1 of the
Registrant's Bylaws, to be effective upon completion of this offering (Exhibit
3.4 hereto), provides for indemnification of its directors, officers, employees
and other agents to the maximum extent permitted by the California General
Corporation Law. In addition, the Registrant has entered into Indemnification
Agreements (Exhibit 10.1 hereto) with its directors and officers containing
provisions that are in some respects broader than the specific indemnification
provisions contained in the California General Corporation Law. The
indemnification agreements may require the Registrant, among other things, to
indemnify its directors and officers against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a 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' and officers' insurance if
available on reasonable terms. Reference is also made to Section 6(b) of the
Purchase Agreement contained in Exhibit 1.1 hereto, which indemnifies officers
and directors of the Registrant against certain liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

(a) Since inception through June 30, 1999, the Registrant has issued and
sold (without payment of any selling commission to any person) the following
unregistered securities:

- an aggregate of 13,466,660 shares of Series A preferred stock at $0.45
per share in June 1995 to 14 investors;

- an aggregate of 5,250,000 shares of Series B preferred stock at $2.00
per share in November and December 1995 to 10 investors;

II-1
<PAGE> 89

- an aggregate of 4,125,678 shares of Series C preferred stock at $7.00
per share in July, October and November 1996, and January, February
and April 1997 to 27 investors;

- warrants to purchase an aggregate of 28,750 shares of Series C
preferred stock in June and September 1997 to an equipment lessor;

- an aggregate of 2,869,433 shares of Series C preferred stock at $7.00
per share in July and November 1997 to 15 investors;

- an aggregate of 1,285,347 shares of Series D preferred stock at $7.78
per share in January 1998 to one investor;

- warrants to purchase an aggregate of 8,997 shares of Series D
preferred stock in February 1998 to an equipment lessor;

- an aggregate of 2,253,757 shares of Series D preferred stock at $7.78
per share in April, July and October 1998 and January and February
1999 to 20 investors;

- warrants to purchase an aggregate of 19,281 shares of Series D
preferred stock in March 1999 to an equipment lessor;

- an aggregate of 630,614 shares of Series D preferred stock at $7.78
per share in April and June 1999 to 4 investors;

- an aggregate of 20,794 shares of Series D preferred stock valued at
$7.78 per share for engineering services upon the achievement by
Microelectronics Technology Inc. of certain milestones in June 1999;

- an aggregate of 9,011,489 shares of common stock had been issued
between November 1994 and June 1999 upon exercise of options or
pursuant to restricted stock purchase agreements, net of repurchases,
to 115 consultants, employees and directors; and

- options and stock purchase rights to purchase an aggregate of
10,413,750 shares of common stock have been issued between April 1995
and June 1999 to 259 employees, directors and consultants with
exercise prices ranging from $0.045 to $7.50. Of the total, options
and stock purchase rights to purchase an aggregate of 1,941,188 shares
of common stock have been returned to Registrants's stock plans.

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

The issuances described in Item 15(a) 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 and in the case of
some issuances of our common stock, were deemed to be exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act. 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 were affixed to the securities issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<C> <S>
1.1 Purchase Agreement between Registrant and the Underwriters.
3.1* Amended and Restated Articles of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant, and amendments.
3.3* Form of Amended and Restated Articles of Incorporation of
the Registrant, to be filed and effective upon completion of
this offering.
</TABLE>

II-2
<PAGE> 90

<TABLE>
<C> <S>
3.4* Form of Amended and Restated Bylaws of the Registrant, to be
effective upon completion of this offering.
4.1 Form of the Registrant's common stock certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1996 Stock Option Plan, as amended, and form of stock option
agreement and restricted stock purchase agreement.
10.3* 1999 Executive Stock Plan and form of subscription
agreement.
10.4* 1999 Employee Stock Purchase Plan and form of subscription
agreement.
10.5* 1997 Directors' Stock Option Plan, as amended, and form of
stock option agreement.
10.6* Lease between Sobrato Interests II et al. and Pyramid
Technology Corporation dated August 29, 1979, and first
amendment.
10.6.1* Sublease between Registrant and Siemens Pyramid Information
Systems, Inc. dated December 15, 1997 and amendment.
10.6.2* Landlord's consent to sublease.
10.7(+)* Global OEM Purchase Agreement between Registrant and Lucent
Technologies Inc.
10.8(+)* Frame Agreement between Registrant and Italtel s.p.a.
10.8.1(+)* Non-Exclusive OEM Supplemental Agreement between Registrant
and Italtel s.p.a.
10.8.2* Joint Development Agreement between Registrant and Italtel
s.p.a.
10.8.3* Special Rights Agreement between Registrant and Italtel
s.p.a.
10.9(+)* Manufacturing Agreement between Registrant and Solectron
California Corporation, dated May 31, 1998.
10.10(+)* Manufacturing and Engineering Services Agreement between
Registrant and Microelectronics Technology Inc., dated
January 11, 1999 and first amendment.
10.11(+)* OEM Agreement between Registrant and Cisco Systems, Inc.,
dated as of December 7, 1998.
10.11.1(+)* Technology Agreement between Registrant and Cisco Systems,
Inc., dated as of December 7, 1998.
10.12* Employment Agreement between Registrant and Gideon
Ben-Efraim, and amendment.
10.13* Form of Change-of-Control Agreement.
10.14* Amended and Restated Rights Agreement by and among
Registrant and certain of its shareholders, dated June 21,
1999.
10.15* 1995 Stock Option Plan, as amended, and form of stock option
agreement and restricted stock purchase agreement.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>

- ---------------
* Previously filed.
** To be supplied by amendment.
+ Confidential treatment requested as to certain portions of this Exhibit.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts and Reserves (see page
S-2).

