NETRO CORP, 424B4, 2000-03-17

NETRO CORP
424B4, 2000-03-17
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

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Pursuant to Rule 424(b)(4)
Registration No. 333-30738

6,000,000 Shares

[Netro Logo]

Common Stock

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

Netro is offering 4,504,111 of the shares to be sold in the offering. The
selling shareholders identified in this prospectus are offering an additional
1,495,889 shares. Netro will not receive any of the proceeds from the sale of
the shares being sold by the selling shareholders.

The common stock is quoted on the Nasdaq National Market under the symbol
"NTRO". The last reported sale price of the common stock on March 16, 2000 was
$87.00 per share.

See "Risk Factors" beginning on page 4 to read about factors you should
consider before buying shares of the common stock.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.

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

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial price to public..................................... $82.500 $495,000,000
Underwriting discount....................................... $ 4.125 $ 24,750,000
Proceeds, before expenses, to Netro......................... $78.375 $353,009,700
Proceeds, before expenses, to the selling shareholders...... $78.375 $117,240,300
</TABLE>

To the extent that the underwriters sell more than 6,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
900,000 shares from Netro at the initial price to public less the underwriting
discount.

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

The underwriters expect to deliver the shares against payment in New York,
New York on March 22, 2000.

GOLDMAN, SACHS & CO.
DAIN RAUSCHER WESSELS
LEHMAN BROTHERS
ROBERTSON STEPHENS

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

Prospectus dated March 17, 2000.
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[INSIDE FRONT COVER]

[COLOR ARTWORK]
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PROSPECTUS SUMMARY

This is a summary. 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 hub providing telecommunications services to multiple points.
This point-to-multipoint architecture allows a service provider to connect many
of its customers using a single AirStar 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 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, and the first commercial version in the
first quarter of 1999. We began shipping a trial version of the second release
of AirStar in the third quarter of 1999. The AirStar system is currently
deployed in 44 trials, 8 of which are what we call commercial pilots. These
trials and commercial pilots are being conducted by 32 service providers, system
integrators and enterprises in 24 countries worldwide. Most of these service
providers are served through our relationships with Lucent and Siemens or local
country distributors.

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 data connections. In many
countries, the telecommunications industry has been deregulated, which has
created the opportunity for new service providers 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 new competing
telecommunications service providers the ability to rapidly serve many
businesses in a metropolitan area 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 supports both voice
and high-speed data services and can dynamically allocate capacity among
subscribers, which means that capacity is allocated to subscribers based on
actual usage at a given moment. This enables service providers to increase
revenue from the radio frequency licensed to them. AirStar allows service
providers to offer symmetrical high-speed connections, with on-demand peak
transmission rates of up to 16 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

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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.

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 a frequency of 26 GHz, the
frequency of our current highest-volume product, can cover ranges from 5 to 15
square miles, depending on local conditions, and has an aggregate transmission
capacity of over 600 Mbps.

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

- increase deployments with service providers worldwide;

- increase manufacturing capacity for large scale deployments;

- provide competitive advantages to service providers;

- capitalize on technology leadership to introduce new products rapidly
and cost effectively;

- build sales and customer advocacy infrastructure; and

- strengthen relationships with leading communications equipment vendors.

We were incorporated in California in November 1994 and our initial public
offering was in August 1999. 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

Shares offered by Netro............. 4,504,111 shares

Shares offered by the selling
shareholders........................ 1,495,889 shares

Shares outstanding after this
offering............................ 49,416,884 shares. The number of shares
that will be outstanding after the
offering is based on the actual number
outstanding as of December 31, 1999. It
excludes:

- options to purchase 6,844,460
shares of common stock outstanding
as of December 31, 1999 at a
weighted average exercise price of
$7.18 per share; and

- 57,028 shares of common stock
issuable upon exercise of
outstanding warrants at a weighted
average exercise price of $7.39 per
share.

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

Use of proceeds..................... For general corporate purposes,
including expansion of our sales and
customer advocacy organizations,
research and development and working
capital.

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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.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 5,601 $ 5,438 $ 18,185
Gross profit (loss)......................................... (2,672) (4,202) 3,311
Loss from operations........................................ (25,237) (29,132) (29,153)
Net loss.................................................... (24,534) (28,828) (28,800)

Basic and diluted net loss per share........................ $ (5.11) $ (4.07) $ (1.31)
Shares used to compute basic and diluted net loss per
share..................................................... 4,798 7,087 21,988

Pro forma basic and diluted net loss per share
(unaudited)............................................... $ (0.71)
Shares used to compute pro forma basic and diluted net loss
per share (unaudited)..................................... 40,616
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $45,337 $397,622
Working capital............................................. 44,417 396,702
Total assets................................................ 65,814 418,099
Long-term debt and capital leases........................... 10,397 10,397
Total shareholders' equity.................................. 45,556 397,841
</TABLE>

For an explanation of the determination of the number of shares used to
compute basic and diluted net loss per share and unaudited 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 December 31, 1999, as adjusted,
reflects our sale of the 4,504,111 shares of common stock under this prospectus
at a public offering price of $82.50 per share, after deducting the underwriting
discount and estimated offering expenses that we will pay. See "Use of Proceeds"
and "Capitalization".

Unless specifically stated, the information in this prospectus does not
take into account the possible sale of additional shares of common stock to the
underwriters by Netro to cover over-allotments.

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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 December 31, 1999, we had an accumulated deficit of $96.4 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
prior to 1999 were largely based on sales of AirMAN, a predecessor product,
which we discontinued in September 1998. For 1999, our financial results were
largely based on customer trials and commercial pilots of our AirStar product
line. 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 $24.5 million, $28.8
million and $28.8 million in 1997, 1998 and 1999.

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
began low-volume manufacturing runs in January 1999 with our first contract
manufacturer and in August 1999 with our second contract manufacturer. We are
currently in the process of initiating manufacturing runs with a third contract
manufacturer. 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.

DUE TO OUR LIMITED OPERATING HISTORY IT IS DIFFICULT TO PREDICT FUTURE OPERATING
RESULTS OR OUR STOCK PRICE

We have generated only limited revenues to date, and revenues from our
current AirStar product have been significant only in the past year. Prior to
1999, most of our revenues came from sales of a discontinued product line. Due
to our limited operating history with our current product line, 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.

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.

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OUR FUTURE OPERATING RESULTS ARE DEPENDENT ON THE SALES OF A SINGLE PRODUCT
LINE. 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
product line 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
product line.

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.

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 customer trials and
commercial pilots. 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.

WE DEPEND ON TWO CONTRACT MANUFACTURERS AND WE ARE IN THE PROCESS OF INITIATING
MANUFACTURING RUNS WITH A THIRD. 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 three contract manufacturers of our
products. Two of these provided products to us in 1999, and we expect the third
will begin to provide products to us in the first quarter of 2000. We only
manufacture pilot runs of our products and perform testing and staging at our
own facilities. If our manufacturers are unable or unwilling to continue
manufacturing our products 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.

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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
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 September 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
for base station equipment 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. In the past we
have experienced delays in introducing new features. For example, we intended to
introduce base radio units that supported smaller sectors and a new release of
our network management software in 1999, but the release of both of these
features has been delayed until later in 2000. 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, Lucent and
Siemens. 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% and 64% of our revenues for 1998 and 1999, respectively.
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

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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 WE ARE UNSUCCESSFUL IN ESTABLISHING LARGER DIRECT SALES AND CUSTOMER ADVOCACY
ORGANIZATIONS, WE MAY NOT BE ABLE TO GROW OUR BUSINESS

We intend to grow our direct sales force and customer advocacy
organization. We believe that the efforts of our direct sales force and customer
advocacy organization are important in enabling both ourselves and our system
integrators to acquire customers. We believe that qualified personnel are
difficult to find and, once found, take substantial lead time to become
productive. To the extent that we are unable to expand our direct sales force
and customer advocacy organization, we may be unable to grow our business.

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. Service providers continuously evaluate
alternative high-speed access technologies, including wire-based technologies
such as digital subscriber lines, cable modems, fiber optic 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

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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

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, Ericsson,
Hughes, Marconi, Newbridge, Nortel and Spectrapoint, a 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 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. Our competitors may
also attempt to influence the adoption of standards that are not compatible with
our current architecture. Our larger, more established competitors may have more
influence with standards setting bodies than we do. In addition, if standards
other than ours are adopted, this may require us to incur additional development
and integration costs and may delay our sales efforts. 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

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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% and 43% of our revenues in
1998 and 1999, respectively. 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.

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

9
<PAGE> 12

retaining these personnel. 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.

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

Upon completion of this offering, assuming the sales contemplated by this
prospectus, our executive officers, directors and 5% or greater shareholders and
their affiliates will own 16,469,286 shares or approximately 33.3% of the
outstanding shares of common stock. Acting together, these shareholders would be
able to exert substantial influence on 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 in our articles and bylaws is
included in "Description of Capital Stock -- Anti-Takeover Provisions".

OUR STOCK PRICE MAY BE VOLATILE

Since our initial public offering in August 1999, our stock price has
experienced significant volatility. We expect that the market price of our
common stock also will fluctuate in the future in response to many of the risk
factors listed in this section. These fluctuations may be exaggerated if the
trading volume of our common stock is low.

10
<PAGE> 13

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:

- our ability to produce products in increasingly larger quantities;

- 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> 14

USE OF PROCEEDS

We estimate our net proceeds from the sale of the 4,504,111 shares of our
common stock offered by us in this offering to be approximately $352.3 million
(or $422.8 million if the underwriters over allotment option is exercised) at a
public offering price of $82.50 per share and after deducting the underwriting
discount and estimated offering expenses payable by us. We will not receive any
portion of the proceeds from the sale of shares by the selling shareholders.

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

PRICE RANGE OF COMMON STOCK

Our common stock has been quoted on the Nasdaq National Market under the
symbol "NTRO" since our initial public offering on August 19, 1999. The
following table shows the high and low sales prices of our common stock as
reported by the Nasdaq National Market for the periods indicated:

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1999
Third Quarter (beginning August 19, 1999)................... $ 45.75 $ 8.00
Fourth Quarter.............................................. 51.00 22.00

2000
First Quarter (through March 16, 2000)...................... 119.63 32.94
</TABLE>

On March 16, 2000, the last reported sale price for our common stock was
$87.00 per share.

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> 15

CAPITALIZATION

The following table summarizes our cash, cash equivalents and short-term
investments and our capitalization as of December 31, 1999 as follows:

- on an actual basis; and

- as adjusted to reflect the receipt of our estimated net proceeds from
this offering at a public offering price of $82.50 per share and after
deducting the underwriting discount and estimated offering expenses
payable by us.

