CELLNET DATA SYSTEMS INC, S-1/A, 1996-09-23

CELLNET DATA SYSTEMS INC
S-1/A, 1996-09-23
TELEGRAPH & OTHER MESSAGE COMMUNICATIONS

Previous: IMO INDUSTRIES INC, S-8, 1996-09-23

Next: CELLNET DATA SYSTEMS INC, 8-A12G, 1996-09-23

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1996

REGISTRATION NO. 333-09537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

-------------------
CELLNET DATA SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 4825 94-2951096
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

125 SHOREWAY ROAD
SAN CARLOS, CA 94070
(415) 508-6000
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
---------------------
JOHN M. SEIDL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CELLNET DATA SYSTEMS, INC.
125 SHOREWAY ROAD
SAN CARLOS, CA 94070
(415) 508-6000
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
---------------------
COPIES TO:

BARRY E. TAYLOR, ESQ. JERRY V. ELLIOTT, ESQ.
MICHAEL J. DANAHER, ESQ. SHEARMAN & STERLING
TREVOR J. CHAPLICK, ESQ. 599 LEXINGTON AVENUE
WILSON SONSINI GOODRICH & ROSATI NEW YORK, NEW YORK 10022-4676
PROFESSIONAL CORPORATION (212) 848-4000
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(415) 493-9300

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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

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

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

If delivery of the prospectus is expected to be made pursuant to rule 434,
please check the following box.
---------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.................. 5,750,000(1) $21.00 $120,750,000 $41,635(3)
2,600,000 $0.005 13,000 5(3)
</TABLE>

(1) Includes 750,000 shares that the U.S. Underwriters have the option to
purchase to cover over-allotments, if any.

(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933, as amended.

(3) Previously paid on August 5, 1996.

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

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

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE

This Registration Statement contains three forms of Prospectus: (i) one to
be used in connection with the Company's initial public offering of its Common
Stock in the United States and Canada (the "U.S. Prospectus"), (ii) one to be
used in a concurrent offering outside the United States and Canada (the
"International Prospectus"), and (iii) one to be used in connection with an
offering in the United States solely related to the exercise of the Note
Warrants (the "Note Warrant Prospectus"). The U.S. and International
Prospectuses are identical in all material respects except for the front cover
page. The form of U.S. Prospectus is included herein and the U.S. Prospectus
cover page is followed by the alternate cover page to be used in the
International Prospectus. The alternate cover page for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." The form of Note Warrant Prospectus differs from the U.S. and
International Prospectuses in several respects and the alternate pages included
herein following the outside back cover page of the U.S. Prospectus are labeled
"Alternate Pages for Note Warrant Prospectus." Final forms of the U.S.
Prospectus, the International Prospectus and the Note Warrant Prospectus,
respectively, will be filed with the Securities and Exchange Commission under
Rule 424(b).

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

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER , 1996

5,000,000 SHARES

[LOGO]
COMMON STOCK
-----------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 4,000,000 SHARES
ARE BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,000,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. PRIOR TO
THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC
OFFERING PRICE PER SHARE WILL BE BETWEEN $19.00 AND $21.00. SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

CONCURRENTLY WITH THE CLOSING OF THIS OFFERING, NORTHERN STATES POWER COMPANY
("NSP") AND UNION ELECTRIC COMPANY ("UE") WILL PURCHASE DIRECTLY FROM THE
COMPANY SHARES OF COMMON STOCK HAVING AN AGGREGATE PURCHASE PRICE OF
$15,000,000 AND $10,000,000, RESPECTIVELY. ALL OF SUCH SHARES OF
COMMON STOCK TO BE PURCHASED BY NSP AND UE WILL BE PURCHASED AT
THE INITIAL PER SHARE PRICE TO PUBLIC SET FORTH BELOW, LESS
THE UNDERWRITING DISCOUNT IN THE CASE OF UE AND LESS A
SEPARATE DISCOUNT IN THE CASE OF NSP. SEE "DIRECT
PLACEMENTS."

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

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 8 HEREOF.
-------------------

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

PRICE $ A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
PER SHARE.......................................... $ $ $
TOTAL (3).......................................... $ $ $
</TABLE>

- ---------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $1,400,000.

(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
750,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE
TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY
WILL BE $ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
------------------------

THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SHEARMAN & STERLING, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996 AT THE OFFICE
OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY & CO.
INCORPORATED
COWEN & COMPANY

MONTGOMERY SECURITIES

SMITH BARNEY INC.

, 1996
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS]

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER , 1996

5,000,000 SHARES

[LOGO]
COMMON STOCK
-----------------

ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
OF THE 5,000,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 1,000,000 SHARES
ARE BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,000,000 SHARES ARE BEING OFFERED
INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $19.00 AND $21.00.
SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS CONSIDERED IN
DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

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

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 8 HEREOF.
-------------------

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

PRICE $ A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------- ------------------- -------------------
<S> <C> <C> <C>
PER SHARE........................................ $ $ $
TOTAL (3)........................................ $ $ $
</TABLE>

- ---------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITERS."

(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT
$1,400,000.

(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE
WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
750,000 ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF
ANY. IF THE U.S. UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITERS."
------------------------

MORGAN STANLEY & CO.
INTERNATIONAL

COWEN & COMPANY

MONTGOMERY SECURITIES

SMITH BARNEY INC.

, 1996
<PAGE>

<TABLE>
<S> <C>
MSA License Map--June 1996 CellNet holds 50 radio frequency licenses in 42 of the top 60
metropolitan statistical areas allowing it to target utilities
representing a majority of the electric, gas and water meters in
the United States. CellNet also has a number of other licenses
pending.
</TABLE>

Albany, NY
Allentown, PA
Austin, TX
Boston, MA
Buffalo, NY
Charlotte, NC
Cincinnati, OH
Cleveland, OH

Columbus, OH
Dayton, OH
Fresno, CA
Grand Rapids, MI
Greensboro, NC (2)
Hartford, CT
Honolulu, HI
Indianapolis, IN
Jacksonville, FL

Kansas City, MO
Las Vegas, NV
Los Angeles, CA
Louisville, KY
Memphis, TN
Miami, FL
Milwaukee, WI
Minneapolis, MN (2)

Norfolk, VA (2)
Oklahoma City, OK
Phoenix, AZ
Pittsburgh, PA (2)
Portland, OR (2)
Providence, RI (2)
Raleigh, NC
Richmond, VA
Salt Lake City, UT

San Antonio, TX
San Diego, CA
Scranton, PA
Seattle, WA
St. Louis, MO (3)
Tucson, AZ
Tulsa, OK
West Palm Beach, FL

[MAP: Map of United States showing the 42
MSAs in which the Company held radio
frequency licenses as of June 30,
1996]

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

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-
THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

<PAGE>
The CellNet Network System Architecture

Utilities can quickly pinpoint and resolve outages with CellNet Network Meter
Reading services.

[Graphic: Simulation of computer monitor showing power outage application of
CellNet's system]

With real-time, on-line access to customer meter information, utilities can
offer customers new services such as real-time pricing, time-of-use rates, and
best-rate analysis.

[Graphic: Simulation of computer monitor showing best-rate analysis application
of CellNet's system]

Flexible, Scalable
Architecture

CellNet's open, standards-based system architecture is designed to
enable the integration of future systems and technologies to
accommodate changing needs while protecting a utility's existing
network infrastructure investments.

Isolating each underlying network technology provides a high degree of
adaptability; for example, in a rural area, the CellNet network may
employ satellite or telephone links in addition to other digital radio
links if needed.

Because the CellNet system is flexible and scalable, once deployment
begins, new capabilities can be easily added via remote software
upgrades, to meet growing capacity and/or service needs.
<PAGE>
[Graphic: CellNet Network System Architecture showing components and system
hierarchy]

System Controller Network
The System Controller collects data from throughout the system and loads it into
a relational database for access via application gateways using industry
standard TCP/IP protocols.

[Photo: System Controller]

Wireless Wide Area Network (WAN)
Each WAN is made up of microcellular LANs operating independently to provide
data communications from endpoint devices.

[Photo: CellMaster and MicroCell controller units]

Microcellular Local Area Network (LAN)
The LAN collects data from endpoints and forwards the data to a MicroCell
Controller at the center of each microcell.

[Photo: electric utility meter]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.
-------------------

For investors outside the United States: No action has been or will be taken
in any jurisdiction by the Company or any Underwriter that would permit a public
offering of the Common Stock or possession or distribution of this Prospectus in
any jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are required
by the Company and the Underwriters to inform themselves about and to observe
any restrictions as to, the offering of the Common Stock and the distribution of
this Prospectus.
-------------------

In this Prospectus references to "dollars" and "$" are to United States
Dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
-------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 19
Direct Placements.......................................................................................... 19
Dividend Policy............................................................................................ 19
Capitalization............................................................................................. 20
Dilution................................................................................................... 21
Selected Consolidated Financial Data....................................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Business................................................................................................... 29
Management................................................................................................. 47
Certain Transactions....................................................................................... 54
Principal Stockholders..................................................................................... 57
Description of Capital Stock............................................................................... 60
Shares Eligible for Future Sale............................................................................ 64
Underwriters............................................................................................... 66
Legal Matters.............................................................................................. 69
Experts.................................................................................................... 69
Additional Information..................................................................................... 69
Glossary................................................................................................... A-1
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE
U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) REFLECTS THE AUTOMATIC CONVERSION
OF ALL OUTSTANDING SHARES OF THE COMPANY'S REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND CONVERTIBLE PREFERRED STOCK (COLLECTIVELY, "PREFERRED STOCK") INTO
COMMON STOCK EFFECTIVE UPON THE CLOSING OF THIS OFFERING, (III) ASSUMES THE
EXERCISE OF WARRANTS TO PURCHASE 4,132,970 SHARES OF COMMON STOCK EFFECTIVE UPON
THE CLOSING OF THIS OFFERING, (IV) GIVES EFFECT TO A 2-FOR-1 SPLIT OF THE COMMON
STOCK WHICH WILL BE EFFECTED PRIOR TO THE DATE OF THIS PROSPECTUS AND (V)
ASSUMES THE SALE OF 937,500 AND 533,333 SHARES OF COMMON STOCK TO NSP AND UE,
RESPECTIVELY, CONCURRENTLY WITH THE CLOSING OF THIS OFFERING AT AN ASSUMED PRICE
OF $16.00 PER SHARE AND $18.75 PER SHARE, RESPECTIVELY. SEE "DIRECT PLACEMENTS,"
"DESCRIPTION OF CAPITAL STOCK" AND "UNDERWRITERS." REFERENCES HEREIN TO
"CELLNET" OR THE "COMPANY" REFER TO CELLNET DATA SYSTEMS, INC. AND ITS
SUBSIDIARIES. THE SHARES OFFERED HEREBY ARE SUBJECT TO A HIGH DEGREE OF RISK.
SEE "RISK FACTORS." CERTAIN INFORMATION CONTAINED IN THIS SUMMARY AND ELSEWHERE
IN THIS PROSPECTUS, INCLUDING INFORMATION WITH REGARD TO THE COMPANY'S EXPECTED
WIRELESS DATA COMMUNICATIONS NETWORK DEPLOYMENTS AND OPERATIONS, ITS STRATEGY
FOR MARKETING AND DEPLOYING SUCH NETWORKS AND RELATED FINANCING ACTIVITIES,
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS."

THE COMPANY

The Company designs, builds, owns and operates innovative wireless networks
capable of providing low-cost real-time status and event monitoring of up to
several million fixed endpoints. The primary application of the Company's
network is to provide network meter reading ("NMR") services to electric, gas
and water utility companies pursuant to long-term contracts. The Company is
currently building wireless networks to provide NMR services to Kansas City
Power & Light Company ("KCPL") and Union Electric Company ("UE") in St. Louis
covering a total of approximately 1,220,000 meters, of which more than 105,000
meters were in revenue service as of June 30, 1996. In addition, the Company has
recently entered into separate services agreements with Northern States Power
Company ("NSP") in Minneapolis and Puget Sound Power & Light Company ("Puget")
in Washington State, pursuant to which it has contracted to build wireless
networks to provide NMR services covering an aggregate of approximately
1,015,000 additional meters, including 1,000,000 meters under the NSP Services
Agreement and an initial installation consisting of 15,000 meters under the
Puget Services Agreement. CellNet also currently provides certain network
distribution automation services to electric utility customers including
monitoring and control of power distribution equipment. CellNet's network uses
radio devices fitted to existing utility meters to read and report data from
each meter every few minutes. Through efficient use of radio frequency spectrum,
the Company's networks will have substantial additional capacity to service
non-utility applications that require low-cost monitoring of fixed endpoints,
such as home security and remote status monitoring of vending machines and
office equipment. The Company is working with industry leaders in those markets
to encourage further development of such applications.

CellNet believes it has a first-to-market opportunity to offer wireless data
communications services on a commercial scale for utility and selected
non-utility applications. CellNet's network is distinguished by the following
advantages:
- infrastructure and operating costs sufficiently low to permit cost
effective utility meter reading and other fixed point monitoring
applications;
- highly efficient use of spectrum -- the equivalent of approximately a
single voice channel is needed to operate a network;
- proprietary software specifically designed to manage real-time data
collection from up to several million endpoints; and
- open system architecture designed to allow new applications to be added to
the CellNet system.

4
<PAGE>
Utilities are under increasing regulatory and competitive pressures. CellNet
offers an outsourced solution which enables utilities to offer time-of-use
pricing plans, peak demand monitoring, real-time response to billing inquiries,
real-time power outage detection, on-demand meter reads, customized billing
functions and distribution automation. The Company believes its NMR services
provide utilities with an effective solution to many of the demands created by
increased regulatory and competitive pressures within the utility industry.
CellNet's system allows utilities to respond effectively to regulatory changes,
reduce costs, defer capital spending and enhance their operating efficiencies.

CellNet's strategy is to deploy and operate a series of wireless data
communications networks pursuant to long-term contracts with utility company
customers and to earn recurring revenues by providing NMR services to such
utilities and by using the network to support a variety of non-utility
applications. Principal elements of CellNet's strategy include (i) focus on
utility markets, (ii) promote development of non-utility applications, (iii)
form strategic alliances to enhance NMR services and offer additional services,
(iv) pursue international expansion and (v) outsource a substantial portion of
its manufacturing and installation activities.

The Company is actively targeting those utilities which operate in the 60
largest Metropolitan Statistical Areas ("MSAs"), which represent a majority of
the 225 million electric, gas and water meters in the United States. The Company
believes that utilities operating in these densely populated areas will be the
first to experience heightened competitive and regulatory pressures, and as
such, will be most likely to benefit from the Company's services. The Company
believes that these competitive and regulatory pressures have recently prompted
utilities in the United States to undertake increased measures to improve their
efficiency and service levels.

CellNet's proprietary technology enables the Company to make extremely
efficient use of spectrum. As a result, relative to other wireless services, the
Company has been able to acquire frequency at a very low cost. The Company had
capitalized $762,000 for license fees and related expenses as of June 30, 1996
and has acquired 50 spectrum licenses in 42 of the top 60 MSAs. The Company
believes that it will be able to obtain additional spectrum at reasonable cost
if required. The Company has focused its spectrum acquisition strategy on these
top 60 markets.

The Company believes its spectrum-efficient networks will have substantial
excess capacity to service non-utility applications which require low-cost
monitoring of fixed endpoints. Potential non-utility applications of the
Company's systems include home security, remote status monitoring of vending
machines, office equipment, parking meters and other equipment and remote
control of traffic lights. The Company is working with industry leaders such as
Ameritech, Hewlett-Packard, Honeywell, Inc., Real Time Data, Inc., and
Interactive Technologies, Inc. to develop such applications. The Company
believes that its utility networks will provide an excellent platform to
position the Company as a leading wholesale provider of wireless data
communications services for such non-utility applications.

The Company believes that a significant international market also exists for
its services with several hundred million electric, gas and water meters outside
of the United States. The Company's strategy is to pursue international markets
through joint ventures. The Company is currently exploring projects with
electric utilities in the U.K., Singapore and Thailand.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered:
U.S. Offering (1)............................. 4,000,000 shares
International Offering........................ 1,000,000 shares
Total Common Stock Offered (1)............ 5,000,000 shares
Common Stock to be outstanding after the
Offering (1)(2)................................ 40,518,967 shares
Use of proceeds................................. For general corporate purposes, including
working capital, capital requirements
(capital expenditures and negative
operating cash flow) in connection with
the installation and operation of the
Company's networks and research and
development expenses. See "Use of
Proceeds."
Nasdaq National Market Symbol................... CNDS
</TABLE>

In addition, NSP and UE have agreed to acquire $15.0 million and $10.0
million, respectively, of restricted Common Stock from the Company (the "NSP
Purchase" and the "UE Purchase," respectively, and together, the "Direct
Placements") concurrently with the closing of this Offering. NSP will purchase
937,500 shares of Common Stock at a purchase price of $16.00 per share (the
initial public offering price, less a discount of up to 20%, which discount is
dependent upon entering into a letter of intent and the signing of a services
agreement with Wisconsin Electric Power Company for at least 750,000 meters (if
neither such event occurs, the purchase price per share will be adjusted to 90%
of the initial public offering price; and if only one such event occurs, the
purchase price per share will be adjusted to 85% of the initial public offering
price)). UE will purchase 533,333 shares of Common Stock at a purchase price of
$18.75 per share (the initial public offering price less the underwriting
discounts and commissions). Upon the closing of this Offering and the Direct
Placements, NSP and UE will own approximately 2.31% and 1.32%, respectively, of
the Common Stock. The closing of this Offering is not conditioned upon the
closing of the Direct Placements. See "Direct Placements."

- ---------
(1) Assumes the U.S. Underwriters' over-allotment option is not exercised. See
"Underwriters."

(2) Based on the number of shares outstanding as of June 30, 1996, after giving
effect to the automatic conversion of all outstanding shares of Preferred
Stock into Common Stock and the exercise on a cash basis of warrants to
purchase 4,132,970 shares of Common Stock effective upon the closing of this
Offering. Also includes the sale of 1,470,833 shares of Common Stock
pursuant to the Direct Placements concurrently with the closing of this
Offering. See "Direct Placements." Excludes 3,779,136 shares of Common Stock
issuable upon exercise of outstanding stock options as of June 30, 1996
granted under the Company's 1992 Stock Option Plan and 1994 Stock Plan with
a weighted average exercise price of $0.625 per share. Also excludes 50,150
shares of Common Stock issuable upon exercise of warrants outstanding as of
June 30, 1996 with a weighted average exercise price of $7.59 per share. See
"Management -- Incentive Stock Plans," "Description of Capital Stock --
Warrants" and Note 7 to Consolidated Financial Statements.

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

CELLNET WAS INCORPORATED IN CALIFORNIA IN OCTOBER 1984 AND REINCORPORATED IN
DELAWARE IN AUGUST 1996. CELLNET'S SUBSIDIARIES INCLUDE CELLNET DATA SERVICES,
INC., CELLNET DATA SERVICES (IS), INC., CELLNET DATA SERVICES (KC), INC.,
CELLNET DATA SERVICES (MSP), INC., CELLNET DATA SERVICES (SL), INC., CN
FREQUENCY (KC), INC., CN FREQUENCY (MSP), INC., CELLNET DATA SERVICES (SF),
INC., CN FREQUENCY (SL), INC., CN WAN CORP. AND DAC (UK), LIMITED. THE COMPANY'S
PRINCIPAL EXECUTIVE OFFICES ARE LOCATED AT 125 SHOREWAY ROAD, SAN CARLOS,
CALIFORNIA 94070. THE TELEPHONE NUMBER AT SUCH ADDRESS IS (415) 508-6000.

6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table sets forth summary consolidated financial and other data
of the Company for each of the three years in the period ended December 31,
1995, for the six months ended June 30, 1995 and 1996 and at June 30, 1996. The
financial information data were derived from, and should be read in conjunction
with, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements of the Company and the
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 1,757 $ 1,651 $ 2,126 $ 1,291 $ 420
Costs and expenses:
Cost of revenues................................. 1,840 1,191 5,129 1,931 3,483
Research and development......................... 5,262 9,693 22,380 6,735 13,009
Marketing and sales.............................. 1,447 3,257 4,201 1,946 2,924
General and administrative....................... 1,450 2,583 6,805 2,874 5,412
--------- ---------- ---------- ---------- ----------
Total costs and expenses....................... 9,999 16,724 38,515 13,486 24,828
--------- ---------- ---------- ---------- ----------
Loss from operations................................. (8,242) (15,073) (36,389) (12,195) (24,408)
Other income (expense)............................... (148) 441 (4,564) 75 (7,903)
--------- ---------- ---------- ---------- ----------
Loss before income taxes............................. (8,390) (14,632) (40,953) (12,120) (32,311)
Provision for income taxes........................... 1 2 3 1 2
--------- ---------- ---------- ---------- ----------
Net loss............................................. $ (8,391) $ (14,634) $ (40,956) $ (12,121) $ (32,313)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Pro forma net loss per share (1)..................... $ (1.22) $ (0.94)
---------- ----------
---------- ----------
Shares used in computing pro forma net loss per share
(1)................................................. 33,497 34,483
---------- ----------
---------- ----------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
SELECTED OTHER DATA:
Meters under contract (2)..................................................... 1,070,000 1,220,000
Meters in revenue service (2)................................................. 17,559 105,354
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
AS
ACTUAL PRO FORMA(3) ADJUSTED(3)(4)
---------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................. $ 102,967 $ 106,621 $ 224,131
Total assets....................................................... 162,653 166,307 283,817
Long-term obligations, including current portion................... 195,513 195,513 195,513
Series CC redeemable convertible preferred stock................... 29,486 -- --
Total stockholders' equity (deficit)............................... (70,400) (37,260) 80,050
</TABLE>

- ---------
(1) For an explanation of the determination of the number of shares used in
computing pro forma net loss per share, see Note 1 to Consolidated Financial
Statements.

(2) "Meters under contract" refers to the aggregate number of meters for which
the Company has agreed to provide NMR services under services agreements
with utilities and "Meters in revenue service" refers to the aggregate
number of meters under contract which have been installed on the Company's
networks and for which the Company is receiving NMR service revenues. As of
August 31, 1996, the Company had 2,235,000 meters under contract and as of
July 31, 1996, the Company had 143,415 meters in revenue service.

(3) Reflects the conversion of all outstanding shares of Preferred Stock into
Common Stock and the exercise on a cash basis of warrants to purchase
4,132,970 shares of Common Stock at an aggregate exercise price of
approximately $3.7 million upon the closing of the Offering.

(4) Adjusted to reflect the proceeds of the Offering at an assumed initial
public offering price of $20.00 per share and after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company. See "Use of Proceeds." Also reflects the sale of 1,470,833 shares
of Common Stock pursuant to the Direct Placements, less estimated issuance
costs of $40,000 with respect to such purchases. See "Direct Placements."

7
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK BEING OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY. CERTAIN INFORMATION CONTAINED
IN THIS SECTION AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH
REGARD TO THE COMPANY'S EXPECTED WIRELESS COMMUNICATIONS NETWORK DEPLOYMENTS AND
OPERATIONS, ITS STRATEGY FOR MARKETING AND DEPLOYING SUCH NETWORKS AND RELATED
FINANCING ACTIVITIES CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."

HISTORY AND CONTINUATION OF OPERATING LOSSES

The Company has incurred substantial and increasing operating losses since
inception. As of June 30, 1996, the Company had an accumulated deficit of $127.3
million, primarily resulting from expenses incurred in the development of the
Company's wireless data communications system, marketing of the Company's NMR,
distribution automation and other services, the installation of its wireless
data communications networks and the payment of other normal operating costs.

The Company does not expect significant revenues during 1996 and expects to
incur substantial and increasing operating losses and negative net cash flow
after capital expenditures for the foreseeable future as it expands its research
and development and marketing efforts and installs additional networks. The
Company's network service revenues from a particular network are expected to lag
significantly behind network installation expenses until such network is
substantially complete. If the Company is able to deploy additional networks,
the losses created by this lag in revenues are expected to increase until the
revenues from the installed networks overtake the costs associated with the
deployment and operation of such additional networks. The Company does not
expect positive cash flow after capital expenditures from its NMR services
operations for several years. A large portion of the Company's limited revenues
to date has been attributable to miscellaneous equipment sales and development
and other contract revenues that are largely non-recurring and that the Company
expects to decrease and remain at relatively insignificant levels over the next
few years. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

DEPENDENCE ON AND UNCERTAINTY OF UTILITY MARKET ACCEPTANCE

The Company's success will be almost entirely dependent on whether a large
number of utility companies sign long-term services contracts with CellNet. Any
decision by a utility to utilize the Company's services will involve a
significant organizational, technological and financial commitment by such
utility. The utility industry is generally characterized by long purchasing
cycles and cautious decision making. Utilities typically go through numerous
steps before making a final purchase decision. These steps, which can take up to
several years to complete, may include the formation of a committee to evaluate
the purchase, the review of different technical options with vendors,
performance and cost justifications, regulatory review and the creation and
issuance of requests for quotes and proposals, as well as the utilities' normal
budget approval process. Purchases of the Company's services are, to a
substantial extent, deferrable in the event that utilities seek to reduce
capital expenditures. Outside of pilot trials, only four utilities (KCPL, UE,
and recently NSP and Puget) have made a commitment to purchase the Company's
services to date, and there can be no assurance as to when or if the Company
will enter into additional services contracts or that any such agreement would
be on favorable terms to the Company. See "Business."

Because automation of utility meter reading and distribution is a relatively
new and evolving market, it is difficult to predict the future growth rate and
size of this market. Utility companies are testing products from various
suppliers for various applications, and no industry standard has been broadly
adopted. The CellNet system is one possible solution for automated meter reading
and distribution automation. There can be no assurance that the Company will be
successful in achieving the large-scale adoption of its system. In the event
that the utility industry does not adopt the Company's technology, or does so
less rapidly than expected by the Company, the Company's future results,
including its ability to service its indebtedness and

8
<PAGE>
achieve profitability, will be materially and adversely affected. In recent
competitive bids, potential utility customers have from time to time selected
competing systems to perform services offered by the Company. See "Business --
Competition."

UNCERTAINTY OF FUTURE REVENUES; INCREASING INSTALLATION COSTS; NEED FOR
ADDITIONAL SERVICES CONTRACTS AND FLUCTUATING OPERATING RESULTS

The timing and amount of future revenues will depend almost entirely upon
the Company's ability to obtain new services agreements with utilities and other
parties and upon the successful deployment and operation of the Company's
wireless data communications networks. The signing of any new services contracts
is expected to occur on an irregular basis, if at all. The Company expects that
it will generally take two to four years to complete the installation of each
network after a services contract has been signed. Service revenues from such
networks are not expected to exceed the Company's capital investments and
expenses incurred to deploy and operate such network for several years. The
Company will not begin to receive recurring revenues under a services contract
until portions of the network become operational, which is expected to occur no
earlier than six months after installation begins. The Company's results of
operations may be adversely affected by delays or difficulties arising in the
network installation process. The cost of network deployments will be highly
variable and depend upon a wide variety of factors, including radio frequency
characteristics, the size of a service territory and density of endpoints within
such territory, the nature and sophistication of services being provided, local
labor rates and other economic factors.

CellNet currently derives almost all of its revenues from long-term services
contracts with KCPL and UE. The Company recently entered into services contracts
with NSP and Puget. The Company will not generate sufficient cash flow to
service its indebtedness or achieve profitability unless it enters into a
significant number of additional services contracts. There can be no assurance
that the Company will complete commercial deployments of the CellNet system
under the KCPL, UE, NSP and Puget contracts successfully or that it will obtain
enough additional contracts on satisfactory terms for network deployments in a
sufficient number of locations to allow the Company to achieve adequate cash
flow to service its indebtedness or achieve profitability. The Company's
operating results will fluctuate significantly in the future as a result of a
variety of factors, some of which are outside of the Company's control,
including the rate at which utilities and other customers enter into new
services contracts, general economic conditions, economic conditions in the
utility industry, the effects of governmental regulations and regulatory
changes, capital expenditures and other costs relating to the expansion of
operations, the introduction of new services by the Company or its competitors,
the mix of services sold, pricing changes and new service introductions by the
Company and its competitors and prices charged by suppliers. In response to a
changing competitive environment, the Company may elect from time to time to
make certain pricing, service or marketing decisions or enter into strategic
alliances or investments that could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flow.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNCERTAINTY OF ACCEPTANCE OF AND DEPENDENCE ON OTHER APPLICATIONS

The Company's long-term business plan contemplates offering non-utility
application services. The Company believes its future ability to service its
indebtedness and to achieve profitability will be significantly dependent on its
success in generating substantial revenues from such additional services. The
Company currently has no services contracts which provide for the implementation
of such services, and the Company has not yet demonstrated an ability to deploy
such services on a commercial scale. In addition, unless utilities sign services
contracts that enable the Company to deploy its wireless networks in their
service areas, the Company may not be able to offer any such services in such
areas or may be able to offer these services only on a limited basis. See
"Business -- Business Strategy -- Promote Development of Non-Utility
Applications" and "Business -- Wireless Communications Industry Overview."
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT; SUBSTANTIAL FUTURE CAPITAL
NEEDS
The Company had outstanding indebtedness as of June 30, 1996 of
approximately $195.5 million, which included $194.7 million of the Company's 13%
Senior Discount Notes due 2005 (the "Senior Discount Notes"). The Senior
Discount Notes will accrete to $325.0 million by June 2000. The Company must
begin

9
<PAGE>
paying cash interest on the Senior Discount Notes in December 2000. The Company
and its subsidiaries intend to incur substantial additional indebtedness,
primarily in connection with installing future networks. As a result, the
Company and its subsidiaries will have substantial debt service obligations. The
Company's capital expenditures will increase significantly if new services
contracts are signed, and the Company expects that its cash flow taking into
account capital expenditures will be increasingly negative over the next several
years. The ability of the Company to meet its debt service requirements will
depend upon achieving significant and sustained growth in the Company's cash
flow, which will be affected by its success in implementing its business
strategy, prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. The Company's
ability to generate such cash flow is subject to a number of risks and
contingencies. Included among these risks are: (i) the possibilities that the
Company may not obtain sufficient additional services agreements or complete
scheduled installations on a timely basis, (ii) revenues may not be generated
quickly enough to meet the Company's operating costs and debt service
obligations, (iii) the Company's wireless systems could experience performance
problems or (iv) adoption of the Company's system could be less widespread than
anticipated. Accordingly, there can be no assurance as to whether or when the
Company's operations will generate positive cash flow or become profitable or
whether the Company or its subsidiaries will at any time have sufficient
resources to meet their debt service obligations. If the Company is unable to
generate sufficient cash flow to service its indebtedness, it will have to
reduce or delay planned capital expenditures, sell assets, restructure or
refinance its indebtedness or seek additional equity capital. There can be no
assurance that any of these strategies could be effected on satisfactory terms,
if at all, particularly in light of the Company's high levels of indebtedness.
In addition, the degree to which the Company is leveraged could have significant
consequences, including, but not limited to, the following: (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, research and development, acquisitions, and other general
corporate purposes may be materially limited or impaired, (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to the
payment of principal and interest on its indebtedness and therefore cannot be
used in the Company's business and (iii) the Company's high degree of leverage
may make it more vulnerable to economic downturns, may limit its ability to
withstand competitive pressures and may reduce its flexibility in responding to
changing business and economic conditions.