II-3
<PAGE> 91

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
of 1933 (the "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
<PAGE> 92

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the undersigned
Registrant has duly caused this Amendment No. 2 to Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Jose, State of California, on August 6, 1999.

NETRO CORPORATION

By: /s/ MICHAEL T. EVERETT
------------------------------------
Michael T. Everett, Executive Vice
President and Chief Financial
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-1 has been signed by the following
persons in the capacities and on the dates indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

* Chairman of the Board of August 6, 1999
- --------------------------------------------------- Directors
(Richard Moley)

* President, Chief Executive August 6, 1999
- --------------------------------------------------- Officer and Director (Principal
(Gideon Ben-Efraim) Executive Officer)

/s/ MICHAEL T. EVERETT Executive Vice President and August 6, 1999
- --------------------------------------------------- Chief Financial Officer
(Michael T. Everett) (Principal Financial and
Accounting Officer)

* Director August 6, 1999
- ---------------------------------------------------
(Thomas Baruch)

* Director August 6, 1999
- ---------------------------------------------------
(Neal Douglas)

* Director August 4, 1999
- ---------------------------------------------------
(Irwin Federman)

* Director August 6, 1999
- ---------------------------------------------------
(John Walecka)

* Power of Attorney

By: /s/ MICHAEL T. EVERETT
- ---------------------------------------------------
(Michael T. Everett)
</TABLE>

II-5
<PAGE> 93

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To the Board of Directors and Shareholders of
Netro Corporation:

We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Netro Corporation (a California
corporation) and subsidiaries included in this registration statement and have
issued our report thereon dated July 19, 1999. Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 16(b) above is the responsibility of the
Company's management, is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP
--------------------------------------

San Jose, California
July 19, 1999

S-1
<PAGE> 94

NETRO CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
THE BEGINNING CHARGED TO END OF THE
OF THE YEAR EXPENSES DEDUCTIONS YEAR
------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:

Year ended December 31, 1996............ $ -- $ 11 $ 8 $ 3
Year ended December 31, 1997............ 3 219 175 47
Year ended December 31, 1998............ 47 462 -- 509
Six months ended June 30, 1999.......... $ 509 $ 28 $437 $ 100
Reserve for Warranty:
Year ended December 31, 1996............ $ -- $ 133 $ 58 $ 75
Year ended December 31, 1997............ 75 320 224 171
Year ended December 31, 1998............ 171 1,833 754 1,250
Six months ended June 30, 1999.......... $1,250 $ 57 $402 $ 905
</TABLE>

S-2
<PAGE> 95

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement between Registrant and the Underwriters.
3.1* Amended and Restated Articles of Incorporation of the
Registrant.
3.2* Bylaws of the Registrant, and amendments.
3.3* Form of Amended and Restated Articles of Incorporation of
the Registrant, to be filed and effective upon completion of
this offering.
3.4* Form of Amended and Restated Bylaws of the Registrant, to be
effective upon completion of this offering.
4.1 Form of the Registrant's common stock certificate.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement.
10.2* 1996 Stock Option Plan, as amended, and form of stock option
agreement and restricted stock purchase agreement.
10.3* 1999 Executive Stock Plan and form of subscription
agreement.
10.4* 1999 Employee Stock Purchase Plan and form of subscription
agreement.
10.5* 1997 Directors' Stock Option Plan, as amended, and form of
stock option agreement.
10.6* Lease between Sobrato Interests II et al. and Pyramid
Technology Corporation dated August 29, 1979, and first
amendment.
10.6.1* Sublease between Registrant and Siemens Pyramid Information
Systems, Inc. dated December 15, 1997 and amendment.
10.6.2* Landlord's consent to sublease.
10.7(+)* Global OEM Purchase Agreement between Registrant and Lucent
Technologies Inc.
10.8(+)* Frame Agreement between Registrant and Italtel s.p.a.
10.8.1(+)* Non-Exclusive OEM Supplemental Agreement between Registrant
and Italtel s.p.a.
10.8.2* Joint Development Agreement between Registrant and Italtel
s.p.a.
10.8.3* Special Rights Agreement between Registrant and Italtel
s.p.a.
10.9(+)* Manufacturing Agreement between Registrant and Solectron
California Corporation, dated May 31, 1998.
10.10(+)* Manufacturing and Engineering Services Agreement between
Registrant and Microelectronics Technology Inc., dated
January 11, 1999 and first amendment.
10.11(+)* OEM Agreement between Registrant and Cisco Systems, Inc.,
dated as of December 7, 1998.
10.11.1(+)* Technology Agreement between Registrant and Cisco Systems,
Inc., dated as of December 7, 1998.
10.12* Employment Agreement between Registrant and Gideon
Ben-Efraim, and amendment.
10.13* Form of Change-of-Control Agreement.
10.14* Amended and Restated Rights Agreement by and among
Registrant and certain of its shareholders, dated June 21,
1999.
10.15* 1995 Stock Option Plan, as amended, and form of stock option
agreement and restricted stock purchase agreement.
21.1* Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants.
</TABLE>

<PAGE> 96

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------------ ------------------------------------------------------------
<C> <S>
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>

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

* Previously filed.

** To be supplied by amendment.

+ Confidential treatment requested as to certain portions of this Exhibit.