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------
ACTUAL AS ADJUSTED
---------- ---------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Cash, cash equivalents and short-term investments........... $ 45,337 $397,622
======== ========
Long-term debt and capital leases, net of current portion... 3,633 3,633
-------- --------
Shareholders' equity:
Preferred stock, 5,000,000 shares authorized and no shares
outstanding, actual and as adjusted.................... -- --
Common stock, 100,000,000 shares authorized; 44,912,773
shares outstanding, actual; 49,416,884 shares
outstanding, as adjusted(1)............................ 146,490 498,775
Note receivable from shareholder.......................... (800) (800)
Deferred stock compensation............................... (3,730) (3,730)
Accumulated deficit....................................... (96,404) (96,404)
-------- --------
Total shareholders' equity............................. 45,556 397,841
-------- --------
Total capitalization.............................. $ 49,189 $401,474
======== ========
</TABLE>

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

(1) The number of shares of common stock outstanding is based on the actual
number of shares outstanding as of December 31, 1999. It excludes:

- 6,844,460 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999 at a weighted average exercise
price of $7.18 per share; and

- 57,028 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999 at a weighted average exercise
price of $7.39 per share.

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

13
<PAGE> 16

DILUTION

As of December 31, 1999, our net tangible book value was approximately
$45.6 million, or $1.01 per share of 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 December 31, 1999,
other than to give effect to the receipt by us of the net proceeds from the sale
of the 4,504,111 shares of common stock to be sold by us in this offering at a
public offering price of $82.50 per share, our net tangible book value, as
adjusted, as of December 31, 1999 would have been approximately $397.8 million,
or $8.05 per share. This represents an immediate increase in net tangible book
value of $7.04 per share to existing shareholders and an immediate dilution of
$74.45 per share to new investors purchasing shares in this offering. The
following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Public offering price per share............................. $82.50
Net tangible book value, as adjusted, per share as of
December 31, 1999...................................... $1.01
Increase per share attributable to new investors.......... 7.04
-----
Net tangible book value per share after this offering....... 8.05
------
Dilution per share to new investors......................... $74.45
======
</TABLE>

14
<PAGE> 17

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, 1997, 1998 and 1999, and the balance sheet
data as of December 31, 1998 and 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 for the year ended December 31, 1996 and the balance sheet data as
of December 31, 1995, 1996 and 1997 are derived from our audited consolidated
financial statements not included in this prospectus. 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
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------------
1995 1996 1997 1998 1999
-------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues................................ $ -- $ 731 $ 5,601 $ 5,438 $ 18,185
Cost of revenues........................ -- 619 8,273 9,640 14,874
------- -------- -------- -------- --------
Gross profit (loss)..................... -- 112 (2,672) (4,202) 3,311
------- -------- -------- -------- --------
Operating expenses:
Research and development.............. 1,598 10,446 15,289 16,143 19,307
Sales and marketing................... -- 1,293 3,776 4,819 5,794
General and administrative............ 664 1,189 3,500 3,968 6,259
Amortization of deferred stock
compensation........................ -- -- -- -- 1,104
------- -------- -------- -------- --------
Total operating expenses............ 2,262 12,928 22,565 24,930 32,464
------- -------- -------- -------- --------
Loss from operations.................... (2,262) (12,816) (25,237) (29,132) (29,153)
Other income, net....................... 193 643 703 304 353
------- -------- -------- -------- --------
Net loss................................ $(2,069) $(12,173) $(24,534) $(28,828) $(28,800)
======= ======== ======== ======== ========
Basic and diluted net loss per share.... $(10.61) $ (4.66) $ (5.11) $ (4.07) $ (1.31)
Shares used to compute basic and diluted
net loss per share.................... 195 2,610 4,798 7,087 21,988
Pro forma basic and diluted net loss per
share (unaudited)..................... $ (0.71)
Shares used to compute pro forma basic
and diluted net loss per share
(unaudited)........................... 40,616
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
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 $45,337
Working capital................................ 13,821 12,687 25,657 12,523 44,417
Total assets................................... 15,114 19,833 37,708 26,788 65,814
Long-term debt and capital leases, net of
current portion.............................. -- 556 4,209 4,547 3,633
Total shareholders' equity..................... 14,538 16,127 27,005 13,893 45,556
</TABLE>

15
<PAGE> 18

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 contract manufacturers, we
made the 26 GHz AirStar product commercially available in January 1999 and the
10 GHz AirStar product commercially available in October 1999. However, the
products were, and continue to be, available only in limited quantities due to
manufacturing and capacity constraints. Additionally, we shipped a trial version
of a 38 GHz product in September 1999. We also expect to begin customer testing
of a preliminary version of a 28 GHz AirStar product in the first quarter of
2000.

All of our 1997 revenues, approximately 47% of our 1998 revenues and 2% of
our 1999 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;
however, our 1999 gross margins were positive due primarily to the advent of
AirStar product sales.

Currently, our revenues are generated from sales of AirStar systems
through system integrators, local resellers and our direct sales force. In the
first quarter of 1998, we entered into a product supply agreement with Siemens.
In the third quarter of 1998, we signed a product supply and joint development
agreement with Lucent. For 1998 and 1999, international revenues represented
approximately 76% and 43% 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. In August 1999, we received our
first AirStar subsystems from this manufacturer. We expect these contract
manufacturers to be responsible for most of our volume production in the future.
In January 2000, we signed a manufacturing agreement with NEC America to obtain
a second source for AirStar digital system components. In December 1999, we
received and qualified initial subsystems from this manufacturer.

System integrators and service providers typically perform numerous tests
and extensively evaluate products before incorporating them into networks. The
time required for testing, evaluation

16
<PAGE> 19

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.

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, customer advocacy 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 December 31, 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.

RESULTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998 AND 1999

REVENUES. Revenues increased from $5.4 million in 1998 to $18.2 million in
1999, due principally to increased AirStar system sales, which were slightly
offset by the final phase-out of

17
<PAGE> 20

AirMAN sales. Substantially all of the revenues for these years were generated
from installations in international locations. Sales to major customers were as
follows:

<TABLE>
<CAPTION>
% OF TOTAL
REVENUES REVENUES
----------------- ------------
1998 1999 1998 1999
------ ------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Alpine-Energie................................. $1,480 $ * 27% *%
Imed Link...................................... -- 1,792 -- 10
Lucent......................................... 873 10,426 16 57
NTL............................................ * 1,767 * 10
Pele-Phone..................................... 541 * 10 *
Siemens........................................ 799 * 15 *
------ ------- -- --
Aggregate amount from 10% or greater
customers................................. $3,693 $13,985 68% 77%
====== ======= == ==
</TABLE>

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

GROSS PROFIT (LOSS). Gross profit increased from a loss of $4.2 million in
1998 to a profit of $3.3 million in 1999, principally due to increased AirStar
system sales, which typically have a higher margin than predecessor products.

RESEARCH AND DEVELOPMENT. Research and development expenses increased from
$16.1 million in 1998 to $19.3 million in 1999, primarily due to increases in
personnel and related compensation costs, prototype material expenses,
third-party engineering charges and expenses related to the release of new
product features for the AirStar system. Gross research and development expenses
increased from $17.0 million in 1998 to $19.9 million in 1999. We expect that
continued substantial investment in research and development will be critical to
attaining our strategic product and cost reduction objectives.

SALES AND MARKETING. Sales and marketing expenses increased from $4.8
million in 1998 to $5.8 million in 1999. 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. We expect these expenses to continue to increase on an
absolute basis as we invest in expanding our sales and customer advocacy
organizations.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $4.0 million in 1998 to $7.4 million in 1999. The increase was primarily
due to deferred compensation charges, increased rent and overhead expenses
associated with additional facilities, as well as the increased cost associated
with being a public company. We expect that the growth of our operations as a
public company will continue to require additional personnel and costs.

OTHER INCOME, NET. Other income, net increased from $304,000 in 1998 to
$353,000 in 1999 primarily due to higher interest income from higher average
cash balances partially offset by increased interest expense resulting from
greater utilization of secured equipment loans and lease and bank financing for
working capital.

NET LOSS. Net loss was relatively constant at $28.8 million from 1998 to
1999 principally due to higher gross profit, offset by increased operating
expenses.

18
<PAGE> 21

YEARS ENDED DECEMBER 31, 1997 AND 1998

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

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

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

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

RESEARCH AND DEVELOPMENT. 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 $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 $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, NET. Other income, net decreased from $703,000 in 1997 to
$304,000 in 1998, primarily due to greater utilization of secured equipment
loans and lease and bank financing for working capital.

NET LOSS. 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 eight quarters ended December
31, 1999. We believe this information reflects all adjustments (consisting only
of normal recurring adjustments) that we consider necessary

19
<PAGE> 22

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, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
AirStar.................. $ 585 $ 650 $ 103 $ 1,574 $ 2,133 $ 3,072 $ 4,843 $ 7,691
AirMAN................... 411 1,627 463 25 9 124 313 --
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.... 996 2,277 566 1,599 2,142 3,196 5,156 7,691
Cost of revenues........... 1,310 2,963 2,523 2,844 1,649 2,522 4,077 6,626
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)........ (314) (686) (1,957) (1,245) 493 674 1,079 1,065
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development............ 4,257 4,512 4,430 2,944 4,224 4,959 5,092 5,032
Sales and marketing...... 1,051 1,279 1,262 1,227 1,332 1,231 1,332 1,899
General and
administrative......... 913 987 990 1,078 1,752 1,351 1,450 1,706
Amortization of deferred
stock compensation..... -- -- -- -- 168 341 298 297
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........ 6,221 6,778 6,682 5,249 7,476 7,882 8,172 8,934
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations....... (6,535) (7,464) (8,639) (6,494) (6,983) (7,208) (7,093) (7,869)
Other income (expense),
net...................... 218 100 38 (52) (39) (59) 102 349
------- ------- ------- ------- ------- ------- ------- -------
Net loss................... $(6,317) $(7,364) $(8,601) $(6,546) $(7,022) $(7,267) $(6,991) $(7,520)
======= ======= ======= ======= ======= ======= ======= =======
PERCENT OF TOTAL REVENUES:
Revenues:
AirStar.................. 59% 29% 18% 98% 99% 96% 94% 100%
AirMAN................... 41 71 82 2 1 4 6 --
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.... 100 100 100 100 100 100 100 100
Cost of revenues........... 132 130 446 178 77 79 79 86
------- ------- ------- ------- ------- ------- ------- -------
Gross profit (loss)........ (32) (30) (346) (78) 23 21 21 14
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and
development............ 427 198 783 184 197 155 99 65
Sales and marketing...... 105 56 223 77 62 39 26 25
General and
administrative......... 92 43 175 67 82 42 28 22
Amortization of deferred
stock compensation..... -- -- -- -- 8 11 6 4
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses........ 625 297 1,181 328 349 247 158 116
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations....... (656) (327) (1,527) (406) (326) (226) (137) (102)
Other income (expense),
net...................... 22 4 7 (3) (2) (1) (2) 4
------- ------- ------- ------- ------- ------- ------- -------
Net loss................... (634)% (323)% (1,520)% (409)% (328)% (227)% (136)% (98)%
======= ======= ======= ======= ======= ======= ======= =======
</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 the quarter
ended September 30, 1998 primarily due to the discontinuation of the AirMAN
system. Revenues increased beginning in the quarter ended December 31, 1998 and
throughout 1999 due to AirStar system sales. Gross profit increased beginning in
the quarter ended September 30, 1998 through the quarter ended September 30,
1999 due to increased AirStar system sales. Gross profit decreased in the
quarter ended December 31, 1999 due to a one time inventory reserve associated
with the transition from Release 1 to Release 2 of our AirStar product. Gross
profit before the one time reserve remained relatively flat due principally to
the continuation of manufacturing variances incurred as we expanded our
operations. 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.