The Company will require substantial additional funds for the development,
commercial deployment and expansion of its networks, as well as to fund
operating losses. As of June 30, 1996, the Company had $103.0 million in cash,
cash equivalents and short-term investments. The Company believes that the net
proceeds of the Offering and from the sale of Common Stock pursuant to the
Direct Placements, together with its existing cash, cash equivalents and
short-term investments and anticipated interest income and other revenues, will
be sufficient to meet its cash requirements for at least the next 12 months.
Thereafter, the Company expects that it will require substantial additional
capital. Depending upon the number and timing of any new services agreements and
upon the associated network deployment costs and schedules, the Company may
require additional equity or debt financing earlier than estimated in order to
fund its working capital and other requirements. Future financings may be
dilutive to existing stockholders. There can be no assurance that additional
financing will be available when required or, if available, that it will be on
terms satisfactory to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Substantially all of the operations of the Company are and will be conducted
through subsidiaries. Nonetheless, the Company has incurred significant
indebtedness at the holding company level, and intends to incur substantial
additional holding company indebtedness. The ability of the Company to service
such indebtedness will depend on the availability of income and cash flow from
its subsidiaries for distribution to the holding company. Such availability will
depend on a number of factors, including the terms of financing agreements
entered into by the Company's subsidiaries and restrictions arising under the
laws of the jurisdictions wherein those subsidiaries conduct their businesses.
The Company's subsidiaries are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due on the Company's
indebtedness or to make any funds available therefor, whether in the form of
loans, dividends or otherwise. Any default in the payment of its debt
obligations could seriously impair the value of the Common Stock.

10
<PAGE>
In the event that the Company is unable to generate sufficient cash flow and
is otherwise unable to obtain funds necessary to meet required payments on its
indebtedness, the Company could be in default under the terms of the agreements
governing such indebtedness. In the event of such default, the holders of such
indebtedness would have certain enforcement rights, including the right to
accelerate such debt and the right to commence an involuntary bankruptcy
proceeding against the Company. In any such proceeding, the holders of the
Company's debt would be entitled to receive payment of their claims prior to any
distributions to equity holders. In addition, any holders of secured
indebtedness of the Company and its subsidiaries would have certain rights to
repossess, foreclose upon and sell the assets securing such indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUBSTANTIAL AND INCREASING COMPETITION
The emerging market for utility NMR systems, and the potential market for
other applications once a common infrastructure is in place, have led
electronics, communications and utility product companies to begin developing
various systems, some of which currently compete, and others of which may in the
future compete, with the CellNet system. The Company believes that its only
significant direct competitor in the marketplace at present is Itron, Inc.
("Itron"), an established manufacturer and seller of hand-held and drive-by
automated meter reading equipment to utilities. Itron has announced the
development of its Genesis-TM- system, a radio network system similar to the
Company's, for meter reading purposes and is presently offering that system in
the marketplace. The Company believes that Itron has signed at least two
contracts with utilities for the commercial installation of its Genesis-TM-
system.
There may be many potential alternative solutions to the Company's NMR
services including traditional wireless solutions. Metricom, Inc., a provider
primarily of subscriber-based, wireless data communications for users of
portable and desktop computers; First Pacific Networks, a provider primarily of
bandwidth efficient wireline communications technology; and Lucent Technologies
are examples of companies whose technology might be adapted for NMR and who may
become direct competitors of the Company in the future. Schlumberger is
developing a fixed network system in cooperation with Motorola for meter reading
as well. Schlumberger, Lucent Technologies and First Pacific Networks either
have conducted, or are in the process of conducting, pilot trials of utility
network automation systems. Established suppliers of equipment, services and
technology to the utility industry such as Asea Brown Boveri and General
Electric could expand their current product and service offerings so as to
compete directly with the Company, although they have not yet done so. Many of
the Company's present and potential future competitors have substantially
greater financial, marketing, technical and manufacturing resources, name
recognition and experience than the Company. The Company's competitors may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements or to devote greater resources to the development,
promotion and sale of their products and services than the Company. While
CellNet believes its technology is widely regarded as competitive at the present
time, there can be no assurance that the Company's competitors will not succeed
in developing products or technologies that are better or more cost effective.
In addition, current and potential competitors may make strategic acquisitions
or establish cooperative relationships among themselves or with third parties
that increase their ability to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. In addition, if the Company achieves significant success it could draw
additional competitors into the market. Traditional providers of wireless
services may in the future choose to enter the Company's markets. Such existing
and future competition could materially adversely affect the pricing for the
Company's services and the Company's ability to sign long-term contracts and
maintain existing agreements with utilities. Competition for services relating
to non-utility applications may be more intense than competition for utility NMR
services. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and any failure to do so
would have a material adverse effect on the Company's business, operating
results, financial condition and cash flow. See "Business -- Competition."

11
<PAGE>
TECHNOLOGICAL PERFORMANCE AND BUILD-OUT OF THE SYSTEM; RAPID TECHNOLOGICAL
CHANGE AND UNCERTAINTY
The Company's initial target market is the monitoring, control and
automation of utility companies' electric, gas and water distribution networks.
Although the CellNet system (including both NMR services and distribution
automation) has been deployed commercially with more than 105,000 meters in
revenue service as of June 30, 1996, there can be no assurance that unforeseen
problems will not develop with respect to the Company's technology, products or
services, or that the Company will be successful in completing the development
and commercial implementation of its technology on a wider scale. The Company
must complete a number of technical development projects and continue to expand
and upgrade its capabilities in connection with such commercial implementation,
the success of which cannot be assured. While the Company believes that it has
developed the necessary hardware to install its endpoint devices on most of the
standard electromechanical electric meters manufactured by the four largest U.S.
electric meter manufacturers, there can be no assurance that the Company will be
able to develop successfully a full range of endpoint devices required by
utilities. The Company must also develop the hardware enhancements necessary to
utilize its system on a commercial basis with gas and water meters. The
Company's future success will be materially adversely affected if it is not
successful or is significantly delayed in the completion of its hardware
development programs.
The Company's future success will also depend, in part, on its ability to
enhance its existing hardware, software and wireless communications technology.
The telecommunications industry has been characterized by rapid, significant
technological advances. The advent of computer-linked electronic networks, fiber
optic transmission, advanced data digitization technology, cellular and
satellite communications capabilities and personal communications systems
("PCS") have radically expanded communications capabilities and market
opportunities. Future advances may render the Company's technology obsolete or
less cost effective than competitive systems or erode the Company's market
position. Many companies from diverse industries are seeking solutions for the
transmission of data over traditional communications media, including radio, as
well as more recently developed media such as cellular and PCS-based networks.
Competitors may be capable of offering significant cost savings or other
benefits to the Company's customers, and there can be no assurance that the
Company will maintain competitive services or obtain appropriate new
technologies on a timely basis or on satisfactory terms. See "Business --
Wireless Communications Industry Overview."
The necessary development effort will require the Company to make continued
substantial investments. The Company has encountered product development delays
in the past affecting both software and hardware components of its system. See
"Business -- Research and Development."
ACCESS TO RADIO FREQUENCY ("RF") SPECTRUM; REGULATION BY THE FEDERAL
COMMUNICATIONS COMMISSION ("FCC")

The Company will attempt to obtain exclusive usage of licensed bandwidth
and/or secure its own licenses. CellNet licenses radio spectrum for its wireless
networks in the top 60 MSAs in the U.S. sufficient to support its projected
utility and non-utility applications with a margin for future growth. Enough
frequency spectrum may not be available to fully enable the delivery of all or a
part of the Company's wireless data communications services or the Company may
be required to find alternative frequencies. The cost of obtaining such spectrum
is currently difficult to estimate and may involve time delays and/or increased
cost to the Company. The Company could also be unable to obtain frequency in
certain areas. Any of these circumstances could have a material adverse impact
on the Company's future ability to provide its network services and on the
Company's business, operating results, financial condition and cash flow. See
"Business -- Regulation."

The Company's network equipment uses radio spectrum and, as such, is subject
to regulation by the FCC. In addition, CellNet intends to provide services as a
private carrier. This status allows services to be provided pursuant to
individual contracts without becoming subject to many of the statutory
requirements and FCC and state regulations that govern the provision of common
carrier services. The Company's network equipment uses both licensed RF spectrum
allocated for multiple address system ("MAS") operations in the 928/952 MHz band
and unlicensed spectrum in the 902-928 MHz band. In order to obtain a license to
operate the Company's network equipment in the 928/952 MHz band, license
applicants may need

12
<PAGE>
to obtain a waiver of various sections of the FCC's rules. Although the Company
has obtained such waivers for its licensed systems routinely in the past, and
expects the required waivers to be granted on a routine basis in the future,
there can be no assurance that the Company will be able to obtain such waivers
on a timely basis or to obtain them at all. In addition, as the amount of
spectrum in the 928/952 MHz band is limited, issuance of these licenses is
contingent upon the availability of spectrum in the area(s) for which the
licenses are requested. The Company might not be able to obtain licenses to the
spectrum it needs in every area in which it has prospective customers. The FCC's
rules, subject to a number of limited exceptions, permit third parties such as
CellNet to operate on spectrum licensed to utilities to provide other services.
The Company plans to use these provisions of the FCC's rules to expand its
CellNet system.
The FCC requires that a minimum configuration of an MAS system be in
operation within eighteen months from the initial date of the grant of the
system authorization or risk forfeiture of the license for the MAS frequencies.
The eighteen-month deadline may be extended upon showing of good cause, but
there is no assurance that the FCC will grant any such extension. The Company is
responding to this requirement by selectively building out transmission capacity
in some areas where it does not yet have utility telecommunications services
contracts and may permit licenses to lapse in certain areas.
No license is needed to operate the Company's equipment utilizing the
902-928 MHz band, although the equipment must be certified by the Company and
the FCC as being compliant with certain FCC restrictions on radio frequency
emissions designed to protect licensed services from objectionable interference.
While the Company believes it has obtained all required certifications for its
products, the FCC could modify the limits imposed on such products or otherwise
impose new authorization requirements, and in either case, such changes could
have a material adverse impact on the Company's business. The FCC recently
completed a new rulemaking proceeding designed to better accommodate the
cohabitation in the 902-928 MHz band of existing licensed services with newly
authorized and expanded uses of licensed systems, and existing and newly
designed unlicensed devices like those used by the Company. In this proceeding,
the FCC expressly recognized the rights of such unlicensed services to operate
under certain delineated operating parameters even if the potential for
interference to the licensed operations exists. The Company's systems will
operate within those specified parameters. The FCC retains the right to modify
those rules or to allow for other uses of this spectrum that might create
interference to the Company's systems, which could, in either case, have a
material adverse impact on the Company's business, operating results, financial
condition and cash flow.
While the Company intends to offer non-utility services as a private carrier
and in accordance with FCC Rules, each such service offering would need to be
reviewed relative to these rules. The FCC's rules currently prohibit the use of
the MAS frequencies on which the Company is operating its systems for the
provision of common carrier service offerings. In the event that it is
determined that a particular service offering does not comply with the rules,
the Company may be required to restructure such offering or to utilize other
frequencies for the purpose of providing such service. There can be no assurance
that the Company will gain access to such other frequencies. Future
interpretation of regulations by the FCC or changes in the regulation of the
Company's industry by the FCC or other regulatory bodies or legislation by
Congress could have a material adverse effect on the Company's business,
operating results, financial condition and cash flow. See "Business --
Regulation."
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
The Company's recent growth has placed, and is expected to continue to
place, a significant strain on its managerial, operational and financial
resources. The Company's ability to manage growth effectively will require it to
continue to implement and improve its operational and financial systems and to
expand, train and manage its employee base. These demands are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. There can be no assurance
that the Company will be able to effectively manage the expansion of its
operations, that its systems, procedures or controls will be adequate to support
the Company's operations or that Company

13
<PAGE>
management will be able to exploit opportunities for the Company's services. An
inability to manage growth, if any, could have a material adverse effect on the
Company's business, results of operations, financial condition and cash flow.
See "Management."
The success of the Company is substantially dependent on its key management
and technical personnel, the loss of one or more of whom could adversely affect
the Company's business. All of the Company's employees and officers are employed
on an at-will basis. Presently, the Company does not maintain a "key man" life
insurance policy on any of its executives or employees. The Company's future
success also depends on its continuing ability to identify, hire, train and
retain other highly qualified technical and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to attract or retain highly qualified technical and managerial
personnel in the future. An inability to attract and retain the necessary
technical and managerial personnel could have a material adverse effect on the
Company's business, operating results, financial condition and cash flow. See
"Business -- Employees" and "Management."
UNCERTAINTY OF PROTECTION OF COPYRIGHTS, PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of trade secret protection, copyright,
patent, trademark and confidentiality agreements and licensing arrangements to
establish and protect its proprietary rights. The Company's success will depend
in part on its ability to maintain copyright and patent protection for its
products, to preserve its trade secrets and to operate without infringing the
proprietary rights of third parties. While the Company has obtained and applied
for patents, and intends to file applications as appropriate for patents
covering its products and processes, there can be no assurance that additional
patents will be issued or, if issued, that the scope of any patent protection
will be significant, or that any patents issued to the Company or licensed by
the Company will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide proprietary protection to the Company.
Since U.S. patent applications are maintained in secrecy until patents are
issued, and since publication of inventions in the technical or patent
literature tend to lag behind such inventions by several months, CellNet cannot
be certain that it was the first creator of inventions covered by its issued
patents or pending patent applications, that it was the first to file patent
applications for such inventions or that no patent conflict will exist with
other products or processes which could compete with the Company's products or
approach. Despite the Company's efforts to safeguard and maintain these
proprietary rights, there can be no assurance that the Company will be
successful or that the Company's competitors will not independently develop and
patent technologies that are substantially equivalent or superior to the
Company's technologies. Participants in the wireless industry, including
competitors of the Company, typically seek to obtain patents which will provide
as broad a protection possible for their products and processes. There is a
substantial backlog of patents at the United States Patent Office. It is
uncertain whether any such third-party patents will require the Company to alter
its products or processes, obtain licenses or cease certain activities. An
adverse outcome with regard to a third-party patent infringement claim could
subject the Company to significant liabilities, require disputed rights to be
licensed or restrict the Company's ability to use such technology. The Company
also relies to a substantial degree upon unpatented trade secrets, and no
assurance can be given that others, including the Company's competitors, will
not independently develop or otherwise acquire substantially equivalent trade
secrets. In addition, whether or not additional patents are issued to the
Company, others may receive patents which contain claims applicable to products
or processes developed by the Company. If any such claims were to be upheld, the
Company would require licenses, and no assurance can be given that licenses
would be available on acceptable terms, if at all. In addition, the Company
could incur substantial costs in defending against suits brought against it by
others for infringement of intellectual property rights or in prosecuting suits
which the Company might bring against other parties to protect its intellectual
property rights. From time to time the Company receives inquiries with respect
to the coverage of its intellectual property rights, and there can be no
assurance that such inquiries will not develop into litigation. See "Business --
Proprietary Rights."
Although the Company has been granted federal registration of its "CellNet"
trademark, another Company has filed a petition for cancellation in an attempt
to challenge such registration which, if successful, would mean the Company
could lose its registration and be required to adopt a new trademark and

14
<PAGE>
possibly a new or modified corporate name. CellNet could encounter similar
challenges to its trademark and corporate name in the future. While the
requirement to adopt a new trademark or new or modified corporate name could
involve a significant expense and could result in the loss of any goodwill and
name recognition associated with the Company's current trademark and corporate
name, the Company does not believe this would have a long-term material adverse
impact on its business, operating results, financial condition and cash flow.
See "Business -- Litigation."
DEPENDENCE ON THIRD-PARTY MANUFACTURERS; EXPOSURE TO COMPONENT SHORTAGES
The Company relies and will continue to rely on outside parties to
manufacture a majority of its network equipment such as radio devices and
printed circuit boards. As the Company signs additional services contracts,
there will be a significant ramp-up in the amount of manufacturing by third
parties in order to enable the Company to meet its contractual commitments. The
Company currently relies on single manufacturers for radio devices and for
printed circuit boards. There can be no assurance that these manufacturers will
be able to meet the Company's manufacturing needs in a satisfactory and timely
manner or that the Company can obtain additional manufacturers when and if
needed. Although the Company believes alternative manufacturers are available,
an inability of the Company to develop alternative suppliers quickly or cost-
effectively could materially impair its ability to manufacture and install
systems. The Company's reliance on third-party manufacturers involves a number
of additional risks, including the absence of guaranteed capacity and reduced
control over delivery schedules, quality assurance, production yields and costs.
Although the Company believes that these manufacturers would have an economic
incentive to perform such manufacturing for the Company, the quality, amount and
timing of resources to be devoted to these activities is not within the control
of the Company, and there can be no assurance that manufacturing problems will
not occur in the future. A significant price increase, a quality control
problem, an interruption in supply from one or more of such manufacturers or the
inability to obtain additional manufacturers when and if needed could have a
material adverse effect on the Company's business, operating results, financial
condition and cash flow. See "Business -- Manufacturing and Operations."
Certain of the Company's subassemblies, components and network equipment are
procured from single sources and others are procured only from a limited number
of sources. In addition, CellNet may be affected by general shortages of certain
components, such as surface mounted integrated circuits and memory chips. There
have been shortages of such materials generally in the marketplace from time to
time in the past. The Company's reliance on such components and on a limited
number of vendors and subcontractors involves certain risks, including the
possibility of shortages and reduced control over delivery schedules,
manufacturing capability, quality and cost. A significant price increase or
interruption in supply from one or more of such suppliers could have a material
adverse effect on the Company's business, operating results, financial condition
and cash flow. Although the Company believes alternative suppliers of
sub-assemblies, components and network equipment are available, the inability of
the Company to develop alternative sources quickly or cost-effectively could
materially impair its ability to manufacture and install systems. Lead times can
be as long as a year for certain components, which may require the Company to
use working capital to purchase inventory significantly in advance of receiving
any revenues. See "Business -- Manufacturing and Operations."
DEPENDENCE ON BUSINESS ALLIANCES
A key element of the Company's business strategy is the formation of
corporate alliances with leading companies. The Company is currently investing,
and plans to continue to invest, significant resources to develop these
relationships. The Company believes that its success in penetrating markets for
non-utility applications of its network will depend in large part on its ability
to maintain these relationships and to cultivate additional or alternative
relationships. There can be no assurance that the Company will be able to
develop additional corporate alliances with such companies, that existing
relationships will continue or be successful in achieving their purposes or that
such companies will not form competing arrangements. See "Business -- Business
Strategy -- Form Strategic Alliances."

15
<PAGE>
POSSIBLE TERMINATION OF LONG-TERM CONTRACTS
The Company expects that substantially all of its future revenues will be
provided pursuant to long-term services contracts with utility companies and
other parties. These contracts will generally be subject to cancellation or
termination in certain circumstances in the event of a material and continuing
failure on CellNet's part to meet agreed NMR performance standards on a
consistent basis over agreed time periods, subject to certain rights to cure any
such failure. Each of the Company's existing services contracts also provides
for termination of such contracts by the respective utility without cause in
less than ten years, subject to certain reimbursement provisions. Such contracts
also provide that CellNet will be required to compensate such utilities for the
use of its system for non-utility applications. In the event that a services
contract is terminated by a utility, the Company would incur substantial losses.
A network's service revenues are not expected to exceed the Company's capital
investments to deploy such network for several years. Termination or
cancellation of one or more utility services contracts would have a material
adverse effect on the Company's business, results of operations, financial
condition and cash flow. See "Business -- Current Utility Services Agreements."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
The Company plans to expand into international markets and has begun initial
marketing efforts. The Company does not anticipate that it will have any
material international operations in the next 12 months. If revenues generated
by international activities are not adequate to offset the expense of
establishing and maintaining these activities, the Company's business, operating
results, financial condition and cash flow could be materially adversely
affected. International demand for the Company's services and systems is
expected to vary by country, based on such factors as the regulatory
environment, electric power generating capacity and demand, labor costs and
other political and economic conditions. To date, the Company has no experience
in developing a localized version of its wireless data communications system for
foreign markets. The Company believes its ability to establish business
alliances in each international market will be critical to its success. There
can be no assurance that the Company will be able to successfully develop,
market and implement its system in international markets or establish successful
business alliances for these markets. In addition, there are certain risks
inherent in doing business internationally, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates and potentially adverse tax consequences, any of
which could adversely impact the Company's potential international operations.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations and,
consequently, on its business, operating results, financial condition and cash
flow. See "Business -- Business Strategy -- Pursue International Expansion."
The Company intends to enter into joint ventures in order to facilitate its
entry into international markets. The Company may or may not have a majority
interest or control of the board of directors of any such joint venture. The
risk is present in any such joint venture in which the Company may determine to
participate, that the other joint venture partner may at any time have economic,
business or legal interests or goals that are inconsistent with those of the
joint venture or the Company. The risk is also present that a joint venture
partner may be unable to meet its economic or other obligations and that the
Company may be required to fulfill those obligations. In addition, in any joint
venture in which the Company does not have a majority interest, the Company may
not have control over the operations or assets of such joint venture. See
"Business -- Business Strategy -- Pursue International Expansion."
SHAREHOLDERS' AGREEMENT

Holders of 28,188,916 shares of Common Stock, or 69.6% of the outstanding
Common Stock after completion of the Offering and the Direct Placements, are
parties to a Shareholders' Agreement dated August 15, 1994, as amended (the
"Shareholders' Agreement"), pursuant to which the Company will be required to
cause all persons designated for election by certain stockholders to be
nominated at each meeting of the Company's stockholders at which a vote for
directors will be taken, so long as each such stockholder holds a minimum number
of shares of Common Stock. Under the Shareholders' Agreement, the Company agreed
to set the authorized number of directors at ten directors. Of these, after the
closing of the

16
<PAGE>
Offering, nine directors will be persons designated by certain holders in
accordance with the Shareholders' Agreement. In addition, under the
Shareholders' Agreement the parties thereto have agreed that, until August 15,
1997, the Certificate of Incorporation will not be amended to eliminate
cumulative voting and that the Board of Directors shall not be comprised of less
than eight directors. The effect of the Shareholders' Agreement is to give
certain stockholders greater influence over the management of the Company than
they would otherwise have and to provide certain stockholders with, among other
things, certain registration, first refusal, co-sale and other rights. See
"Management -- Board of Directors," "Certain Transactions" and "Description of
Capital Stock."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF
STOCK PRICE

Prior to the Offering there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price will be determined by negotiation between the Company and the Underwriters
based upon several factors, and may not be indicative of the market price of the
Common Stock after the Offering. See "Underwriters" for a discussion of the
factors considered in determining the initial public offering price. The trading
price of the Common Stock could be subject to wide fluctuations in response to
quarterly variations in the Company's results of operations, uncertain periodic
events such as the signing or termination of services contracts, changes in
financial estimates by analysts, variations between the Company's results and
results expected by financial analysts and investors, announcements of
technological innovations by the Company or its competitors, conditions in the
wireless communications industry, regulatory changes or general market or
economic conditions and other events or factors. In addition, in recent years
the stock market has experienced extreme price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many
emerging growth companies, often unrelated to the operating performance of the
specific companies. Such market fluctuations could adversely affect the price of
the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price for the Company's
Common Stock. The number of shares of Common Stock available for sale in the
public market is limited by restrictions under the Securities Act of 1933, as
amended (the "Securities Act"), and lock-up agreements pursuant to which holders
have agreed not to sell or otherwise dispose of 26,420,242 shares for 180 days
after the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated. However, Morgan Stanley & Co. Incorporated may, in
its sole discretion and at any time without notice, release all or any portion
of such shares. In addition, certain other holders have agreed not to sell or
otherwise dispose of 2,839,906 shares for 120 days after the date of this
Prospectus. Concurrently with the closing of the Offering, the Company is
registering the offer and sale of 2,600,000 shares of Common Stock (the "Note
Warrant Shares") which are being sold by the Company to holders electing to
exercise warrants (the "Note Warrants") issued pursuant to the Warrant Agreement
dated as of June 15, 1995 and as supplemented by the First Supplemental Warrant
Agreement dated as of November 21, 1995 (collectively the "Note Warrant
Agreement") between the Company and The Bank of New York as Warrant Agent. Under
the Note Warrant Agreement, the Company is required to register the offer and
sale of the Note Warrant Shares issuable upon exercise of the Note Warrants to
the extent legally permissible in connection with the Company's initial public
offering of its Common Stock. The Note Warrants are exercisable at any time
beginning on the closing of the Offering and ending 90 days thereafter (the
"Expiration Date"). If not exercised by the Expiration Date, the Note Warrants
terminate and may not be exercised. The Note Warrant Shares are currently
subject to lock-up agreements which prohibit resale of the Note Warrant Shares
for 90 days from the closing of the Offering. After the expiration of the
various lock-up agreements, all such shares will generally be eligible for sale
in the public market subject in the case of certain shares (including shares
held by affiliates) to the limitations of Rule 144 under the Securities Act. On
the date of this Prospectus, no shares other than 366 shares of Common Stock
previously issued, the Shares and Note Warrant Shares issuable upon exercise,
subject to the 90 day lock-up agreements, will be eligible for immediate sale in
the public market. In addition, the Company intends to register, following this
Offering, a total of 5,086,420 shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's 1992 Stock Option Plan and
1994 Stock Plan and

17
<PAGE>

1,200,000 shares of Common Stock reserved for issuance under its 1996 Employee
Stock Purchase Plan. Furthermore, upon expiration of certain lock-up agreements
referred to above, the holders of 28,188,916 shares of Common Stock will be
entitled to certain registration rights with respect to such shares. Pursuant to
the agreements related to the Direct Placements, NSP and UE each agreed not to
sell or otherwise dispose of 50% of the shares of Common Stock acquired thereby
for a period of twelve months and the remaining 50% of the shares of Common
Stock acquired thereby for a period of 24 months from the date of this Offering.
The 1,470,833 shares sold to NSP and UE will be eligible for sale in the public
market two years from the closing of the Offering pursuant to Rule 144. If such
holders, by exercising their registration rights, cause a large number of shares
of Common Stock to be registered and sold in the public market, such sales could
have a material adverse effect on the market price for the Common Stock. See
"Description of Capital Stock -- Registration Rights of Certain Holders" and
"Shares Eligible for Future Sale."

SUBSTANTIAL DILUTION

Investors participating in the Offering will incur immediate, substantial
dilution. To the extent outstanding options and warrants to purchase the
Company's Common Stock are exercised, there will be further dilution. See
"Dilution."

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, INDENTURE, DELAWARE LAW AND CERTAIN AGREEMENTS

The Company's Board of Directors has the authority to issue up to 15,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of such shares of
Preferred Stock without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company. The Company
has no current plans to issue shares of Preferred Stock. Further, certain
provisions of the Company's Certificate of Incorporation and of Delaware law
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of the Board of
Directors and in the policies formulated by the Board of Directors and to
discourage certain types of transactions that may involve an actual or
threatened change in control of the Company. These provisions are designed to
reduce the vulnerability of the Company to an unsolicited acquisition proposal
and to discourage certain tactics that may be used in proxy fights. Certain of
the Company's executive officers are parties to an Employee Severance Agreement
pursuant to which, among other things, all of such officers' outstanding stock
options will vest upon the occurrence of certain events following a change of
control, including six months having elapsed following such change in control,
so long as such executives remain employed by the Company. In addition, the
Company's Indenture (the "Senior Discount Note Indenture") governing its Senior
Discount Notes provides in the event of certain changes in control of the
Company, each holder will have the right to require the Company to repurchase
such holder's Senior Discount Notes at a premium over the accreted value of such
debt. Certain provisions in the Certificate of Incorporation and Senior Discount
Note Indenture could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
increases in the market price of the Company's shares that could otherwise
result from actual or rumored takeover attempts. Such provisions also may have
the effect of limiting changes in the management of the Company. See "Management
- -- Employment Contracts and Change of Control Arrangements" and "Description of
Capital Stock -- Preferred Stock."

NO DIVIDENDS; DIVIDEND RESTRICTIONS.

18
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Shares in the Offering
are estimated to be approximately $92.4 million ($106.4 million if the U.S.
Underwriters' over-allotment option is exercised in full), after deducting
estimated underwriting discounts and commissions and estimated offering expenses
payable by the Company, and the estimated net proceeds to the Company from the
Direct Placements, which are expected to close concurrently with the closing of
the Offering, are estimated to be approximately $24.96 million after deducting
estimated issuance costs related thereto, in each case assuming an initial
public offering price of $20.00 per share. See "Direct Placements."

The Company anticipates that the net proceeds of the Offering and the Direct
Placements will be used for general corporate purposes, including working
capital, capital requirements (capital expenditures and negative operating cash
flow) expected to be incurred in connection with the installation and operation
of the Company's networks and continuing research and development activities. A
portion of the proceeds may also be used for the licensing of new products or
technologies, early retirement of corporate debt, which may include the purchase
or redemption of a portion of the 13% Senior Discount Notes due 2005, and for
investment purposes related to the expansion of its business, including
internationally, although the Company currently has no specific plans or
commitments in this regard. Pending application of the proceeds as described
above, the Company intends to invest the net proceeds of the Offering and the
Direct Placements in short-term, interest-bearing, investment-grade securities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company believes that the
net proceeds of the Offering and the Direct Placements, together with its
existing cash, cash equivalents, short-term investments and anticipated interest
income and other revenues, will be sufficient to meet its cash requirements for
at least the next 12 months. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DIRECT PLACEMENTS

NSP has agreed to purchase from the Company, in a private placement that
will occur concurrently with the closing of the Offering, shares of Common Stock
at an aggregate purchase price of $15,000,000. In addition, UE, through its
affiliate and wholly-owned subsidiary Union Electric Development Corporation,
has agreed to purchase from the Company, in a private placement that will occur
concurrently with the closing of the Offering, shares of Common Stock at an
aggregate purchase price of $10,000,000. The purchase price per share to be paid
by NSP will be an amount equal to 80% of the initial public offering price, and
the purchase price per share to be paid by UE will be an amount equal to the
initial public offering price less the underwriting discounts and commissions.
Assuming an initial public offering price of $20.00 per share, NSP and UE would
purchase 937,500 shares and 533,333 shares, respectively. Of the 937,500 shares
to be purchased by NSP, 104,167 of these shares will be placed in escrow (the
"Escrow Shares"), with their release to NSP dependent upon NSP causing Wisconsin
Electric Power Company ("WEPC") to enter into a letter of intent with the
Company and a services agreement for at least 750,000 meters with the Company by
December 31, 1997. If either or both such events do not occur, 50% or 100% as
the case may be, of the Escrow Shares will revert to the Company, which will
effectively increase NSP's purchase price per share to 85% or 90%, respectively,
of the initial public offering price. WEPC and NSP are parties to a pending
merger agreement, which is subject to regulatory approval. In the event that any
of the Escrow Shares are released to WEPC, the fair value of such shares will be
expensed as a sales discount over the term of the NSP services agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."