<PAGE> 1
==============================================================================

NETRO CORPORATION
(a California corporation)
5,000,000 Shares of Common Stock

PURCHASE AGREEMENT

Dated: __________, 1999

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

<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>

Section 1. Representations and Warranties....................................................3

(a) Representations and Warranties by the Company...................................3
(i) Compliance with Registration Requirements...............................3
(ii) Independent Accountants.................................................4
(iii) Financial Statements....................................................4
(iv) No Material Adverse Change in Business..................................4
(v) Good Standing of the Company............................................5
(vi) Good Standing of Subsidiaries...........................................5
(vii) Capitalization..........................................................5
(viii) Authorization of Agreement..............................................6
(ix) Authorization and Description of Securities.............................6
(x) Absence of Defaults and Conflicts.......................................6
(xi) Absence of Labor Dispute................................................7
(xii) Absence of Proceedings..................................................7
(xiii) Accuracy of Exhibits....................................................7
(xiv) Possession of Intellectual Property.....................................7
(xv) Absence of Further Requirements.........................................8
(xvi) Possession of Licenses and Permits......................................8
(xvii) Title to Property.......................................................8
(xviii) Compliance with Cuba Act................................................8
(xix) Investment Company Act..................................................9
(xx) Environmental Laws......................................................9
(xxi) Registration Rights.....................................................9
(b) Officer's Certificates..........................................................9

Section 2. Sale and Delivery to Underwriters; Closing........................................9

(a) Initial Securities..............................................................9
(b) Option Securities..............................................................10
(c) Payment........................................................................10
(d) Denominations; Registration....................................................11

Section 3. Covenants of the Company.........................................................11

(a) Compliance with Securities Regulations and Commission Requests.................11
(b) Filing of Amendments...........................................................12
(c) Delivery of Registration Statements............................................12
(d) Delivery of Prospectuses.......................................................12
(e) Continued Compliance with Securities Laws......................................12
(f) Blue Sky Qualifications........................................................13
(g) Rule 158.......................................................................13
(h) Use of Proceeds................................................................13
(i) Listing........................................................................13
(j) Restriction on Sale of Securities..............................................13
</TABLE>

<PAGE> 3
<TABLE>
<S> <C>
(k) Reporting Requirements.........................................................14
(l) Compliance with NASD Rules.....................................................14

Section 4. Payment of Expenses..............................................................14

(a) Expenses.......................................................................14
(b) Termination of Agreement.......................................................14

Section 5. Conditions of Underwriters' Obligations..........................................15

(a) Effectiveness of Registration Statement........................................15
(b) Opinion of Counsel for Company.................................................15
(c) Opinion of Counsel for Underwriters............................................16
(d) Officers' Certificate..........................................................16
(e) Accountant's Comfort Letter....................................................16
(f) Bring-down Comfort Letter......................................................16
(g) Approval of Listing............................................................17
(h) No Objection...................................................................17
(i) Lock-up Agreements.............................................................17
(j) Conditions to Purchase of Option Securities....................................17
(i) Officers' Certificate..................................................17
(ii) Opinion of Counsel for Company.........................................17
(iii) Opinion of Counsel for Underwriters....................................17
(iv) Bring-down Comfort Letter..............................................17
(k) Additional Documents...........................................................17
(l) Termination of Agreement.......................................................18

Section 6. Indemnification..................................................................18

(a) Indemnification of Underwriters................................................18
(b) Indemnification of Company, Directors and Officers.............................20
(c) Actions against Parties; Notification..........................................20
(d) Settlement without Consent if Failure to Reimburse.............................21
(e) Indemnification for Reserved Securities........................................22

Section 7. Contribution.....................................................................22

Section 8. Representations, Warranties and Agreements to Survive Delivery...................23

Section 9. Termination of Agreement.........................................................23

(a) Termination; General...........................................................24
(b) Liabilities....................................................................24

Section 10. Default by One or More of the Underwriters......................................24

Section 11. Notices.........................................................................25

Section 12. Parties.........................................................................25
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C>
Section 13. Governing Law and Time..........................................................25

Section 14. Effect of Headings..............................................................25

SCHEDULES
Schedule A - List of Underwriters.......................................Sch A-1
Schedule B - Pricing Information........................................Sch B-1

EXHIBITS
Exhibit A- Form of Opinion of Company's Counsel............................A-1
Exhibit B- Form of Lock-up Letter..........................................B-1
</TABLE>

iii
<PAGE> 5
Draft of July 29, 1999

NETRO CORPORATION
(a California corporation)
5,000,000 Shares of Common Stock

PURCHASE AGREEMENT
__________, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
BancBoston Robertson Stephens Inc.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
as Representative(s) of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

Netro Corporation, a California corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch and BancBoston Robertson Stephens Inc. and Dain
Rauscher Wessels, a division of Dain Rauscher Incorporated, are acting as
representative(s) (in such capacity, the "Representative(s)"), with respect to
the issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock
of the Company ("Common Stock") set forth in said Schedule A, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 750,000 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 5,000,000 shares of Common Stock (the "Initial Securities")
to be purchased by the Underwriters and all or any part of the 750,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities".

The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative(s) deem(s) advisable
after this Agreement has been executed and delivered.

The Company and the Underwriters agree that up to 350,000 shares of the
Securities to be purchased by the Underwriters (the "Reserved Securities") shall
be reserved for sale by the

<PAGE> 6
Underwriters to certain eligible employees and certain persons having business
relationships with the Company, as part of the distribution of the Securities by
the Underwriters, subject to the terms of this Agreement, the applicable rules,
regulations and interpretations of the National Association of Securities
Dealers, Inc. and all other applicable laws, rules and regulations. To the
extent that such Reserved Securities are not orally confirmed for purchase by
such eligible employees and persons having business relationships with the
Company by the end of the first business day after the date of this Agreement,
such Reserved Securities may be offered to the public as part of the public
offering contemplated hereby.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-81325) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated __________, 1999 together with the
Term Sheet and all references in this Agreement to the date of the Prospectus
shall mean the date of the Term Sheet. For purposes of this Agreement, all
references to the Registration Statement, any preliminary prospectus, the
Prospectus or any Term Sheet or any amendment or supplement to any of the
foregoing shall be deemed to include the copy filed with the Commission pursuant
to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR").