20
<PAGE> 23

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.
Research and development expenses decreased in the quarter ended December 31,
1999 primarily due to an offset from third party research and development
funding. Gross research and development expenses increased in the quarters ended
September 30, 1999 and December 31, 1999 principally due to expenses associated
with the introduction of Release 2 of our AirStar product. Sales and marketing
expenses fluctuate on a quarterly basis principally due to seasonal promotional
and marketing expenses for trade shows. Sales and marketing expenses increased
in the quarter ended December 31, 1999 primarily due to the significant
expansion in sales, technical assistance, customer advocacy 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. General and administrative expenses increased in the quarter ended
March 31, 1999 due principally to an increase in rent expense resulting from
additional office space assumed and one-time vendor contract fees. General and
administrative expenses continued to increase through the quarter ended December
31, 1999 primarily due to increased rent and overhead expenses associated with
the additional facilities, as well as the increased costs associated with being
a public company. Other income decreased from the quarter ended March 31, 1998
through the quarter ended June 30, 1999, due principally to the decline in
average cash balances. Other 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 produce products in increasingly larger quantities;

- 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.

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<PAGE> 24

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 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

As of December 31, 1999, cash and cash equivalents were $7.5 million and
short-term investments were $37.9 million. We have a $6.0 million bank line of
credit. As of December 31, 1999, borrowings outstanding were $4.3 million and
amounts utilized for outstanding letters of credit were $300,000 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 2001
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 which allows a
maximum borrowing of $3.0 million of which $1.1 million was available as of
December 31, 1999. See note 6 of notes to consolidated financial statements.

Cash used in operating activities was $25.9 million for the year ended
December 31, 1998 and $29.1 million for the same period in 1999. 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 $2.2 million for the year ended
December 31, 1998, primarily due to excess cash invested in short-term
investments and capital equipment purchases. Cash used in investing activities
was $30.6 million for the year ended December 31, 1999, primarily due to excess
cash invested in short-term investments.

Cash provided by financing activities was $18.5 million and $61.0 million
for the years ended December 31, 1998 and 1999, respectively. Cash provided by
financing activities for both periods was primarily due to issuances of stock
and, to a lesser extent, capital lease and bank financing. Cash provided by
financing activities in 1999 includes $41.6 million related to our initial
public offering in August 1999.

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 December 31, 1999, we had committed to make purchases totaling $4.6
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 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.

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<PAGE> 25

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.

YEAR 2000 IMPACT

We have not experienced any problems with our computer systems relating to
their inability to recognize appropriate dates related to the year 2000. We are
also not aware of any material problems with our clients or vendors.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruptions as a result of any year 2000 issues.

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<PAGE> 26

BUSINESS

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 and cost
effectively 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. Frost & Sullivan estimates
that the market for point-to-multipoint wireless wide area network equipment for
licensed frequencies will be $3.0 billion in 2003.

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
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<PAGE> 27

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 existing and new telecommunications service providers 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 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 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

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<PAGE> 28

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.

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. We believe that AirStar is a high-quality,
flexible system that allows service providers to deploy wireless
telecommunications services cost effectively and rapidly. We have engineered
AirStar to support broad service rollouts and to operate at radio frequencies
licensed for voice and high-speed data connections in different countries. We
believe that AirStar is one of the first commercially available, high-speed
wireless telecommunications systems to use a point-to-multipoint architecture in
providing integrated voice and high-speed data connections. Our AirStar system
is designed to provide 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 16 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 its
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.

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. Service providers that we
target have typically committed a high level of capital investment to enter the
high-speed

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<PAGE> 29

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 26 GHz, the frequency of our current highest-volume product,
can cover ranges from 5 to 15 square miles, 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 wireless,
high-speed equipment used by telecommunications service providers. Key elements
of our strategy include the following:

INCREASE DEPLOYMENTS WITH SERVICE PROVIDERS WORLDWIDE. 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 AirStar 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 trials, with several commercial pilots. We intend to convert
early design wins within our existing service provider base into large-scale
commercial deployments. Once completed, we intend to utilize successful
deployments at existing service providers as reference accounts for new service
providers. We intend to expand aggressively our product marketing and
development beyond existing service providers that use the 10 GHz, 26 GHz and 38
GHz frequencies and into new markets domestically and internationally to serve a
broader service provider base. For example, we expect to begin preliminary
customer testing of our 28 GHz product, allowing us to serve telecommunications
service providers that operate at this frequency in the U.S. market.

INCREASE MANUFACTURING CAPACITY FOR LARGE SCALE DEPLOYMENTS. For large
scale deployments customers would require significantly larger quantities of
products than we are currently producing. In order to have the capacity
available to meet potential future product demands we are actively working with
our contract manufacturers to ensure that they can both scale their
manufacturing processes to meet our potential needs as well as maintain quality
standards at significantly higher volumes. We are also focused on achieving cost
reductions as we ramp our manufacturing to ensure lower product prices and costs
enable the continued development of the market. As a part of this process we
recently entered into a contract with a third contract manufacturer, NEC
America, in January of 2000. We are also selectively exploring relationships
with additional contract manufacturers.

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 to additional subscribers 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 26 Mbps later in 2000.

CAPITALIZE ON TECHNOLOGY LEADERSHIP TO INTRODUCE NEW PRODUCTS RAPIDLY AND
COST EFFECTIVELY. Our AirStar 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

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<PAGE> 30

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.

BUILD SALES AND CUSTOMER ADVOCACY INFRASTRUCTURE. We believe the best way
to increase product sales and overall market acceptance of the AirStar system is
through the development of our own direct sales and customer advocacy
infrastructure. Our own direct sales force will allow us to reach customers who
have the ability to install, integrate, service and maintain their own systems.
Our direct sales force also helps us build long-term relationships with service
providers whether they are customers of ours or of our system integrators. 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. As a result, we intend to be in a position to
scale our business rapidly as service providers worldwide transition from trials
to commercial deployments.

STRENGTHEN RELATIONSHIPS WITH LEADING COMMUNICATIONS EQUIPMENT VENDORS. We
intend to build on our success with Lucent and Siemens to meet the needs of
service providers seeking to deploy large-scale networks and to expand our
service provider base. Our relationships with these 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 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.

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
(SQUARE
FREQUENCY MILES)
--------- --------
<S> <C> <C> <C>
10 GHz 110 - 275
26 GHz 5 - 15
28 GHz 4 - 11
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.

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<PAGE> 31

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.

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. We are currently developing a simplified
base station shelf together with a card that integrates the base sector
controller functions with some of the functions that are currently performed by
third party shelf components. We expect this shelf and this card to be available
for customer testing in the first half of 2000.

- The base station shelf is a chassis that houses the base sector
controllers and the base modem module. 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 sector
controller supports the CellMAC protocol in hardware and software and
concen-

29
<PAGE> 32

trates 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 sector controller also
enables redundancy support and switching.

- The base modem module 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 sectors that will enable higher transmission
capacity in some configurations. We expect this release to be available to our
customers later in 2000.

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 recently released a new version of our software that
adds dynamic allocation of capacity for additional voice protocols and
data interfaces.

- Ability to request, through the CellMAC air interface protocol, and
support high-speed sustained transmission up to rates in excess of 3
Mbps to and from the base station and peak transmission rates of up to
16 Mbps. We are currently testing a new release that supports peak
transmission rates of up to 26 Mbps. We expect this release to be
available to our customers in 2000.

- 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 later
in 2000. 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
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<PAGE> 33

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.

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 recent software release we extended the
capabilities of the CellMAC protocol to provide dynamic allocation of capacity
to voice services.

SALES AND MARKETING

We have sales representatives in Brazil, 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. 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, which
has become an increasingly important part of our sales strategy. In determining
which accounts are appropriate for direct sales, 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. These
customers have the ability to install, integrate, service and maintain their
systems themselves. 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.

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<PAGE> 34

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
offers the OnDemand solution as part of an end-to-end solution with a
complete suite 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.

- Siemens. Under a product supply agreement we entered into with Siemens
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
sells our products as part of an integrated network solution and is a
shareholder of Netro.

We are selectively considering alliance opportunities with additional
system integrators.

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, or to distributors
that in turn sell to service providers. The AirStar system is currently deployed
in 44 trials, 8 of which are what we call commercial pilots. These trials and
commercial pilots are being conducted by 32 service providers, system
integrators and enterprises in 24 countries worldwide. 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)
Avantel (Mexico)
Broadnet (Belgium, Germany)
Byblos Bank (Lebanon)
COMSAT Peru, S.A.(Peru)
Formus Communications, Inc. (Belgium,
Hungary)
Future Communications Company
(Kuwait)
Infostrada (Italy)
Saudi Telecom (Saudi Arabia)
NTL (U.K.)
OTE (Greece)
Retevision (Spain)
RSL Communications (Austria)
StarOne (Germany)
TechTel (Argentina)
Telecel (Portugal)
Winstar (Holland, Argentina)
</TABLE>

We also have trials with service providers in the U.S., Germany and Japan
and system integrators in the U.S. and Europe. During 1997, 1998 and 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".
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<PAGE> 35

OPERATIONS AND MANUFACTURING

Our manufacturing activities, based in our San Jose facility, consist
primarily of pilot manufacturing, final testing and system staging. 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, Microelectronic Technology Inc. of Taiwan and NEC
America. Microelectronic Technology Inc. manufactures millimeter wave radio
equipment, Solectron manufactures both millimeter wave radio equipment digital
system components and NEC America manufactures digital systems components. Our
agreement with Microelectronic Technology Inc. makes us their exclusive customer
for terrestrial point-to-multipoint millimeter wave radio equipment, provided we
meet annual purchase minimums. We are selectively considering adding new
contract manufacturers to expand our manufacturing capacity and better control
manufacturing costs.

Our operations and manufacturing groups 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 1997, 1998 and 1999 were $15.3
million, $16.1 million and $19.3 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 ADVOCACY

A high level of continuing service and support is critical to our
objective of developing long-term customer relationships. We have recently
merged our customer support functions with our quality assurance group to
consolidate all respects of our customer service, satisfaction and quality
assurance initiatives into a customer advocacy group. Our customer advocacy
organization is based in our San Jose headquarters. We also have a customer
support presence in Germany and the United Kingdom. Our customer advocacy
organization in San Jose serves as the interface to our research and development
group to highlight 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

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<PAGE> 36

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 advocacy group or remotely by our San
Jose headquarters team.

We have a number of flexible hardware and software maintenance and
customer 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.