DIVIDEND POLICY

The Company has not declared or paid any dividends on its capital stock
since its inception. The Company currently anticipates that it will retain all
of its future earnings, if any, for use in the operation and expansion of its
business and does not anticipate paying any cash dividends in the foreseeable
future, and any changes in the Company's dividend policies will be determined by
its Board of Directors. The Company's existing financing arrangements also
restrict the payment of any dividends. The Company anticipates that it and its
subsidiaries will incur substantial additional indebtedness, which is also
likely to restrict the payment of dividends.

19
<PAGE>
CAPITALIZATION

The following table sets forth (i) the capitalization of the Company as of
June 30, 1996, (ii) the pro forma capitalization of the Company after giving
effect to the automatic conversion of all outstanding shares of Preferred Stock
into Common Stock, the issuance of 4,132,970 shares of Common Stock upon the
assumed exercise of certain outstanding warrants for aggregate proceeds to the
Company of $3.7 million and the reincorporation of the Company in Delaware which
occurred on August 30, 1996, and (iii) the as adjusted capitalization of the
Company to reflect the receipt of the estimated net proceeds from the sale of
Common Stock in the Offering at an assumed initial offering price of $20.00 per
share and after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company and the receipt of the
estimated net proceeds of $24.96 million from the sale of Common Stock to NSP
and UE.

<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations(1)................................................ $ 195,513 $ 195,513 $ 195,513
----------- ------------- -----------
Series CC redeemable convertible preferred stock, $.001 par value;
3,215,768 shares designated and outstanding actual; no shares
outstanding pro forma and as adjusted.................................. 29,486 -- --
----------- ------------- -----------
Stockholders' equity (deficit):
Convertible preferred stock, $.001 par value; 15,000,000 shares
authorized; 9,137,078 shares outstanding actual; no shares
outstanding pro forma and as adjusted................................ 27,196 -- --
Common Stock, $.001 par value; 50,000,000 shares authorized; 5,209,472
shares outstanding actual; 34,048,134 shares outstanding pro
forma(2); and 40,518,967 shares outstanding as adjusted(3)........... 27,636 90,947 208,257
Notes receivable from sale of Common Stock............................ (866) (866) (866)
Warrants.............................................................. 2,984 9 9
Accumulated deficit................................................... (127,334) (127,334) (127,334)
Net unrealized loss on short-term investments......................... (16) (16) (16)
----------- ------------- -----------
Total stockholders' equity (deficit)................................ (70,400) (37,260) 80,050
----------- ------------- -----------
Total capitalization.............................................. $ 154,599 $ 158,253 $ 275,563
----------- ------------- -----------
----------- ------------- -----------
</TABLE>

- ---------
(1) Consists primarily of Senior Discount Notes. See Notes 5 and 9 to
Consolidated Financial Statements.

(2) Excludes 3,779,136 shares of Common Stock issuable upon the exercise of
outstanding options as of June 30, 1996, with a weighted average exercise
price of $0.625 per share and 50,150 shares of Common Stock issuable upon
exercise of outstanding warrants to purchase Common Stock at a weighted
average exercise price of $7.59 per share. See "Management -- Incentive
Stock Plans," "Description of Capital Stock -- Warrants" and Note 7 to
Consolidated Financial Statements.

(3) Includes 104,167 shares of Common Stock that will be issued and outstanding
at the closing of the Offering and held in escrow in connection with the NSP
Purchase. If NSP causes WEPC to enter into certain agreements with the
Company, such Escrow Shares will be released to NSP. If WEPC does not enter
into such agreements, such Escrow Shares will revert to the Company. See
"Direct Placements."

20
<PAGE>
DILUTION

The pro forma deficit in net tangible book value of the Company as of June
30, 1996 was $43.4 million or $1.27 per share of outstanding Common Stock. The
pro forma deficit in net tangible book value per share represents the Company's
total assets less net intangibles of $6.1 million and less total liabilities,
divided by the number of shares of Common Stock outstanding (after giving effect
to the automatic conversion of the Preferred Stock and the exercise of certain
warrants upon the closing of the Offering). Dilution per share represents the
difference between the price per share paid by investors in the Offering and the
as adjusted pro forma net tangible book value per share immediately after the
Offering. After giving effect to the sale of the 5,000,000 shares of Common
Stock in the Offering at an assumed initial public offering price of $20.00 per
share (after deducting the estimated underwriting discounts and commissions and
offering expenses) and the sale of 1,470,833 shares of Common Stock in the
Direct Placements for aggregate net proceeds of $24.96 million, the as adjusted
pro forma net tangible book value of the Company at June 30, 1996 would have
been $74.0 million, or approximately $1.83 per share. This represents an
immediate decrease in the pro forma deficit in net tangible book value of $3.10
per share to existing stockholders and an immediate dilution of $18.17 per share
to new investors purchasing shares in the Offering at the assumed initial public
offering price. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $ 20.00
Pro forma net tangible book value (deficit) per share as of June 30,
1996................................................................... $ (1.27)
Increase attributable to the Direct Placements.......................... 0.75
Increase attributable to sale of Shares in the Offering................. 2.35
---------
As adjusted pro forma net tangible book value per share after the
Offering................................................................. 1.83
---------
Dilution per share to investors in the Offering........................... $ 18.17
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1996,
the number of shares of Common Stock purchased from the Company, the total cash
consideration paid and the average price per share paid by the existing
stockholders, by the new investors in the Offering (before deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company) at an assumed initial public offering price of $20.00 per share,
and by NSP and UE in the Direct Placements:

<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CASH CONSIDERATION
------------------------- --------------------------- AVERAGE
NUMBER PERCENT AMOUNT PERCENT PRICE PER SHARE
------------ ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 34,048,134 84.0% $ 92,213,000 42.5% $ 2.71
Direct Placements.............................. 1,470,833 3.6 25,000,000 11.5 $ 17.00
Investors in the Offering...................... 5,000,000 12.4 100,000,000 46.0 $ 20.00
------------ --- -------------- ---
Total...................................... 40,518,967 100% $ 217,213,000 100%
------------ --- -------------- ---
------------ --- -------------- ---
</TABLE>

The foregoing table assumes the automatic conversion of all Preferred Stock,
the exercise on a cash basis of warrants to purchase 4,132,970 shares of Common
Stock, no exercise of the U.S. Underwriters' over-allotment option and no
exercise of stock options or other warrants outstanding at June 30, 1996. At
June 30, 1996, there were options outstanding to purchase 3,779,136 shares of
Common Stock at a weighted average exercise price of $0.625 per share and other
warrants outstanding to purchase 50,150 shares of Common Stock at a weighted
average exercise price of $7.59 per share. To the extent outstanding options and
warrants are exercised, there will be further dilution to new investors. See
"Management -- Incentive Stock Plans," "Description of Capital Stock --
Warrants" and Note 7 to Consolidated Financial Statements.

21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and related
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statement of operations data for the years ended December 31, 1993,
1994 and 1995, and the consolidated balance sheet data at December 31, 1994 and
1995 are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Prospectus. The
consolidated statement of operations data for the years ended December 31, 1991
and 1992 and the consolidated balance sheet data at December 31, 1991, 1992 and
1993 are derived from audited consolidated financial statements not included
herein. The consolidated statement of operations data for the six months ended
June 30, 1995 and 1996 and the consolidated balance sheet data at June 30, 1996
are derived from unaudited consolidated financial statements that include, in
the opinion of management, all adjustments, consisting of only normal, recurring
adjustments, necessary for a fair presentation of the information set forth
therein. The consolidated results of operations for the six months ended June
30, 1996 or any other period are not necessarily indicative of future results.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ 7,408 $ 3,148 $ 1,757 $ 1,651 $ 2,126 $ 1,291 $ 420
Costs and expenses:
Cost of revenues........................ 6,943 2,509 1,840 1,191 5,129 1,931 3,483
Research and development................ 7,765 6,838 5,262 9,693 22,380 6,735 13,009
Marketing and sales..................... 3,037 1,523 1,447 3,257 4,201 1,946 2,924
General and administrative.............. 2,048 843 1,450 2,583 6,805 2,874 5,412
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses.................. 19,793 11,713 9,999 16,724 38,515 13,486 24,828
--------- --------- --------- --------- --------- --------- ---------
Loss from operations...................... (12,385) (8,565) (8,242) (15,073) (36,389) (12,195) (24,408)
Other income (expense).................... (178) (378) (148) 441 (4,564) 75 (7,903)
--------- --------- --------- --------- --------- --------- ---------
Loss before income taxes.................. (12,563) (8,943) (8,390) (14,632) (40,953) (12,120) (32,311)
Provision for income taxes................ -- -- 1 2 3 1 2
--------- --------- --------- --------- --------- --------- ---------
Net loss.................................. $ (12,563) $ (8,943) $ (8,391) $ (14,634) $ (40,956) $ (12,121) $ (32,313)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net loss per share(1)........... $ (1.22) $ (0.94)
--------- ---------
--------- ---------
Shares used in computing pro forma net
loss per share(1)........................ 33,497 34,483
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
----------------------------------------------------- ------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA(2)
--------- --------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................ $ 669 $ 2,236 $ 8,884 $ 24,508 $ 143,797 $ 102,967 $106,621
Total assets............................ 4,833 4,123 11,510 31,809 184,306 162,653 166,307
Long-term obligations, including current
portion................................ 1,598 1,734 825 546 183,348 195,513 195,513
Series CC redeemable convertible
preferred stock........................ -- -- -- 29,486 29,486 29,486 --
Total stockholders' equity (deficit).... (3,065) (235) 8,011 (1,564) (38,103) (70,400) (37,260)
</TABLE>

- ------------
(1) See Note 1 to Consolidated Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.

(2) Reflects the conversion of all outstanding shares of Preferred Stock into
Common Stock and the exercise of warrants to purchase 4,132,970 shares of
Common Stock at an aggregate exercise price of approximately $3.7 million
upon the closing of the Offering which includes the assumed exercise of all
Note Warrants on a cash basis.

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF CELLNET DATA SYSTEMS, INC. SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS. CERTAIN OF THE INFORMATION CONTAINED IN THIS SECTION AND
ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH REGARD TO THE COMPANY'S
EXPECTED WIRELESS DATA COMMUNICATIONS NETWORK DEPLOYMENTS AND OPERATIONS, ITS
STRATEGY FOR MARKETING AND DEPLOYING SUCH NETWORKS AND RELATED FINANCING
ACTIVITIES, CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS."

OVERVIEW

The Company intends to deploy and operate a series of wireless data
communications networks pursuant to long-term contracts with utility company
customers and to earn recurring revenues by providing NMR services to the
utilities and using the network to support a variety of non-utility
applications. The Company's business strategy has affected and will continue to
affect its financial condition and results of operations as follows:

CHANGING COMPOSITION OF REVENUES. The Company's revenues in recent years
have been primarily attributable to sales of, and contract fees related to the
development of, miscellaneous utility communication equipment. The Company
believes that such revenues will be largely non-recurring and will diminish to
relatively insignificant levels over the next few years. The Company derives an
increasing proportion of its revenues from fees earned under services agreements
related to its wireless communications networks. Under the Company's existing
services agreements with KCPL, UE, NSP and Puget, the Company receives monthly
NMR service fees based on the number of endpoint devices that are in revenue
service during the applicable month to bill customers.

UNEVEN REVENUE GROWTH. The timing and amount of the Company's future
revenues will depend upon its ability to obtain additional services agreements
with utilities and other customers and upon the Company's ability to
successfully deploy and operate its wireless communications networks. New
services agreements are expected to be obtained on an irregular basis, and there
may be prolonged periods during which the Company does not enter into any
additional services agreements. As a result, the Company expects that its
revenues will not grow smoothly over time, but will increase unevenly as the
Company enters into new services agreements, and may decrease sharply in the
event that any of its existing services agreements are terminated or not
renewed. See "Risk Factors -- Uncertainty of Future Revenues; Increasing
Installation Costs; Need for Additional Services Contracts; and Fluctuating
Operating Results."

REVENUES LAG NETWORK DEPLOYMENT. The Company generally realizes network
service revenue under a services agreement with a utility only when a portion of
the network is installed and the utility has begun billing customers based upon
NMR data. The Company did not begin to receive revenue under its services
contracts with KCPL and UE until approximately one year after signing the
respective services agreements. The Company expects that its receipt of network
service revenue under future contracts will lag the signing of the related
services agreements by a minimum of six months and that it will generally take
two to four years to complete installation of a network after each services
agreement has been signed. A network's service revenues are not expected to
exceed the Company's capital investments and expenses incurred to deploy such
network for several years. The Company signed agreements with KCPL and UE in
August 1994 and August 1995, respectively, and did not receive its first revenue
under the KCPL and UE services agreements until September 1995 and May 1996,
respectively. The Company expects to complete the KCPL network in 1996 and the
UE network in 1998. The Company began the installation of both the NSP and Puget
networks in August 1996. As additional segments of the Company's networks are
installed and used by its utility clients for billing purposes, the Company
expects to realize a corresponding increase in its network service revenues.
However, if the Company is able to successfully deploy an increasing number of
networks over the next few years, the operating losses created by this lag in
revenues, and negative cash flow resulting

23
<PAGE>
from such operating losses and the capital expenditures expected to be required
in connection with the installation of such networks, are expected to widen for
a period of time and will continue until the operating cash flow from installed
networks exceeds the costs of deploying and operating additional networks.

IMPACT OF RAPID EXPANSION. CellNet will not typically invest the capital
necessary to deploy a wireless communications network prior to entering into a
long-term services agreement with a utility or other customer. However, during
its expansion phase, the Company will be required to invest significant amounts
of capital in its networks and to incur substantial and increasing sales and
marketing expenses before receiving any return on such expenditures through
network service revenues. The Company has incurred substantial operating losses
since inception and, as of June 30, 1996, had an accumulated deficit of $127.3
million. The Company does not expect significant revenues during 1996 and
expects to incur substantial and increasing operating losses and negative net
cash flow after capital expenditures for the foreseeable future as it expands
its research and development and marketing efforts and installs additional
networks. The Company does not expect positive cash flow after capital
expenditures from its NMR services operations for several years. The Company
will require substantial capital to fund cash flow deficits and capital
expenditures for the foreseeable future and expects to finance these
requirements through significant additional external financing. See "Risk
Factors -- History and Continuation of Operating Losses" and "-- Substantial
Leverage and Ability to Service Debt; Substantial Future Capital Needs."

INTEREST INCOME. The Company has earned substantial amounts of interest
income on short-term investments of the proceeds of its financing activities,
and expects to earn additional interest income through the investment of a
portion of the proceeds of this Offering. The Company expects to utilize
substantially all of its cash, cash equivalents and short-term investments in
deploying its wireless communications networks, in continuing research and
development activities related thereto and in related selling and marketing
activities. As such funds are expended, interest income is expected to decrease.
See "Use of Proceeds."

RESULTS OF OPERATIONS

REVENUES

Revenues for the three years ended December 31, 1993, 1994 and 1995 were
$1.8 million, $1.7 million and $2.1 million, respectively. Revenues for the six
months ended June 30, 1995 and 1996 were $1.3 million and $420,000,
respectively. Revenues prior to 1996 were attributable primarily to product
sales and development and other contract revenues unrelated to the Company's
current focus of providing NMR services that were largely non-recurring and that
are expected to decline and remain at relatively insignificant levels over the
next few years. During 1993, Pacific Gas & Electric Company ("PG&E"), Georgia
Power Company ("Georgia Power") and NSP accounted for 37%, 36% and 18% of the
the Company's revenues, respectively. During 1994, NSP, Georgia Power and PG&E
accounted for 58%, 14% and 10% of the Company's revenues, respectively. During
the first six months of 1996, KCPL and NSP accounted for 73% and 16% of the
Company's revenues, respectively. During 1995, NSP and KCPL accounted for 64%
and 29% of the Company's revenues, respectively. Revenues for the six months
ended June 30, 1996 declined $870,000 from the comparable period in 1995. The
decline resulted primarily from the transition from product sales to network
service revenues. The Company's NMR service revenues for the year ended December
31, 1995 and for the six months ended June 30, 1996 were $35,000 and $244,000,
respectively. In September 1995, the Company began to receive regular monthly
revenue under its services agreement with KCPL based upon the number of
automated meters installed on the network that were being used by KCPL to bill
its customers and the agreed monthly NMR charge per meter. In May 1996, the
Company began to realize regular monthly revenue from its services agreement
with UE on a similar basis. The Company will not recognize revenue earned under
its services agreements with NSP or Puget until the automated meters installed
on the respective networks are used by such utility clients for billing their
respective customers. In connection with the NSP Purchase, the Company has
agreed to issue Escrow Shares which will be released upon the entering into a
letter of intent and an NMR services agreement with WEPC by December 1997. The
fair value of these Escrow Shares will be expensed as a sales discount over the
term of the WEPC services agreement, in the event that such events occur. See
"Direct Placements."

24
<PAGE>
The Company generally realizes service revenues under its services
agreements with utilities only when its networks or portions thereof are
successfully installed and operating and the utility commences billing its
customers based upon the NMR data obtained. Revenues are expected to increase as
the Company continues to install its networks, the networks or portions thereof
become operational, and utilities begin billing their customers based upon data
obtained over the CellNet system. Due primarily to the nature, amount and timing
of revenues received to date, no meaningful period-to-period comparisons can be
made. Revenues received during the years ended December 31, 1993, 1994 and 1995,
and for the six-month periods ended June 30, 1995 and 1996, respectively, are
not reliable indicators of revenues that might be expected in the future.

COST OF REVENUES

Cost of revenues historically have consisted of the cost of product sales.
For the year ended December 31, 1995 and for the six months ended June 30, 1996,
cost of revenues primarily consisted of network operations costs. Cost of
revenues were $1.8 million, $1.2 million and $5.1 million for the years ended
December 31, 1993, 1994 and 1995, respectively. Cost of revenues for the six
months ended June 30, 1995 and 1996 were $1.9 million and $3.5 million,
respectively. The increase in cost of revenues was driven by increasing costs of
providing network services, due primarily to growth in the number of employees
and associated costs necessary for network monitoring operations at customer
sites and at the Company's headquarters, network deployment management and
customer training. Costs of network services also include the increased
installation, applications and RF engineering staffing at the Company's
headquarters to support anticipated additional utility contracts. Network
services do not currently generate a profit as the Company has not yet achieved
a scale of services sufficient to cover network costs. The Company will incur
significant and increasing costs primarily attributed to network operation and
depreciation. Once a network has been fully installed, costs associated with
generating network revenues will consist primarily of maintaining a monitoring
center for such network, network depreciation and miscellaneous maintenance and
operating expenses.

OPERATING EXPENSES

Operating expenses, consisting of research and development, marketing and
sales, and general and administrative costs, were $8.2 million, $15.5 million
and $33.4 million for the years ended December 31, 1993, 1994 and 1995,
respectively. Operating expenses for the six months ended June 30, 1995 and 1996
were $11.6 million and $21.3 million, respectively. The increase in operating
expenses on a period to period basis is attributable to the Company's rapid
growth and to increasing research and development and marketing and sales
expenditures. The Company expects to continue to spend a significant portion of
its resources on research and development activities for the foreseeable future.
Marketing and sales and general and administrative costs are expected to
increase in the future as the Company seeks to sign new service agreements.

RESEARCH & DEVELOPMENT. Research and development expenses are attributable
largely to continuing system software, firmware and equipment development costs,
prototype manufacturing, testing, personnel costs, consulting fees, and
supplies. Research and development costs are expensed as incurred. The Company's
networks include certain software applications which are integral to their
operation. The costs to develop such software have not been capitalized as the
Company believes its software development is essentially completed when
technological feasibility of the software and/or development of the related
network hardware is established. Research and development expenses were $5.3
million, $9.7 million and $22.4 million for the years ended December 31, 1993,
1994 and 1995, respectively. Research and development expenses for the six
months ended June 30, 1995 and 1996 were $6.7 million and $13.0 million,
respectively. Research and development spending increases in 1995 and 1996
reflect primarily additions to the Company's engineering staff and costs
associated with development of processes to retrofit utility meters for use in
the CellNet network. Deployment of the Company's first network in 1995 resulted
in increased materials used for prototypes, nonrecurring engineering charges
associated with establishing relationships with third-party manufacturers and
rapid changes to the firmware and software utilized in the CellNet

25
<PAGE>
network. The Company expects that research and development expenses will
increase moderately in the near term. However, significant investments in
research and development may become necessary to remain competitive, to respond
to market changes or to establish international operations.

MARKETING & SALES. Marketing and sales expenses consist principally of
compensation, including commissions paid to sales and marketing personnel,
travel, advertising, trade show and other promotional costs. Marketing and sales
expenses were $1.4 million, $3.3 million and $4.2 million for the years ended
December 31, 1993, 1994 and 1995, respectively. Marketing and sales expenses for
the six months ended June 30, 1995 and 1996 were $1.9 million and $2.9 million,
respectively. The Company expects marketing and sales expenses to continue to
increase in absolute dollars as the Company seeks to enter into new services
agreements.

GENERAL & ADMINISTRATIVE. General and administrative expenses include
compensation paid to general management and administrative personnel, recruiting
costs, travel, and communications and other general administrative expenses,
including fees for professional services. General and administrative expenses
were $1.5 million, $2.6 million and $6.8 million for the years ended December
31, 1993, 1994 and 1995, respectively. General and administrative expenses for
the six months ended June 30, 1995 and 1996 were $2.9 million and $5.4 million,
respectively. The Company expects general and administrative expenses to
continue to increase in absolute dollars as the Company increases staffing and
continues developing information systems to support its planned growth. The
Company may need to increase administrative expenditures in the longer term to
expand domestic and establish international operations.

INTEREST INCOME AND EXPENSE

Prior to June 1995 the Company funded its liquidity needs primarily from the
issuance of equity securities. In June and November 1995, the Company issued and
sold a total of $325.0 million aggregate principal amount at maturity of Senior
Discount Notes and Note Warrants for proceeds, net of issuance costs, of $169.9
million. Accordingly, the Company has earned interest income on the invested
proceeds from the Senior Discount Notes and Note Warrants and has incurred
significant interest expense from the amortization of the original issue
discount on such debt.

Interest income has been and will continue to be received by the Company
from the short-term investment of proceeds from the issuance of equity and debt
securities pending the use of such proceeds by the Company for capital
expenditures and operating and other expenses. In June 1995, the Company began
to receive substantially increased amounts of interest income on the short-term
investment of the proceeds received from the issue and sale of its Senior
Discount Notes and Note Warrants. Interest income is expected to be highly
variable over time as proceeds from the issue and sale of additional equity and
debt securities are received and as funds are used by the Company in its
business. Interest income for the three years ended December 31, 1993, 1994 and
1995 was $66,000, $555,000 and $4.6 million, respectively. Interest income for
the six months ended June 30, 1995 and 1996 was $1.0 million and $3.5 million,
respectively.

No interest on the Senior Discount Notes is payable prior to December 15,
2000. Thereafter until maturity in June 2005, interest will be payable
semi-annually in arrears on each December 15 and June 15. The carrying amount of
the Senior Discount Notes accretes from the date of issue and the Company's
interest expense includes such accretion. Interest expense for periods prior to
June 1995 was attributable primarily to capital leases. Interest expense was
$198,000, $101,000 and $9.3 million for the years ended December 31, 1993, 1994
and 1995, respectively. Interest expense for the six months ended June 30, 1995
and 1996 was $754,000 and $11.3 million, respectively.

PROVISION FOR INCOME TAXES

The Company has not provided for or paid federal income taxes due to the
Company's net losses. A nominal provision has been recorded for various state
minimum income and franchise taxes.

At December 31, 1995, the Company had net operating loss carryforwards of
approximately $82.5 million and $7.3 million available to offset future federal
and California taxable income, respectively. The extent to which the loss
carryforwards can be used to offset future taxable income will be limited
because of the ownership changes within any three-year period as provided in the
Tax Reform Act of 1986 and the

26
<PAGE>

California Conformity Act of 1987. This Offering will trigger such a limitation
as a result of which the annual usage will be limited by the market value of the
Company at the closing of this Offering multiplied by the then current long-term
tax exempt interest rate. Such federal carryforwards expire in 2001 through
2010. Such state carryforwards expire in 1996 through 2000. Based upon the
Company's history of operating losses and expiration dates of the loss
carryforwards, the Company has recorded a valuation allowance to the full extent
of its net deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires significant amounts of capital for research and
development in connection with the development of its proprietary wireless
communications network and related products and services, for investments in the
installation and testing of such networks and for related sales and marketing
and general and administrative expenses. Historically, the Company has satisfied
its liquidity requirements primarily through external financings, including
private placements of equity and debt securities and interest income derived
from the investment of the proceeds of its financing activities. The discussion
in this section excludes the effect of warrants to purchase 4,132,970 shares of
Common Stock, which the Company assumes will be exercised immediately prior to
the closing of this Offering for expected proceeds of $3.7 million.

In 1993, 1994, 1995 and the first six months of 1996, net cash used in the
Company's operating activities totaled $9.1 million, $14.6 million, $24.6
million and $18.9 million, respectively. Net cash used in operating activities
resulted primarily from cash used to fund net operating losses.

In 1993, 1994 and 1995 and the first six months of 1996, net cash provided
by (used for) the Company's financing activities totaled $16.2 million, $34.0
million, $170.9 million and $(131,000), respectively, including cash provided by
the private sale of the Company's equity securities of $13.4 million, $34.1
million and $1.4 million in 1993, 1994 and 1995, respectively. In June and
November 1995, the Company received an aggregate of $175.8 million of gross
proceeds ($169.9 million in net proceeds) from the private sale of the Senior
Discount Notes and Note Warrants. During the first six months of 1996, the
Company financed its operations primarily from the proceeds of the offering of
the Senior Discount Notes and Note Warrants, together with interest income of
$3.5 million. In September 1996, NSP and UE signed agreements to purchase shares
of Common Stock concurrent with the closing of this Offering at an estimated
aggregate purchase price of $25,000,000. See "Direct Placements." As of June 30,
1996, the Company had cash, cash equivalents and short-term investments
totalling $103.0 million.

The Senior Discount Notes were issued at a substantial discount from their
aggregate principal amount at maturity of $325.0 million. Although interest is
not payable on the Senior Discount Notes prior to December 15, 2000, the
carrying amount of such indebtedness will increase as the original issue
discount is amortized through maturity in June 2005. Beginning June 15, 2000,
the Senior Discount Notes will bear interest, payable semi-annually, at a rate
of 13% per annum, with payments commencing December 15, 2000. No principal
payments on the Senior Discount Notes are due prior to maturity in 2005.

In 1993, 1994 and 1995, net cash used for investing activities totaled $3.4
million, $12.8 million and $110.8 million, respectively and in the first six
months of 1995, net cash used in investing activities was $36.6 million and in
the first six months of 1996, net cash provided from investing activities was
$41.7 million. The Company's investing activities consisted primarily of
purchases of network components and inventory, the construction and installation
of networks, purchases of property and equipment, and purchases, sales and
maturities of short-term investments. The $41.7 million of net cash provided by
investing activities in the first six months of 1996 was largely attributable to
proceeds of short-term investments. These proceeds exceed investments in
short-term instruments as the Company used the proceeds of short-term
investments to fund its operating activities. The Company shortened the maturity
of its portfolio of short-term investments to less than 90 days, which are
classified, accordingly, as cash equivalents.

Deployments of the Company's wireless communications networks will require
substantial additional capital. In addition, funds will be required for further
enhancements to the system software, firmware, hardware and other equipment to
increase the speed, capacity and functionality of the system, to enhance system
productivity over time and to expand the scope of utility and other network
information services that may be offered on the CellNet system. The Company
currently estimates that funds required for capital

27
<PAGE>

expenditures relating to the buildout of its KCPL and UE networks will be
approximately $22.5 million from June 30, 1996 through year end. Although the
Company is currently unable to predict the amount of expenditures that may be
incurred in connection with the establishment of other networks or the amount of
expenditures to be made after 1996 with respect to KCPL and UE, the Company
expects that cash used for the construction and installation of networks and for
the purchase of property and equipment will increase substantially as and when
the Company obtains new services agreements, and that the Company will require
significant amounts of additional capital from external sources. Sources of
additional capital may include project or conventional bank financing, public
and private offerings of debt and equity securities and cash generated from
operating activities. To provide financing for installation of the Company's
network under its UE services agreement, the Company has received a commitment
from Toronto Dominion Bank for $25.0 million for a nine-year and three-month
secured revolving credit facility on conventional bank financing terms. This
commitment is subject to standard conditions including satisfactory
documentation. The Company will pay Toronto Dominion Bank fees of up to $500,000
in connection with this facility. This facility is expected to require the
Company's St. Louis operations to meet certain revenue requirements and to limit
the capital expenditures and indebtedness. The Company expects that a
substantial portion of its future financing will be at the subsidiary level on a
project basis. The Company expects to obtain third party financing for the
construction of wireless networks, based on the projected cash flow expected to
be generated from such projects, after it has entered into a long-term contract
with a utility. The Company expects that the recurring revenue stream from the
long-term services contract will support the amortization of debt raised for the
project involved. The Company does not anticipate deriving any significant cash
from such operations for several years.

The Company believes that the net proceeds of the Offering and from the sale
of Common Stock pursuant to the Direct Placements, together with existing cash,
cash equivalents and anticipated interest income and other revenues, will be
sufficient to meet its cash requirements for at least the next 12 months.
Thereafter, the Company expects that it will require substantial additional
capital. The extent of additional financing will depend on the success of the
Company's business. The Company expects to incur significant operating losses
and to generate increasingly negative net cash flow during the next several
years while it develops and installs its network communications systems. There
can be no assurance that additional financing will be available to the Company
or, if available, that it can be obtained on terms acceptable to the Company and
within the limitations contained in the Senior Discount Note Indenture or that
may be contained in any additional financing arrangements. The Senior Discount
Note Indenture contains certain covenants that limit the Company's ability to
incur additional indebtedness. Future financings may be dilutive to existing
stockholders. Failure to obtain such financing could result in the delay or
abandonment of some or all of the Company's development and expansion plans and
expenditures, which could limit the ability of the Company to meet its debt
service requirements and could have a material adverse effect on its business
and on the value of the Common Stock. See "Risk Factors -- Substantial Leverage
and Ability to Service Debt; Substantial Future Capital Needs."