Section 1. Representations and Warranties.

2
<PAGE> 7
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b) hereof, and agrees with each Underwriter,
as follows:

(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information has
been complied with.

At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any Option Securities
are purchased, at the Date of Delivery), the Registration Statement, the
Rule 462(b) Registration Statement and any amendments and supplements
thereto complied and will comply in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and the Prospectus, any
preliminary prospectus and any supplement thereto or prospectus wrapper
prepared in connection therewith, at their respective times of issuance
and at the Closing Time, complied and will comply in all material
respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus and such preliminary prospectus,
as amended or supplemented, if applicable, are distributed in connection
with the offer and sale of Reserved Securities. Neither the Prospectus
nor any amendments or supplements thereto (including any prospectus
wrapper), at the time the Prospectus or any such amendment or supplement
was issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. If Rule
434 is used, the Company will comply with the requirements of Rule 434
and the Prospectus shall not be "materially different", as such term is
used in Rule 434, from the prospectus included in the Registration
Statement at the time it became effective. The representations and
warranties in this subsection shall not apply to statements in or
omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in
writing by any Underwriter through Merrill Lynch expressly for use in
the Registration Statement or Prospectus.

Each preliminary prospectus and the prospectus filed as part of
the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the

3
<PAGE> 8
1933 Act Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(ii) Independent Accountants. To the Company's knowledge
after reasonable investigation, the accountants who certified the
financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required by
the 1933 Act and the 1933 Act Regulations.

(iii) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated and
the statement of operations, shareholders' equity and cash flows of the
Company and its consolidated subsidiaries for the periods specified;
said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The supporting
schedules included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included
in the Prospectus present fairly the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement. The pro forma
financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information
shown therein, have been prepared in accordance with the Commission's
rules and guidelines with respect to pro forma financial statements and
have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.

(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of
the Company and its subsidiaries considered as one enterprise, whether
or not arising in the ordinary course of business (a "Material Adverse
Effect"), (B) there have been no transactions entered into by the
Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of

4
<PAGE> 9
California and has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.

(vi) Good Standing of Subsidiaries. The Company has no
"significant subsidiaries" (as such term is defined in Rule 1-02 of
Regulation S-X). Netro GmbH and Netro Ltd. (each a "Subsidiary" and,
collectively, the "Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectus and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed
in the Registration Statement, all of the issued and outstanding capital
stock of each such Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder of
such Subsidiary. The only subsidiaries of the Company are (a) the
subsidiaries listed on Exhibit 21 to the Registration Statement and (b)
certain other subsidiaries which, considered in the aggregate as a
single Subsidiary, do not constitute a "significant subsidiary" as
defined in Rule 1-02 of Regulation S-X.

(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectus or pursuant to the exercise of convertible securities or
options referred to in the Prospectus). The shares of issued and
outstanding capital stock of the Company have been duly authorized and
validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in
violation of the preemptive or other similar rights of any
securityholder of the Company.

(viii) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.

(ix) Authorization and Description of Securities. The
Securities have been duly authorized for issuance and sale to the
Underwriters pursuant to this Agreement and,

5
<PAGE> 10
when issued and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable upon filing of the Amended and
Restated Articles of Incorporation attached as Exhibit 3.3 to the
Registration Statement; the Common Stock will conform to all statements
relating thereto contained in the Prospectus and such description will
conform to the rights set forth in the instruments defining the same; no
holder of the Securities will be subject to personal liability by reason
of being such a holder; and the issuance of the Securities is not
subject to the preemptive or other similar rights of any securityholder
of the Company.

(x) Absence of Defaults and Conflicts. Neither the Company
nor any of its subsidiaries is in violation of its charter or by-laws or
in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any
of the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein and in the Registration Statement
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectus
under the caption "Use of Proceeds") and compliance by the Company with
its obligations hereunder have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any subsidiary pursuant
to, the Agreements and Instruments (except for such conflicts, breaches,
defaults, Repayment Events or liens, charges or encumbrances that would
not result in a Material Adverse Effect), nor will such action result in
any violation of the provisions of the charter or by-laws of the Company
or any subsidiary, nor will such action result in any violation of any
applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any subsidiary or
any of their assets, properties or operations (except for such
violations that would not materially and adversely affect the Company's
obligations hereunder and that would not result in a Material Adverse
Effect). As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any subsidiary.

(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and

6
<PAGE> 11
the Company is not aware of any existing or imminent labor disturbance
by the employees of any of its or any subsidiary's principal suppliers,
manufacturers, customers or contractors, which, in either case, may
reasonably be expected to result in a Material Adverse Effect.

(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company or any subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which might
reasonably be expected to result in a Material Adverse Effect, or which
might reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement or the performance by the Company of its
obligations hereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any subsidiary is a
party or of which any of their respective property or assets is the
subject which are not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could not
reasonably be expected to result in a Material Adverse Effect.

(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.

(xiv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.

(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except (i) such as have been already
obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws and (ii) such as have been

7
<PAGE> 12
obtained under the laws and regulations of jurisdictions outside the
United States in which the Reserved Securities are offered.