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, Ericsson,
Hughes, Marconi, Newbridge, Nortel and Spectrapoint, a 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 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 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. Our competitors may also attempt to
influence the adoption of standards that are not compatible with our current
architecture. Our larger, more established competitors may have more influence
with standards setting bodies than we do. In addition, if standards other than
ours are adopted, this may require us to incur additional development and
integration costs and may delay our sales efforts.

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.

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

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<PAGE> 37

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.

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 three issued
U.S. patents, and one patent application pending, with more in process. AirView,
AirMAN and AirStar are our registered trademarks. 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.

PROPERTIES

We sublease an approximately 66,000 square foot facility in San Jose,
California, which we use for executive offices and for administrative,
engineering, product development, manufacturing and sales and marketing
purposes. The sublease for this facility expires in September 2001.

EMPLOYEES

As of December 31, 1999, we employed approximately 169 full-time employees
and 37 contract personnel. Our full-time employees include 53 people in
operations and manufacturing, 69 in engineering, 30 in sales, marketing and
customer advocacy, 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

Netro is not currently a party to any material legal proceedings.

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<PAGE> 38

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

Our executive officers, directors and other key employees and their ages
as of February 28, 2000 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......................... 57 President, Chief Executive Officer and
Director
Michael T. Everett........................ 50 Executive Vice President and Chief
Financial Officer
Matthew Powell............................ 45 Senior Vice President, Worldwide Sales
John Perry................................ 52 Chief Technology Officer and Vice
President, Engineering
Stuart M. Feeney.......................... 35 Vice President and Chief Scientist
Cynthia M. Hillery........................ 46 Vice President, Marketing
Francis Ngai.............................. 48 Vice President, Customer Advocacy
Man Wong.................................. 47 Vice President, Operations
Zohar Lotan............................... 51 Vice President, Technical Support
James F. Hannigan......................... 55 Vice President, Software Engineering
David A. Cassens.......................... 42 Vice President, Radio Engineering
Robert Benattar........................... 40 Vice President, European and African Sales
Peter Carson.............................. 52 Vice President, Americas Sales
Fred A. M. Bauer.......................... 47 General Counsel and Vice President, Human
Resources
Thomas R. Baruch.......................... 61 Director
Neal Douglas.............................. 41 Director
Irwin Federman............................ 64 Director
John L. Walecka........................... 40 Director
Robert J. Wynne........................... 57 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, Echelon Corporation, a developer of
control network hardware and software products, 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,

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<PAGE> 39

Asia. Mr. Everett received a B.A. from Dartmouth College and a J.D. from the
University of Pennsylvania Law School.

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.

STUART M. FEENEY has served as our Vice President and Chief Scientist
since December 1999. Prior to that time, he served in radio engineering
positions of increasing responsibility since joining Netro in 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 Applied
Physics from the University of Salford, England, and a general business
education from the University of Manchester Institute of Science and Technology.

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.

FRANCIS NGAI has served as our Vice President, Customer Advocacy 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.

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 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).

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.

JAMES F. 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 various engineering positions, including as
Vice President, Software Development for the non-stop software
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division. Mr. Hannigan received a B.Sc. in Mathematics from California
Polytechnic University in San Luis Obispo.

DAVID A. CASSENS has served as our Vice President, Radio Engineering since
December 1999. Prior to becoming Vice President, Mr. Cassens served as our
Director of Radio Products from February 1998. Prior to joining Netro, Mr.
Cassens served in various positions at P-Com, Inc. from April 1992 to December
1997, including Vice President of Engineering. Mr. Cassens received a B.S. in
Physics from Eastern Oregon State College, a B.S. in Electrical Engineering from
Oregon State University, and an M.Sc. in Electrical Engineering from Stanford
University.

ROBERT BENATTAR has served as our Vice President, European and African
Sales since October 1999. Prior to that position, Mr. Benattar was our Director
of Southern European Sales, where he was responsible for developing Netro's
business in Spain, Portugal and Italy. Prior to joining Netro, Mr. Benattar was
General Manager at Synoptics, Inc. from January 1991 to May 1994 and Sales
Director/Director Northern Europe at StrataCom, Inc. from June 1994 to September
1996, and Director, Southern Europe at Xylan Corporation from October 1996 to
April 1998. Mr. Benattar received a B.A.C., I.F.O.P., and D.E.S.E. from the
University of Paris.

PETER CARSON has served as our Vice President, Americas Sales since
January 2000. From April 1993 to November 1999, Mr. Carson was Vice
President-General Manager of Raychem Corporation's worldwide Transportation
Electronics Division. Prior to that, he was in charge of Raychem's Interconnect
Division from April 1989 to March 1993. Mr. Carson received a B.S. from
Vanderbilt University in Materials Engineering and an M.B.A. from Harvard
University.

FRED A. M. BAUER has served as our General Counsel and Vice President,
Human Resources since February 2000. Prior to joining Netro, Mr. Bauer was
Director, Human Resources at Acuson Corporation, a medical equipment
manufacturer, from November 1997 to February 2000. For more than five years
prior to joining Acuson, Mr. Bauer served in various human resources and legal
positions at Raychem Corporation, including Director, Business Practices and
Human Resources and Vice President, Human Resources and General Counsel of
Raychem's Raynet subsidiary. Mr. Bauer received an A.B. from Harvard College and
J.D. from Harvard Law School.

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 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, Symyx Technologies, Inc., a developer of
industrial materials, and several privately held companies.

NEAL DOUGLAS has been a director since June 1995. Mr. Douglas has been a
General Partner of AT&T Ventures, a venture capital firm, since January 1993,
and Managing General Partner of Spectrum Equity Investors, a venture capital
firm, since January 2000. 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, Inc. 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 CheckPoint Software
Technologies, Inc., a network security software company, Komag Incorporated, a
disk drive media manufacturer, MMC Networks, Inc., a developer and supplier of
network processors, QuickLogic, Inc., a semiconductor company, and SanDisk
Corporation, a solid-state memory system company.

JOHN L. WALECKA has been a director since November 1995. Mr. Walecka is a
founding partner at Redpoint Ventures, a venture capital firm formed in
September 1999. From 1990 to September
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1999, Mr. Walecka was a general partner at Brentwood Venture Capital, a venture
capital firm. Mr. Walecka serves on the boards of directors of Rhythms
NetConnections Inc., a service provider using digital subscriber line
technology, Vitria Technology, Inc. a provider of integration software, and
several privately held companies.

ROBERT J. WYNNE has been a director since February 2000. Mr. Wynne has
served as a consultant to Sony Pictures Entertainment since January 2000. Prior
to that time, he served Sony Pictures Entertainment in a variety of roles
including most recently as Co-President and Chief Operating Officer. He joined
Sony Pictures Entertainment in November 1995 as Corporate Executive Vice
President. Prior to joining Sony Pictures Entertainment, Mr. Wynne was a founder
and partner of Hill Wynne Troop & Meisinger, a law firm. Mr. Wynne serves as a
member of the board of directors of, or as an advisor or consultant to, several
privately held companies and venture funds.

BOARD COMPOSITION

We currently have authorized seven 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 are 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, Walecka and Wynne. 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.

BOARD COMMITTEES

COMPENSATION COMMITTEE. The compensation committee currently consists 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. The audit committee currently consists of Messrs.
Douglas, Federman and Walecka. The audit committee:

- reviews the adequacy of our internal controls;

- reviews and assesses the need for an internal audit function;

- recommends the appointment of independent auditors;

39
<PAGE> 42

- reviews the independent auditor's proposed audit scope and approach,
as well as their performance and fees;

- conducts a post-audit review of the financial statements and findings;

- reviews our annual and quarterly financial statements prior to
announcement;

- reviews significant legal matters;

- provides oversight of our asset management policies; and

- performs other oversight functions requested by the board.

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.

40
<PAGE> 43

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, 1999 by our Chief Executive Officer and each of our other
five most highly compensated executive officers serving as such as of December
31, 1999.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- -------- ------------
<S> <C> <C> <C> <C>
Gideon Ben-Efraim.............................. 1999 $220,000 $110,000 475,000
Chief Executive Officer, President and
Director 1998 200,000 50,000 --
Michael T. Everett............................. 1999 180,000 55,000 305,000
Chief Financial Officer and Executive Vice 1998 165,077 52,500 --
President
Matthew Powell................................. 1999 130,000 130,000 230,000
Senior Vice President, Worldwide Sales 1998 100,000 120,000 400,000
John Perry..................................... 1999 180,000 40,000 270,000
Chief Technology Officer and Vice President, 1998 56,654 20,000 200,000
Engineering
Cynthia M. Hillery............................. 1999 140,000 30,000 140,000
Vice President, Marketing 1998 132,956 20,000 40,000
Stuart Feeney.................................. 1999 140,000 30,000 150,000
Vice President, Radio Engineering 1998 115,872 30,000 --
</TABLE>

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 and 1999 executive stock option plan during the fiscal year
ended December 31, 1999. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by the rules of the SEC.

OPTION GRANTS IN FISCAL 1999

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION 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.... 175,000 4.8% $34.31 12/13/09 $3,778,656 $9,577,364
300,000 8.2 3.50 4/5/09 2,734,909 4,793,784
Michael T. Everett... 80,000 2.2 34.31 12/13/09 1,727,385 4,378,223
225,000 6.1 3.50 4/5/09 2,051,182 3,595,338
Matthew Powell....... 80,000 2.2 34.31 12/13/09 1,727,385 4,378,223
150,000 4.1 3.50 4/5/09 1,367,454 2,396,892
John Perry........... 70,000 1.9 34.31 12/13/09 1,511,462 3,830,945
200,000 5.5 3.50 4/5/09 1,823,273 3,195,856
Cynthia M. Hillery... 40,000 1.1 34.31 12/13/09 863,693 2,189,112
100,000 2.7 3.50 4/5/09 911,636 1,597,928
Stuart Feeney........ 50,000 1.4 34.31 12/13/09 1,079,616 2,736,390
100,000 2.7 3.50 4/5/09 911,636 1,597,928
</TABLE>

41
<PAGE> 44

The following table provides summary information concerning the exercise
of options by the persons named in the Summary Compensation Table in 1999 and
the shares of common stock represented by outstanding stock options held by each
of them as of December 31, 1999. The value realized is based on the market value
on the date of exercise, net of the exercise price. The value of unexercised
in-the-money options is calculated based on the difference between the exercise
price of the option and the fair market value of the common stock at December
31, 1999.

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.... 50,000 $1,537,500 166,666(1) 658,334 $ 8,166,634 $26,154,116

Michael T. Everett... 5,000 30,000 262,707(2) 457,293 12,872,643 19,485,057

Matthew Powell....... -- -- 175,000 455,000 8,575,000 19,485,200

John Perry........... -- -- 62,500 407,500 3,062,500 17,405,800

Cynthia M. Hillery... -- -- 92,915 185,835 4,668,334 7,689,766

Stuart Feeney........ -- -- 92,707(3) 247,293 4,868,267 10,361,233
</TABLE>

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

(1) An additional 183,334 option shares are immediately exercisable at $2.00 per
share as of December 31, 1999; however, these shares are subject to a right
of repurchase by Netro.