28
<PAGE>
BUSINESS

OVERVIEW

The Company designs, builds, owns and operates innovative wireless networks
capable of providing low-cost real-time status and event monitoring of up to
several million fixed endpoints. The primary application of the Company's
network is to provide NMR services to electric, gas and water utility companies
pursuant to long-term contracts. The Company is currently building wireless
networks to provide NMR services to KCPL and UE in St. Louis covering a total of
approximately 1,220,000 meters, of which more than 105,000 meters were in
revenue service as of June 30, 1996. In addition, the Company has recently
entered into separate services agreements with NSP in Minneapolis and Puget in
Washington State, pursuant to which it has contracted to build wireless networks
to provide NMR services covering an aggregate of approximately 1,015,000
additional meters, including 1,000,000 meters under the NSP Services Agreement
and an initial installation consisting of 15,000 meters under the Puget Services
Agreement. CellNet also currently provides certain network distribution
automation services to electric utility customers including monitoring and
control of power distribution equipment. CellNet's network uses radio devices
fitted to existing utility meters to read and report data from each meter every
few minutes. Through efficient use of radio frequency spectrum, the Company's
networks will have substantial additional capacity to service non-utility
applications that require low-cost monitoring of fixed endpoints, such as home
security and remote status monitoring of vending machines and office equipment.
The Company is working with industry leaders in those markets to encourage
further development of such applications.

CellNet was established in 1984 and prior to 1991 it developed and sold
non-communicating electronic meter registers with embedded memory capabilities.
In 1991, the Company decided to phase out such activities and focus on the
development of NMR services and related networks.

- infrastructure and operating costs sufficiently low to permit cost
effective utility meter reading and other fixed point monitoring
applications;

- highly efficient use of spectrum -- the equivalent of approximately a
single voice channel is needed to operate a network;

- proprietary software specifically designed to manage real-time data
collection from up to several million endpoints; and

- open systems architecture designed to allow new applications to be added
to the CellNet system.

Utilities are under increasing regulatory and competitive pressures. CellNet
offers an outsourced solution which enables utilities to offer time-of-use
pricing plans, peak demand monitoring, real-time response to billing inquiries,
real-time power outage detection, on-demand meter reads, customized billing
functions and distribution automation. The Company believes its NMR services
provide utilities with an effective solution to many of the demands created by
the increased regulatory and competitive pressures within the utility industry.
CellNet's system allows utilities to respond effectively to regulatory changes,
reduce costs, defer capital spending and enhance their operating efficiencies.

The Company is actively targeting those utilities which operate in the 60
largest MSAs, which represent a majority of the 225 million electric, gas and
water meters in the United States. The Company believes that utilities operating
in these densely populated areas will be the first to experience heightened
competitive and regulatory pressures, and as such, will be most likely to
benefit from the Company's services. The Company believes that these competitive
and regulatory pressures have prompted utilities in the United States to
undertake increased measures to improve their efficiency and service levels.

29
<PAGE>
cost. The Company had capitalized $762,000 for license fees and related
acquisition expenses attributable to spectrum acquisition costs as of June 30,
1996 and has acquired 50 spectrum licenses in 42 of the top 60 MSAs. The Company
believes that it will be able to obtain additional spectrum at reasonable cost
if required. The Company has focused its spectrum acquisition strategy on these
top 60 markets. See "Risk Factors -- Access to Radio Frequency Spectrum;
Regulation by the Federal Communications Commission."

The Company believes its spectrum-efficient networks will have substantial
excess capacity to service non-utility applications requiring low-cost
monitoring of fixed endpoints. Potential non-utility applications of the
Company's systems include home security, remote status monitoring of vending
machines, office equipment, parking meters and other equipment, and remote
control of traffic lights. The Company is working with industry leaders such as
Ameritech, Hewlett Packard, Honeywell, Inc., Real Time Data, Inc., and
Interactive Technologies, Inc. to develop such applications. The Company
believes that its utility networks will provide an excellent platform to
position the Company as a leading wholesale provider of wireless data
communications services for such non-utility applications.

CHANGES IN THE ELECTRIC UTILITY INDUSTRY

The utility industry is in transition. The traditional utility structure,
consisting of a vertically integrated system operating as a natural monopoly
with rates set in relation to cost, has presented utilities with little
incentive to improve service quality or operating efficiency. Similar to the
regulatory evolution that has already taken place in the transportation and
telecommunications industries, customer demands and regulatory mandates by
Federal, state and local governments are forcing utilities to transform
themselves from regulated monopolies into competitive enterprises. While
regulatory initiatives vary from state to state, many involve a shift from
rate-of-return ratemaking, in which a utility's rates are determined by its
return on assets, to performance-based ratemaking, in which a utility's rates
and profitability are based upon its cost, efficiency and service quality. The
gas utility industry has already been transformed. Today, commercial and
industrial customers can negotiate to purchase gas directly from producers or
brokers, while utilities are required to provide transportation of such gas to
customers' facilities.

The restructuring of the electric utility industry is underway. This
restructuring is focused on opening the electric power production industry, in
certain markets, to full competition in the next few years, and ultimately
providing customers access to multiple suppliers. Federal legislation, such as
the National Energy Policy Act of 1992 (the "EP Act"), has eased restrictions on
independent power producers in an effort to increase competition in the
wholesale electric power generation market. As a result, the construction of
cogeneration facilities and independent power production facilities has been
increasing, creating lower cost alternatives for large commercial and industrial
customers. Further, the EP Act authorized the Federal Energy Regulatory
Commission ("FERC") to mandate utilities to transport and deliver, or "wheel"
energy for the supply of bulk power to wholesale, but not retail, customers. In
order to facilitate the transition to increased competition in the wholesale
power markets made possible by the EP Act, in March 1995 FERC issued a Notice of
Proposed Rulemaking that would require utilities to (i) establish open access to
all wholesale sellers and buyers, (ii) offer power transmission service
comparable to what they provide themselves and (iii) take power transmission
service under the same tariffs offered to other buyers and sellers.

The EP Act granted individual states the sole authority to mandate the
wheeling of electric power to retail customers. Regulatory and legislative
activity at the state level regarding retail wheeling has recently increased
dramatically. California is the furthest along in implementing retail wheeling,
and pursuant to the California Public Utility Commission's plan (which is still
subject to legislative approval), utilities will be required to offer an initial
group of customers the ability to choose their electricity supplier in 1998,
with all customers having this ability by 2003. Regulators in New York,
Massachusetts, Michigan, New Hampshire and Vermont have all ordered utilities to
file restructuring plans which would address, among other

30
<PAGE>
competitive issues, a schedule for implementing retail wheeling over the next
several years. Other states are in various stages of considering the
implementation of retail wheeling, both at legislative and regulatory levels.

The trend from rate-of-return towards performance-based ratemaking, the
movement towards retail wheeling and heightened competition are leading many
utilities to implement initiatives in the following areas:

INCREASE OPERATING EFFICIENCIES. Utilities are seeking to reduce operating
costs through increased automation and improved information processing. In
particular, many utilities have focused on the inefficiencies of the traditional
once-a-month drive-by or walk-by meter reading process. In addition to the
direct expense of monthly meter reading, manual processes create significant
indirect expenses. These include responding to customer billing service
inquiries and complaints, meter reading errors, missed meter reads, special
appointment meter reads to determine and correct errors, and service calls to
discontinue and to initiate service. Utilities are also seeking to improve
detection of energy theft, which is estimated to cost many millions of dollars
per year.

DEFER CAPITAL EXPENDITURES. Utilities must build plant capacity to meet the
anticipated peak demand for energy on a daily and seasonal basis with an excess
capacity margin to respond to extraordinary demand peaks caused by extreme
weather conditions. However, power plant expansions are costly and, under
performance-based ratemaking, investments in such capacity might not be fully
compensated by ratemaking authorities. Reducing peak demand allows utilities to
defer or avoid additional plant construction or costly peak power generation
with standby power generating facilities. Unlike phone companies, which offer
time-of-use rates to discourage consumption during peak periods, utilities are
currently unable to implement time-of-use plans for any but their largest
customers due to inadequate real-time information about customer power usage.

IMPROVE SERVICE QUALITY. In response to the emerging competitive
environment, utilities are seeking to improve and differentiate their services
by offering their customers different billing plans, remote move in/ move out
meter reading, multi-location bill aggregation and other innovations. In
addition, utilities are seeking to respond to regulatory and public pressure to
improve their ability to detect and respond to power outages.

To implement time-of-use pricing and other sophisticated pricing plans,
retail wheeling, real-time power outage detection and the other services
described above, electric utilities will require extremely accurate and timely
data regarding energy consumption by customers. However, adequate automated
systems have not been available. Some utilities have simplified and automated
the manual meter reading process to a limited degree through the use of
hand-held and drive-by meter reading equipment, commonly referred to as
automated meter reading ("AMR"). An AMR device polls meters on a meter reading
route, usually on a monthly basis, and the consumption data is then transmitted
to the utility's information system. Periodic meter readings, even when
"automated" by such equipment, do not provide the necessary data to implement
these regulatory and competitive initiatives.

THE CELLNET SOLUTION

CellNet has designed, developed and is now commercially deploying in scale
the first wireless data communications network designed to provide high-volume
real-time status and event monitoring of up to several million endpoints. Since
the primary application of the network is to provide NMR services to utilities,
the network has been designed to meet the utility industry's cost requirements,
information needs and rigorous design specifications. CellNet's network uses
radio transmitters fitted to existing meters to read and report data from each
meter every few minutes. CellNet uses inexpensive radio devices and proprietary
software in its networks, deploys certain network components primarily on
utility power poles, and requires minimal frequency spectrum to operate its
system. As a result, the Company believes that for large scale installations it
will be able to provide basic NMR services at a cost to the utility of less than
$1 per month per meter.

31
<PAGE>
CellNet's system enables utilities to better serve their customers by
offering enhanced services such as:

- time-of-use and demand energy rates;

- real-time response to billing inquiries;

- real-time power outage detection, location and notification;

- remote verification of "power on" and outage restoration;

- on-demand meter reads;

- customer-selected billing dates and consolidated, multi-location billing;

- automatic move in/move out meter reading;

- distribution automation; and

- access for utility customers to consumption, rate and billing information
via the Internet.

In addition, CellNet's system allows utilities to respond effectively to
regulatory changes, reduce costs, defer capital spending and enhance their
operating efficiencies, thereby deriving benefits in the following areas:

RESPOND EFFECTIVELY TO REGULATORY INITIATIVES. If retail wheeling is
adopted, consumers will contract to buy electricity from specific power
providers, but all such power providers will supply electricity to the local
electrical network, which will then distribute power to all consumers. Monthly
meter reading allows power providers to determine aggregate usage, but not to
determine time of use, a critical requirement to implement retail wheeling. By
providing real-time data on each consumer's power usage, CellNet enables
utilities to effectively implement retail wheeling and avoid the installation
across their territories of individual time-of-use meters, which could cost more
than $150-$200 at each service endpoint.

REDUCE CAPITAL INVESTMENTS. CellNet's NMR services will enable utilities to
adopt time-of-use billing plans, which can be used to motivate consumers to
shift discretionary consumption to off-peak periods. Reducing peak demand may
enable utilities to defer or avoid costly plant construction. In addition, by
contracting with CellNet to build and maintain the wireless network, the
utilities avoid both the technological risk and capital outlay of developing and
deploying NMR systems.

REDUCE OPERATING COSTS AND ENHANCE OPERATING EFFICIENCIES. Through
automation, CellNet's wireless data network helps utilities to reduce the direct
and indirect operating costs associated with manual meter reading. In addition,
CellNet's network enables distribution automation capabilities which include
monitoring and control of power distribution equipment as well as meters. Using
the CellNet network, utilities can manage many aspects of the delivery of
electricity, including the ability to detect power outages, monitor and control
circuit breakers, monitor the load on transformers, control circuits to isolate
faults on feeder power lines, and switch automatically among capacitor banks to
produce constant voltage levels. As a result, problems may be detected earlier
and solved more quickly, operations may become more reliable and service fleets
may be more efficiently deployed and dispatched as outages can be more readily
pinpointed within the utility's service territory. Such capabilities also enable
a utility to reduce energy theft through quick detection of meter tampering.

RESPOND TO COMPETITIVE PRESSURES. CellNet's networks enable utilities to
profile their customers' power usage and to enhance and differentiate service
offerings through innovative billing plans and other programs. In addition,
utilities may elect to provide non-utility services connected with the CellNet
network, as such services are developed. These services could enable utilities
to obtain new revenue sources and, through bundling of such applications,
further differentiate their services.

BUSINESS STRATEGY

32
<PAGE>
Principal elements of CellNet's strategy are to (i) focus on utility markets,
(ii) promote development of non-utility applications, (iii) form strategic
alliances, (iv) pursue international expansion and (v) outsource a substantial
portion of its manufacturing and installation activities.

FOCUS ON UTILITY MARKETS

The Company is initially targeting those utilities which operate in the 60
largest MSAs, which represent a majority of the 225 million electric, gas and
water meters in the United States. The Company believes that utilities operating
in these densely populated areas will be the first to experience heightened
competitive and regulatory pressures, and as such, will have the greatest need
to adopt NMR. These MSAs also offer the greatest potential markets for
non-utility applications. The Company is also pursuing selected utilities
outside of the top 60 MSAs.

PROMOTE DEVELOPMENT OF NON-UTILITY APPLICATIONS

Through the efficient use of spectrum, each CellNet network will have excess
capacity after serving all of a utility's NMR and distribution automation
requirements. The Company will seek to use its networks' excess capacity to
support non-utility services that would benefit from the availability of a
low-cost wireless network and that would be offered by CellNet's corporate
clients, including a utility or its affiliates. The Company is working with
leading manufacturers and application developers in order to promote the
development of products and services capable of using the CellNet networks.
Potential applications include the following:

- security services for home security, fire alarm and personal safety
devices;

- remote status monitoring for vending, postage, change and commercial
washing machines, office and factory equipment, and intelligent home
devices, such as remote control thermostats; and

- intelligent transportation systems for traffic lights, parking meters and
toll booths.

The Company believes that its low monthly network service prices will
substantially increase the likelihood of market acceptance of existing
applications and enable potential new applications. Wireless home security
systems are an example of an existing application that might achieve greater
market penetration if equipment and service costs were reduced by using a
CellNet network. CellNet is working with Interactive Technologies, Inc., a
leading provider of wireless home security systems, to develop an affordable
security system that would communicate over a CellNet network. Additionally,
remote monitoring of vending machines would substantially reduce the cost of
servicing those machines. Real Time Data, Inc. ("RTD") has developed a vending
machine monitoring device which tracks product sales and inventory. RTD and the
Company have been working together to integrate RTD's devices with the Company's
networks and expect to begin commercial trials within twelve months.

FORM STRATEGIC ALLIANCES

The Company is forming strategic alliances with leading companies and
certain utilities to promote the development and joint marketing of
complementary products or services for utility applications and the development
of non-utility applications whose traffic would be carried on CellNet networks.
CellNet is currently working with the following leading companies.

AMERITECH AND WISCONSIN ELECTRIC POWER COMPANY. The Company is working with
Ameritech and its partner, Wisconsin Electric Power Company, on the development
and joint marketing of a high-end, two-way, in-home terminal for remote control
of home security, lighting, environmental and other home systems.

GENERAL ELECTRIC COMPANY ("GE"). GE and the Company have entered into a
non-binding memorandum of understanding ("MOU") to jointly market to utilities,
on a non-exclusive basis, automated NMR solutions that incorporate both parties'
products. GE has installed CellNet radio devices on new GE meters on a trial
basis.

HEWLETT-PACKARD ("HP"). The Company and HP are working on a number of
projects for cooperative marketing of utility applications such as systems
integration, data storage, transformer load analysis, energy

33
<PAGE>
theft analysis, power quality measurement, and equipment and status monitoring.
This non-exclusive relationship, pursuant to a non-binding MOU, provides for
joint marketing, technology exchange and joint proposals to utilities.

HONEYWELL, INC. Honeywell has entered into a non-binding MOU with the
Company relating to the creation of "smart communicating thermostats" that would
serve as the key elements in a home-based energy management system. The parties
also plan to collaborate on identifying other in-home automation products that
could leverage Honeywell's extensive line of environmental control products with
CellNet's wireless technology.

INTERACTIVE TECHNOLOGIES, INC. ("ITI"). The Company has entered into an
agreement with ITI, a leading provider of wireless, in-home security systems, to
develop moderately-priced security systems based on ITI's existing security
devices and CellNet's wireless technology.

RTD. As described above, RTD, a developer of remote vending machine
monitoring systems, has entered into an agreement with the Company to integrate
its vending machine monitoring system with the Company's wireless network
technology.

CONNEXT, INC. ("CONNEXT"). The Company has entered into a joint marketing
agreement with ConnexT, a subsidiary of Puget which provides network-based
application services to utility companies, whereby the parties agree to assist
each other in marketing their respective products and services to both
companies' existing and prospective utility customers.

PURSUE INTERNATIONAL EXPANSION

With several hundred million utility meters located outside of the United
States and with comparable opportunities to use the CellNet system for utility
and non-utility applications, the international market offers significant
additional opportunities for the Company. Although it has concentrated almost
all of its efforts to date on the domestic market, the Company has begun
exploring international market opportunities. The Company has undertaken limited
market investigations in a number of countries including the U.K., Singapore and
Thailand, and continues to receive numerous inquiries from utilities and others
expressing interest in the deployment of the CellNet system outside of the
United States. The Company's strategy is to pursue these markets through joint
ventures with local utilities and other partners that would facilitate the
adoption of CellNet's system. In considering international expansion
opportunities for its system, the Company expects that its targeted markets will
be characterized by (i) a well-developed utility infrastructure, (ii) demand for
low-cost monitoring, (iii) a progressive regulatory climate favoring increased
efficiency, customer service and competitive access and (iv) well-capitalized,
established and reliable local partners.

The Company's principal international activity to date has been in the
United Kingdom, where deregulation and privatization initiatives have resulted
in open market competition in a pattern which may be duplicated elsewhere. The
Company believes that the CellNet system can be adapted for use in the United
Kingdom with appropriate modifications to the system's radio devices and other
system equipment. The Company is seeking to obtain spectrum licenses with the
assistance of local regional electric companies ("RECs") and others, and has
initiated discussions with a number of RECs for the deployment of pilot and
full-scale NMR systems.

Singapore and Thailand are estimated to have approximately 3.0 million and
8.0 million existing utility meters (of which 2.0 million are in metropolitan
Bangkok), respectively. The Company has had preliminary discussions with
utilities and potential local partners to enter into NMR services agreements in
these markets.

OUTSOURCE SUBSTANTIAL MANUFACTURING AND INSTALLATION ACTIVITIES

The Company outsources a substantial portion of its manufacturing and
installation activities. As a result, CellNet leverages the size and
capabilities of key suppliers to take advantage of manufacturing economies of
scale, reduce component pricing through bulk purchasing, and have access to
manufacturing capacity and resources to meet highly variable production
requirements. The Company will retain overall

34
<PAGE>
network construction responsibility, but intends to rely on local subcontractors
for installation, primarily those who have long working relationships with
CellNet's utility customers. The Company believes that outsourcing installation
activities will reduce the start-up time and the Company's investment risk for
each project.

WIRELESS COMMUNICATIONS INDUSTRY OVERVIEW

CellNet operates within the wireless communications industry, which includes
personal communications services ("PCS"), specialized mobile radio ("SMR"),
microwave, cellular (including cellular digital packet data ("CDPD") ), paging
and multiple address radio system ("MAS") segments, among others. The two
principal categories of commercial wireless applications are voice and data
transmission. Within those broad categories, service requirements for specific
applications vary substantially in terms of quality, speed, capacity, mobility,
two-way capability, geographical coverage and cost. In general, products which
provide for greater mobility and capacity are more expensive. As a consequence,
the market for wireless services is segmented, matching specific service
requirements with the most suitable wireless technology. The following chart
illustrates the relative positioning of these applications.

[CHART]

[Graphical representation of the relative positions of segments within the
wireless communications industry based upon two parameters: (i) relative network
capacity to handle data, voice and video applications and (ii) relative user
device mobility ranging from fixed to mobile. The chart suggests that monthly
endpoint cost increases with increasing network capacity and user/device
mobility.]

CellNet's system is designed to utilize small amounts of spectrum and to
provide low-cost, high-volume, real-time monitoring of fixed endpoints. The
Company believes other telecommunications applications or market segments are
not as well suited for use in NMR and similar applications except in limited
cases such as high-use industrial metering, where the increased equipment and
service costs might be justified by high rates of power consumption, or in
certain rural applications, where the cost of installing and operating a fixed
network on a per meter basis might be higher. Competing service applications are
therefore expected to develop largely within the segment of the wireless
communications market in which CellNet now operates.

35
<PAGE>
CellNet's network architecture and the nature of the markets that it serves
differ significantly from traditional cellular companies, thereby resulting in
potential advantages for CellNet in providing NMR services which include:

LOWER MARKET ADOPTION RISK. CellNet will only construct a network after
entering into a long-term relationship with a utility or other client. It
therefore does not need to finance construction of networks in anticipation of
obtaining customers.

LOWER CHURN/PENETRATION RATE. Unlike the customer bases for other wireless,
voice and data service providers where customers can easily switch to a
competitive provider, CellNet's subscriber endpoints do not experience frequent
change or "churn" and the Company gains 100% penetration within each contracted
market. The marketing and administrative costs typically associated with churn,
and the capital risk associated with variable penetration rates, are thus
eliminated. Further, due to inflation escalation clauses in the Company's
services agreements, the Company believes that the value of its revenue per
endpoint in real terms will likely be maintained over time.

HIGHER CUSTOMER CREDIT QUALITY. CellNet receives its contract service
revenue directly from utilities rather than from individual subscribers. As a
result, the Company experiences less credit risk and generally lower billing
expenses than other wireless communication providers.

MORE EFFICIENT DEPLOYMENT. Cellular and PCS cell sites are frequently
costly and can be difficult to obtain. The modularity of the CellNet system and
the efficient size of its components facilitate inexpensive deployment of
scalable networks. The Company's system components have been designed to fit on
utility power poles or, where necessary, on buildings or other structures. As
the electric utility is its primary customer, CellNet has access to utility
poles, transmission towers, and various properties for deployment. Radio
devices, which represent the bulk of network components, are simply "plugged in"
as newly retrofitted meters to replace an existing meter. The Company's MCCs and
CellMasters (as defined below) typically take two to five hours to install,
providing a network which can be deployed swiftly and efficiently. The system is
also scalable, thereby allowing coverage regardless of the size of the utility
service area.

MORE EFFICIENT SYSTEM DESIGN. Cellular telephone networks are designed for
peak usage, with a large percentage of the network underutilized for much of the
day. The CellNet network gathers information from its endpoints consistently
around the clock and therefore does not encounter the peak usage problems
typically experienced by cellular phone service providers.

LOWER FREQUENCY COSTS. Cellular, PCS and other two-way wireless systems
typically require a large amount of spectrum which can be very costly to obtain.
Because the Company is able to utilize a small amount of frequency for a wide
metropolitan area (the equivalent of approximately a single cellular voice
channel), it is not subject to the substantial frequency costs associated with
wireless communications companies.

TECHNOLOGY

CellNet's NMR system has been developed specifically to offer real-time,
low-cost, high volume wireless data communications services. Such services
require (i) inexpensive endpoint devices, (ii) the ability to support a wide
range of applications, (iii) reliable, consistent service over a wide area, (iv)
the capacity to handle simultaneous transmission and processing of a large
volume of data, (v) integrated communications and applications support software,
and (vi) efficient use of bandwidth to minimize spectrum acquisition costs.

To meet these cost and data handling requirements, CellNet has designed a
system which uses a two-tiered wireless network hierarchy managed by a central
system control center which collects, concentrates, forwards and manages data
from many fixed endpoints. The elements of this communications hierarchy
include:

- endpoint devices which transmit data relating to the equipment they are
monitoring or controlling such as utility meters;

36
<PAGE>
- MicroCell Controllers ("MCCs") which manage the endpoint devices in their
local coverage area (as part of a local area network or "LAN") and which
collect and process data transmissions from such endpoint devices;

- CellMasters which gather data from MCCs located in a wide coverage area
(as part of a wide area network or "WAN") and which communicate that data
to a central System Controller; and

- a System Controller which manages the entire network and operates the
application gateways for integration with the client's own data systems.

[CHART]

[Schematic diagram of CellNet's wireless data communications system,
illustrating the heirarchy from endpoint radio devices to System Controllers.]

ENDPOINT DEVICES. The subscriber unit of the CellNet system is a relatively
inexpensive low-power radio device which is attached to a stationary data
source, such as a utility meter, to collect and transmit information to an MCC
and typically includes a transceiver or transmitter. The Company has developed
endpoint devices for electric utility applications which may be retrofitted to
each of the four major types of utility meters presently being used by electric
utilities in the United States. These endpoint devices currently collect time of
use, customer demand and load profile data from an electric meter and transmit
such information to the local area MCC once every few minutes. Electric meter
endpoints are also able to transmit "distress signals" indicating meter
tampering or power outages. The Company is also developing endpoint devices for
gas and water meters, which it expects to introduce by the end of 1996 and 1997,
respectively, and two-way radio devices for advanced NMR applications. The
Company is also working with industry leaders to develop endpoint devices for
non-utility applications. See "-- Business Strategy -- Form Strategic
Alliances."

MICROCELL CONTROLLERS. An MCC is a device which is mounted on a utility
pole or other fixed location in the center of a microcell and which routes data
from all of the endpoints in the microcell to the CellMaster via the WAN. The
number of endpoint devices in each microcell depends on a number of factors,
including topography and population density. In addition to functioning as a
router, the MCC is an intelligent node in the distributed control system and has
a powerful microprocessor which enables it to perform data storage, packet
routing and voltage and power outage monitoring for endpoint devices in its
microcell area. Each

37
<PAGE>
MCC also has extensive network management capabilities which permit new endpoint
devices to be added automatically without interfering with the handling of data
from existing endpoints. This architecture allows CellNet to significantly
reduce the cost of the endpoint device itself and increases the potential data
throughput of an entire network, as most of the intelligence is provided at the
MCC level. The MCC communicates with the endpoint devices in its microcell in
the 902-928 mHz band, which is an unlicensed portion of spectrum.

CELLMASTERS. A CellMaster generally communicates with anywhere from 50 to
200 MCCs over an area typically covering 20-75 square miles (2.5-5-mile radius).
Each CellMaster incorporates network management software which manages traffic
scheduling, radio frequency power controls and signal monitoring. CellMasters
are built with fully redundant hardware, are ruggedly constructed for extreme
weather, and can perform automatic switchovers between system components in case
of failure. The WANs covering specific utility customer service areas are
composed of a number of CellMaster units. A CellMaster communicates with the
MCCs using a radio link in the 928/952 mHz band, which is a licensed portion of
spectrum.

RTUS. Remote Terminal Units ("RTUs") monitor and operate equipment at
specific points in a utility's distribution system. CellNet integrates a two-way
radio device into RTU equipment manufactured for a utility by other parties,
which enables remote operation of these RTUs. By providing a means of remote
monitoring and controlling of power distribution equipment, CellNet's system
enables utilities to monitor and control circuit breakers, monitor the load on
transformers, control circuits to isolate faults on feeder power lines, and
switch automatically among capacitor banks to provide constant voltage levels.

SYSTEM CONTROLLERS. The System Controller provides the link from the
CellMasters to the client's corporate data network and serves as the network
management platform. The System Controller consists of a cluster of UNIX-based
workstations operating over a network using standard TCP/IP protocols. Such a
configuration is extremely scaleable as it can be expanded to meet system
requirements simply by adding additional workstations. The System Controller
supports a variety of radio-based and leased line data links to each CellMaster
in the network. These links are redundant for added reliability. At the local
systems operations center, the System Controller provides customized gateways to
existing client data systems. The System Controller enables CellNet's on-site
system operator, who manages the network for CellNet's utility clients, to
manage traffic, monitor performance and configure network devices. As
non-utility applications are deployed, the Company may integrate additional
server devices to manage such non-utility applications at the System Controller
level.

CellNet's MCC and CellMasters are equipped with back-up batteries and power
supply. CellNet's System Controllers also have available back-up power
capability.

The Company also operates the CellNet Central Operations Room ("CCOR") at
its San Carlos, California facilities which monitors performance of all regional
System Controllers and is able to assume operations of the regional networks if
the local System Controller experiences a failure. The Company operates a
private national data network to link these regional sites using third-party
carrier services.

SYSTEM SOFTWARE. CellNet believes that one of its key enabling technologies
is the software which facilitates operation of a large-scale NMR system. While
certain "off-the-shelf" networking approaches work well in a wireline
environment with expensive computers and workstations, the ability to operate in
a wireless environment under extreme conditions at low cost has required the
development of a sophisticated network architecture. CellNet's network solution
is based on distributed computing and messaging technologies which enable
intelligence to be decentralized and ensure efficient use of spectrum. The
CellNet Network Operating System ("NOS") is a proprietary system that provides
sophisticated network communication services between the System Controller and
the CellMaster units, RTUs, MCCs and endpoint devices. It is a scaleable system
that has been specifically designed to ultimately handle millions of endpoints
in a single regional network. Extensive real-time diagnostic and network
management features manage traffic, monitor system performance and enable
network configuration as data is collected and delivered to users. The CellNet
NOS is able to maintain fast response times and system capacity by distributing
a significant portion of the network's computing power at the MCC level.

38
<PAGE>
The NOS offers the benefits of incrementally adding processing power as well
as supporting remote operations required for redundancy and backup operations.
As such, an entire regional system can be switched quickly from one System
Controller to another in the event of failure. The CellNet NOS is also able to
segregate network data from multiple non-utility applications and provide such
data to non-utility clients over additional database interfaces. Each CellNet
system is customized with application-specific gateways which enable the
interface between the System Controller and the client's existing corporate data
systems. CellNet has delivered gateways to support the data requirements for
billing automation, electric distribution automation, customer service call
center automation and load management programs. The flexibility provided by this
NOS architecture will enable the system to offer services for many new
applications unrelated to NMR services such as distribution automation and
non-utility applications. By building on a general network capability the
Company can extend its services to many other utility and non-utility services
without incurring significant costs of re-designing the underlying
communications architecture. Each new application is expected to be added with
only incremental development, which will be focused primarily on
application-specific endpoint devices and system gateways. Furthermore, since
its design is independent of the specific endpoint radio devices, the Company
believes that this architecture can evolve to incorporate future advances in
wireline and wireless communications. The Company has made a substantial
commitment to establishing a strong competitive position, having invested over
240 staff-years in the design, development and testing of its system.