(xvi) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, except
where the failure to possess such Governmental Licenses would not,
singly or in the aggregate, have a Material Adverse Effect; the Company
and its subsidiaries are in compliance with the terms and conditions of
all such Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, have a Material Adverse Effect;
all of the Governmental Licenses are valid and in full force and effect,
except when the invalidity of such Governmental Licenses or the failure
of such Governmental Licenses to be in full force and effect would not
have a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.

(xvii) Title to Property. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and
its subsidiaries and good title to all other properties owned by them,
in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Prospectus or (b) do not, singly or in the
aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or any of its subsidiaries; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectus, are in full
force and effect, and neither the Company nor any subsidiary has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued possession
of the leased or subleased premises under any such lease or sublease.

(xviii) Compliance with Cuba Act. The Company has complied with,
and is and will be in compliance with, the provisions of that certain
Florida act relating to disclosure of doing business with Cuba, codified
as Section 517.075 of the Florida statutes, and the rules and
regulations thereunder (collectively, the "Cuba Act") or is exempt
therefrom.

(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectus
will not be, an "investment company" or an

8
<PAGE> 13
entity "controlled" by an "investment company" as such terms are defined
in the Investment Company Act of 1940, as amended (the "1940 Act").

(xx) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent, decree
or judgment, relating to pollution, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and its
subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of its subsidiaries and (D) there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its subsidiaries relating to Hazardous Materials
or any Environmental Laws.

(xxi) Registration Rights. There are no persons with
registration rights or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act, except as described in the
Prospectus.

(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representative(s) or to
counsel for the Underwriters shall be deemed a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.

Section 2. Sale and Delivery to Underwriters; Closing.

(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Company, at the price per share set forth in Schedule B, the number of
Initial Securities set forth in Schedule A opposite the name of such
Underwriter, plus any

9
<PAGE> 14
additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof.

(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase up to an additional 750,000
shares of Common Stock at the price per share set forth in Schedule B, less an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.
The option hereby granted will expire 30 days after the date hereof and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Initial Securities upon notice by the Representative(s) to
the Company setting forth the number of Option Securities as to which the
several Underwriters are then exercising the option and the time and date of
payment and delivery for such Option Securities. Any such time and date of
delivery (a "Date of Delivery") shall be determined by the Representative(s),
but shall not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined. If
the option is exercised as to all or any portion of the Option Securities, each
of the Underwriters, acting severally and not jointly, will purchase that
proportion of the total number of Option Securities then being purchased which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter bears to the total number of Initial Securities, subject in
each case to such adjustments as the Representative(s) in their discretion shall
make to eliminate any sales or purchases of fractional shares.

(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Venture
Law Group, A Professional Corporation, 2775 Sand Hill Road, Menlo Park,
California 94025, or at such other place as shall be agreed upon by the
Representative(s) and the Company, at 7:00 A.M. (California time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representative(s) and the Company
(such time and date of payment and delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representative(s)
and the Company, on each Date of Delivery as specified in the notice from the
Representative(s) to the Company.

Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representative(s) for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representative(s), for its account, to

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<PAGE> 15
accept delivery of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has agreed to
purchase. Merrill Lynch, individually and not as representative of the
Underwriters, may (but shall not be obligated to) make payment of the purchase
price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representative(s) may request in writing at
least two full business days before the Closing Time or the relevant Date of
Delivery, as the case may be. The certificates for the Initial Securities and
the Option Securities, if any, will be made available for examination and
packaging by the Representative(s) in The City of New York not later than 10:00
A.M. (Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.

Section 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:

(a) Compliance with Securities Regulations and Commission Requests.
The Company, subject to Section 3(b), will comply with the requirements of Rule
430A or Rule 434, as applicable, and will notify the Representative(s) as soon
as reasonably practicable, and confirm the notice in writing, (i) when any
post-effective amendment to the Registration Statement shall become effective,
or any supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Securities for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such purposes. The
Company will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus. The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.

(b) Filing of Amendments. The Company will give the
Representative(s) notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus included
in the Registration Statement at the time it became effective or to the
Prospectus will furnish the Representative(s) with copies of any such documents
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file or use

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<PAGE> 16
any such document to which the Representative(s) or counsel for the Underwriters
shall reasonably object.

(c) Delivery of Registration Statements. The Company has furnished
or will deliver to the Representative(s) and counsel for the Underwriters,
without charge, one signed copy of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith or
incorporated by reference therein) and signed copies of all consents and
certificates of experts, and will also deliver to the Representative(s), without
charge, a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the Underwriters. The
copies of the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. The
Prospectus and any amendments or supplements thereto furnished to the
Underwriters will be identical to the electronically transmitted copies thereof
filed with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.

(e) Continued Compliance with Securities Laws The Company will
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement and in the Prospectus. If at any time when a prospectus is required by
the 1933 Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is necessary,
in the opinion of counsel for the Underwriters or for the Company, to amend the
Registration Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the Prospectus in order to comply with the requirements of the 1933
Act or the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as may be
necessary to correct such statement or omission or to make the Registration
Statement or the Prospectus comply with such requirements, and the Company will
furnish to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.

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<PAGE> 17
(f) Blue Sky Qualifications. The Company will use its best efforts,
in cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representative(s) may designate and to maintain
such qualifications in effect for so long as may be necessary to complete the
distribution of the Securities; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for so long as may be
necessary to complete the distribution of the Securities.

(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes
of, and to provide the benefits contemplated by, the last paragraph of Section
11(a) of the 1933 Act.

(h) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the Prospectus
under "Use of Proceeds".