(2) An additional 152,293 option shares are immediately exercisable at $2.00 per
share as of December 31, 1999; however, these shares are subject to a right
of repurchase by Netro.

(3) An additional 85,000 option shares are immediately exercisable at $2.00 per
share as of December 31, 1999; however, these shares are subject to a right
of repurchase by Netro.

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, 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,
Peter Carson, 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.

42
<PAGE> 45

- 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. Carson, 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 have been made
under the 1995 stock option plan since our initial public offering and no grants
will be made under that plan in the future. 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 amendments were approved by our shareholders in August
1999. The number of shares reserved for issuance under the 1996 stock option
plan is 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 December 31, 1999:

- a total of 8,800,000 shares had been reserved for issuance under the
1995 and 1996 stock option plans;

- options to purchase an aggregate of 5,544,460 shares of common stock
were outstanding under the 1995 stock option plan and 1996 stock
option plan at a weighted average exercise price of $8.07;

- 2,444,559 shares had been issued upon exercise of outstanding
options, net of repurchases under the 1995 and 1996 stock option
plans; and

- 810,981 shares remained available for future grant.

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

43
<PAGE> 46

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, that 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.

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.

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 December 31,
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.

44
<PAGE> 47

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, 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 were
approved by our shareholders in August 1999. As of December 31, 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 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.

In January 2000, our board amended the 1997 directors' stock option plan
to provide that the initial grant to new directors be increased to 50,000
shares, vesting in four equal increments on the first four anniversaries of the
date the director joins our board. In addition, the amendment also

45
<PAGE> 48

increased the size of the annual grant to all directors to 12,500 shares, which
shares vest in full on the fifth anniversary of the date of grant. These
modifications are subject to, and will become effective as of the date of, the
approval of our shareholders, which will be solicited at our 2000 annual meeting
of shareholders.

1999 EMPLOYEE STOCK PURCHASE PLAN

Our 1999 employee stock purchase plan was adopted by the board of
directors in June 1999 and approved by the shareholders in August 1999. The 1999
employee stock purchase plan became effective on the effective date of our
initial public offering in August 1999. A total of 1,000,000 shares of common
stock has been reserved for issuance under the 1999 employee stock purchase
plan, all of which were available for future issuance and none of which have
been issued as of December 31, 1999. 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 commenced on the
date of our initial public offering in August 1999 and will end on July 31,
2001; the initial purchase period ended on January 31, 2000. The price at which
common stock is 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 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.
46
<PAGE> 49

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.

2000 NON-EXECUTIVE STOCK OPTION PLAN

Our 2000 non-executive stock option plan was adopted by the Board of
Directors in January 2000 and, unless terminated earlier by the Board of
Directors, will terminate in January 2010. Shareholder approval is not required
under applicable law and will not be obtained. A total of 2,000,000 shares have
been reserved under this plan. The 2000 non-executive stock option plan provides
for the grant of nonstatutory stock options to non-executive employees of and
consultants to the Company. The purposes of the 2000 non-executive stock option
plan are:

- to attract and retain the best available personnel;

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

- to promote the success of our business.

As of December 31, 1999, no shares or options had been issued under this
plan.

The compensation committee currently administers the 2000 non-executive
stock option plan. The administrator of the plan determines:

- the number of shares subject to options, provided that no individual
employee may receive option grants for more than 1,000,000 shares in
any calendar year;

- vesting schedules, which typically provide that options vest and
become exercisable at the rate of 1/4(th) after one year and 1/48(th)
per month thereafter;

- exercise prices, which must be at least 85% of the fair market value
of our common stock;

- the term of the options, which may not exceed ten years; and

- the transferability of the options, which are generally
non-transferable other than by will or the laws of descent or
distribution, unless otherwise determined by the administrator.

Options granted under the 2000 non-executive stock option plan are also
subject to the following restrictions:

- options granted under the 2000 non-executive stock option plan are
only nonstatutory stock options under applicable law; and

- our executive officers may not receive grants under the plan.

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. Outstanding options will adjust
in the event of a stock split, stock dividend or other similar change. Our board
of directors may amend, modify or terminate the 2000 non-executive stock option
plan if the amendment, modification or termination does not impair vesting
rights of the plan participants.
47
<PAGE> 50

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. 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.

48
<PAGE> 51

CERTAIN TRANSACTIONS

Since January 1, 1997, 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, 1997, 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 5,028,005 shares of Series C preferred stock at $7.00
per share in January, February, April, July and November 1997 to 15
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 and Selling
Shareholders" for more information.

<TABLE>
<CAPTION>
PREFERRED STOCK
---------------------
INVESTOR SERIES C SERIES D
- -------- -------- --------
<S> <C> <C>
Venture Fund I, L.P. and Neal Douglas....................... -- 125,991
U.S. Venture Partners and Irwin Federman.................... -- 123,767
Brentwood Venture Capital and John Walecka.................. 167,857 89,698
VR Telecommunications GmbH & Co............................. 115,000 --
Richard M. Moley............................................ 50,000 --
</TABLE>

TRANSACTIONS WITH DIRECTORS

We 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>

This note was paid in full in February 2000.

TRANSACTIONS WITH SHAREHOLDERS

VR Telecommunications GmbH & Co. holds more than 5% of our common stock
and also was a significant customer, directly purchasing an aggregate of
$1,091,966 of AirMAN products in 1997, and purchasing through a reseller an
aggregate of $2,181,104 of AirMAN products in 1997.

49
<PAGE> 52

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".

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> 53

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information regarding the beneficial
ownership of Netro's common stock as of December 31, 1999 and as adjusted to
reflect the sale of the common stock offered by Netro and the selling
shareholders pursuant to this prospectus by:

- each of our directors;

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

- all directors and executive officers as a group;

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

- the selling shareholders.

Percentage of beneficial ownership is based on 44,912,773 shares of common
stock outstanding as of December 31, 1999, together with options that are
exercisable within 60 days of December 31, 1999 for each shareholder. Beneficial
ownership is determined in accordance with the rules of the SEC. The percentages
for beneficial ownership after the offering assume that the underwriters do not
exercise their over-allotment option.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED AFTER
OWNED PRIOR TO OFFERING OFFERING
----------------------- SHARES BEING --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------------------ ----------- --------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Gideon Ben-Efraim(1)................... 4,431,250 9.8% -- 4,431,250 8.9%
Venture Fund I, L.P.(2)................ 4,216,071 9.4 -- 4,216,071 8.5
U.S. Venture Partners(3)............... 3,313,342 7.4 -- 3,313,342 6.7
VR Telecommunications GmbH & Co.(4).... 2,952,222 6.6 1,250,000 1,702,222 3.4
Brentwood Venture Capital(5)........... 2,401,284 5.3 -- 2,401,284 4.9
Hasso Plattner......................... 842,821 1.9 178,535 664,286 1.3
Richard M. Moley(6).................... 486,875 1.1 -- 486,875 1.0
Michael T. Everett(7).................. 475,937 1.0 -- 475,937 *
Stuart Feeney(8)....................... 357,708 * 25,000 332,708 *
Matthew Powell(9)...................... 232,291 * 10,000 222,291 *
Thomas R. Baruch(10)................... 220,000 * -- 220,000 *
Cynthia M. Hillery(11)................. 189,582 * 10,000 179,582 *
John Perry(12)......................... 125,000 * 5,000 120,000 *
Neal Douglas(13)....................... 20,000 * -- 20,000 *
Irwin Federman(14)..................... 20,000 * -- 20,000 *
John L. Walecka(15).................... 20,000 * -- 20,000 *
Robert Wynne(16)....................... 10,000 * -- 10,000 *
All directors and executive officers as
a group (14 persons)(17)............. 16,519,286 35.5 50,000 16,469,286 32.2
Additional selling shareholders,
holding less than 1% as a group(18) 314,791 * 17,354 297,437 *
</TABLE>

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

(1) Includes 231,250 shares issuable upon exercise of options exercisable
within 60 days of December 31, 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. Mr. Ben-Efraim has the right to immediately exercise
unvested options to purchase an additional 150,000 shares within 60 days of
December 31, 1999; however, these shares would be subject to a right of
repurchase by Netro.

51
<PAGE> 54

(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 13. The address for Venture
Fund I, L.P. is 295 North Maple Avenue, Rm. 3354A2, Basking Ridge, NJ 07920

(3) Represents 2,866,040 shares held by U.S. Venture Partners IV, L.P., 347,903
shares held by Second Ventures II, L.P. and 99,399 shares held by USVP
Entrepreneur Partners II, L.P. Irwin Federman, 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 14. The address for U.S. Venture Partners is
2180 Sand Hill Road, Suite 300, Menlo Park, CA 94025.

(4) The address for VR Telecommunications GmbH & Co. is Diekstraat 7, 25870
Norderfriedrichskoog, Germany.

(5) Represents 2,361,982 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 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 15. The address for
Brentwood Venture Capital is 11150 Santa Monica Blvd., Suite 1200, Los
Angeles, CA 90025.

(6) Includes 36,875 shares issuable upon exercise of options exercisable within
60 days of December 31, 1999, and 400,000 shares held by a trust for the
benefit of an adult child of Mr. Moley, who disclaims beneficial ownership
of such 400,000 shares. The vesting of these 400,000 shares of common stock
is contingent upon Mr. Moley's continued service as a director of Netro.

(7) Represents 343,506 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999. Mr. Everett has the right to
immediately exercise unvested options to purchase an additional 132,431
shares within 60 days of December 31, 1999; however, these shares would be
subject to a right of repurchase by Netro.

(8) Includes 132,708 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999. Mr. Feeney has the right to
immediately exercise an unvested option to purchase an additional 75,000
shares within 60 days of December 31, 1999; however, these shares would be
subject to a right of repurchase by Netro.

(9) Represents 232,291 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999.

(10) Includes 20,000 shares issuable upon exercise of options exercisable within
60 days of December 31, 1999. The address for Mr. Baruch is 235 Montgomery
Street, Suite 920, San Francisco, CA 94104.

(11) Includes 128,332 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999.

(12) Represents 125,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999.

(13) Represents 20,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999. Excludes 4,216,071 shares held by
Venture Fund I, L.P. See note 2.

(14) Represents 20,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999. Excludes 3,313,342 shares held by U.S.
Venture Partners IV, L.P. and its affiliates. See note 3.

52
<PAGE> 55

(15) Represents 20,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999. Excludes 2,401,284 shares held by
Brentwood Associates VI, L.P. and Brentwood Affiliates Fund, L.P. See note
4.

(16) Represents 10,000 shares issuable upon exercise of options exercisable
within 60 days of December 31, 1999.

(17) Includes 9,930,697 shares held by entities affiliated with certain
directors as described in notes 2, 3 and 4 and 1,519,962 shares issuable
upon exercise of options exercisable within 60 days of December 31, 1999.

(18)Includes 134,791 shares issuable upon exercise of options exercisable within
60 days of December 31, 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.

53
<PAGE> 56

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common
stock and 5,000,000 shares of undesignated preferred stock.