EFFICIENT SPECTRUM UTILIZATION. CellNet's network components utilize both
licensed and unlicensed radio frequency bands. The CellNet WAN operates in the
928/952 mHz frequencies which are licensed by the FCC in 25 or 12.5 kHz channel
bandwidths for full duplex operation and point-multipoint data services. CellNet
has developed a proprietary technology, subject to issued and pending patents,
which permits a narrowband radio system to derive 10 subchannels from a single
25 kHz channel. By reusing subchannels in a manner similar to that used by
cellular phone systems, CellNet believes it can grow a system to cover a large
region and expand capacity incrementally as needed. As a result, CellNet is able
to operate its wide area networks in the spectral equivalent of approximately a
single voice channel. CellNet has obtained 50 spectrum licenses in 42 of the top
60 MSAs and believes that it will be able to obtain additional spectrum as
required.

MANUFACTURING AND OPERATIONS

The Company currently outsources the manufacture and assembly of its high
volume, low cost equipment such as endpoint radio devices. For instance, Jabil
Circuit Inc. ("Jabil"), one of the largest electronic equipment subcontractors
in the United States, is assembling endpoint radio devices for electric meters
for the Company. CellNet's supply strategy is to leverage the size and
production capabilities of Jabil and other key suppliers to take advantage of
manufacturing economies of scale, reduce component pricing through bulk
purchasing and obtain access to manufacturing capacity and resources to meet
highly variable production requirements.

CellNet presently focuses its limited internal manufacturing resources on
final assembly and testing of its lower volume, more complex equipment,
including System Controllers, CellMasters and MCCs. CellNet assembles these
network components, then custom configures and tests such components to meet
stringent utility industry field equipment standards. Samples of all products,
whether internally or externally built, are thermally and electrically
stress-tested to measure product quality and reliability. Test results are used
both to monitor production quality and to provide information to CellNet's
development organization for further design enhancements.

CellNet has developed and is continuing to improve a high-volume, low-cost
process to retrofit electric utility meters with endpoint radio devices without
causing a meaningful disruption of service to a utility's customers. The
Company's proprietary system for retrofit information management analyzes
operating data, generates reports, and provides this information to utilities
for inclusion in their databases. The Company installs its endpoint radios on
both new and previously installed electric meters at its retrofit facilities in

39
<PAGE>
Kansas City, Missouri. The Company expects that similar regional retrofit
centers will be established as needed to meet the network installation
requirements under new services agreements with utilities, although a retrofit
center can support more than one network deployment.

The Company's reliance on third-party manufacturers, including currently
single manufacturers for radio devices and for printed circuit boards, involves
a number of additional risks, including the absence of guaranteed capacity and
reduced control over delivery schedules, quality assurance, production yields
and costs. The Company relies on sole and limited source vendors and
subcontractors for certain subassemblies and components which involves certain
risks, including the possibility of shortages and reduced control over delivery
schedules, manufacturing capability, quality and cost. See "Risk Factors --
Dependence on Third-Party Manufacturers; Exposure to Component Shortages."

SYSTEM DEPLOYMENT AND OPERATION

For each of its network deployments, the Company provides full
implementation services to its clients, including system design, site selection,
frequency licensing, equipment installation, software modification, systems
integration and project management.

The modular design of the CellNet system and the efficient size of its
components facilitate inexpensive deployment of scalable networks. Most of the
system components have been designed to fit on utility power poles or, where
necessary, on buildings or other structures. The majority of the network is
simply "plugged in" as the newly retrofitted meters replace existing meters. The
MCCs and CellMasters take typically two to five hours each to install, providing
a network which can be deployed swiftly and efficiently. The system is also
scalable, thereby allowing adequate coverage regardless of the size of the
utility service area.

Field engineering teams are responsible for the installation and deployment
of all of the Company's networks. Once a services contract has been signed,
CellNet places a local project manager in charge of the installation. The
project manager hires local personnel, coordinates activities with various
departments within the utility, and draws on CellNet's corporate staff to
perform specialized services. CellNet's corporate staff is responsible for RF
network design, system software installation and integration, training of local
systems administration personnel, FCC licensing requirements, and remote systems
monitoring. CellNet's local personnel are responsible for RF engineering and
site testing, site selection, routine software administration and maintenance,
selection and training of subcontractors, coordination of meter retrofitting,
materials handling, and office administration. During the two to four-year
installation phase of each project, local personnel for the project employed by
CellNet numbers from five to nine people, depending on the size and anticipated
speed of each deployment. Meter changeout and system equipment installations are
generally carried out by subcontractors.

Following system deployment, a system management team of typically eight to
ten CellNet personnel (for deployments the size of KCPL and UE) will remain on
site for the duration of the contract to handle day-to-day operations and
routine utility requests. This group will be supported by CellNet's headquarters
or regional offices, if any, that will provide 24 hour troubleshooting support
as well as additional technical expertise that can be quickly dispatched if
needed.

The Company also intends to provide substantial customer support, including
on-going field support and critical centralized network support functions
through regional network control centers. Currently, the Company is providing
sophisticated network monitoring from its headquarters in San Carlos,
California.

CURRENT UTILITY SERVICES AGREEMENTS

KANSAS CITY POWER & LIGHT COMPANY. In August 1994, CellNet entered into a
Utility Services Agreement with KCPL (the "KCPL Services Agreement") for the
provision of NMR and other data communications services over a network to be
built, installed and operated by CellNet. KCPL is paying CellNet for certain
installation costs based upon the number of meters in revenue service and
monthly service fees based on the number of meters in service being used to bill
customers. The KCPL Services Agreement covers approximately 420,000 meters
within KCPL's service territory. CellNet is obligated to provide certain NMR
services, including basic meter reading, time-of-use, demand, connect/disconnect
(move in/move out), load profile and real-time reading, as well as outage and
tampering notification and certain other distribution

40
<PAGE>
automation services. CellNet retains ownership of its network system and all
related equipment. KCPL retains ownership of its meters, RTUs and all metering
and other data collected from KCPL's equipment. Upon the third anniversary
following complete deployment of the system, KCPL will have the option to
purchase from CellNet the radio transmitters and transceivers attached to KCPL's
meters and RTUs at prices intended to allow CellNet to fully recover its then
unamortized endpoint costs (meter and RTU radio device), based upon agreed
prices for such equipment.

The term of the KCPL Services Agreement is 20 years. KCPL has the right to
terminate the KCPL Services Agreement on its eighth, eleventh, fourteenth and
seventeenth anniversary, subject to six-months prior written notice and to the
making of specified termination payments intended to allow CellNet to recover
its then unamortized endpoint costs (meter and radio RTU device), based upon
agreed prices for such equipment. KCPL can also terminate the KCPL Services
Agreement for cause in the event of a material and continuing failure on
CellNet's part to meet agreed NMR performance standards on a consistent basis
over agreed time periods, subject to certain rights to cure any such failure.
CellNet is entitled to install and operate its network equipment on KCPL's
property under joint use arrangements. The cost of obtaining any necessary third
party installation sites will be shared equally by the parties. CellNet may use
the network to provide services to third parties both during and after the term
of the KCPL Services Agreement.

UNION ELECTRIC COMPANY. In August 1995, CellNet entered into a Utility
Services Agreement with UE (the "UE Services Agreement") for the provision of
data communications services over the Company's network for all electric meters
within defined limits of UE's service area in the city of St. Louis and certain
surrounding counties. UE is paying CellNet for certain installation costs and
monthly service fees based on the number of installed meters and RTUs. The UE
Services Agreement now covers approximately 800,000 electric meters within such
territory. CellNet is obligated to provide certain NMR services, including basic
meter reading, demand, load profile, connect/disconnect, time-of-use and
real-time reading, as well as outage and other notification services. During the
term of the UE Services Agreement, UE has the option to acquire certain gas NMR
services from CellNet and receive an expanded scope of electric NMR services.
CellNet retains ownership of its network system and all related equipment. UE
retains ownership of its meters, RTUs and all metering and other data collected
from UE's equipment.

CellNet is entitled to install its network equipment on UE's property
without cost provided the use of such sites is exclusively for the provision of
services to UE. The cost of obtaining any necessary third party sites will be
shared equally by the parties. CellNet may use the network to provide services
to third parties for a period of 30 years subject to the payment to UE of
reasonable rental rates. The term of the UE Services Agreement is 20 years with
an option on UE's part to extend it for two additional periods of five years
each on substantially similar terms. UE has the right to terminate the UE
Services Agreement on its seventh, twelfth and seventeenth anniversary subject
to six-months prior written notice and to the making of specified termination
payments intended to allow CellNet to recover its then unamortized endpoint
costs (meter and radio RTU devices) based upon agreed prices for such equipment.
UE can also terminate the UE Services Agreement for cause in the event of a
material and continuing failure on CellNet's part to meet agreed NMR performance
standards on a consistent basis over agreed time periods, subject to certain
rights to cure any such failure.

NORTHERN STATES POWER COMPANY. In August 1996, CellNet entered into a
Utility Services Agreement (the "NSP Services Agreement") with NSP for the
provision of data communications services over a network to be built, installed
and operated by CellNet. NSP will pay CellNet a monthly service fee based on the
number of meters in service then being used to bill customers. The NSP Services
Agreement covers approximately 1.0 million gas and electric meters within NSP's
service territory located in the Minneapolis - St. Paul metropolitan area.
CellNet is obligated to provide certain automated meter reading services,
including basic meter reading, time-of-use, demand, connect/disconnect (move
in/move out), load profile and real-time reading, as well as outage and
tampering notification and certain other distribution automation services.
CellNet retains ownership of its network system and all related equipment. NSP
retains ownership of its RTUs, meters and all metering and other data collected
from NSP's equipment.

41
<PAGE>
The term of the NSP Services Agreement is 15 years, with a five year option
to extend, exercisable by NSP. The NSP Services Agreement provides NSP with
certain rights to terminate the NSP Services Agreement prior to commercial
operation of the network and system (I.E., full deployment) if certain specific
conditions are not met, such as approval of the NSP Services Agreement by
governmental authorities to the extent such approval is required. In addition,
either party has the right to terminate the NSP Services Agreement upon the
occurrence of continuing events of default or if a governmental authority causes
the NSP Services Agreement to be rescinded. In addition, upon the failure of
either party to meet certain obligations, such as delays in installation or
integration schedules thereunder, such party must pay penalty fees to the other
party.

CellNet is entitled to install and operate its network equipment on NSP's
property, so long as it pays to NSP market-based rates for such rights. CellNet
bears the cost of obtaining any necessary third party installation sites.

PUGET SOUND POWER & LIGHT COMPANY. In August 1996, CellNet entered into a
letter of intent (the "Puget Letter of Intent") and an Initial Services
Agreement (the "Puget Initial Services Agreement") with ConnexT, a subsidiary of
Puget for the provision of NMR and other data communications services over a
network to be operated by CellNet. The Puget Letter of Intent provides that the
parties will enter into good faith negotiations with respect to a Services
Agreement which would succeed the Puget Initial Services Agreement.

The Puget Initial Services Agreement covers approximately 15,000 meters
within Puget Power's service territory. There are approximately 838,000 meters
within Puget's service territory. The Company seeks a long term services
agreement covering approximately 556,000 meters. The term of the Puget Initial
Services Agreement continues until 60 days after an evaluation period following
installation and testing of the network. CellNet is obligated to provide certain
NMR services and to retrofit certain quantities of electric and gas meters
supplied by ConnexT. ConnexT has agreed to arrange for Puget to undertake
installation of retrofitted meters, MCCs, CellMasters and other network related
components in the agreed service territory. CellNet will establish communication
links and perform certain other work necessary to complete installation. ConnexT
is paying CellNet monthly services fees based on the number of meters in service
then being used to bill customers. CellNet retains ownership of its network
system, all related equipment and radio meter modules. ConnexT retains ownership
of its meters and certain other equipment. If CellNet has met certain
performance standards under the Initial Services Agreement and, within one year,
a Services Agreement has not been entered into with Puget covering at least
175,000 meters, ConnexT may elect to continue receiving NMR services from
CellNet for a period of not less than five years, or may discontinue the
arrangement upon making a specified termination payment intended to allow
CellNet to recover certain of its invested costs.

SALES AND MARKETING

The Company has organized its sales and marketing efforts based on utility
and non-utility network applications. For its utility segment, the Company's
initial target market includes utilities in the 60 largest MSAs in the U.S.
which represent a large majority of the meters in the United States. The Company
is also pursuing selected utilities outside the top 60 MSAs. Given the strategic
nature of the Company's utility products, sales cycles typically extend up to 18
months and involve the solicitation, consultation and approval of decision
makers across key divisions within each potential utility customer. The Company
has a sales and marketing organization of 24 persons, including six dedicated
sales representatives with a mix of utility and information technology sales
backgrounds, several of whom have extensive experience in the electric utility
industry. Regional sales professionals are supported by corporate specialists in
the areas of metering, systems integration, and deployment.

The Company has established a team of market managers for the development of
new business opportunities. This team develops business concepts that are
enabled by CellNet's services, pursues market research to validate these
concepts and identifies potential alliances that will be required to create the

42
<PAGE>
products and services. This team is composed of individuals with backgrounds in
cellular and wireless marketing, product management and consumer products. The
Company intends to seek joint venture partners to pursue international markets.

CellNet's sales approach addresses a utility's need to prepare for the
future competitive environment by reducing costs, meeting present and future
regulatory requirements and enhancing customer service. CellNet intends to show
sustained commitment to the utility by entering into long-term performance-based
contracts, typically exceeding ten years. While the sales cycle for utilities is
lengthy, it results in the signing of long-term service contracts covering
thousands and potentially several million endpoints, providing both significant
recurring revenue and the opportunity to offer additional non-utility services.

The Company intends to concentrate its marketing efforts for non-utility
applications on industry-leading providers of products and services that would
benefit from the Company's low-cost wireless network. The Company is working
with leading manufacturers and applications developers to promote and develop
products and services that utilize the Company's networks. See "-- Business
Strategy -- Promote Development of Non-Utility Applications." The Company
expects that the manufacturers and developers of such products and services
would market such products and services to end users.

PROPRIETARY RIGHTS

CellNet relies on a combination of trade secret protection, copyrights,
patents, trademarks and confidentiality and licensing agreements to establish
and protect its proprietary rights.

CellNet's WAN radio system has been developed using advanced digital signal
processing techniques and an RF system architecture that enables CellNet to
create a complete digital cellular system in approximately a single 25 kHz voice
channel. This technology is based on narrowband modulation and compression of
many subchannels into a single channel. Extremely stable frequency control is
required to preserve system performance. CellNet's system of frequency control
is the subject of several issued and pending patents claims. In addition, the
efficiency of the frequency protocol utilized by the CellMaster is determined in
part by its ability to recover short burst transmissions from an RTU or MCC. The
CellMaster's burst data recovery process is also the subject of several issued
and pending patents claims.

The spread spectrum radio technology utilized in the CellNet LAN has been
licensed to CellNet by Axonn Corporation and an affiliate of Axonn (together,
"Axonn"). The Axonn spread spectrum technology is a patented, low-cost radio
system which offers the price / performance relationships that the Company
believes are required for a commercially-feasible telemetry network. Under its
licenses from Axonn, CellNet has acquired an exclusive right to use Axonn spread
spectrum technology in the utility distribution and service market and an
exclusive right to provide services for other applications outside the utility
market through the CellNet system architecture. CellNet's right to provide fire
and security applications based upon Axonn's technology is not exclusive under
these licenses. The Axonn licenses do not expire by their terms until the last
to expire of any of the patent rights underlying such licenses which will occur
not earlier than March 21, 2014. Up to that time, as each patent licensed under
the Axonn licenses expires, the technology underlying such patent will become
freely available in the public domain.

CellNet has developed a proprietary, patent-pending approach to transmitting
metering information which allows the LAN to accumulate time of use, demand and
load profile data. CellNet's protocols and data transmission methods are
incorporated in its proprietary firmware. During the development and test
deployments of the CellNet WAN and LAN radio systems, the Company has
accumulated substantial information regarding cellular and microcellular radio
systems. This information is being used to develop modeling and planning tools
which assist CellNet in the deployment and operation of complex RF systems. The
Company has written over 4.5 million lines of software code to implement its
system, a process which required over 150 staff-years of design, coding and
testing and remains a proprietary asset.

The Company's success will depend in part on its ability to maintain
copyright and patent protection for its products, to preserve its trade secrets
and to operate without infringing the proprietary rights of third parties. See
"Risk Factors -- Uncertainty of Protection of Copyrights, Patents and
Proprietary Rights."

43
<PAGE>
RESEARCH AND DEVELOPMENT

The Company has steadily increased its research and development efforts over
the past several years and expects to continue to spend a significant portion of
its resources on these activities for the foreseeable future. The Company spent
$5.3 million, $9.7 million, $22.4 million and $13.0 million for research and
development in 1993, 1994, 1995 and the six months ended June 1996,
respectively. The Company presently employs more than 85 software and hardware
engineers and other professional staff in these efforts and contracts with a
number of highly-specialized outside consultants for additional services as
required. The focus of the Company's research and development efforts in the
past has been on the development of the radio hardware, spread spectrum radio
protocols, System Controllers, intelligent base stations (CellMasters and MCCs),
extensive software code, database capacity and other elements required for a
flexible, high-capacity wireless data communications network capable of
processing data from several million endpoints on a real-time basis at a low
cost. The Company expects that the focus of future research and development will
be to make further enhancements to the system software, firmware, hardware and
other equipment to increase the speed, capacity and functionality of the system,
to lower the cost of system equipment over time and, working with other
companies, to expand the scope of utility and non-utility services that may be
offered on the system. The Company's future success will depend, in part, on the
Company's success in these development projects which will require continued
substantial investments. See "Risk Factors -- Technological Performance and
Buildout of the System; Rapid Technological Change and Uncertainty."

As part of the Company's research and development efforts, the Company has
worked closely with current and potential customers in conducting pilot trials
and jointly developing system specifications and requirements.

COMPETITION

The emerging market for utility network automation systems, and the
potential market for other applications accessible once a common infrastructure
is in place, have led electronics, communications and utility product companies
to begin development of various systems, some of which currently compete, and
others of which may in the future compete, with the CellNet system. The Company
believes its only significant direct competitor in the marketplace at the
present time is Itron, an established manufacturer and seller of hand-held and
drive-by automated meter reading equipment ("AMR") to utilities. Itron has
announced the development of its Genesis-TM- system, a radio network similar to
the Company's for meter reading purposes and is presently offering that system
in the marketplace. The Company believes Itron has signed at least two contracts
with utilities for the commercial installation of its Genesis-TM- system.

Metricom, Inc. a provider primarily of subscriber-based, wireless data
communications for users of portable and desktop computers, First Pacific
Networks, a provider primarily of bandwidth efficient wireline communications
technology, and Lucent Technologies are examples of companies whose technology
might be adapted for NMR and who may become direct competitors of the Company in
the future. Schlumberger is developing a fixed network system or application in
cooperation with Motorola for meter reading as well. Schlumberger, Lucent
Technologies and First Pacific Networks either have conducted or are in the
process of conducting pilot trials of utility network automation systems.
Established suppliers of equipment, services and technology to the utility
industry such as Asea Brown Boveri and General Electric could expand their
current product and service offerings in the marketplace so as to compete
directly with the Company, although they have not yet done so. Many of the
Company's present and potential future competitors have significantly greater
financial, marketing, technical and manufacturing resources, name recognition
and experience than the Company. There may be many potential alternative
solutions to the Company's NMR services. The Company's competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements, or devote greater resources to the development, promotion and sale
of their products and services than the Company. While CellNet believes its
technology is widely regarded as competitive at the present time, there can be
no assurance that the Company's competitors will not succeed in developing
products or technologies that are better or more cost effective. In addition,
current and potential competitors may make strategic acquisitions or establish
cooperative relationships among themselves or with third parties, thereby
increasing their ability to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new

44
<PAGE>

competitors may emerge and rapidly gain significant market share. In addition,
if the Company achieves significant success it could draw additional competitors
into the market. Traditional providers of wireless services may in the future
choose to enter the Company's markets. However, such telecommunications
applications are not well suited for use in NMR or similar applications given
certain technical challenges and economic costs such as high embedded spectrum
costs. Such existing and future competition could materially adversely affect
the pricing for the Company's services and the Company's ability to sign
long-term contracts and maintain existing agreements with utilities. Competition
for services relating to non-utility applications may be more intense than
competition for utility NMR services. There can be no assurance that the Company
will be able to compete successfully against current and future competitors, and
any failure to do so would have a material adverse effect on the Company's
business, operating results, financial condition and cash flow.

The Company believes the principal competitive factors for NMR services
include price, quality of service, system functionality, reliability, and ease
of installation. The Company believes it competes favorably in these areas. In
particular, the Company believes that it has developed the first commercially
deployed, large-scale network-based NMR system capable of simultaneously
collecting, processing, transporting and sharing data from millions of endpoints
on an efficient and timely basis.

REGULATION

The Company's network equipment uses radio spectrum, and as such, is subject
to regulation by the FCC. In addition, CellNet intends to provide services as a
private carrier. This status allows services to be provided pursuant to
individual contracts without being subject to many of the statutory requirements
and FCC and state regulations that govern the provision of common carrier
services. The Company's network equipment uses both licensed radio spectrum
allocated for MAS operations in the 928/952 MHz band, and unlicensed spectrum in
the 902-928 MHz band. In order to obtain a license to operate the Company's
network equipment in the 928/952 MHz band, license applicants may need to obtain
a waiver of various sections of the FCC's rules. Although the Company has
obtained such waivers for its licensed systems routinely in the past, and
expects the required waivers to be granted on a routine basis in the future,
there can be no assurance that the Company will be able to obtain such waivers
on a timely basis or to obtain them at all. In addition, as the amount of
spectrum in the 928/952 MHz band is limited, issuance of these licenses is
contingent upon the availability of spectrum in the area(s) for which the
licenses are requested. The Company might not be able to obtain licenses to the
spectrum it needs in every area in which it has prospective customers. The FCC's
rules, subject to a number of limited exceptions, permit third parties such as
CellNet to operate on spectrum licensed to utilities to provide other services.
The Company plans to use these provisions of the FCC's rules to expand its
CellNet system. The FCC has the authority to amend its rules at any time and
such changes could have a material adverse effect on the Company's spectrum
utilization strategy. The FCC requires that a minimum configuration of an MAS
system be in operation within eighteen months from the initial date of the grant
of the system authorization or risk forfeiture of the license for the MAS
frequencies. The eighteen month deadline may be extended upon a showing of good
cause, but there is no assurance that the FCC will grant any such extension. The
Company is responding by selectively building out transmission capacity in some
areas where it does not yet have utility telecommunications service contracts
and may permit licenses to lapse in certain areas.

No license is needed to operate the Company's equipment utilizing the
902-928 MHz band, although the equipment must be certified by the Company and
the FCC as being compliant with certain FCC restrictions on radio frequency
emissions designed to protect licensed services from objectionable interference.
While the Company believes it has obtained all required certifications for its
products, the FCC could modify the limits imposed on such products or otherwise
impose new authorization requirements, and in either case, such changes could
have a material adverse impact on the Company's business. The FCC recently
completed a new rulemaking proceeding designed to better accommodate the
cohabitation in the 902-928 MHz band of existing licensed services with newly
authorized and expanded uses of licensed systems, and existing and newly
designed unlicensed devices like those used by the Company. In this proceeding,
the FCC expressly recognized the rights of such unlicensed services to operate
under certain delineated operating parameters even if the potential for
interference to the licensed operations exists. The

45
<PAGE>
Company's systems will operate within those specified parameters. The FCC
retains the right to modify those rules or to allow for other uses of this
spectrum that might create interference to the Company's systems, in either case
with a material adverse impact on the Company's business or operations in these
frequency bands.

While the Company intends to offer non-utility services as a private carrier
and in accordance with FCC Rules, each such service offering would need to be
reviewed relative to these rules. The FCC's rules currently prohibit the use of
the MAS frequencies on which the Company is operating its systems for the
provision of common carrier service offerings. In the event that it is
determined that a particular service offering does not comply with the rules,
the Company may be required to restructure such offering or to access other
frequencies for the purpose of providing such service. There can be no
assurances that the Company will gain access to such other frequencies. Future
interpretation of regulations by the FCC or changes in the regulation of the
Company's industry by the FCC or other regulatory bodies or legislation by
Congress could have a material adverse effect on the Company's operations.

EMPLOYEES

As of June 30, 1996, CellNet had 446 employees, including 88 in product
development, 229 in materials and manufacturing, 33 in sales and marketing, 65
in field service and support, and 31 in administration. None of the Company's
employees is currently represented by a labor union. The Company believes that
its relationship with its employees is good.

PROPERTIES

The Company's administrative, sales and marketing, product development and
production facilities are located in San Carlos, California, where the Company
leases approximately 66,000 square feet under an agreement which expires on
December 31, 2000. The Company will require additional space to meet its
currently anticipated requirements for expansion and is presently negotiating
for additional space near its present office complex. A subsidiary of the
Company leases approximately 30,000 square feet of factory and warehouse space
in Kansas City, Missouri where meter retrofit operations are carried out. The
Company anticipates that it will be able to acquire additional space as required
for its operations on acceptable terms.

LITIGATION

Although the Company has been granted federal registration of its "CellNet"
trademark, in January 1995 Century Telephone Enterprises, Inc. ("Century
Telephone") filed a petition for cancellation in an attempt to challenge such
registration. The matter is currently pending before the Trademark Trial and
Appeal Board of the U.S. Patent and Trademark Office. CellNet and Century
Telephone are the sole parties in the action. If such challenge were successful,
the Company could lose its registration and could be required to adopt a new
trademark and possibly a new or modified corporate name. CellNet could encounter
similar challenges in the future. See "Risk Factors -- Uncertainty of Protection
of Copyrights, Patents and Proprietary Rights."

The Company has no other pending litigation.

46
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the executive
officers and directors of the Company as of June 30, 1996.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --------- -----------------------------------------------------------------------
<S> <C> <C>
John M. Seidl............... 57 President, Chief Executive Officer and Director
Cree A. Edwards............. 39 Vice President, Business Development
Robert A. Hayes............. 44 Vice President, Development
James J. Jennings........... 49 Vice President, Sales and Marketing
Larsh M. Johnson............ 38 Vice President and Chief Technology Officer
Paul G. Manca............... 37 Vice President and Chief Financial Officer
Philip H. Mallory........... 56 Vice President and General Manager, Services and Operations
David L. Perry.............. 55 Vice President, General Counsel, Secretary and Chief Administrative
Officer
Paul M. Cook................ 72 Chairman of the Board
Neal M. Douglas(2).......... 37 Director
William C. Edwards(2)....... 67 Director
William Hart(2)............. 56 Director
Brian Kwait................. 35 Director
Nancy E. Pfund(1)........... 40 Director
Paul J. Salem(1)............ 32 Director
Henry B. Sargent(1)......... 62 Director
</TABLE>

- ---------
(1) Member of the Audit Committee

(2) Member of the Compensation Committee

JOHN M. SEIDL became President, Chief Executive Officer and a director of
the Company in September 1994. From December 1992 to September 1994, Mr. Seidl
served as a director of St. Mary's Land & Exploration Company, CRSS, Inc., J.B.
Poindexter, Inc. and a privately-held company. From January 1989 through
December 1992, Mr. Seidl served as a director of MAXXAM, Inc., an aluminum,
forest products and real estate concern, and Chairman and Chief Executive
Officer of Kaiser Aluminum Corporation. From September 1990 through December
1992 Mr. Seidl also served as President of MAXXAM, Inc. Previously, Mr. Seidl
was Executive Vice President, from July 1985 to May 1986, and President and
Chief Operating Officer, from May 1986 to January 1989, of Enron Corp., an
energy company. Mr. Seidl currently is a director of St. Mary's Land &
Exploration Company and several privately-held companies and non-profit
organizations. He received a B.S. degree in Engineering from the United States
Military Academy, and M.P.A. and Ph.D. degrees in Political Economy from Harvard
University.

CREE A. EDWARDS is a co-founder of the Company and has served as Vice
President, Business Development since January 1994. Mr. Edwards was President of
the Company from October 1984 to February 1990 and Executive Vice President of
the Company from February 1990 to January 1994. Prior to founding CellNet in
1984, Mr. Edwards was an Area Sales Manager for Octel Communications
Corporation, a voice processing manufacturer, from September 1984 to September
1985, and a Major Accounts Manager for the General Electric Information Services
Company from March 1983 to September 1984. He received a B.A. degree in
Economics from the University of California at Davis.

47
<PAGE>
ROBERT A. HAYES joined the Company in January 1993 as Vice President,
Special Assistant to the President. He became Vice President, Software
Development in March 1994 and was named Vice President, Development in January
1995. From February 1991 to December 1992, Mr. Hayes held a number of positions
with Everex Systems, Inc. ("Everex"), a computer hardware manufacturer,
including Vice President of Manufacturing, Vice President of Quality and
Service, Manager of the Network Division and Group Manager of Service. Everex
filed for Chapter 11 bankruptcy protection in January 1993. Mr. Hayes received
B.S. and M.C.E. degrees in Civil Engineering from Rice University.

JAMES J. JENNINGS joined the Company in August 1994 and has served as Vice
President, Sales and Marketing since that time. From April 1988 until July 1994,
Mr. Jennings was a Vice President of Octel Communications Corporation, a voice
processing manufacturer, where he served in a variety of domestic and
international sales, marketing and business development capacities. Mr. Jennings
served as an officer in the United States Army from 1968 to 1975. Mr. Jennings
holds a B.S. degree in Engineering from the United States Military Academy and
an M.B.A. degree from the University of San Francisco.

LARSH M. JOHNSON is a co-founder of the Company and has served in several
vice presidential positions from October 1984 to December 1994 and, since
January 1995, as Vice President and Chief Technology Officer. While at CellNet
and prior to co-founding the Company in 1984, he was a self-employed product
design consultant from May 1983 to June 1985 and Director of Product Development
at Interactive Communications Corporation, a video systems company, from
February 1984 to June 1985. Mr. Johnson was an Engineering Manager at Digital
Optics Corporation, a company specializing in electro-optical systems, from
March 1981 to April 1983 and an electrical engineer at Systems Control
Corporation, a computer hardware company, from June 1980 to April 1981. He
received B.S. and M.S. degrees in Mechanical Engineering from Stanford
University.