(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and will
file with the Nasdaq National Market all documents and notices required by the
Nasdaq National Market of companies that have securities that are traded in the
over-the-counter market and quotations for which are reported by the Nasdaq
National Market.

(j) Restriction on Sale of Securities. During a period of 180 days
from the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any registration
statement under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership of the
Common Stock, whether any such swap or transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to (A)
the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise of an option or warrant or the conversion of a
security outstanding on the date hereof and referred to in the Prospectus, (C)
any shares of Common Stock issued or options to purchase Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in the
Prospectus or (D) any shares of Common Stock issued pursuant to any non-employee
director stock plan.

13
<PAGE> 18
(k) Reporting Requirements. The Company, during the period when the
Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will
file all documents required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the rules and
regulations of the Commission thereunder.

Section 4. Payment of Expenses.

(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities, (x) the fees and expenses incurred in connection with the
inclusion of the Securities in the Nasdaq National Market, and (xi) all costs
and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, in connection with matters related to the Reserved
Securities which are designated by the Company for sale to employees and others
having a business relationship with the Company.

(b) Termination of Agreement. If this Agreement is terminated by the
Representative(s) in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the Underwriters.

Section 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any subsidiary of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

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<PAGE> 19
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, shall have become
effective, and at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission
in accordance with Rule 424(b) (or a post-effective amendment providing such
information shall have been filed and declared effective in accordance with the
requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434,
a Term Sheet shall have been filed with the Commission in accordance with Rule
424(b).

(b) Opinion of Counsel for Company At Closing Time, the
Representative(s) shall have received the favorable opinion, dated as of Closing
Time, of Venture Law Group, A Professional Corporation, counsel for the Company,
in form and substance reasonably satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other
Underwriters to the effect set forth in Exhibit A hereto and to such further
effect as counsel to the Underwriters may reasonably request. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of California and the federal law
of the United States and the General Corporation Law of the State of Delaware,
upon the opinions of counsel satisfactory to the Representative(s). Such counsel
may also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.

(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representative(s) shall have received the favorable opinion, dated as of Closing
Time, of Fenwick & West LLP, counsel for the Underwriters, together with signed
or reproduced copies of such letter for each of the other Underwriters with
respect to the matters set forth in clauses (i), (ii), (v), (vi) (solely as to
preemptive or other similar rights arising by operation of law or under the
charter or by-laws of the Company), (viii) through (x), inclusive, (xii), (xiv)
(solely as to the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph of Exhibit A hereto. In
giving such opinion such counsel may rely, as to all matters governed by the
laws of jurisdictions other than the law of the State of California and the
federal law of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the Representative(s).
Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries and certificates of public
officials.

(d) Officers' Certificate. At Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representative(s) shall have

15
<PAGE> 20
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at and as of
Closing Time, (iii) the Company has complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or, to the best of such officers' knowledge, are
contemplated by the Commission.

(e) Accountant's Comfort Letter. At the time of the execution of
this Agreement, the Representative(s) shall have received from Arthur Andersen
LLP a letter dated such date, in form and substance reasonably satisfactory to
the Representative(s), together with signed or reproduced copies of such letter
for each of the other Underwriters containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

(f) Bring-down Comfort Letter. At Closing Time, the
Representative(s) shall have received from Arthur Andersen LLP a letter, dated
as of Closing Time, to the effect that they reaffirm the statements made in the
letter furnished pursuant to subsection (e) of this Section, except that the
specified date referred to shall be a date not more than three business days
prior to Closing Time.

(g) Approval of Listing. At Closing Time, the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.

(h) No Objection. The NASD shall have confirmed that it has not
raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.

(i) Lock-up Agreements. At the date of this Agreement, the
Representative(s) shall have received an agreement substantially in the form of
Exhibit B hereto signed by the persons listed on Schedule C hereto.

(j) Conditions to Purchase of Option Securities. In the event that
the Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the Option Securities, the representations and
warranties of the Company contained herein and the statements in any
certificates furnished by the Company or any subsidiary of the Company hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representative(s) shall have received:

(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the President or a Vice President of the Company and of the
chief financial or chief accounting officer of the Company confirming
that the certificate delivered at the Closing

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<PAGE> 21
Time pursuant to Section 5(d) hereof remains true and correct as of such
Date of Delivery.

(ii) Opinion of Counsel for Company. The favorable opinion of
Venture Law Group, A Professional Corporation, counsel for the Company,
in form and substance reasonably satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(b) hereof.

(iii) Opinion of Counsel for Underwriters. The favorable
opinion of Fenwick & West LLP, counsel for the Underwriters, dated such
Date of Delivery, relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.

(iv) Bring-down Comfort Letter. A letter from Arthur Andersen
LLP, in form and substance reasonably satisfactory to the
Representative(s) and dated such Date of Delivery, substantially in the
same form and substance as the letter furnished to the Representative(s)
pursuant to Section 5(f) hereof, except that the "specified date" in the
letter furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.

(k) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with such
documents and opinions as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the issuance and
sale of the Securities as herein contemplated shall be reasonably satisfactory
in form and substance to the Representative(s) and counsel for the Underwriters.

(l) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representative(s) by notice to the Company
at any time at or prior to Closing Time or such Date of Delivery, as the case
may be, and such termination shall be without liability of any party to any
other party except as provided in Section 4 and except that Sections 1, 6, 7 and
8 shall survive any such termination and remain in full force and effect.

Section 6. Indemnification.