COMMON STOCK

As of December 31, 1999, there were 44,912,773 shares of common stock
outstanding that were held of record by approximately 299 shareholders.

There will be 49,416,884 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

Netro is authorized to issue 5,000,000 shares of undesignated preferred
stock. The board of directors has 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 are 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 24,736,059 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 the 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.

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.

54
<PAGE> 57

ANTI-TAKEOVER PROVISIONS

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 December 31, 1999, warrants were outstanding to purchase an
aggregate of 57,028 shares of common 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. 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.

TRANSFER AGENT AND REGISTRAR

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

LISTING

Our common stock is quoted on the Nasdaq National Market under the trading
symbol "NTRO".

55
<PAGE> 58

SHARES ELIGIBLE FOR FUTURE SALE

Upon the closing of this offering, we will have 49,416,884 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 December 31, 1999.

All of the 6,000,000 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. The 5,750,000 shares sold in our
initial public offering are also freely tradeable, subject to the above
restrictions. We issued and sold the remaining 37,666,884 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. In addition, some of the holders of these
shares have agreed with the underwriters that they will not sell a portion of
their shares on or prior to the date 45 days from the date of this prospectus
and will not sell the balance of their shares on or prior to the date 90 days
from the date of this prospectus.

Assuming the sales contemplated by this prospectus, of these 37,666,884
shares of restricted securities:

- 15,988,271 shares are eligible for immediate sale, without
restriction, pursuant to Rule 144(k), some of which may be subject to
the restrictions imposed by Rule 701;

- 955,752 shares will be eligible for immediate sale, subject to the
volume and manner of sale restrictions of Rule 144;

- 560,638 shares will be eligible for sale on June 21, 2000 subject to
the volume and manner of sale restrictions of Rule 144;

- 8,317,498 shares will be eligible for sale on the date 45 days from
the date of this prospectus, subject to the volume and manner of sale
restrictions of Rule 144; and

- 11,844,725 shares will be eligible for sale on the date 90 days from
the date of this prospectus subject to the volume and manner of sale
restrictions of Rule 144.

In addition, there were outstanding vested options to purchase 1,838,641
shares of common stock as of December 31, 1999, excluding 17,354 shares that are
being sold in this offering. Of these, 530,520 are eligible for immediate sale
pursuant to the terms of Rule 701 or a Registration Statement on Form S-8 which
we filed on August 23, 1999, 196,218 will be eligible for sale beginning 45 days
after the date of this prospectus and 1,111,903 will be eligible for sale
beginning 90 days after the date of this prospectus.

In general, under Rule 144, 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
494,169 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

56
<PAGE> 59

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 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.

The holders of 24,736,059 shares of our common stock, including shares
issuable upon the exercise of warrants to purchase shares of our common stock,
are entitled to have their shares registered by us for resale. For a discussion
of these rights, see "Description of Capital Stock -- Registration Rights".

57
<PAGE> 60

UNDERWRITING

Netro, the selling shareholders and the underwriters for the offering
named below have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., Dain Rauscher Incorporated, Lehman Brothers, Inc.
and FleetBoston Robertson Stephens Inc. are the representatives of the
underwriters.

<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ....................................... 2,160,000
Dain Rauscher Incorporated.................................. 1,080,000
Lehman Brothers, Inc. ...................................... 1,080,000
FleetBoston Robertson Stephens Inc. ........................ 1,080,000
A.G. Edwards & Sons, Inc. .................................. 100,000
Edward D. Jones & Co., L.P. ................................ 100,000
Legg Mason Wood Walker, Incorporated........................ 100,000
Prudential Securities Incorporated.......................... 100,000
Stephens Inc. .............................................. 100,000
Wit SoundView............................................... 100,000
---------
Total............................................. 6,000,000
=========
</TABLE>

If the underwriters sell more shares than the total number set forth in
the table above, the underwriters have an option to buy up to an additional
900,000 shares from Netro to cover such sales. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set forth
in the table above.

The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by Netro and the selling
shareholders. Such amounts are shown assuming both no exercise and full exercise
of the underwriters' option to purchase 900,000 additional shares.

<TABLE>
<CAPTION>
Paid by Netro No Exercise Full Exercise
------------- ----------- -------------
<S> <C> <C>
Per Share.......................................... $ 4.125 $ 4.125
Total.............................................. $18,579,458 $22,291,958
</TABLE>

<TABLE>
<CAPTION>
Paid by the Selling Shareholders No Exercise Full Exercise
-------------------------------- ----------- -------------
<S> <C> <C>
Per Share.......................................... $ 4.125 $ 4.125
Total.............................................. $ 6,170,542 $ 6,170,542
</TABLE>

Shares sold by the underwriters to the public will initially be offered at
the initial price to public set forth on the cover of this prospectus. Any
shares sold by the underwriters to securities dealers may be sold at a discount
of up to $2.47 per share from the initial price to public. Any such securities
dealers may resell any shares purchased from the underwriters to certain other
brokers or dealers at a discount of up to $0.10 per share from the initial price
to public. If all the shares are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.

Netro and the selling shareholders have agreed with the underwriters not
to dispose of or agree to dispose of any of their common stock or securities
exchangeable for or convertible into common stock for a period of 90 days after
the date of this prospectus, without the prior written consent of Goldman, Sachs
& Co. Netro's agreement does not apply to Netro's existing employee benefit
plans. The agreement of certain of Netro's major shareholders will expire 45
days after the date of this prospectus with respect to 50% of the shares held by
these shareholders on the date of this prospectus. The agreement of Netro's
officers will expire 45 days after the date of this prospectus

58
<PAGE> 61

with respect to 15% of the shares held by these officers on the date of this
prospectus. See "Shares Eligible for Future Sale" for a discussion of certain
transfer restrictions.

GS Capital Partners II L.P., GS Capital Partners II Offshore L.P., Stone
Street Fund 1997 L.P., Bridge Street Fund 1997 L.P. and Goldman Sachs & Co.
Vermaltungs GmbH, each an affiliate of Goldman, Sachs & Co., hold 268,899,
106,898, 28,849, 14,008 and 9,918 shares of our common stock, respectively. DRW
Investors LLC, an affiliate of Dain Rauscher Incorporated, holds 64,267 shares
of our common stock.

In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering. Stabilizing
transactions consist of certain bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.

The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.

These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.

As permitted by Rule 103 under the Securities Exchange Act of 1934, some
underwriters and selling group members, if any, may act as "passive market
makers" in the common stock, which means they may make bids for or purchases of
common stock in the Nasdaq National Market until a stabilizing bid has been
made. Rule 103 generally provides that: (i) a passive market maker's net daily
purchases of the common stock may not exceed 30% of its average daily trading
volume in such securities for the two full consecutive calendar months, or any
60 consecutive days ending within the 10 days, immediately preceding the filing
date of the registration statement of which this prospectus forms a part; (ii) a
passive market maker may not effect transactions or display bids for common
stock at a price that exceeds the highest independent bid for the common stock
by persons who are not passive market makers; and (iii) bids made by passive
market makers must be identified as such.

Netro estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $725,000.

Netro and the selling shareholders have agreed to indemnify the several
underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.

59
<PAGE> 62

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 and for the
selling shareholders by Heller, Ehrman, White & McAuliffe, 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 163,813 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 ADDITIONAL 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 and financial statement schedule filed with the registration statement.
Statements made in this prospectus concerning other documents are not
necessarily complete. The registration statement, including exhibits and
financial statement schedule, 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. We file reports, proxy
statements and other information with the Commission. The registration statement
and 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> 63

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> 64

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, 1998
and 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, 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP
San Jose, California
January 24, 2000

F-2
<PAGE> 65

NETRO CORPORATION

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,094 $ 7,450
Short-term investments.................................... 9,034 37,887
Trade accounts receivable, net of allowance of $509 and
$150, respectively..................................... 1,150 6,925
Inventory................................................. 4,315 7,909
Prepaid expenses and other................................ 243 814
-------- --------
Total current assets.............................. 20,836 60,985
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net................... 5,634 4,569
OTHER ASSETS................................................ 318 260
-------- --------
Total assets...................................... $ 26,788 $ 65,814
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital leases...... $ 3,872 $ 6,764
Trade accounts payable.................................... 1,327 5,064
Accrued liabilities....................................... 3,114 4,740
-------- --------
Total current liabilities......................... 8,313 16,568
LONG-TERM DEBT AND CAPITAL LEASES, net of current portion... 4,547 3,633
DEFERRED FACILITIES RENT.................................... 35 57
-------- --------
Total liabilities................................. 12,895 20,258
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value:
Authorized -- 31,192,517 shares and 5,000,000 shares at
December 31, 1998 and 1999, respectively
Outstanding -- 27,732,235 shares and no shares at
December 31, 1998 and 1999, respectively.............. 81,073 --
Common Stock, no par value:
Authorized -- 100,000,000 shares
Outstanding -- 8,530,238 shares and 44,912,773 shares
at December 31, 1998 and 1999, respectively........... 1,224 146,490
Note receivable from shareholder.......................... (800) (800)
Deferred stock compensation............................... -- (3,730)
Accumulated deficit....................................... (67,604) (96,404)
-------- --------
Total shareholders' equity........................ 13,893 45,556
-------- --------
Total liabilities and shareholders' equity........ $ 26,788 $ 65,814
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 66

NETRO CORPORATION

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
REVENUES.............................................. $ 5,601 $ 5,438 $ 18,185
COST OF REVENUES...................................... 8,273 9,640 14,874
-------- -------- --------
GROSS PROFIT (LOSS)................................... (2,672) (4,202) 3,311
-------- -------- --------
OPERATING EXPENSES:
Research and development............................ 15,289 16,143 19,307
Sales and marketing................................. 3,776 4,819 5,794
General and administrative.......................... 3,500 3,968 6,259
Amortization of deferred stock compensation......... -- -- 1,104
-------- -------- --------
Total operating expenses.................... 22,565 24,930 32,464
-------- -------- --------
LOSS FROM OPERATIONS.................................. (25,237) (29,132) (29,153)
-------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest income..................................... 1,001 1,260 1,522
Interest expense.................................... (298) (956) (1,169)
-------- -------- --------
Total other income (expense), net........... 703 304 353
-------- -------- --------
NET LOSS AND COMPREHENSIVE LOSS....................... $(24,534) $(28,828) $(28,800)
======== ======== ========
Basic and diluted net loss per share.................. $ (5.11) $ (4.07) $ (1.31)
======== ======== ========
Shares used to compute basic and diluted net loss per
share............................................... 4,798 7,087 21,988
======== ======== ========
Pro forma basic and diluted net loss
per share (unaudited)............................... $ (0.71)
========
Shares used to compute pro forma basic
and diluted net loss per share (unaudited).......... 40,616
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 67