PAUL G. MANCA joined the Company in May 1995 as Vice President and Chief
Financial Officer. From March 1993 to May 1995, he was the Managing Director and
Group Head of the Communications Group at BZW/Barclays Bank. Mr. Manca joined
BZW/Barclays Bank as Vice President, Merchant Banking Division in February 1987.
From June 1980 to February 1987, Mr. Manca was employed in the corporate finance
group of the Canadian Imperial Bank of Commerce. He received a B.A. degree in
Economics from the University of California, Berkeley and an M.B.A. degree in
Finance from Golden Gate University.

PHILIP H. MALLORY joined the Company in January 1995 as Vice President and
General Manager, Services. In June 1996, he assumed the additional duties of
Vice President, Operations. From June 1992 to January 1995, Mr. Mallory held
various positions at CAE-Link Corporation, a defense contractor, including
Director of Strategic Planning, Director - Product Management and Director -
Department of Defense Marketing. Mr. Mallory served as a career officer in the
United States Army from June 1961 to August 1991, attaining the rank of Major
General prior to his retirement. During his army career he held a number of
posts, including Commanding General of the 2nd Armored Division, NATO Advisor to
the Secretary of Defense, and the Commanding General of the 7th Army Training
Command. Mr. Mallory received a B.S. degree in Engineering from the United
States Military Academy and an M.S. degree in Engineering - Applied Science from
the University of California, Davis. Mr. Mallory also attended the Industrial
College of the Armed Forces in Washington, D.C., where he attained the
equivalent of a master's degree in Resource Management.

DAVID L. PERRY joined the Company in November 1994 as Vice President,
General Counsel and Secretary, and was appointed Chief Administrative Officer in
February 1996. From January 1992 through November 1994, Mr. Perry was engaged as
an attorney in private practice. From January 1984 through December 1991, Mr.
Perry was Vice President and General Counsel of Kaiser Aluminum Corporation.
From August 1969 through December 1983, Mr. Perry served in a variety of
capacities in Kaiser Aluminum's Law Department. Mr. Perry received a B.A. degree
from Amherst College and a J.D. degree from the Boalt Hall School of Law,
University of California, Berkeley.

PAUL M. COOK has been a director of the Company continuously since August
1990. Mr. Cook became Chief Executive Officer of the Company in August 1990, and
assumed the additional title of President in 1992. He relinquished the positions
of President and Chief Executive Officer in September 1994. Since June

48
<PAGE>
1995, Mr. Cook has been the Chief Executive Officer and Chairman of the Board of
DIVA Systems Corp., a company developing video-on-demand products. Until his
retirement in April 1990, Mr. Cook was Chief Executive Officer of Raychem
Corporation, a plastics and insulation manufacturer, which he founded in 1957.
Since September 1994, Mr. Cook has served as Chairman of the Board of SRI
International, Inc., and as a director of Raychem Corporation. Currently, Mr.
Cook is also a director of Chemfab Corporation. He received a B.S. degree from
the Massachusetts Institute of Technology.

NEAL M. DOUGLAS has been a director of the Company since October 1993. Since
January 1993 he has been a general partner of AT&T Ventures Company, L.P. ("AT&T
Ventures"), a venture capital firm. From May 1989 to January 1993, he was a
partner of New Enterprise Associates, another venture capital firm. Mr. Douglas
also serves as a director of two privately held companies.

WILLIAM C. EDWARDS has been a director of the Company from October 1985 to
April 1986 and has been a director continuously since March 1991. Since October
1968 he has been a general partner of Bryan & Edwards, an investment
partnership. Mr. Edwards also serves as a director of Western Atlas, Inc. and
two privately held companies.

WILLIAM HART has been a director of the Company since October 1992. He has
been a general partner of Technology Partners, a venture capital firm, since its
founding in 1979. Mr. Hart also serves as a director of Trimble Navigation,
Ltd., Silicon Gaming, Inc. and several privately held corporations.

BRIAN KWAIT has been a director of the Company since October 1995. Mr. Kwait
has been a principal at Odyssey Partners, L.P. ("Odyssey"), a private investment
firm, since August 1989. Mr. Kwait also serves as a director of The Scotsman
Group, Inc. and one privately held company.

NANCY E. PFUND has been a director of the Company since January 1991. Since
December 1989, she has been an employee of Hambrecht & Quist Group ("H&Q"), an
investment banking firm. Ms. Pfund is also a principal of Hambrecht & Quist
Venture Partners and a general partner of H&Q Environmental Principals. She
serves as a director of Gensym Corp.

PAUL J. SALEM has been a director of the Company since January 1996. Mr.
Salem has been a vice president of Providence Ventures Inc., an investment
management firm, since June 1992. From August 1991 to June 1992, Mr. Salem was
an associate at Morgan Stanley & Co. Incorporated, an investment banking firm.
Mr. Salem also serves as a director of several privately held companies.

HENRY B. SARGENT has been a director of the Company since January 1996. Mr.
Sargent has been President, Chief Executive Officer and a director of El Dorado
Investment Company ("El Dorado"), a venture capital firm, for more than the past
five years. From May 1987 to June 1995, he was also Executive Vice President,
Chief Financial Officer and a director of Pinnacle West Capital Corp., an
electric utility holding company. Mr. Sargent also serves as a director of
Pinnacle West Capital Corp., Arizona Public Service Co., Megafood Stores, Inc.
and several privately held companies.

William C. Edwards is the father of Cree A. Edwards. There are no other
family relationships among the directors or executive officers of the Company.

BOARD OF DIRECTORS

The Company's Bylaws authorize a Board of Directors that can range in size
from six to 11 directors, with the number of directors presently set at ten. The
Company currently has nine directors and one vacancy. All directors hold office
until the next annual meeting of stockholders or until their successors have
been elected. Officers of the Company serve at the discretion of the Board of
Directors. Under the terms of the Shareholders' Agreement among the Company and
the holders of 69.6% of the issued and outstanding shares of capital stock of
the Company (after giving effect to the issuance of the Shares offered hereby
and in the Direct Placements), the Company agreed to set the authorized number
of directors on the Board of Directors at ten, and the stockholders party
thereto have agreed to elect the following persons to the Board of Directors:
(i) one candidate selected by H&Q, currently Nancy E. Pfund; (ii) one candidate
selected by El Dorado, currently Henry B. Sargent; (iii) Paul M. Cook; (iv) one
candidate selected by Banner Partners, currently William C. Edwards; (v) one
candidate selected by AT&T Ventures, currently Neal M. Douglas; (vi) one
candidate selected by Odyssey, currently Brian Kwait; (vii) one candidate
selected by Providence Media Partners L.P., currently Paul J. Salem; (viii) one
candidate selected by Kleiner, Perkins, Caufield &

49
<PAGE>
Byers, which position is currently vacant; and (ix) the Chief Executive Officer
of the Company, currently John M. Seidl. The foregoing voting obligations
terminate upon the closing of this Offering. Following this Offering, the
Company will continue to be obligated to nominate for election as directors the
persons designated by the parties to the Shareholders' Agreement for as long as
such parties continue to hold not less than 700,000 shares of Common Stock (as
such number may be adjusted from time to time for stock splits, consolidations
or other similar events). The parties to the Shareholders' Agreement have also
agreed to take such action as is necessary to retain the right of cumulative
voting in the election of directors and to maintain a Board of Directors of not
less than eight directors until August 15, 1997. See "Risk Factors --
Shareholders' Agreement" and "Description of Capital Stock -- Common Stock."

DIRECTORS' COMPENSATION

The Company does not pay any compensation to directors for serving in that
capacity, nor does it reimburse directors for expenses incurred in attending
board meetings. Under the terms of the Shareholders' Agreement, the Company has
agreed to reimburse the directors elected pursuant to the Shareholders'
Agreement for such expenses following the closing of this Offering for so long
as such persons continue to serve as directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors consists of three
non-employee directors, Mr. Edwards, Chairman, and Messrs. Douglas and Hart. The
Compensation Committee makes recommendations to the Board of Directors
concerning salaries and incentive compensation for employees of and consultants
to the Company. Mr. Edwards is the father of Cree A. Edwards, an executive
officer of the Company. No interlocking relationship exists between the
Company's Board of Directors or Compensation Committee and the board of
directors or compensation committee of any other party, nor has any such
relationship existed in the past. Entities affiliated with Messrs. Edwards,
Douglas and Hart are stockholders of the Company and have entered into financing
arrangements with the Company from time to time. See "Certain Transactions."

AUDIT COMMITTEE

The Audit Committee of the Board of Directors consists of three non-employee
directors, Ms. Pfund, Chair, and Messrs. Salem and Sargent. The Audit Committee
reviews the nature, scope and results of the independent audit of the Company,
the Company's accounting principles and internal accounting controls and other
matters relating to the relationship of the independent auditors with the
Company.

50
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth certain information for the year ended
December 31, 1995 regarding the compensation of the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers
whose annual compensation (salary and bonus) for services rendered in all
capacities to the Company during the year ended December 31, 1995 exceeded
$100,000 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION(1)
- -------------------------------------------------------- ---------- ---------- ------------- -----------------
<S> <C> <C> <C> <C>
John M. Seidl .......................................... $ 300,000 $ 135,000 -- $ 1,237
President and Chief Executive Officer
James J. Jennings ...................................... 175,060 -- -- 902
Vice President, Sales and Marketing
Robert A. Hayes ........................................ 165,000 10,000 -- 872
Vice President, Development
Larsh M. Johnson ....................................... 165,000 -- -- 872
Vice President and Chief Technology Officer
Philip H. Mallory ...................................... 138,654 -- $ 50,000(2) 762
Vice President and General Manager, Services and
Operations
</TABLE>

- ---------

(1) Represents premium payments made by the Company for life insurance,
accidental death and dismemberment, and long-term disability policies.

(2) Represents a relocation allowance.

OPTION GRANTS IN LAST YEAR. The Company made no stock option grants or
restricted stock awards during the year ended December 31, 1995 to the Named
Executive Officers. However, during 1995 the Company did permit the Named
Executive Officers to exercise unvested, previously-granted stock options to
purchase shares of restricted stock with vesting terms comparable to the vesting
terms of the options exercised.

AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES The
following table sets forth, for each of the Named Executive Officers, the shares
acquired and the value realized on each exercise of stock options during the
year ended December 31, 1995 and the year-end number and value of exercisable
and unexercisable options.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS
SHARES OPTIONS AT 12/31/95(#)(2) AT 12/31/95($)(1)(2)
ACQUIRED ON VALUE -------------------------- --------------------------
NAME EXERCISE(#)(2) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John M. Seidl.................. 800,000 $ 1,000,000 0 0 $ 0 $ 0
James J. Jennings.............. 180,000 225,000 0 0 0 0
Robert A. Hayes................ 0 0 109,000 121,000 143,150 147,350
Philip H. Mallory.............. 170,000 170,000 0 0 0 0
Larsh M. Johnson............... 220,658 248,158 106,190 173,952 148,576 190,427
</TABLE>

- ---------
(1) Calculated by determining the difference between the fair value of the
securities underlying the option on December 31, 1995 (which, for purposes
of this table, is assumed to equal the fair value of the Company's Common
Stock as last determined during fiscal 1995 on October 11, 1995 by the
Company's Board of Directors, or $1.50 per share), and the exercise price
(ranging from $0.05 to $0.50 per share).

(2) From December 1994 through August 1995 the Company issued and sold pursuant
to the early exercise of previously-granted options, an aggregate of
1,770,658 shares of restricted Common Stock to Messrs. Seidl, Jennings,
Mallory and Johnson at prices ranging from $0.05 to $0.50 per share, with
the

51
<PAGE>
purchase prices of such shares equal to the original exercise prices of such
options. Such shares of restricted stock were purchased with cash or by
delivery of promissory notes by such Named Executive Officers to the
Company. See "Certain Transactions." The loans represented by such
promissory notes are full recourse, bear interest at rates ranging from
6.04% to 7.92% per annum and mature on the fifth anniversary of such note.
Each such promissory note is secured by the shares of Common Stock purchased
with the proceeds of the loans. These shares are subject to repurchase by
the Company at the original price paid per share upon the purchaser's
cessation of service prior to the vesting of such shares. This repurchase
right lapsed and the purchaser vested as to a certain percentage of the
shares on the date of purchase and the repurchase right will lapse and the
purchaser will vest in the balance of the shares in a series of equal
quarterly or annual installments in accordance with the vesting schedule of
the exercised options. Information with respect to the shares of restricted
stock purchased by such Named Executive Officers is set forth below:

<TABLE>
<CAPTION>
NUMBER OF
RESTRICTED NUMBER OF VALUE OF
SHARES UNVESTED SHARES UNVESTED SHARES
NAME PURCHASED(#) AT 12/31/95(#) AT 12/31/95($)
- ----------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
John M. Seidl............................ 1,200,000 750,000 $ 1,125,000
James J. Jennings........................ 180,000 117,000 175,500
Philip H. Mallory........................ 170,000 127,500 191,250
Larsh M. Johnson......................... 220,658 117,158 175,737
</TABLE>

INCENTIVE STOCK PLANS

1992 STOCK OPTION PLAN. The Company's 1992 Stock Option Plan (the "1992
Plan") was adopted by the Board of Directors and approved by the Company's
stockholders in September 1992. A total of 6,000,000 shares of Common Stock are
reserved for issuance under the 1992 Plan. As of June 30, 1996, 3,375,748 shares
of Common Stock had been issued upon exercise of stock options, and options to
purchase an aggregate of 2,416,642 shares were outstanding at a weighted average
exercise price of $.21615 per share, of which 1,357,726 shares were vested. In
connection with the adoption of the 1994 Plan described below, the 1992 Plan was
terminated and no additional options may be granted thereunder. Options
previously granted under the 1992 Plan will continue to be governed by the
provisions of such plan.

1994 STOCK PLAN. The Company's 1994 Stock Plan (the "1994 Plan") was
adopted by the Board of Directors in December 1994 and approved by the
stockholders in June 1995. Options granted under the 1994 Plan may be incentive
stock options, nonstatutory stock options or stock purchase rights. Employees
(including employee directors) and consultants (including nonemployee directors)
are eligible for nonstatutory stock options and stock purchase rights, and only
employees are eligible for incentive stock options under the 1994 Plan. The 1994
Plan is administered by the Board of Directors or a committee thereof. The plan
administrator has the authority to determine the fair market value of the
shares, select the employees and consultants to whom options and stock purchase
rights may be granted, determine the number of shares covered by each option and
stock purchase right granted, and determine the term, exercise price and vesting
schedule of options granted under the 1994 Plan.

A total of 3,000,000 shares of Common Stock are reserved for issuance under
the 1994 Plan. As of June 30, 1996, 537,832 shares of Common Stock had been
issued upon exercise of stock options, options to purchase an aggregate of
1,362,494 shares were outstanding at a weighted average exercise price of
$1.3489 per share, of which 158,212 shares were vested, and 1,099,674 shares
remained available for future issuance under the 1994 Plan.

In the event of a merger of the Company with or into another corporation or
a sale of substantially all of the Company's assets, the 1992 Plan and the 1994
Plan each provides that options issued under such plans will be assumed, or an
equivalent option substituted, by the successor corporation. If the successor
corporation does not agree to such assumption or substitution, the option will
vest in full and become exercisable.

1996 EMPLOYEE STOCK PURCHASE PLAN. The Company's 1996 Employee Stock
Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in
July 1996 and will be submitted to the stockholders for approval in September
1996. A total of 1,200,000 shares of Common Stock are reserved for issuance
under the Purchase Plan. Under the Purchase Plan, the Company will withhold a
specified percentage of

52
<PAGE>
each salary payment to participating employees over certain offering periods.
Any employee who is then employed for at least 20 hours per week by the Company
(or any majority-owned subsidiary designated by the Board of Directors from time
to time), and who does not own 5% or more of the total combined voting power or
value of all classes of the capital stock of the Company or of any such
subsidiary, is eligible to participate in the Purchase Plan. Unless the Board of
Directors shall determine otherwise, each offering period will run for six
months, from November 1 to April 30 and from May 1 to October 31, except that
the first offering period will commence on the date of this Prospectus and end
on April 30, 1997. The price at which Common Stock may be purchased under the
Purchase Plan is equal to 85% of the fair market value of the Common Stock on
the first or last day of the applicable offering period, whichever is lower.

EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS

The Company entered into an employment agreement with Mr. Jennings in July
1994. The agreement provides for an annual base salary of $175,060 and certain
performance-based bonuses to be determined by the Company's President. As part
of the agreement, the Company granted to Mr. Jennings an option to purchase
180,000 shares of Common Stock at $0.25 per share, with 10% vesting six months
from the date of hire and the remainder vesting at a rate of 5% per quarter. If
Mr. Jennings is terminated by the Company without cause at any time, he will
receive his annual base salary and benefits for an additional twelve months, and
40% of any unvested shares of restricted stock held by Mr. Jennings will become
vested as of the date of termination.

Each of the Named Executive Officers are parties to an Employee Severance
Agreement with the Company which provides for accelerated vesting of their
respective stock options and for the lapse of the Company's rights to repurchase
unvested stock under all restricted stock purchase agreements upon the
occurrence of certain events following a change of control of the Company. These
events will occur if: (i) the Named Executive Officer's stock option agreement
or restricted stock purchase agreement is terminated without such officer's
consent, or if the terms of such agreements are not assumed by any successor to
the Company; (ii) the Named Executive Officer does not receive identical
securities or consideration, upon such officer's exercise of options or
restricted stock purchases, as other shareholders are receiving as part of such
change of control; (iii) six months have elapsed following the change of
control, so long as the Named Executive Officer remains employed by the Company;
or (iv) the Named Executive Officer is terminated or constructively terminated
following the change of control.

LIMITATIONS ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

The Company has adopted provisions in its Restated Certificate of
Incorporation that eliminate the personal liability of its directors for
monetary damages arising from breach of their fiduciary duties in certain
circumstances and authorize the Company to indemnify its directors and officers,
in each case to the fullest extent permitted by Delaware law. Such limitations
of liability do not apply to liabilities arising under the Federal securities
laws and do not affect the availability of equitable remedies such as injunctive
relief or rescission.

The Company's Bylaws provide that the Company will indemnify its directors
and officers to the fullest extent permitted by Delaware law, including under
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has entered into indemnification agreements providing for the
foregoing with its directors and executive officers. These indemnification
agreements may require the Company, among other things, to indemnify such
officers and directors against certain liabilities that may arise by reason of
their status or service as officers or directors and to advance their expenses
(including expenses of counsel) incurred as a result of any proceeding against
them as to which they could be indemnified.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company where indemnification is required or
permitted, nor is the Company aware of any threatened litigation or proceeding
that may result in a claim for such indemnification.

53
<PAGE>
CERTAIN TRANSACTIONS

Since January 1, 1993, the Company has sold shares of Preferred Stock
convertible into an aggregate of 16,215,170 shares of Common Stock in a series
of private financings. In January 1993, shares of Series AA Preferred Stock
convertible into 1,510,284 shares of Common Stock were sold at an as-converted
price of $0.50 per share. In October 1993 and December 1993, shares of Series BB
Preferred Stock convertible into 6,979,690 shares of Common Stock were sold at
an as-converted price of $2.375 per share. In connection with such sales, the
Company also issued warrants to acquire 766,888 shares of Series BB Preferred
Stock at an exercise price of $4.75 per share. In August 1994, shares of Series
CC Preferred Stock convertible into 6,431,536 shares of Common Stock were sold
at an as-converted price of $4.82 per share. In December 1994 and February 1995,
shares of Series DD Preferred Stock convertible into 1,293,660 shares of Common
Stock were sold at an as-converted price of $4.82 per share. The purchasers of
the Series BB Preferred Stock, Series CC Preferred Stock and Series DD Preferred
Stock included the following 5% or more stockholders, directors and entities
affiliated with directors.

<TABLE>
<CAPTION>
SHARES OF
SERIES BB
SHARES OF PREFERRED STOCK (1) PREFERRED
------------------------------------------------ STOCK UNDERLYING
NAME SERIES AA SERIES BB SERIES CC SERIES DD WARRANTS (2)
- ----------------------------------------------- ----------- ---------- ---------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND ENTITIES AFFILIATED WITH
DIRECTORS
Paul and Marcia Cook Living Trust
(Paul M. Cook)................................ -- 63,340 10,373 -- 19,002
AT&T Ventures (Neal M. Douglas)................ -- 631,580 48,842 -- 126,316
Entities affiliated with William C. Edwards.... 745,142 191,840 31,122 1,321 56,002
Technology Partners West Fund IV, L.P.
(William Hart)................................ -- 44,730 10,373 417 13,419
Odyssey Partners, L.P. (Brian Kwait)........... -- 1,450,660 112,184 -- 290,132
Entities affiliated with Hambrecht & Quist
(Nancy E. Pfund).............................. -- 213,585 35,794 1,520 48,343
Pfund Polakoff Family Trust (Nancy E. Pfund)... -- 2,025 -- -- 426
Providence Media Partners L.P. (Paul J.
Salem)........................................ -- -- 1,037,344 44,044 --
Entities affiliated with Henry B. Sargent...... -- 161,245 -- -- 41,623

OTHER 5% OR MORE STOCKHOLDERS
Entities affiliated with Acorn Ventures,
Inc........................................... -- 289,570 231,463 9,827 68,468
</TABLE>

- ---------
(1) Each share of Preferred Stock will automatically convert into two shares of
Common Stock upon the closing of this Offering.

(2) Each warrant to purchase Series BB Preferred Stock is exercisable at a price
of $4.75 per share and will expire immediately prior to the closing of this
Offering. This Prospectus assumes that all of such warrants will be
exercised and that the shares of Series BB Preferred Stock issuable upon
such exercise will automatically convert into shares of Common Stock upon
the closing of this Offering.

Between April 28, 1993 and September 13, 1993, Acorn Ventures, Inc.
("Acorn") (a principal stockholder of the Company), Cree A. Edwards (an
executive officer of the Company), entities affiliated with William C. Edwards
("Edwards Entities") (a director of the Company; the Edwards Entities are
principal stockholders of the Company), the Paul and Marcia Cook Living Trust
("Cook Trust") (a principal stockholder of the Company and an affiliate of Paul
M. Cook, Chairman of the Board of Directors of the Company), entities affiliated
with H&Q (affiliates of Nancy E. Pfund, a director of the Company), and

54
<PAGE>
entities affiliated with Henry B. Sargent ("Sargent Entities") (a director of
the Company; the Sargent Entities are principal stockholders of the Company)
loaned the Company $500,000, $133,230, $711,100, $297,355, $265,300 and
$579,490, respectively, pursuant to promissory notes due on demand after October
1, 1993 and bearing interest at the rate of 4% per annum. In connection with the
sale of the Series BB Preferred Stock, the outstanding balance of principal and
accrued interest under such promissory notes was converted into shares of Series
BB Preferred Stock at a conversion price of $4.75 per share and warrants to
purchase 0.3 shares of Series BB Preferred Stock for each share of Series BB
Preferred Stock issued upon conversion of the promissory notes and accrued
interest, such that the Company issued and sold to Acorn, Cree A. Edwards, the
Edwards Entities, the Cook Trust, H&Q and the Sargent Entities 105,540, 28,380,
151,480, 63,340, 56,470 and 123,600 shares, respectively, of Series BB Preferred
Stock and warrants to purchase 31,662, 8,514, 45,444, 19,002, 16,941 and 37,080
shares, respectively, of Series BB Preferred Stock. The Company believes the
terms of these loans were no less favorable to the Company than loans negotiated
by such persons with unaffiliated third parties.

On September 29, 1993, the Company issued and sold 400,000 shares of Common
Stock to Acorn, a stockholder of the Company, at a price per share of $0.05.
These shares were granted as part of a transaction in which Acorn was required
to perform consulting services for the Company. These shares were subject to
repurchase by the Company until such rights lapsed in September 1995.

On June 14, 1995, the Company issued and sold 200,000 shares of Common Stock
to Acorn at a price per share of $0.50. Acorn paid cash for the shares. These
shares are subject to repurchase by the Company which right lapses over a
five-year period commencing in December 1994. On August 25, 1995, the terms of
the Company's agreement with Acorn were amended to provide for accelerated
release of such shares from the Company's repurchase option upon termination of
such agreement other than for cause. The transactions with Acorn were
unanimously approved by the Board of Directors of the Company and were on terms
the Company believes were no less favorable than would have been received from
unaffiliated third parties.

On December 27, 1994 and January 27, 1995, the Company issued and sold
400,000 shares and 800,000 shares, respectively, of Common Stock to Mr. Seidl,
its President and Chief Executive Officer, at a price of $0.25 per share based
on the early exercise of previously-granted options with an equivalent exercise
price. In connection with the sale of such shares, the Company loaned Mr. Seidl
$300,000. The loans are full recourse, bear interest at the rate of 7.74% per
annum in the case of $100,000 of principal and at the rate of 7.92% per annum in
the case of $200,000 of principal, are due on the earlier of termination of Mr.
Seidl's employment or December 26, 1999 and January 25, 2000, respectively, and
are secured by the shares of Common Stock purchased with the proceeds of such
loans.

On July 21, 1995, the Company issued and sold 170,000 shares of Common Stock
to Mr. Mallory, an executive officer of the Company, at a price of $0.50 per
share, based on the early exercise of a previously-granted option with an
equivalent exercise price. In connection with the sale of such shares, the
Company loaned Mr. Mallory $85,000. The loan is full recourse, bears interest at
the rate of 6.28% per annum, is due on the earlier of termination of Mr.
Mallory's employment or July 21, 2000 and is secured by the shares of Common
Stock purchased with the proceeds of such loan.

On July 31, 1995, the Company issued and sold 180,000 shares of Common Stock
to Mr. Manca, an executive officer of the Company at a price of $0.50 per share
based on the early exercise of a previously-granted option with an equivalent
exercise price. In connection with the sale of such shares, the Company loaned
Mr. Manca $90,000. The loan is full recourse, bears interest at the rate of
6.28% per annum, is due on the earlier of termination of Mr. Manca's employment
or July 31, 2000 and is secured by the shares of Common Stock purchased with the
proceeds of such loan.

On August 1, 1995, the Company issued and sold 45,110 shares of Common Stock
to Ronald W. Goodall, a former executive officer of the Company who resigned in
1996, at a price of $0.05 per share, based on the early exercise of a
previously-granted option with an equivalent exercise price. On August 1, 1995,
the Company also issued and sold 144,000, 110,000 and 40,000 shares of Common
Stock to Messrs. Jennings, Johnson and Goodall, respectively, each an executive
officer of the Company, at a price of $0.25 per share based on the early
exercise of previously-granted options with equivalent exercise prices. On
August 1, 1995,

55
<PAGE>
the Company also issued and sold 155,408, 50,000 and 110,658 shares of Common
Stock to Messrs. Edwards, Goodall and Johnson, respectively, each an executive
officer of the Company, at a price of $0.50 per share, based on the early
exercise of previously-granted options with an equivalent exercise price. In
connection with the sale of shares, the Company loaned Messrs. Goodall,
Jennings, Johnson and Edwards $37,255, $36,000, $82,829 and $77,704,
respectively. The loans are full recourse, bear interest at the rate of 6.04%
per annum, are due on the earlier of termination of employment or August 1, 2000
and are secured by the shares of Common Stock purchased with the proceeds of
such loans. Notwithstanding the foregoing, the Company agreed to extend the
maturity date of the restricted stock purchase loan of Mr. Goodall until
December 31, 1996, at which time a balance of $40,455 in principal and accrued
interest will be due. The Company will exercise its option to repurchase the
unvested portion of Mr. Goodall's restricted stock at the original purchase
price, and such amount will be credited against the amount of principal and
interest due.

The amounts of outstanding indebtedness, including interest, on the loans to
executive officers described above as of June 30, 1996, which were the largest
aggregate amount of indebtedness owed by each of the officers at any time, were
as follows: Mr. Seidl, $334,315.40, Mr. Mallory, $90,060.13, Mr. Manca,
$95,202.94, Mr. Jennings, $37,995.68, Mr. Johnson, $87,420.68, Mr. Edwards,
$82,011.57 and Mr. Goodall, $39,135.83. The terms (including the terms of the
promissory notes) of the sale of shares of Common Stock by the Company to
Messrs. Seidl, Mallory, Manca, Jennings, Johnson, Edwards and Goodall were
unanimously approved by the Board of Directors of the Company. The shares were
issued upon the early exercise of unvested options and are subject to repurchase
by the Company at the original price paid per share upon such executive
officer's termination of employment prior to vesting in such shares. The
repurchase rights lapse and the shares vest at the same rate as the prior
vesting schedule of the exercised options. See "Management -- Executive
Compensation." The sales price of each sale was the fair market value of the
Company's Common Stock on the original date of grant of each option to purchase
Common Stock, as determined by the Board of Directors of the Company.

56
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of June 30, 1996, and as adjusted to
reflect the sale of shares offered hereby by (i) each person who is known by the
Company to own beneficially more than five percent of the Common Stock, (ii)
each of the Named Executive Officers, (iii) each of the Company's directors and
(iv) all current directors and executive officers as a group.

<TABLE>
<CAPTION>
SHARES PERCENT BENEFICIALLY
BENEFICIALLY OWNED (1)(2)
OWNED (1) ------------------------
------------- BEFORE AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
- ------------------------------------------------------------------------------ ------------- ----------- -----------
<S> <C> <C> <C>
Odyssey Partners, L.P. (3) ................................................... 3,705,952 12.2% 9.1%
31 West 52nd Street
New York, NY 10019
Providence Media Partners L.P ................................................ 2,162,776 7.2 5.3
50 Kennedy Plaza
Providence, RI 02903
Paul M. Cook (4) ............................................................. 2,132,088 7.0 5.2
PM Cook Associates
Bldg. IR-242
333 Ravenswood Avenue
Menlo Park, CA 94025
Banner Partners (5) .......................................................... 2,037,912 6.8 5.0
3000 Sand Hill Road
Bldg. 1, Suite 190
Menlo Park, CA 94025
William C. Edwards (6) ....................................................... 1,894,228 6.3 4.7
3000 Sand Hill Road
Bldg. 1, Suite 190
Menlo Park, CA 94025
Acorn Ventures, Inc. (7) ..................................................... 1,755,400 5.8 4.3
11400 S.E. Sixth Street, Suite 120
Bellevue, WA 98004
AT&T Ventures Company, L.P. (8) .............................................. 1,613,476 5.4 4.0
3000 Sand Hill Road
Bldg. 4, Suite 235
Menlo Park, CA 94025
El Dorado Investment Company (9) ............................................. 1,603,152 5.4 4.0
400 E. Van Buren, Suite 750
Phoenix, AZ 85004
John M. Seidl................................................................. 1,200,000 4.0 3.0
Robert A. Hayes (10).......................................................... 136,000 * *
James J. Jennings............................................................. 180,000 * *
Larsh M. Johnson (11)......................................................... 416,268 1.4 1.0
Philip H. Mallory............................................................. 170,000 * *
Neal M. Douglas (12).......................................................... 1,613,476 5.4 4.0
William Hart (13)............................................................. 998,914 3.3 2.5
Brian Kwait (3)(14)........................................................... 3,705,952 12.2 9.1
Nancy E. Pfund (15)........................................................... 1,367,316 4.6 3.4
Paul J. Salem (16)............................................................ 2,162,776 7.2 5.3
</TABLE>

57
<PAGE>

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

(1) Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the
number of shares beneficially owned by a person and the percentage of
ownership of that person, shares of Common Stock subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of June 30, 1996 are deemed outstanding. Such shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. The persons named in this 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 and except as indicated in the other footnotes to this
table.