(a) Indemnification of Underwriters. The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:

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<PAGE> 22
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission
or alleged omission therefrom of a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;

(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of (A) the violation of any
applicable laws or regulations of foreign jurisdictions where Reserved
Securities have been offered and (B) any untrue statement or alleged
untrue statement of a material fact included in the supplement or
prospectus wrapper material distributed in [Insert Applicable
Jurisdiction(s)] in connection with the reservation and sale of the
Reserved Securities to certain eligible employees of the Company and
persons having business relationships with the Company or the omission
or alleged omission therefrom of a material fact necessary to make the
statements therein, when considered in conjunction with the Prospectus
or preliminary prospectus, and in the light of the circumstances under
which they were made, not misleading;

(iii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission or in connection with any
violation of the nature referred to in Section 6(a)(ii)(A) hereof;
provided that (subject to Section 6(d) below) any such settlement is
effected with the written consent of the Company; and

(iv) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation
of the nature referred to in Section 6(a)(ii)(A) hereof, to the extent
that any such expense is not paid under (i), (ii) or (iii) above;

provided, however, that this indemnity agreement shall not apply
to any loss, liability, claim, damage or expense to the extent arising
out of any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in

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<PAGE> 23
conformity with written information furnished to the Company by any
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto); provided further, that the Company will not be liable to any
Underwriter with respect to any preliminary prospectus to the extent
that the Company shall sustain the burden of proving that any such loss,
liability, claim, damage or expense resulted from the fact that such
Underwriter, in contravention of a requirement of applicable law, sold
Securities to a person to whom such Underwriter failed to send or give,
at or prior to the written confirmation of the sale of such Securities
(the "Confirmation"), a copy of the Prospectus, as then amended or
supplemented if: (i) the Company has previously furnished copies thereof
to the Underwriters (sufficiently in advance of the Confirmation and in
sufficient quantity to allow for distribution by the Confirmation) and
the loss, liability, claim, damage or expense of such Underwriter
resulted from an untrue statement or omission of a material fact
contained in or omitted from the preliminary prospectus that was
corrected in the Prospectus as, if applicable, amended or supplemented
prior to the Confirmation and such Prospectus was required by law to be
delivered at or prior to the Confirmation to such person and (ii) such
failure to give or send such Prospectus by the Confirmation to the party
or parties asserting such loss, liability, claim, damage or expense
would have constituted the sole defense to the claim asserted by such
person.

(b) Indemnification of Company, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Company, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the Prospectus (or any amendment or supplement thereto).

(c) Actions against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 6(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section

19
<PAGE> 24
6(b) above, counsel to the indemnified parties shall be selected by the Company.
An indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.

(d) Settlement without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a) (ii) or Section 6(a)(iii) effected without
its written consent if (i) such settlement is entered into more than 45 days
after receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.

(e) Indemnification for Reserved Securities. In connection with the
offer and sale of the Reserved Securities, the Company agrees, promptly upon a
request in writing, to indemnify and hold harmless the Underwriters from and
against any and all losses, liabilities, claims, damages and expenses incurred
by them as a result of the failure of any eligible employees of the Company and
persons having business relationships with the Company to pay for and accept
delivery of Reserved Securities which, by the end of the first business day
following the date of this Agreement, were subject to a properly confirmed
agreement to purchase.

Section 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to

20
<PAGE> 25
reflect not only the relative benefits referred to in clause (i) above but also
the relative fault of the Company on the one hand and of the Underwriters on the
other hand in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(a)(ii)(A) hereof, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.

The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.

The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 7. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 7 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the

21
<PAGE> 26
Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as the
Company. The Underwriters' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.

Section 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.

Section 9. Termination of Agreement.

(a) Termination; General. The Representative(s) may terminate this
Agreement, by notice to the Company, at any time at or prior to Closing Time (i)
if there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the reasonable judgment of the Representative(s),
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or materially limited by the Commission or the Nasdaq National Market,
or if trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.

Section 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representative(s) shall have the right, within
24 hours thereafter, to make arrangements for one

22
<PAGE> 27
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the
Representative(s) shall not have completed such arrangements within such 24-hour
period, then:

(a) if the number of Defaulted Securities does not exceed
10% of the number of Securities to be purchased on such date, each of
the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters to purchase and of the Company
to sell the Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any
non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representative(s) or the Company shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 10.

Section 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representative(s) at North Tower, World
Financial Center, New York, New York 10281-1201 and 101 California Street, Suite
1420, San Francisco, California 94111, attention Equity Capital Markets, Merrill
Lynch; and notices to the Company shall be directed to it at 3860 N. First
Street, San Jose, California 95134, attention of Michael T. Everett.

Section 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and the Company and their respective successors.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person, firm or corporation, other than the Underwriters
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions

23
<PAGE> 28
hereof are intended to be for the sole and exclusive benefit of the Underwriters
and the Company and their respective successors, and said controlling persons
and officers and directors and their heirs and legal representatives, and for
the benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.

Section 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

Section 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.

24
<PAGE> 29
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Underwriters and the Company in accordance with its terms.

Very truly yours,
NETRO CORPORATION

By _____________________________
Title:

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BANCBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By ________________________________
Authorized Signatory

For themselves and as Representative(s) of the other Underwriters named
in Schedule A hereto.

25
<PAGE> 30
SCHEDULE A

<TABLE>
<CAPTION>
Number of
Name of Underwriter Initial Securities
------------------- ------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..............................................
BancBoston Robertson Stephens Inc.......................................
Dain Rauscher Wessels...................................................

Total...................................................................
</TABLE>

Sch A-1
<PAGE> 31
SCHEDULE B
NETRO CORPORATION
5,000,000 Shares of Common Stock

1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $_____.

2. The purchase price per share for the Securities to be paid by
the several Underwriters shall be $_____, being an amount equal to the initial
public offering price set forth above less $_____ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.