NETRO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE DEFERRED
--------------------- --------------------- FROM STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHAREHOLDER COMPENSATION DEFICIT
----------- ------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1996.......... 20,683,766 $30,275 7,813,406 $ 94 $ -- $ -- $(14,242)
Exercise of stock options for
cash....................... -- -- 111,301 15 -- -- --
Issuance of Common Stock for
cash....................... -- -- 158,000 235 -- -- --
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 -- -- -- -- --
Net loss..................... -- -- -- -- -- -- (24,534)
----------- ------- ---------- -------- ----- ------- --------
BALANCE,
DECEMBER 31, 1997.......... 25,711,771 65,437 8,078,957 344 -- -- (38,776)
Exercise of stock options for
cash....................... -- -- 389,677 226 -- -- --
Issuance of Common Stock for
cash....................... -- -- 5,396 11 -- -- --
Repurchase of Common Stock
for cash................... -- -- (343,792) (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 -- -- -- -- --
Net loss..................... -- -- -- -- -- -- (28,828)
----------- ------- ---------- -------- ----- ------- --------
BALANCE,
DECEMBER 31, 1998.......... 27,732,235 81,073 8,530,238 1,224 (800) -- (67,604)
Exercise of stock options for
cash....................... -- -- 731,124 757 -- -- --
Deferred stock
compensation............... -- -- -- 4,834 -- (4,834) --
Repurchase of Common Stock
for cash................... -- -- (21,666) (4) -- -- --
Issuance of Series D
Convertible Preferred Stock
for cash, net of issuance
costs of $48............... 2,149,254 16,673 -- -- -- -- --
Issuance of Series D
Convertible Preferred Stock
for services rendered...... 20,794 162 -- -- -- -- --
Issuance of Common Stock in
initial public offering,
net of issuance costs...... -- -- 5,750,000 41,605 -- -- --
Conversion of Preferred Stock
to Common Stock in
connection with IPO........ (29,902,283) (97,908) 29,902,283 97,908 -- -- --
Issuance of Common Stock for
services rendered.......... -- -- 20,794 166 -- -- --
Amortization of deferred
stock compensation......... -- -- -- -- -- 1,104 --
Net loss..................... -- -- -- -- -- -- (28,800)
----------- ------- ---------- -------- ----- ------- --------
BALANCE,
DECEMBER 31 1999........... -- $ -- 44,912,773 $146,490 $(800) $(3,730) $(96,404)
=========== ======= ========== ======== ===== ======= ========

TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE,
DECEMBER 31, 1996.......... $ 16,127
Exercise of stock options for
cash....................... 15
Issuance of Common Stock for
cash....................... 235
Repurchase of Common Stock
for cash................... --
Issuance of Series C
Convertible Preferred Stock
for cash, net of issuance
costs of $36............... 35,162
Net loss..................... (24,534)
--------
BALANCE,
DECEMBER 31, 1997.......... 27,005
Exercise of stock options for
cash....................... 226
Issuance of Common Stock for
cash....................... 11
Repurchase of Common Stock
for cash................... (157)
Issuance of Common Stock for
notes receivable........... --
Issuance of Series D
Convertible Preferred Stock
for cash, net of issuance
costs of $84............... 15,636
Net loss..................... (28,828)
--------
BALANCE,
DECEMBER 31, 1998.......... 13,893
Exercise of stock options for
cash....................... 757
Deferred stock
compensation............... --
Repurchase of Common Stock
for cash................... (4)
Issuance of Series D
Convertible Preferred Stock
for cash, net of issuance
costs of $48............... 16,673
Issuance of Series D
Convertible Preferred Stock
for services rendered...... 162
Issuance of Common Stock in
initial public offering,
net of issuance costs...... 41,605
Conversion of Preferred Stock
to Common Stock in
connection with IPO........ --
Issuance of Common Stock for
services rendered.......... 166
Amortization of deferred
stock compensation......... 1,104
Net loss..................... (28,800)
--------
BALANCE,
DECEMBER 31 1999........... $ 45,556
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 68

NETRO CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................. $(24,534) $(28,828) $(28,800)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 1,968 3,065 2,789
Provision for doubtful accounts.................... 47 462 78
Loss on disposal of fixed assets................... 258 -- --
Amortization of deferred stock compensation........ -- -- 1,104
Non-cash issuance of stock......................... -- -- 328
Changes in operating assets and liabilities:
Trade accounts receivable........................ (1,717) 545 (5,853)
Inventory........................................ (2,670) (388) (3,594)
Prepaid expenses and other....................... (191) (159) (513)
Trade accounts payable and accrued liabilities... 2,282 (566) 5,385
-------- -------- --------
Net cash used in operating activities......... (24,557) (25,869) (29,076)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements..... (2,530) (3,183) (1,724)
Purchases of short-term investments................... (18,796) (34,085) (72,952)
Maturities of short-term investments.................. 18,494 35,089 44,099
-------- -------- --------
Net cash used in investing activities......... (2,832) (2,179) (30,577)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and sale-
leaseback transactions............................. 4,577 4,553 5,833
Payments on notes payable and capital leases.......... (1,109) (1,795) (3,855)
Proceeds from issuance of Preferred Stock, net of
issuance costs..................................... 35,162 15,636 16,673
Proceeds from issuance of Common Stock, net of
issuance costs..................................... 250 237 42,362
Repurchases of Common Stock........................... -- (157) (4)
-------- -------- --------
Net cash provided by financing activities..... 38,880 18,474 61,009
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................... 11,491 (9,574) 1,356
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................................. 4,177 15,668 6,094
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 15,668 $ 6,094 $ 7,450
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................ $ 360 $ 802 $ 1,016
Non-cash transactions:
Notes receivable from the issuance of Common
Stock............................................ $ -- $ 800 $ --
Equipment acquired under capital leases............ $ 1,083 $ -- $ --
Conversion of Preferred Stock to Common Stock in
connection with IPO.............................. $ -- $ -- $ 97,908
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 69

NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS:

Netro Corporation (collectively, with its subsidiaries, the "Company") was
incorporated in California on November 14, 1994. Netro is a leading provider of
broadband wireless access equipment to competitive communications service
providers worldwide. Netro's AirStar broadband access system derives its
price-performance benefits from dynamic bandwidth allocation and a
point-to-multipoint architecture that provides integrated voice and high-speed
packet data services. The Company operates in one business segment.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION

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

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign 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 February 2000, are valued using the amortized cost method. The
fair value of the investments approximates amortized cost and, as such, the
gross unrealized holding gains and losses at December 31, 1998 and 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,
------------------
DESCRIPTION 1998 1999
----------- ------- -------
<S> <C> <C>
United States Treasury Bills........................... $ 1,996 $ 3,975
Other federal agency securities........................ 6,945 33,912
Commercial paper....................................... 5,064 --
------- -------
$14,005 $37,887
======= =======
</TABLE>

F-7
<PAGE> 70
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Approximately $4,971,000 of the total investments in debt securities as of
December 31, 1998 were included in cash and cash equivalents. The remaining
balance was classified as short-term investments. There were no investments
included in cash and cash equivalents as of December 31, 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,
----------------
1998 1999
------ ------
<S> <C> <C>
Raw materials............................................ $3,204 $3,865
Work-in-process.......................................... 474 2,185
Finished goods........................................... 637 1,859
------ ------
$4,315 $7,909
====== ======
</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.

REVENUE RECOGNITION

Revenues from product sales are generally recognized when all of the
following conditions are met: the product has shipped, an arrangement exists
with the customer and the Company has the right to invoice the customer,
collection of the receivable is probable and the Company has fulfilled all of
its material 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 $625,000
in 1998 and 1999, respectively. The Company offset research and development
expenses with the funding when agreed-upon milestones were met.

F-8
<PAGE> 71
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 the 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 29,777,846, 32,453,093 and 4,408,949 shares for 1997, 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.

Unaudited 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.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss.......................................... $(24,534) $(28,828) $(28,800)
======== ======== ========
HISTORICAL:
Weighted average shares of common stock
outstanding..................................... 8,021 8,227 22,059
Less: Weighted average shares of common stock
subject to repurchase........................... (3,223) (1,140) (71)
-------- -------- --------
Weighted average shares used to compute basic and
diluted net loss per share...................... 4,798 7,087 21,988
======== ======== ========
Basic and diluted net loss per share.............. $ (5.11) $ (4.07) $ (1.31)
======== ======== ========
PRO FORMA:
Net loss.......................................... $(28,800)
========
Shares used above................................. 21,988
Pro forma adjustment to reflect weighted average
effect of assumed conversion of convertible
preferred stock (unaudited)..................... 18,628
--------
Weighted average shares used to compute pro forma
basic and diluted net loss per share
(unaudited)..................................... 40,616
========
Pro forma basic and diluted net loss per share
(unaudited)..................................... $ (0.71)
========
</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

F-9
<PAGE> 72
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The Company has adopted the disclosure only 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.

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. In
June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS No. 133" to defer the effective date of SFAS No. 133
until fiscal years beginning after June 15, 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 1999,
approximately 71% and 85%, respectively, of the Company's trade accounts
receivable balance was represented by one customer and three customers,
respectively. Although the Company does not require collateral on accounts
receivable, because the majority of the Company's customers are large,
well-established companies, it requires standby letters of credit or prepayments
on certain sales to foreign and smaller 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,
----------------
1998 1999
------ ------
<S> <C> <C>
Engineering and test equipment.............................. $7,997 $9,126
Office and computer equipment............................... 2,743 3,182
Furniture and fixtures...................................... 345 461
Leasehold improvements...................................... 206 246
------ ------
11,291 13,015
Less: Accumulated depreciation and amortization............. (5,657) (8,446)
------ ------
Equipment and leasehold improvements, net................... $5,634 $4,569
====== ======
</TABLE>

F-10
<PAGE> 73
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACCRUED LIABILITIES:

Accrued liabilities consisted of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
<S> <C> <C>
Accrued payroll and related benefits........................ $ 935 $1,494
Warranty reserve............................................ 1,250 1,264
Customer deposits........................................... 315 858
Other....................................................... 614 1,124
------ ------
Total............................................. $3,114 $4,740
====== ======
</TABLE>

6. DEBT AND CAPITAL LEASES:

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Borrowings under bank line of credit........................ $ 1,839 $ 4,338
Secured note payable to lender, due in monthly installments
of $90,942 with interest at 12.5%......................... 2,746 1,882
Capital leases, due through 2002............................ 3,834 4,177
------- -------
8,419 10,397
Less: current portion....................................... (3,872) (6,764)
------- -------
$ 4,547 $ 3,633
======= =======
</TABLE>

In January 1998, the Company entered into a bank line of credit under which
up to $6,000,000 is available for borrowings and letters of credit. This
arrangement was renewed in September 1999 and expires in January 2001.
Borrowings are limited to an aggregate amount equaling approximately 80% and 90%
of domestic and foreign eligible trade accounts receivable, 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 2001 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 December 31, 1999, borrowings outstanding under this agreement were
$4,338,000 and amounts utilized for outstanding letters of credit were $300,000.

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 December 31, 1999, are as follows (in
thousands):

<TABLE>
<S> <C>
2000................................................ $ 907
2001................................................ 975
------
Total..................................... $1,882
======
</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, 1998 and 1999
was approximately $5,754,000 and $6,590,000, respectively.