(2) Percentage of beneficial ownership before the Offering is based on
29,915,164 shares of Common Stock outstanding as of June 30, 1996 and gives
effect to the automatic conversion of all outstanding shares of Preferred
Stock into Common Stock. Percentage of beneficial ownership after the
Offering is based on 40,518,967 shares of Common Stock then outstanding and
assumes the exercise of warrants to purchase 4,132,970 shares of Common
Stock effective upon the closing of this Offering.

(3) Includes 580,264 shares issuable upon the exercise of warrants held by
Odyssey, all of which are assumed to be exercised upon the closing of this
Offering.

(4) Consists of 1,645,630 shares beneficially owned by the Paul and Marcia Cook
Living Trust, dated April 21, 1992, 120,000 shares beneficially owned by two
trusts of which Mr. Cook is trustee, 328,140 shares issuable upon the
exercise of options exercisable within 60 days of June 30, 1996, 38,004
shares issuable upon the exercise of warrants held by the Paul and Maria
Cook Living Trust, dated April 21, 1992, all of which are assumed to be
exercised upon the closing of this Offering, and 314 shares issuable upon
the exercise of warrants held by Mr. Cook.

(5) Includes 59,658 shares issuable upon the exercise of warrants held by
Banner Partners, of which 59,238 are assumed to be exercised upon the
closing of this Offering.

(6) Includes 989,128 shares, 269,192 shares, and 577,540 shares beneficially
owned by Banner Partners, Banner Partners/Minaret, Carson, a partnership,
and certain members of Mr. Edwards's family and certain foundations and
trusts of which Mr. Edwards is a trustee, respectively. Also includes 29,830
shares, 7,458 shares, and 21,080 shares issuable upon the exercise of
warrants held by Banner Partners, Banner Partners/Minaret, Carson, and such
family members, foundations and trusts, respectively, of which an aggregate
of 58,158 are assumed to be exercised upon the closing of this Offering. Mr.
Edwards, a director of the Company, may be deemed to be a beneficial owner
of shares held by such family members, foundations and trusts. Mr. Edwards
and Alan R. Brudos are the general partners of Banner Partners and exercise
voting and dispositive power over the shares held by Banner Partners.

(7) Includes 136,936 shares issuable upon the exercise of warrants held by
Acorn, all of which are assumed to be exercised upon the closing of this
Offering. Rufus W. Lumry is the principal stockholder, sole director and
President of Acorn, and in such capacities exercises voting and dispositive
power over the shares held by Acorn.

(8) Includes 252,632 shares issuable upon the exercise of warrants held by AT&T
Ventures, all of which are assumed to be exercised upon the closing of this
Offering.

(9) Includes 50,936 shares issuable upon the exercise of warrants held by El
Dorado, of which 50,682 are assumed to be exercised upon the closing of this
Offering.

(10) Consists of 136,000 shares issuable upon the exercise of options
exercisable within 60 days of June 30, 1996 held by Mr. Hayes.

58
<PAGE>
(11) Includes 122,650 shares issuable upon the exercise of options exercisable
within 60 days of June 30, 1996 held by Mr. Johnson.

(12) Consists of 1,613,476 shares beneficially owned by AT&T Ventures. Mr.
Douglas, a director of the Company, is a general partner of AT&T Ventures
and may be deemed to be the beneficial owner of such shares. Mr. Douglas
disclaims beneficial ownership of the shares except to the extent of his
proportionate partnership interest therein.

(13) Consists of 971,936 shares beneficially owned by Technology Partners West
Fund IV, L.P. and 26,978 shares issuable upon the exercise of warrants held
by Technology Partners West Fund IV, L.P., of which 26,838 are assumed to be
exercised upon the closing of this Offering. Mr. Hart, a director of the
Company, is a general partner of Technology Partners and may be deemed to be
the beneficial owner of such shares. Mr. Hart disclaims beneficial ownership
of the shares except to the extent of his proportionate partnership interest
therein.

(14) Consists of 3,705,952 shares beneficially owned by Odyssey. Mr. Kwait, a
director of the Company, is a principal of Odyssey and may be deemed to be
the beneficial owner of such shares. Mr. Kwait disclaims beneficial
ownership of the shares except to the extent of his proportionate
partnership interest therein.

(15) Consists of 11,250 shares beneficially owned by the Pfund Polakoff Family
Trust Dated February 18, 1993, 177,890 shares beneficially owned by H&Q
Group, 1,035,888 shares beneficially owned by H&Q Environmental Technology
Fund and 44,460 shares beneficially owned by the Hambrecht 1980 Revocable
Trust. Also consists of 852 shares issuable upon the exercise of warrants
held by the Pfund Polakoff Family Trust Dated February 18, 1993, 13,918
shares issuable upon the exercise of warrants held by H&Q Group, 79,472
shares issuable upon the exercise of warrants held by H&Q Environmental
Technology Fund and 3,586 shares issuable upon the exercise of warrants held
by the Hambrecht 1980 Revocable Trust, of which 97,538 shares are assumed to
be exercised upon the closing of this Offering. Ms. Pfund, a director of the
Company, is a general partner of the H&Q Environmental Technology Fund and
an employee of H&Q Group and may be deemed to be the beneficial owner of
such shares. Ms. Pfund disclaims beneficial ownership of the shares held by
H&Q Group, H&Q Environmental Technology Fund and the Hambrecht 1980
Revocable Trust except to the extent of her proportionate interest therein.

(16) Consists of 2,162,776 shares beneficially owned by Providence Media
Partners L.P. ("PMP"). Mr. Salem, a director of the Company, is a limited
partner of Providence Ventures L.P., the general partner of the general
partner of PMP, and is a vice president of Providence Ventures Inc., which
provides investment management services to PMP, and may be deemed to be
beneficial owner of such shares. Mr. Salem disclaims beneficial ownership of
the shares except to the extent of his proportionate partnership interest
therein.

(17) Consists of 4,210 shares beneficially owned by Mr. Sargent, 1,552,216
shares beneficially owned by El Dorado and 132,940 shares beneficially owned
by Sundance Capital Corporation. Also consists of 842 shares issuable upon
the exercise of warrants held by Mr. Sargent, 50,936 shares issuable upon
the exercise of warrants held by El Dorado and 37,162 shares issuable upon
the exercise of warrants held by Sundance Capital Corporation, of which
88,686 are assumed to be exercised upon the closing of this Offering. Mr.
Sargent, a director of the Company, is President of El Dorado and a
principal of Anderson & Wells Investment Companies, which manage Sundance
Capital Corporation, and may be deemed to be the beneficial owners of such
shares. Mr. Sargent disclaims beneficial ownership of the shares held by El
Dorado and Sundance Capital Corporation.

(18) Includes 1,882,674 shares issuable upon the exercise of options and
warrants exercisable within 60 days of June 30, 1996.

59
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Upon the closing of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock and 15,000,000 shares
of Preferred Stock after giving effect to the automatic conversion of all
outstanding shares of Preferred Stock into Common Stock and the amendment and
restatement of the Company's Certificate of Incorporation. Prior to the
Offering, there has been no public market for the Company's Common Stock. The
following summary of certain provisions of the Common Stock and Preferred Stock
does not purport to be complete and is subject to, and qualified by, the
provisions of the Company's Restated Certificate of Incorporation which is
included as an exhibit to the Registration Statement of which this Prospectus is
a part, and by the provisions of applicable law.

COMMON STOCK

As of June 30, 1996, there were 34,048,134 shares of Common Stock
outstanding which were held of record by 285 stockholders, as adjusted to
reflect the automatic conversion of all outstanding shares of Preferred Stock
into 24,705,692 shares of Common Stock and the issuance of 4,132,970 shares of
Common Stock upon the assumed exercise of certain outstanding warrants.

The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders, except that, in the election of
directors, the holders are entitled to cumulative voting. Under terms of the
Shareholders' Agreement, the Company is obligated to nominate for election those
persons designated by the parties to the Shareholders' Agreement for as long as
the entities having the right to select such persons continue to hold not less
than 700,000 shares of Common Stock, as appropriately adjusted for stock splits,
consolidations or similar events. The parties to the Shareholders' Agreement
have also agreed to take such action as is necessary to retain the right of
cumulative voting in the election of directors and to maintain a Board of
Directors of not less than eight directors until August 15, 1997. See "Risk
Factors -- Shareholders' Agreement" and "Management -- Board of Directors."

Subject to preferences that may be applicable to any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the board of
directors out of funds legally available for that purpose. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. However, certain stockholders
have certain contractual pre-emptive and subscription rights. See "--Rights of
First Refusal" and "--Other Rights." There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable, and the shares of Common Stock offered
hereby will, upon the closing of the Offering, be fully paid and non-assessable.

PREFERRED STOCK

Effective upon the closing of the Offering, the Company will be authorized
to issue 15,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding. The Board of Directors will have the authority, without further
action by the stockholders, to issue the undesignated Preferred Stock in one or
more series, to fix the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued shares of undesignated Preferred Stock
and to fix the number of shares constituting any series and the designation of
such series. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock and may adversely affect
the market price of and the voting and other rights of the holders of Common
Stock. At present, the Company has no plans to issue any Preferred Stock.

WARRANTS

Upon the closing of the Offering, the Company will have outstanding warrants
to purchase an aggregate of 50,150 shares of Common Stock, after giving effect
to an assumed exercise of warrants to purchase 4,132,970 shares of Common Stock.
Such outstanding warrants consist of warrants to purchase 50,000 shares

60
<PAGE>

of Common Stock at an exercise price of $2.00 per share (the "$2.00 Warrants")
and warrants to purchase an aggregate of 150 shares of Common Stock at an
exercise price of $20.00 per share (the "$20.00 Warrants"). 40,000 of the $2.00
Warrants are currently exercisable, and the remaining 10,000 $2.00 Warrants will
become exercisable on August 21, 1997. The $2.00 Warrants will expire on
February 24, 1999. The $20.00 Warrants are currently exercisable and will expire
on February 6, 1997.

In addition, the Company has outstanding Note Warrants to purchase an
aggregate of 2,600,000 shares of Common Stock at an exercise price of $0.005 per
share, which Note Warrants were issued in connection with the issuance of the
Senior Discount Notes, and warrants to purchase an aggregate of 766,485 shares
of Series BB Preferred Stock at an exercise price of $4.75 per share (the
"Preferred Warrants"), which Preferred Warrants were issued in connection with
the issuance of the Series BB Preferred Stock. The Note Warrants will expire 90
days after the closing date of this Offering and the Preferred Warrants will
expire immediately prior to the closing of this Offering. This Prospectus
assumes that each of the Note Warrants and Preferred Warrants will be exercised
upon the closing of the Offering.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

After the Offering, the holders of 28,188,916 shares of Common Stock and
warrants to purchase 1,532,970 shares of Common Stock (assuming no cashless
exercise of such warrants) and their transferees will be entitled to certain
rights with respect to the registration of such shares under the Securities Act
pursuant to the Shareholders' Agreement. Under the Shareholders' Agreement, if
the Company proposes to register any of its securities under the Securities Act,
the holders are entitled to notice of such proposed registration and the
opportunity to include their shares therein, subject to certain conditions and
limitations including the right of the underwriters of an offering to limit the
number of shares included in such registration to 25% of the total number of
shares to be registered in certain circumstances. The holders may also require
that the Company file up to two registration statements under the Securities Act
with respect to underwritten public offerings of their shares at any time
beginning 180 days after the effective date of the Offering. Furthermore, the
holders may require the Company to register their shares on Form S-3 when such
form becomes available to the Company. In addition, holders who purchased Series
CC Preferred Stock are entitled to initiate two separate demand registrations
with respect to an underwritten public offering of the shares of Common Stock
issuable upon conversion of the Series CC Preferred Stock at any time beginning
180 days after the effective date of the Offering, subject to certain other
conditions and limitations. Other holders may participate in such registration,
provided that in the event of an underwriter's cutback, the number of shares
that may be included in such registration would be subject to certain
allocations. The Company will pay certain expenses in connection with the
exercise of the foregoing rights. All registration rights will terminate as to
any holder upon the later to occur of (i) one year after the Offering or (ii)
such time as such holder may sell all his or her shares under Rule 144 in any
three month period.

Pursuant to its obligation under the Warrant Agreement, concurrently with
the closing of the Offering the Company is registering the offer and sale of
2,600,000 Note Warrant Shares which are being offered for sale by the Company to
holders electing to exercise the Note Warrants. The Note Warrants are
exercisable at any time beginning on the closing of the Offering and ending on
the Expiration Date. If not exercised by the Expiration Date, the Note Warrants
terminate and may not be exercised. The Note Warrant Shares are currently
subject to lock-up agreements which prohibit resale of the Note Warrant Shares
for 90 days from the closing of the Offering. Under a Warrant Registration
Rights Agreement dated June 15, 1995, as supplemented on November 21, 1995 (the
"Warrant Registration Rights Agreement"), after the Offering the holders of Note
Warrants may require, subject to the provisions of certain lockup agreements,
that the Company file up to three registration statements under the Securities
Act with respect to the Note Warrant Shares. Furthermore, the holders may
require the Company to register the Note Warrant Shares on a Form S-3 when such
form becomes available to the Company, subject to certain conditions and
limitations. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the holders of the Note Warrant Shares are entitled to notice of such
registration and are entitled to include their shares therein, subject to
certain conditions and limitations including the right of underwriters of an
offering to limit the number of shares included in such registration in certain
circumstances. The Company will pay certain expenses in connection with the
exercise of the

61
<PAGE>

foregoing rights. The registration rights of the holders of the Note Warrant
Shares under the Warrant Registration Rights Agreement terminate when such
shares may be sold without limitation pursuant to Rule 144 under the Securities
Act.

The Company has also agreed to register up to one half of the 1,470,833
shares of Common Stock purchased by NSP and UE in the Direct Placements upon
request at any time after one year from the closing of the Offering.

RIGHTS OF FIRST REFUSAL

Under the Shareholders' Agreement, holders who purchased Series CC Preferred
Stock have a right of first refusal to purchase, at the same price and on the
same general terms, a pro rata portion of equity securities that the Company
proposes to issue in certain transactions, including equity securities proposed
to be issued to any public or private utility or an affiliate of such utility,
and have a right of first refusal to purchase a pro rata portion of any equity
securities that any subsidiary of the Company proposes to issue to any public or
private utility or an affiliate of such utility if the subsidiary's business is
unrelated to the market area of such utility or if such securities are
convertible into equity securities of the Company. Such pro rata portion is
based on the ratio of the number of shares of Common Stock held by such holder
to the total number of shares of Common Stock then outstanding, including shares
of Common Stock issuable upon the exercise of "in the money" options and
warrants, at the time of issuance of such equity securities. This right of first
refusal terminates three years after the closing date of this Offering. The
holders of such rights have agreed to waive such rights in connection with the
Direct Placements.

OTHER RIGHTS

Under the Shareholders' Agreement, the investors in Series CC Preferred
Stock have the right to co-invest on similar terms and conditions in any foreign
investments, partnerships, or joint ventures involving the Company which include
financing from purely financial (as compared to strategic) investors. The co-
investment rights terminate three years after the closing date of this Offering.

Under the Shareholders' Agreement, in the event that any holder of shares of
the Company's equity securities who is a party to such agreement intends to
transfer (other than to an affiliate) any such shares to a buyer who owns or
will acquire as a result of the sale voting stock equal to 20% or more of the
Company's outstanding equity securities, the parties to the Shareholders'
Agreement will have the right to sell a pro rata portion of their shares to the
buyer in such transaction. In the event that any holder of shares of the
Company's equity securities who is a party to the Shareholders' Agreement
intends to acquire (other than from an affiliate) additional voting stock, and
such holder owns or will acquire as a result of such purchase 20% or more of the
Company's voting stock, the parties to the Shareholders' Agreement also have the
right to sell to such purchasing holder a pro rata portion of the voting stock
proposed to be acquired in such transaction. This co-sale right terminates three
years after the closing date of this Offering.

In addition, NSP has a right to participate in future public offerings of
newly issued shares of Common Stock by the Company. NSP will be entitled to
purchase a pro rata portion of the shares that the Company proposes to offer to
the public based on the ratio of the number of shares purchased by NSP in the
Direct Placements and owned on the date of such public offering to the total
number of shares of Common Stock then outstanding before giving effect to such
public offering. However, NSP may not exercise such participation right to the
extent that NSP's percentage ownership of the Common Stock after such new
offering would exceed the percentage ownership of NSP upon the closing of this
Offering (after giving effect to the release of any Escrow Shares to NSP). NSP's
participation shall be on the same terms and conditions as the public investors
in such public offering. NSP's participation right terminates two years after
the effective date of this Offering.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless (with
certain exceptions) the "business

62
<PAGE>
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of a corporation's voting stock.
The existence of this provision would be expected to have an anti-takeover
effect with respect to transactions not approved in advance by the Board of
Directors, including discouraging attempts that might result in a premium over
the market price for the shares of Common Stock held by stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The Bank of New
York.

63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the Offering and the Direct Placements, the Company
will have 40,518,967 shares of Common Stock outstanding, after giving effect to
the assumed exercise of warrants to purchase 4,132,970 shares of Common Stock.
Of these shares, the 5,000,000 shares sold in the Offering and up to 2,600,000
Note Warrant Shares issuable upon exercise of the Note Warrants, subject to
90-day lock-up agreements, will be freely tradable without restriction under the
Securities Act, unless held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act. Pursuant to its obligation under
the Warrant Agreement, concurrently with the closing of the Offering the Company
is registering the offer and sale of 2,600,000 Note Warrant Shares which are
being offered for sale by the Company to holders electing to exercise the Note
Warrants. The Note Warrants are exercisable at any time beginning on the closing
of the Offering and ending on the Expiration Date. If not exercised by the
Expiration Date, the Note Warrants terminate and may not be exercised. The Note
Warrant Shares are currently subject to lock-up agreements which prohibit resale
of the Note Warrant Shares for 90 days from the closing of the Offering. The
remaining 32,918,967 shares of Common Stock held by existing stockholders and by
NSP and UE were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act and are "restricted"
securities within the meaning of Rule 144 under the Securities Act ("Restricted
Shares"). Restricted Shares may be sold in the public market only if registered,
or pursuant to an exemption from registration such as Rules 144, 144(k) or 701
under the Securities Act. Sales of the Restricted Shares in the public market,
or the availability of such shares for sale, could adversely affect the market
price of the Common Stock.

All of the Company's directors, officers and holders of five percent or more
of the Common Stock, and certain other stockholders, have entered into lockup
agreements under which they have agreed not to offer, sell, or otherwise dispose
of any shares of Common Stock, options or warrants to acquire shares of Common
Stock or securities exercisable or exchangeable for or convertible into Common
Stock owned by them for a period of 180 days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. The
Company has entered into a similar agreement, except that the Company may grant
options and issue shares of Common Stock under its current stock option and
stock purchase plans and pursuant to other currently outstanding options. The
holders of 2,839,906 shares of Common Stock issued or issuable upon exercise of
options granted under the 1992 Plan have entered into similar agreements which
are applicable for a period of 120 days after the date of this Prospectus. See
"Underwriters."

Under the agreements related to the Direct Placements, NSP and UE have
agreed not to directly or indirectly sell or transfer 735,417 of the aggregate
number of shares of Common Stock purchased by them in the Direct Placements for
a period of one year from the effective date of the Offering, and not to
directly or indirectly sell or transfer the remaining 735,417 shares of Common
Stock purchased by them in the Direct Placements for a period of two years from
the effective date of this Offering. Upon expiration of such two year period,
all of such shares will be eligible for immediate public resale, subject to the
provisions of Rule 144. In addition, the Company has also agreed to register up
to one half of the 1,470,833 shares of Common Stock purchased by NSP and UE in
the Direct Placements upon request at any time after one year from the closing
of the Offering.

Upon expiration of the applicable 180 day lockup agreements, approximately
26,420,242 such shares of Common Stock will become eligible for immediate public
resale, subject in some cases to the limitations imposed by Rule 144. The
remaining approximately 654,650 shares held by existing stockholders will become
eligible for public resale at various times beginning after 180 days after the
date of this Prospectus and subject to the provisions of Rule 144. In addition,
approximately 2,839,906 shares of Common Stock which are subject to the
provisions of Rule 701, and 2,137,754 shares which are subject to vested
options, will be available for sale in the public market, in each case, 120 days
after the effective date of the Offering.

The holders of approximately 28,188,916 of the shares outstanding
immediately following the completion of the Offering and 4,132,970 shares of
Common Stock issuable upon exercise of outstanding warrants and their permitted
transferees are entitled to certain registration rights with respect to such
shares upon the expiration of the lockup agreements described above. The number
of shares sold in the public market could

64
<PAGE>

increase if such registration rights are exercised. See "Description of Capital
Stock -- Registration Rights of Certain Holders." In addition, as of June 30,
1996, 3,779,136 shares were subject to outstanding options. All of these shares
are subject to the lockup agreements described above. As soon as practicable
after this Offering, the Company intends to file a Registration Statement on
Form S-8 covering shares issuable under the Company's 1992 Plan and 1994 Plan
(including shares subject to then outstanding options under such plans), and
under the Company's Purchase Plan, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities Act
after expiration of the applicable lock-up agreements. See "Management --
Incentive Stock Plans."

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years (including the holding period of any prior owner, except an
affiliate) is entitled to sell within any three-month period commencing 90 days
after the date of this Prospectus, a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (approximately 405,190 shares immediately after this Offering) or
(ii) the average weekly trading volume of the Common Stock during the four
calendar weeks preceding the required filing of a Form 144 with respect to such
sale. Sales under Rule 144 are generally subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years, is entitled to sell such shares without having to comply with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Under Rule 701 under the Securities Act, employees, directors or
consultants who purchase shares upon exercise of options granted prior to the
effective date of this Offering are entitled to sell such shares commencing 90
days after the effective date of this Offering in reliance on Rule 144, without
having to comply with the holding period requirements of Rule 144 and, in the
case of non-affiliates, without having to comply with the public information,
volume limitation or notice provisions of Rule 144.

The Securities and Exchange Commission has recently proposed reducing the
initial Rule 144 holding period to one year and the Rule 144(k) holding period
to two years. There can be no assurance as to when or whether such rule changes
will be enacted. If enacted, such modifications will have a material effect on
the times when shares of the Company's Common Stock become eligible for resale.

Prior to this Offering, there has been no public market for the Common Stock
and no prediction can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of substantial amounts of
such shares in the public market, or the perception that such sales could occur,
could materially and adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities.

65
<PAGE>
UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement") , the U.S.
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Cowen &
Company, Montgomery Securities and Smith Barney Inc. are acting as U.S.
Representatives, and the International Underwriters named below, for whom Morgan
Stanley & Co. International Limited, Cowen & Company, Montgomery Securities and
Smith Barney Inc. are acting as International Representatives, have severally
agreed to purchase, and the Company has agreed to sell to them severally, the
respective number of shares of Common Stock set forth opposite the names of each
Underwriter below.

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ----------------------------------------------------------------------------------------------------- ----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated..................................................................
Cowen & Company....................................................................................
Montgomery Securities..............................................................................
Smith Barney Inc...................................................................................

----------

Subtotal....................................................................................... 4,000,000
----------

International Underwriters:
Morgan Stanley & Co. International Limited.........................................................
Cowen & Company....................................................................................
Montgomery Securities..............................................................................
Smith Barney Inc...................................................................................

----------

Subtotal....................................................................................... 1,000,000
----------
Total...................................................................................... 5,000,000
----------
----------
</TABLE>

The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters," and the U.S. Representatives and the
International Representatives are collectively referred to as the
"Representatives." The Underwriting Agreement provides that the obligations of
the Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the U.S. Underwriters' over-allotment option described below) if any
such shares are taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (a)
it is not purchasing any U.S. Shares (as defined herein) for the account of
anyone other than a United States or Canadian Person (as defined herein) and (b)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any U.S. Shares or distribute any prospectus relating to the U.S. Shares outside
of the United States or Canada or to anyone other than a United States or
Canadian Person. Pursuant to the Agreement between U.S. and International
Underwriters, each International Underwriter has represented and agreed that,
with certain exceptions: (i) it is not purchasing any International Shares (as
defined herein) for the account of any United States or Canadian Person and (ii)
it has not offered or sold, and will not offer or sell, directly or indirectly,
any International Shares or distribute any prospectus relating to the
International Shares in the United States or in any province or territory of
Canada or to any United States or Canadian Person. The foregoing limitations do

66
<PAGE>
not apply to stabilization transactions or to certain other transactions
specified in the Agreement between U.S. and International Underwriters. As used
herein, "United States or Canadian Person" means any national or resident of the
United States or of any province or territory of Canada, or any corporation,
pension, profit-sharing or other trust or other entity organized under the laws
of the United States or Canada or of any political subdivision thereof (other
than a branch located outside the United States and Canada of any United States
or Canadian Person) and includes any United States or Canadian branch of a
person who is otherwise not a United States or Canadian Person. All shares of
Common Stock to be purchased by the U.S. Underwriters and the International
Underwriters are referred to herein as the "U.S. Shares" and the "International
Shares," respectively.

Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of shares of Common Stock to be purchased pursuant to the Underwriting
Agreement as may be mutually agreed. The per share price of any shares sold
shall be the Price to Public set forth on the cover page hereof, in United
States dollars, less an amount not greater than the per share amount of the
concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any shares of common stock, directly or indirectly, in any
province or territory of Canada in contravention of the securities laws thereof
and has represented that any offer of Common stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
shares of Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and that any offer of Common Stock in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Common Stock a notice
to the foregoing effect.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and during the period of six months after the date hereof will not offer
to sell any shares of Common Stock to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
business or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995 (the "U.K. Regulations"); (ii) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 and the U.K. Regulations (to the extent applicable) with
respect to anything done by it in relation to the shares of Common Stock offered
hereby in, from or otherwise involving the United Kingdom; and (iii) it has only
issued or passed on and will only issue or pass on to any person in the United
Kingdom any document received by it in connection with the issue of the shares
of Common Stock, other than any document which consists of, or is a part of,
listing particulars, supplementary listing particulars or any other document
required or permitted to be published by listing rules under Article IV of the
Financial Services Act 1986, if that person is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995, or is a person to whom the document may otherwise
lawfully be issued or passed on.

The Underwriters initially propose to offer part of the shares of Common
Stock offered hereby directly to the public at the Price to Public set forth on
the cover page of this Prospectus and part to certain dealers at a price that
represents a concession not in excess of $ per share under the Price
to Public. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to other Underwriters or to
certain other dealers. After the initial offering of the shares of Common Stock,
the offering price and other selling terms may from time to time be varied by
the Representatives.

67
<PAGE>
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 750,000 additional shares of Common Stock at the
Price to Public set forth on the cover page hereof, less underwriting discounts
and commissions. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares of Common Stock as the number set
forth next to such U.S. Underwriter's name in the preceding table bears to the
total number of U.S. Shares offered by the U.S. Underwriters hereby.

The Company and each of its officers, directors and certain other
stockholders have agreed that without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, they will not (i)
register for sale, make any demand for or extend any right with respect to such
registration, issue, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (whether such shares or any such
securities are now owned or are acquired after the date of this Prospectus) or
(ii) enter into any swap or similar agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise for a
period of 180 days after the date of this Prospectus, other than (x) the shares
of Common Stock to be sold hereunder, (y) any shares of Common Stock issued by
the Company upon the exercise of options issued pursuant to the Company's 1992
Plan or 1994 Plan, pursuant to the Company's Purchase Plan or upon exercise of
outstanding warrants and (z) the issuance of additional options to purchase
shares of Common Stock pursuant to the Company's 1994 Plan. The holders of
substantially all remaining shares have entered into agreements restricting the
sale or other disposition of Common Stock which are applicable for a periods of
90 to 180 days after the date of this Prospectus. See "Shares Eligible for
Future Sale."

The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed 5% of the total number of shares of Common
Stock offered by them.

At the request of the Company, the Underwriters have reserved approximately
250,000 shares of Common Stock, representing 5.0% of the Shares to be sold in
the Offering, for sale to its non-employee directors and certain other persons
at the initial public offering price set forth on the cover page hereof. If such
shares are not so sold to such persons, they will be sold to the public.

Smith Barney Inc. acted as the initial purchaser of the Senior Discount
Notes and received customary compensation in connection therewith.

PRICING OF THE OFFERING

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
between the Company and the Representatives. Among the factors to be considered
in determining the initial public offering price will be the future prospects of
the Company and its industry in general; sales, earnings and certain other
financial and operating information of the Company in recent periods; and
certain ratios and market prices of securities and certain financial and
operating information of companies engaged in activities similar to those of the
Company. The estimated initial public offering price range set forth on the
cover page of this Preliminary Prospectus is subject to change as a result of
market conditions and other factors.

68
<PAGE>
LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California. As of the date of this Prospectus, certain members of Wilson
Sonsini Goodrich & Rosati, Professional Corporation and investment partnerships
of which such persons are partners beneficially own 20,528 shares of the
Company's Common Stock. Certain legal matters in connection with this Offering
will be passed upon for the Company by Fish & Richardson, Menlo Park,
California, and by Wilkinson, Barker, Knauer & Quinn, Washington, D.C., and for
the Underwriters by Shearman & Sterling, New York, New York.

EXPERTS

The consolidated financial statements as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus and the related financial statement schedule appearing elsewhere
in this Registration Statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act, of
which this Prospectus forms a part, with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified by such reference. A copy of the Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois, at prescribed rates. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent auditors
and with quarterly reports containing unaudited financial information for each
of the first three quarters of each fiscal year.