Sch B-1
<PAGE> 32
Exhibit A

FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
California.

(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.

(iii) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus in the column entitled "Actual"
under the caption "Capitalization" (except for subsequent issuances, if any,
pursuant to the Purchase Agreement or pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Prospectus); the shares
of issued and outstanding capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights contained in the charter or by-laws of
the Company; and none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive or other similar rights of any
securityholder of the Company.

(iv) The Securities have been duly authorized for issuance
and sale to the Underwriters pursuant to the Purchase Agreement and, when issued
and delivered by the Company pursuant to the Purchase Agreement against payment
of the consideration set forth in the Purchase Agreement, will be validly issued
and fully paid and non-assessable.

(v) To our knowledge, the issuance of the Securities is not
subject to preemptive or other similar rights of any securityholder of the
Company.

(vi) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.

(vii) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act; any
required filing of the Prospectus pursuant to Rule 424(b) has been made in the
manner and within the time period required by Rule 424(b); and, to the best of
our knowledge, no stop

A-1
<PAGE> 33
order suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or threatened
by the Commission.

(viii) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434 Information,
as applicable, the Prospectus and each amendment or supplement to the
Registration Statement and Prospectus as of their respective effective or issue
dates (other than the financial statements and supporting schedules included
therein or omitted therefrom, as to which we express no opinion) complied as to
form in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.

(ix) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.

(x) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and by-laws of the
Company and the requirements of the Nasdaq National Market.

(xi) To our knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company is a
party, or to which the property of the Company is subject, before or brought by
any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or
assets of the Company or the consummation of the transactions contemplated in
the Purchase Agreement or the performance by the Company of its obligations
thereunder.

(xii) The information in the Prospectus under "Description of
Capital Stock, and "Shares Eligible for Future Sale" and in the Registration
Statement under Item 14, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's charter and bylaws or legal
proceedings, or legal conclusions, has been reviewed by us and is correct in all
material respects.

(xiii) To our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not described as
required.

(xiv) All descriptions in the Registration Statement of
contracts and other documents to which the Company is a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto

A-2
<PAGE> 34
other than those described or referred to therein or filed or incorporated by
reference as exhibits thereto, and the descriptions thereof or references
thereto are correct in all material respects.

(xv) To our knowledge, the Company is not in violation of its
charter or by-laws and no default by the Company exists in the due performance
or observance of any material obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by reference
as an exhibit to the Registration Statement.

(xvi) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under the 1933
Act and the 1933 Act Regulations, which have been obtained, or as may be
required under the securities or blue sky laws of the various states, as to
which we express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreement or for the
offering, issuance or sale of the Securities.

(xvii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement (including the issuance and sale of
the Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") and compliance
by the Company with its obligations under the Purchase Agreement do not and will
not, whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined in Section 1(a)(x) of the Purchase Agreement) under or result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument, known to us, to which the Company is a party or by which it or any
of them may be bound, or to which any of the property or assets of the Company
is subject (except for such conflicts, breaches, defaults, Repayments Events or
liens, charges or encumbrances that would not have a Material Adverse Effect),
nor will such action result in any violation of the provisions of the charter or
by-laws of the Company, or any applicable law, statute, rule, regulation,
judgment, order, writ or decree, known to us, of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any of its properties, assets or operations.

(xviii) To our knowledge, there are no persons with registration
rights or other similar rights to have any securities registered pursuant to the
Registration Statement.

A-3
<PAGE> 35
(xx) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in the 1940
Act.

Nothing has come to our attention that would lead us to believe
that the Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time the Prospectus was
issued, at the time any such amended or supplemented prospectus was issued or at
the Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

In rendering such opinion, such counsel may rely as to matters
of fact (but not as to legal conclusions), to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.

A-4
<PAGE> 36
[FORM OF LOCK-UP TO BE ATTACHED]

Exhibit B

M-5
<PAGE> 37
[LOCKUP SPREADSHEET TO BE ATTACHED]

Exhibit C

M-6

<PAGE> 1

EXHIBIT 4.1
================================================================================

COMMON STOCK [LOGO OF NETRO CORPORATION] COMMON STOCK
NUMBER SHARES

INCORPORATED UNDER SEE REVERSE FOR CERTAIN
THE LAWS OF CALIFORNIA DEFINITIONS AND RESTRICTION

CUSIP 64114R 10 9

THIS CERTIFIES THAT

IS THE OWNER OF

FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK,
PAR VALUE OF $0.001 PER SHARE, OF

==============================NETRO CORPORATION=================================

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by
the Transfer Agent and registered Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated:

/s/ Tae Hea Nahm [CORPORATE SEAL /s/ Gideon Ben-Efraim
OF NETRO CORPORATION]
SECRETARY CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR

BY
AUTHORIZED SIGNATURE

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

<PAGE> 2
================================================================================
NETRO CORPORATION

FOR VALUE RECEIVED ___________________________HEREBY SELL, ASSIGN AND TRANSFER
UNTO ___________________________________________________________________________
SHARES REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT __________________________ ATTORNEY TO TRANSFER THE SAID
SHARES ON THE SHARE REGISTER OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.

DATED ___________, 19__

IN PRESENCE OF ________________________________________________________________
________________________________________________________________________________

NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THIS CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.

______________________________
(Shareholder)

SIGNATURE GUARANTEED: _______________________________
THE SIGNATURE(S) MUST BE
GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION,
(BANKS, STOCKBROKERS,SAVINGS
AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP
IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15

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

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
registration statement.

/s/ ARTHUR ANDERSEN LLP

San Jose, California

August 5, 1999