F-11
<PAGE> 74
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 December 31, 1999, the Company had borrowed approximately $1,936,000 against
this agreement. See Note 9 for information regarding warrants issued as part of
this agreement.

Future minimum lease payments under all noncancelable capital lease
agreements as of December 31, 1999, are summarized as follows (in thousands):

<TABLE>
<S> <C>
2000........................................................ $1,987
2001........................................................ 1,776
2002........................................................ 1,172
------
Total minimum lease payments................................ 4,935
Less: amount representing interest at 10.0% to 13.4%........ (758)
------
Present value of lease payments............................. $4,177
======
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

COMMITMENTS

The Company leases its facilities and certain equipment under noncancelable
operating lease agreements expiring at various dates through 2002. Future
minimum lease payments under all noncancelable operating lease agreements as of
December 31, 1999, are summarized as follows (in thousands):

Rent expense for the operating leases was approximately $538,000, $922,000,
$1,361,000 in 1997, 1998 and 1999, respectively.

The Company had outstanding a standby letter of credit of $400,000 to
secure the Company's warranty obligations to one customer relating to
discontinued product. 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 for
downtime.

In January 1999, the Company entered into an engineering services agreement
with one of its vendors for $728,000, which is payable in cash or stock at the
option of the Company. As of December 31,1999, the Company had paid 41,588
shares of Common Stock with a value of $328,000. In November 1999, the Company
agreed to pay the remaining future obligations under this agreement in cash.

CONTINGENCIES

In 1999, the Company reached a settlement agreement and mutual release with
a former contract manufacturer. Under the settlement, the Company will purchase
certain component inventory for cash. This settlement is within amounts
previously reserved for this purpose in the Company's financial statements.

F-12
<PAGE> 75
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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:

INITIAL PUBLIC OFFERING

On August 24, 1999, the Company completed its initial public offering of
5,750,000 shares of common stock at a public offering price of $8 per share. The
offering resulted in net proceeds to the Company of $42,780,000 after payment of
the underwriters commission but before deduction of the offering expenses.
Simultaneously with the closing of the initial public offering, all of the
Company's then outstanding convertible preferred stock was automatically
converted into an aggregate of 29,902,283 shares of common stock.

CAPITAL STOCK

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

At December 31, 1999, 7,907,469 shares of Common Stock were reserved,
including 7,850,441 shares for issuance under the Company's stock option plans
and 57,028 for warrants to purchase Common Stock.

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

The 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 December 31, 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.

F-13
<PAGE> 76
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 December
31, 1999, 8,800,000 shares of Common Stock had been authorized for issuance
under the 1995 and 1996 Plan, of which 810,981 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. 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 each year from 2001 through
2005 equal to the least of: 1) 750,000 shares, 2) 3% of our outstanding common
stock on the last day of the immediately preceding fiscal year or 3) a number of
shares determined by the administrator.

F-14
<PAGE> 77
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes option activity under all option plans
including the 1997 Director Stock Option Plan, the 1999 Executive Stock Option
Plan and the 1995 and 1996 Stock Option Plans:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE SHARES EXERCISE PRICE
---------- ---------- --------------
<S> <C> <C> <C>
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.................................. (3,689,510) 3,689,510 11.835
Exercised................................ -- (731,124) 1.020
Terminated............................... 797,037 (797,037) 1.880
Unvested shares repurchased.............. 21,666 -- 0.194
---------- ----------
Balance at December 31, 1999............... 1,005,981 6,844,460 $ 7.178
========== ==========
</TABLE>

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.

The following table summarizes information about stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------- NUMBER VESTED
EXERCISE PRICES NUMBER CONTRACTUAL LIFE AND EXERCISABLE
- --------------- ---------- ---------------- ---------------
<C> <C> <S> <C>
$0.045 21,000 5.6 years 21,000
$0.20 317,948 6.5 years 257,622
$1.00 - $1.50 227,163 6.9 years 169,950
$2.00 3,275,089 8.2 years 1,404,017
$3.50 1,352,125 9.3 years 406
$7.00 - $8.00 657,350 9.5 years 3,000
$22.75 - $26.25 149,850 9.8 years --
$34.31 - $45.00 843,935 9.9 years --
---------- ---------
6,844,460 1,855,995
========== =========
</TABLE>

F-15
<PAGE> 78
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 for the Company's stock based
compensation awards 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>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
As Reported:
Net loss.............................. $(24,534) $(28,828) $(28,800)
Net loss per share.................... (5.11) (4.07) (1.31)
Pro Forma:
Net loss.............................. (24,670) (29,079) (30,273)
Net loss per share.................... (5.14) (4.10) (1.38)
Weighted average fair value of options
granted during the year............... 2.47 2.48 18.78
Weighted average fair value of purchase
rights granted during the year under
the employee stock purchase plan...... -- -- 2.97
</TABLE>

The fair value of each option grant for the years ended 1997, 1998, and the
six months ended June 30, 1999 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>

The fair value of each option grant for the six-month period ended December
31, 1999, was estimated on the date of the grant using the Black-Scholes option
valuation model with the following assumptions:

<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.87% - 6.09%
Average expected life of option............................. 4 years
Dividend yield.............................................. 0%
Volatility of Common Stock.................................. 90.0%
</TABLE>

To comply with the pro forma reporting requirements of SFAS No. 123,
compensation cost is also estimated for the fair value of future employee stock
purchase plan issuances. Therefore, the Company has estimated the compensation
cost for our first employee stock purchase plan issuance, which will be in
January 2000. The fair value of purchase rights granted under the Purchase Plan
is

F-16
<PAGE> 79
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions:

<TABLE>
<S> <C>
Risk-free interest rate..................................... 5.04%
Average expected life of option............................. 0.5 years
Dividend yield.............................................. 0%
Volatility of Common Stock.................................. 90.0%
</TABLE>

1999 EMPLOYEE STOCK PURCHASE PLAN

In June 1999, the Board of Directors adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"). 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.

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 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 deferred stock compensation was
immaterial in 1998. Amortization expense related to deferred stock compensation
was $1,104,000 in 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.

PREFERRED STOCK

Netro is 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 are subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future.

F-17
<PAGE> 80
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONVERTIBLE PREFERRED STOCK

The Company's outstanding Convertible Preferred Stock consisted of:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1998 1999
------- ----
(IN THOUSANDS)
<S> <C> <C>
Series A
Authorized -- 13,466,660 at December 31, 1998 and none at
December 31, 1999
Outstanding -- 13,466,660 at December 31, 1998 and none at
December 31, 1999...................................... $ 6,049 $ --
Series B
Authorized -- 5,250,000 at December 31, 1998 and none at
December 31, 1999
Outstanding -- 5,250,000 at December 31, 1998 and none at
December 31, 1999...................................... $10,492 $ --
Series C
Authorized -- 8,475,857 at December 31, 1998 and none at
December 31, 1999
Outstanding -- 6,995,111 at December 31, 1998 and none at
December 31, 1999...................................... $48,896 $ --
Series D
Authorized -- 4,000,000 at December 31, 1998 and none at
December 31, 1999
Outstanding -- 2,020,464 at December 31, 1998 and none at
December 31, 1999...................................... $15,636 $ --
</TABLE>

WARRANTS

In connection with the Company's capital lease financing arrangements, the
Company issued warrants to its lessors 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>

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. 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.

All of the outstanding warrants to purchase Preferred Stock were converted
upon completion of the Company's initial public offering into warrants to
purchase shares of Common Stock on a one for one basis.

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-18
<PAGE> 81
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>
YEARS ENDED
DECEMBER 31,
----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... (35)% (35)% (35)%
State taxes, net of federal benefit......................... (6) (6) (6)
Change in valuation allowance............................... 41 41 41
--- --- ---
--% --% --%
=== === ===
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1999
--------- ---------
<S> <C> <C>
Net operating losses:
Federal................................................... $ 20,363 $ 28,723
State..................................................... 1,176 1,412
Tax credit carryforwards.................................... 2,842 4,551
Cumulative temporary differences:
Reserves.................................................. 1,774 1,474
Research and development costs............................ 1,653 2,070
Start-up costs............................................ 621 508
Other..................................................... 457 1,211
--------- ---------
Total deferred tax asset.......................... 28,886 39,949
Valuation allowance......................................... (28,886) (39,949)
--------- ---------
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 December 31, 1999, the Company had Federal and State net operating
loss carryforwards of approximately $84,479,278 and $24,208,734, 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-19
<PAGE> 82
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 based on sales to those customers before
distribution to the end customer was as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
---- ------------ ----
<S> <C> <C> <C>
United States........................................... 1% 24% 57%
Germany................................................. 61% 2% --
Austria................................................. 13% 27% --
United Kingdom.......................................... -- 16% 10%
Italy................................................... -- 15% 7%
Israel.................................................. 21% 10% 2%
Saudi Arabia............................................ -- -- 10%
Other................................................... 4% 6% 14%
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1997 1998 1999
---- ------------ ----
<S> <C> <C> <C>
Customer A.............................................. 39% * *
Customer B.............................................. 20% * --
Customer C.............................................. 21% 10% *
Customer D.............................................. 12% 27% *
Customer E.............................................. -- 16% 57%
Customer F.............................................. -- 15% *
Customer G.............................................. -- * 10%
Customer H.............................................. -- * 10%
</TABLE>

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

12. SUBSEQUENT EVENT (UNAUDITED)

2000 Non-Executive Stock Option Plan

The 2000 non-executive stock option plan was adopted by the Board of
Directors in February 2000 and, unless terminated earlier by the Board of
Directors, will terminate in February 2010. It does not require shareholder
approval. The 2000 non-executive stock option plan provides for the grant of
nonstatutory stock options to non-executive employees of and consultants to the
Company. The purposes of the 2000 non-executive stock option plan are: to
attract and retain the best available personnel; to provide additional
incentives to our non-executive employees and consultants; and to promote the
success of the Company. The Company has reserved 2,000,000 shares for issuance
under the 2000 non-executive stock option plan.

The compensation committee currently administers the 2000 non-executive
stock option plan. The administrator of the plan determines: the number of
shares subject to options, provided that no individual employee may receive
option grants for more than 1,000,000 shares; vesting schedules, which are
typically 1/4(th) after one year and 1/48(th) per month thereafter; exercise
prices, which must be at least 85% of the fair market value of our common stock;
the term of the options, which may not exceed ten years; and the transferability
of the options, which are generally non-transferable other than by will or the
laws of descent or distribution, unless otherwise determined by the
administrator.

F-20
<PAGE> 83
NETRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options granted under the 2000 non-executive stock option plan are also
subject to the following restrictions: options granted under the 2000
non-executive stock option plan are only nonstatutory stock options; and
executive officers of the Company may not receive grants under the plan.

In the event of a change of control of the Company, 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 Company's board of directors
may amend, modify or terminate the 2000 non-executive stock option plan if the
amendment, modification or termination does not impair vesting rights of the
plan participants.

F-21
<PAGE> 84

[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 module.

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 distributor and end
user trials and commercial pilots.