69
<PAGE>
GLOSSARY

<TABLE>
<CAPTION>
TERM DEFINITION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
APPLICATIONS Software programs that enable computers to perform tasks such as, in the case of
utility applications, metering, load management, load research, and distribution
automation.

AUTOMATED METER READING ("AMR") Use of hand-held or drive-by automated meter reading equipment.

BANDWIDTH The amount of message traffic a given medium can accommodate at one time.
Bandwidth may refer to analog or digital data.

CAPACITY For electric utility purposes, a measure (in watts) of the ability to produce,
transport or store electricity at any instant rather than over time.

CELLMASTER The communications gateway between the System Controller and the MCCs and RTUs.
The CellMaster can connect to the System Controller via modem over a leased line
or via privately-owned communications media such as microwave channels or fiber
optic transmission lines. CellNet's 9QPR cellular radio provides the connection
between the CellMaster and the MCCs and RTUs.

CELLNET-REGISTERED TRADEMARK- CellNet's wireless data communications system, which provides NMR services,
SYSTEM control and monitoring of the power distribution network, and other services.
The CellNet system concurrently supports multiple utility applications,
including distribution automation and demand-side management.

CELLULAR DIGITAL PACKET DATA A method of transmitting data over a cellular communications network using
("CDPD") underutilized radio frequency or pauses in voice communication.

DEMAND For electric utility purposes, the rate at which electric energy is delivered to
or used by a system, part of a system, or piece of equipment at a given instant,
or averaged over a designated period. Measured in kilowatts.

DISTRIBUTION AUTOMATION Any program used by an electric utility to monitor, coordinate and operate
distribution components in a real-time mode from remote locations.

DISTRIBUTION NETWORK The utility's wiring grid between the substation and customer sites.

GATEWAY The connection between two computer networks. CellNet uses a gateway to connect
a SCADA system to other computers for billing and other applications.

LEASED LINE A dedicated telephone line connecting two or more fixed locations. CellNet may
use a leased line or radio links to connect a CellMaster and System Controller.

LOAD For electric utility purposes, the amount of electric power delivered or
required at any specific point or points of a system.

LOAD CONTROL The capability to manage electric power consumption by controlling the use of
equipment and appliances. Typically used by a utility to avoid either a brownout
or the necessity of generating high-cost electricity.
</TABLE>

A-1
<PAGE>
<TABLE>
<CAPTION>
TERM DEFINITION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
LOAD PROFILE A record of a customer's electricity use over time in discrete intervals.
Utility companies use this data to analyze consumption, to calculate demand or
time-of-use data and to detect power theft and meter tampering.

LOCAL AREA NETWORK ("LAN") In the CellNet system, the LAN connects MCCs to radios in endpoint devices.

MAS Multiple address system, a form of radio communication system.

MICRO CELL CONTROLLER ("MCC") A device which manages endpoint devices in a local coverage area (as part of a
LAN), collects and processes data transmissions from such endpoint devices and
transmits such data to a CellMaster.

NETWORK METER READING ("NMR") Fully-automated meter reading on a network.

NETWORK OPERATING SYSTEM ("NOS") A Network Operating System is the software that supports the operation of
distributed applications with communications, database capabilities, and common
Applications Programming Interfaces (APIs).

NODE In the CellNet's system, a node is an internet addressable, responsive,
computer-based subsystem (for example, a System Controller workstation or a MCC)
that is able to take part in internetworking activities.

OBJECT-ORIENTED An adjective that describes a method of software analysis, design, and/or
programming that facilitates sophisticated problem-solving. Object-oriented
systems are flexible and maintainable because of their natural way of handling
user-oriented systems and consistent, powerful, underlying representation for
what is to be built and how it will be built. The CellNet system is built on an
object-oriented, distributed infrastructure.

PACKET A block of data preceded by, and perhaps followed by, one or more bytes of
information specific to the communications service (a communications protocol)
used to transmit the packet.

PERSONAL COMMUNICATIONS SERVICES Digital wireless communications services which are expected to use a microcell
("PCS") technology and operate at a higher frequency than cellular systems.

PROTOCOL Rules and conventions that govern communication between OSI model layers and, in
the CellNet system, subsystems for functions such as format, timing, sequencing,
and error control.

REMOTE TERMINAL UNIT ("RTU") Device typically used to monitor and control components of a utility's
distribution network. The RTU combines digital and analog inputs, which are used
to obtain detailed information about the distribution equipment being monitored.
An RTU can sense remotely such things as current, temperature and power factor.

RF Radio Frequency

SPECIALIZED MOBILE RADIO ("SMR") A two way radio service operating in the 800-900 megahertz band. FCC
restrictions on use of this bandwidth for taxi dispatchers and similar vehicle
"fleet" operators have been relaxed, allowing holders of these frequency
licenses to expand into cellular-like services.
</TABLE>

A-2
<PAGE>
<TABLE>
<CAPTION>
TERM DEFINITION
- -------------------------------- --------------------------------------------------------------------------------
<S> <C>
SPREAD SPECTRUM A modulation technique in which a signal is broadcast over a range of
frequencies to minimize noise and interference.

TIME-OF-USE ("TOU") Time-of-use metering allows a utility to bill electric power usage at different
rates, according to the time that the power was consumed.

WIDE AREA NETWORK ("WAN") In the CellNet system the WAN connects the CellMasters to the MCCs in a given
service area.
</TABLE>

A-3
<PAGE>
CELLNET DATA SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2

Consolidated Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)................. F-3

Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 (unaudited)........................................................... F-4

Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996 (unaudited)................................................... F-5

Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996 (unaudited)........................................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

CellNet Data Systems, Inc.:

We have audited the accompanying consolidated balance sheets of CellNet Data
Systems, Inc. and subsidiaries (the "Company") as of December 31, 1994 and 1995,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of CellNet Data Systems, Inc. and
subsidiaries at December 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

San Jose, California
February 9, 1996
(April 11, 1996 as to the last sentence of the
second paragraph of Note 5 and
September 5, 1996 as to Note 10)

F-2
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 12,503 $ 48,018 $ 70,730 $ 74,384
Short-term investments................................. 12,005 95,779 32,237 32,237
Accounts receivable.................................... 703 2,118 1,904 1,904
Prepaid expenses and other............................. 248 940 886 886
--------- --------- ----------- -----------
Total current assets................................. 25,459 146,855 105,757 109,411
Network Components and Inventory......................... 2,146 11,664 12,569 12,569
Networks in Progress..................................... 1,333 12,602 29,850 29,850
Property -- net.......................................... 2,871 7,539 9,129 9,129
Debt Issuance Costs -- net............................... -- 5,646 5,348 5,348
--------- --------- ----------- -----------
Total assets........................................... $ 31,809 $ 184,306 $ 162,653 $ 166,307
--------- --------- ----------- -----------
--------- --------- ----------- -----------

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

Current Liabilities:
Accounts payable....................................... $ 2,050 $ 7,241 $ 6,329 $ 6,329
Accrued compensation and related benefits.............. 402 1,353 735 735
Accrued liabilities.................................... 889 981 990 990
Current portion of capital leases...................... 384 280 296 296
--------- --------- ----------- -----------
Total current liabilities: 3,725 9,855 8,350 8,350
--------- --------- ----------- -----------
Senior Discount Notes -- 13%............................. -- 182,528 194,720 194,720
--------- --------- ----------- -----------
Capital Lease Obligations -- net......................... 162 540 497 497
--------- --------- ----------- -----------
Commitments and Contingencies (Notes 1 and 9)
Series CC Redeemable Convertible Preferred Stock -- $.001
par value; 3,215,768 shares designated and outstanding
and none on a pro forma basis; aggregate liquidation
value of $31,000,000.................................... 29,486 29,486 29,486 --
--------- --------- ----------- -----------

Stockholders' Equity (deficit):
Convertible preferred stock -- $.001 par value;
15,000,000 shares authorized; shares outstanding,
1994: 9,008,518; 1995: 9,136,675; 1996: 9,137,078; no
shares outstanding on a pro forma basis; aggregate
liquidation value of $27,812,000...................... 25,990 27,195 27,196 --
Common stock -- $.001 par value; 50,000,000 shares
authorized; shares outstanding: 1994, 2,716,166; 1995,
5,034,262; 1996, 5,209,472 and 34,048,134 on a pro
forma basis........................................... 26,790 27,608 27,636 90,947
Notes receivable from sale of common stock............. (284) (866) (866 ) (866 )
Warrants............................................... 10 2,984 2,984 9
Accumulated deficit.................................... (54,065) (95,021) (127,334 ) (127,334 )
Net unrealized loss on short-term investments.......... (5) (3) (16 ) (16 )
--------- --------- ----------- -----------
Total stockholders' deficit.......................... (1,564) (38,103) (70,400 ) (37,260 )
--------- --------- ----------- -----------
Total liabilities and stockholders' deficit.............. $ 31,809 $ 184,306 $ 162,653 $ 166,307
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3
<PAGE>
CELLNET DATA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales........................................ $ 1,757 $ 1,447 $ 1,663 $ 938 $ 127
Network service revenues............................. -- -- 35 -- 244
Other revenues....................................... -- 204 428 353 49
--------- ---------- ---------- ---------- ----------
Total revenues..................................... 1,757 1,651 2,126 1,291 420
--------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of product sales................................ 1,840 1,191 1,294 598 109
Cost of network operations........................... -- -- 3,835 1,333 3,374
Research and development............................. 5,262 9,693 22,380 6,735 13,009
Marketing and sales.................................. 1,447 3,257 4,201 1,946 2,924
General and administrative........................... 1,450 2,583 6,805 2,874 5,412
--------- ---------- ---------- ---------- ----------
Total costs and expenses........................... 9,999 16,724 38,515 13,486 24,828
--------- ---------- ---------- ---------- ----------
Loss from operations................................... (8,242) (15,073) (36,389) (12,195) (24,408)
Other income (expense):
Interest income...................................... 66 555 4,590 860 3,458
Interest expense..................................... (198) (101) (9,320) (754) (11,264)
Other -- net......................................... (16) (13) 166 (31) (97)
--------- ---------- ---------- ---------- ----------
Total other income (expense)........................... (148) 441 (4,564) 75 (7,903)
--------- ---------- ---------- ---------- ----------
Loss before income taxes............................... (8,390) (14,632) (40,953) (12,120) (32,311)
Provision for income taxes............................. 1 2 3 1 2
--------- ---------- ---------- ---------- ----------
Net loss............................................... $ (8,391) $ (14,634) $ (40,956) $ (12,121) $ (32,313)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Pro forma net loss per share........................... $ (1.22) $ (0.37) $ (0.94)
---------- ---------- ----------
---------- ---------- ----------
Shares used in computing pro forma net loss per
share................................................. 33,497 32,817 34,483
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4
<PAGE>
CELLNET DATA SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NET
CONVERTIBLE NOTES UNREALIZED
PREFERRED STOCK COMMON STOCK RECEIVABLE LOSS ON
------------------ ------------------ FROM SALE ACCUMULATED SHORT-TERM
SHARES AMOUNT SHARES AMOUNT OF STOCK WARRANTS DEFICIT INVESTMENTS TOTAL
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1,
1993...................... 4,244,858 $4,181 895,492 $26,616 $ -- $ 9 $ (31,040) $-- $ (234)
Sales of Series AA
preferred stock (less
issuance costs of $8)..... 755,142 747 -- -- -- -- -- -- 747
Exercise of stock
options................... -- -- 886,618 46 -- -- -- -- 46
Conversion of subordinated
debt ($3,242) and accrued
interest ($32) into Series
BB preferred stock and
warrants.................. 689,190 3,274 -- -- -- -- -- -- 3,274
Sale of Series BB preferred
stock and warrants (less
issuance costs of $504)... 2,748,020 12,549 -- -- -- -- -- -- 12,549
Sales of Series BB
preferred stock for notes
receivable................ 52,635 250 -- -- (250) -- -- -- --
Sale of common stock (less
issuance costs of $1)..... -- -- 400,400 19 -- -- -- -- 19
Sale of stock warrants..... -- -- -- -- -- 1 -- -- 1
Net loss................... -- -- -- -- -- -- (8,391) -- (8,391)
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
BALANCES, December 31,
1993...................... 8,489,845 21,001 2,182,510 26,681 (250) 10 (39,431) -- 8,011
Exercise of stock options
and restricted stock
purchase.................. -- -- 533,656 109 (100) -- -- -- 9
Sale of Series DD preferred
stock (net of issuance
costs of $10)............. 518,673 4,989 -- -- -- -- -- -- 4,989
Collection of notes
receivable................ -- -- -- -- 66 -- -- -- 66
Net unrealized loss on
short-term investments.... -- -- -- -- -- -- -- (5) (5)
Net loss................... -- -- -- -- -- -- (14,634) -- (14,634)
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
BALANCES, December 31,
1994...................... 9,008,518 25,990 2,716,166 26,790 (284) 10 (54,065) (5) (1,564)
Sale of Series DD preferred
stock (net of issuance
costs of $31)............. 128,157 1,205 -- -- -- -- -- -- 1,205
Exercise of stock options
and restricted stock
purchases................. -- -- 2,318,096 818 (628) -- -- -- 190
Common stock warrants
issued in connection with
senior discount notes..... -- -- -- -- -- 2,974 -- -- 2,974
Collection of notes
receivable................ -- -- -- -- 46 -- -- -- 46
Net unrealized gain on
short-term investments.... -- -- -- -- -- -- -- 2 2
Net loss................... -- -- -- -- -- -- (40,956) -- (40,956)
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
BALANCES, December 31,
1995...................... 9,136,675 27,195 5,034,262 27,608 (866) 2,984 (95,021) (3) (38,103)
Exercise of stock options
and warrants*............. 403 1 175,210 28 -- -- -- -- 29
Net unrealized loss on
short-term investments*... -- -- -- -- -- -- -- (13) (13)
Net loss*.................. -- -- -- -- -- -- (32,313) -- (32,313)
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
BALANCES, June 30, 1996*... 9,137,078 $27,196 5,209,472 $27,636 $ (866) $2,984 $(127,334) $ (16) $(70,400)
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
--------- ------- --------- ------- ---------- -------- ----------- ----------- --------
</TABLE>

- ------------
*Unaudited

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-5
<PAGE>
CELLNET DATA SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (8,391) $ (14,634) $ (40,956) $ (12,121) $ (32,313)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization............................. 699 992 2,295 917 2,257
Amortization of discount on 13% senior notes.............. -- -- 9,665 -- 12,192
Amortization of debt issuance costs....................... -- -- 256 17 298
Deferred rent............................................. (115) (43) (46) 22 21
Loss (gain) on disposition of property.................... 1 2 57 14 (15)
Changes in:
Accounts receivable..................................... (293) (282) (1,415) 208 214
Prepaid expenses and other.............................. (93) (126) (692) (668) 54
Network components and inventory........................ (574) (1,260) -- -- --
Accounts payable........................................ 348 1,389 5,191 2,394 (912)
Accrued compensation and related benefits............... -- -- 951 268 (618)
Accrued liabilities..................................... (673) (676) 138 496 (12)
--------- --------- --------- --------- ---------
Net cash used for operating activities................ (9,091) (14,638) (24,556) (8,453) (18,834)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Network components and inventory............................ -- -- (9,518) (3,597) (905)
Networks in progress........................................ -- (1,333) (11,269) (2,467) (17,482)
Purchase of property........................................ (535) (2,436) (6,222) (3,009) (3,478)
Other assets................................................ 73 -- -- -- --
Purchase of short-term investments.......................... (2,962) (12,548) (285,802) (41,890) (263,980)
Proceeds from sales and maturities of short-term
investments................................................ -- 3,500 202,030 14,317 327,522
--------- --------- --------- --------- ---------
Net cash provided by (used for) investing
activities........................................... (3,424) (12,817) (110,781) (36,646) 41,677
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of senior discount notes and related stock
warrants................................................... -- -- 175,837 125,894 --
Cash paid for debt issuance costs........................... -- -- (5,902) (4,034) --
Subordinated debt borrowings................................ 3,242 350 -- -- --
Repayment of debt obligations............................... (403) (511) (524) (313) (160)
Proceeds from sale of preferred stock....................... 13,296 34,122 1,205 1,205 1
Proceeds from sale of common stock.......................... 66 9 190 14 28
Collection of notes receivable from sale of common stock.... -- 66 46 46 --
--------- --------- --------- --------- ---------
Net cash provided by (used for) financing
activities........................................... 16,201 34,036 170,852 122,812 (131)
--------- --------- --------- --------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS......................... 3,686 6,581 35,515 77,713 22,712
CASH AND CASH EQUIVALENTS, Beginning of period................ 2,236 5,922 12,503 12,503 48,018
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, End of period...................... $ 5,922 $ 12,503 $ 48,018 $ 90,216 $ 70,730
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of subordinated debt and accrued interest into
preferred stock............................................ $ 3,274 $ 353 $ -- $ -- $ --
Acquisition of property under capital leases................ $ 17 $ 232 $ 798 $ 348 $ 133
Sale of common stock for notes receivable................... $ 250 $ 100 $ 628 $ 200 $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................... $ 166 $ 101 $ 113 $ 44 $ 56
Cash paid for income taxes.................................. $ 1 $ 2 $ 3 $ 1 $ 2
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(Information as of and for the Six Months Ended June 30, 1995 and 1996 is
Unaudited)

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS -- Since 1993, CellNet Data Systems, Inc. and
subsidiaries (the "Company") has focused substantially all of its resources and
efforts on the development of the CellNet wireless data communication system to
provide automated network meter reading and other services to the utility
industry and to providers of non-utility services. The Company's primary
activities since 1993 have included research and development, prototype product
development, field testing, commercial network installation, and provision of
wireless data communication services, in connection with the development and
deployment of its CellNet wireless data communication system.

The Company is in the process of progressively installing its network for
Kansas City Power & Light Company and commenced the installation of its network
for Union Electric Company in the first quarter of 1996. Management plans to
significantly increase operations through the roll-out of additional
installations for other utility companies and intends to fund these operations
through additional debt and equity financing arrangements.

The Company provides its services to utility companies under long-term
contracts by which the Company is obligated to provide meter reading and related
services over the term of the contract. The length of the contracts vary and can
include renewal options under which the Company's commitments under the contract
could exceed 20 years, although there is no assurance that such options would be
exercised, or that contract termination clauses would not be exercised. Renewal
options generally contain terms which are substantially similar to the original
service agreements. Contract termination clauses generally provide for defined
payments intended to cover remaining network asset values.

CONSOLIDATION -- The accompanying consolidated financial statements include
the accounts of CellNet Data Systems, Inc. and its wholly-owned subsidiaries.
All material intercompany accounts and transactions are eliminated in
consolidation.

FINANCIAL STATEMENT ESTIMATES -- 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,
liabilities, revenues and expenses during the reporting period. Such estimates
include the level of the allowance for potentially uncollectible accounts
receivable, reserves for network components and inventory that are obsolete,
slow moving or nonsalable, evaluation of network assets for impairment, accrued
liabilities and a valuation allowance for net deferred tax assets. Actual
results could differ from these estimates.

CASH EQUIVALENTS -- Cash equivalents are highly liquid debt instruments
acquired with an original maturity of three months or less. The recorded
carrying amounts of the Company's cash and cash equivalents approximate their
fair market value.

SHORT-TERM INVESTMENTS -- Short-term investments represent debt and equity
securities which are stated at fair value. All short-term investments are
classified as available-for-sale. Any temporary difference between an
investment's amortized cost and its market value is recorded as a separate
component of stockholders' deficit until such gains or losses are realized.
Gains or losses on the sale of securities are computed using the specific
identification method.

The Company adopted Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity Securities," in
1994. The adoption of this standard did not have a significant effect in the
Company's financial position or results of operations.

CUSTOMER CONCENTRATION AND CONCENTRATION OF CREDIT RISK -- Financial
instruments that potentially subject the Company to credit risk consist
principally of cash and cash equivalents, short-term investments

F-7
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

and accounts receivable. The Company sells its products and services to, and
installs its networks primarily for utility companies in the United States. To
reduce credit risk related to accounts receivable, the Company periodically
evaluates its customers' financial condition. Collateral is generally not
required. Reserves are maintained for credit losses, but the Company
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular geographical area. One
utility represented 29% and 73% of revenues for the year ended December 31, 1995
and the six months ended June 30, 1996, respectively and 60% and 27% of accounts
receivable at the end of the respective periods. Another utility accounted for
23% of accounts receivable at June 30, 1996. Another utility represented 18%,
58%, 64% and 16% of revenues for the years ended December 31, 1993, 1994 and
1995 and the six months ended June 30, 1996, respectively and 34% of accounts
receivable at December 31, 1994. Another utility represented 37% and 10%, and an
additional utility represented 36% and 14% of revenues for the years ended
December 31, 1993 and 1994, respectively.

The Company invests in a variety of financial instruments such as commercial
paper, debt securities of the U.S. government, foreign debt securities and
preferred stock. The Company's policy limits the amount of credit exposure with
any one financial instrument or commercial issuer. All such instruments are
rated by Standard and Poors as A- or higher. The Company also places its
investments for safekeeping with high-credit-quality financial institutions.

NETWORK COMPONENTS AND INVENTORY -- Network components and inventory are
stated at the lower of cost (first-in, first-out method) or market. At December
31, 1995 and June 30, 1996, such network components and inventory consisted
primarily of purchased and in process materials to be included in the Company's
installed networks and also for product sales. Network components, upon
completion of assembly, are either sold to customers or transferred to a
particular network location and included in networks in progress.

NETWORKS IN PROGRESS -- Networks in progress, which are stated at cost,
include both equipment assembled at the Company and systems partially installed
at customer sites. Interest is capitalized using the Company's cost of capital
until the point in the installation process at which each network begins
generating revenue. Accordingly, $458,000 of interest was capitalized during
1995 and $983,000 of interest was capitalized for the six months ended June 30,
1996. Depreciation is computed on a straight-line basis over the shorter of the
estimated useful lives of the network assets or the expected minimum period of
revenue generation under the related contract (estimated to be approximately ten
years).

PROPERTY -- Property is stated at cost. Depreciation and amortization are
computed on a straight-line basis over estimated useful lives of three to five
years or the capital lease term, if shorter.

DEBT ISSUANCE COST is comprised of debt issue costs associated with the
Senior Discount Notes (see Note 5). These costs are capitalized and amortized
using the effective interest method over the lives of the related debt.

RECENTLY ISSUED ACCOUNTING STANDARDS -- In October 1995, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123, "Accounting for
Stock-Based Compensation." The new standard defines a fair value method of
accounting for stock options and other equity instruments. The new standard
permits companies to continue to account for equity transactions with employees
under existing accounting rules but requires disclosure in a note to the
financial statements of the pro forma net income as if the Company had applied
the new method of accounting. The Company intends to follow the disclosure
alternative for its employee stock plans at December 31, 1996. Adoption of the
new standard will not impact reported earnings and will have no effect on the
Company's cash flows.

F-8
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of," which became effective January 1, 1996.
This statement requires the Company to review long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recovered. Implementation did not have a material impact on
the Company's financial statements.

REVENUE RECOGNITION -- Network service revenue, associated with installed
networks, is recognized in the period of service. Product sales are recognized
upon product shipment. Estimated warranty costs are recorded at the time the
product sales are recognized.

RESEARCH AND DEVELOPMENT -- Research and development costs are expensed as
incurred. The Company's networks include certain software applications which are
integral to their operation. The costs to develop such software have not been
capitalized as the Company believes its software development processes are
essentially completed concurrent with the establishment of technological
feasibility of the software and/or development of the related network hardware.

FOREIGN CURRENCY TRANSLATION -- The functional currency of the Company's
U.K. subsidiary is the U.S. dollar. Accordingly, all monetary assets and
liabilities are translated at the current exchange rate at the end of the
period, nonmonetary assets and liabilities are translated at historical rates
and operating expenses are translated at average exchange rates in effect during
the period. Transaction gains and losses, which are included in other income
(expense) in the accompanying consolidated statements of operations, have not
been significant.

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The recorded carrying amounts of the
Company's financial instruments, namely cash and cash equivalents and short-term
investments, approximate their fair value. The estimated fair value of the
Company's Senior Discount Notes was $179,563,000 at December 31, 1995 and
$212,469,000 at June 30, 1996. The fair values of cash equivalents and
short-term investments are based on quoted market prices and the estimated fair
value of the Senior Discount Notes is based on information provided by the
initial purchaser of the original notes.

PRO FORMA NET LOSS PER SHARE -- Pro forma net loss per share is computed
using the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include preferred stock
and certain warrants (using the "if converted" method) and stock options and the
remaining warrants (using the treasury stock method). Common equivalent shares
are excluded from the computation if their effect is anti-dilutive, except that,
pursuant to the Securities and Exchange Commission's Staff Accounting Bulletins
and staff policy, such computations include all common and common equivalent
shares issued within the 12 months preceding the initial filing date as if they
were outstanding for all periods presented. In addition, all outstanding
preferred stock that converts and all warrants that are assumed to be exercised
in connection with the proposed offering are included in the computation as
common equivalent shares even when the effect is anti-dilutive.

UNAUDITED INTERIM FINANCIAL INFORMATION -- The unaudited interim financial
information as of June 30, 1996 and for the six months ended June 30, 1995 and
1996 has been prepared on the same basis as the audited financial statements. In
the opinion of management, such unaudited information includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of this interim information. Operating results for the six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.

UNAUDITED PRO FORMA INFORMATION -- Unaudited pro forma information reflects
the conversion of each of the outstanding shares of Series CC redeemable
convertible preferred stock into two shares of common

F-9
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stock, the conversion of each of the outstanding shares of Series AA, BB and DD
convertible preferred stock into two shares of common stock, the assumed
exercise and conversion of each of the outstanding warrants to purchase Series
BB preferred stock into two shares of common stock, and the assumed exercise of
each of the outstanding warrants issued in connection with the Company's Senior
Discount Notes (see Notes 5 and 7) for one share of common stock, upon the
closing of the initial public offering as contemplated by this Prospectus.

2. SHORT-TERM INVESTMENTS
The fair value and the amortized cost of short-term investments at December
31, 1994 and 1995 and June 30, 1996 are presented as follows. Fair values are
based on quoted market prices obtained from the Company's broker. All of the
Company's short-term investments are classified as available-for-sale, since the
Company intends to sell them as needed for operations. The following tables
present the unrealized holding gains and losses related to each category of
investment security (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------
UNREALIZED
AMORTIZED LOSS ON MARKET
COST INVESTMENT VALUE
----------- ---------- ---------
<S> <C> <C> <C>
Equity securities................................................... $ 6,001 $ (1) $ 6,000
Corporate debt securities........................................... 3,509 (4) 3,505
Debt securities of states of the United States and political
subdivisions of the states......................................... 2,500 -- 2,500
----------- ---------- ---------
Total............................................................... $ 12,010 $ (5) $ 12,005
----------- ---------- ---------
----------- ---------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED LOSS ON GAIN ON MARKET
COST INVESTMENT INVESTMENT VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Auction-rate preferred stock........................... $ 19,803 $ (3) $ -- $ 19,800
Corporate debt securities.............................. 64,664 -- -- 64,664
Debt securities of states of the United States and
political subdivisions of the states.................. 3,000 -- -- 3,000
Debt securities issued by United States government
agencies.............................................. 4,647 -- 2 4,649
Foreign debt securities................................ 3,668 (2) -- 3,666
----------- ---------- ---------- ---------
Total.................................................. $ 95,782 $ (5) $ 2 $ 95,779
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
UNREALIZED UNREALIZED
AMORTIZED LOSS ON GAIN ON MARKET
COST INVESTMENT INVESTMENT VALUE
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Auction-rate preferred stock........................... $ 22,800 $ -- $ -- $ 22,800
Corporate debt securities.............................. 9,453 (16) -- 9,437
----------- ---------- ---------- ---------
Total.................................................. $ 32,253 $ (16) $ -- $ 32,237
----------- ---------- ---------- ---------
----------- ---------- ---------- ---------
</TABLE>

F-10
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

2. SHORT-TERM INVESTMENTS (CONTINUED)
The final maturity periods of short-term investments at December 31, 1995
were as follows (in thousands):

<TABLE>
<CAPTION>
MARKET VALUE
-----------------------------------------------------
ONE TO GREATER
WITHIN FIVE THAN 10 NO
ONE YEAR YEARS YEARS MATURITY TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Auction-rate preferred stock............................... $ -- $ -- $ -- $ 19,800 $ 19,800
Corporate debt securities.................................. 17,064 10,000 28,400 9,200 64,664
Debt securities of states of the United States and
political subdivisions of the states...................... -- -- 3,000 -- 3,000
Debt securities issued by United States government
agencies.................................................. 4,649 -- -- -- 4,649
Foreign debt securities.................................... 3,666 -- -- -- 3,666
--------- --------- --------- --------- ---------
Total.................................................. $ 25,379 $ 10,000 $ 31,400 $ 29,000 $ 95,779
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

The final maturity periods of short-term investments at June 30, 1996 were
as follows (in thousands):

<TABLE>
<CAPTION>
MARKET VALUE
---------------------------------------------------------
ONE TO GREATER
WITHIN ONE FIVE THAN 10 NO
YEAR YEARS YEARS MATURITY TOTAL
----------- --------- ----------- --------- ---------
Auction-rate preferred stock................. $ -- $ -- $ 22,800 $ -- $ 22,800
<S> <C> <C> <C> <C> <C>
Corporate debt securities.................... 9,437 -- -- -- 9,437
----------- --------- ----------- --------- ---------
$ 9,437 $ -- $ 22,800 $ -- $ 32,237
----------- --------- ----------- --------- ---------
----------- --------- ----------- --------- ---------
</TABLE>

All short-term investments with a final maturity exceeding one year have
provisions requiring their repurchase at par at the option of the holder and for
adjustment to market rates of interest on at least an annual basis (auction-rate
preferred stock). The Company treats such investments as having a maturity of
one year or less for purposes of compliance with investment limitations provided
in the Senior Discount Note Indenture (see Note 5).

3. PROPERTY
Property consists of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
Manufacturing equipment and tools............................... $ 1,363 $ 4,870 $ 6,403
<S> <C> <C> <C>
Office furniture and equipment.................................. 3,639 4,111 5,712
Engineering equipment........................................... 1,639 2,119 2,604
--------- --------- -----------
Total........................................................... 6,641 11,100 14,719
Accumulated depreciation and amortization....................... (3,770) (3,561) (5,590)
--------- --------- -----------
Total........................................................... $ 2,871 $ 7,539 $ 9,129
--------- --------- -----------
--------- --------- -----------
</TABLE>

F-11
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

4. ACCRUED LIABILITIES
Accrued liabilities consist of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
Accrued contractual obligations..................................... $ 325 $ 273 $ 315
<S> <C> <C> <C>
Deferred revenue.................................................... 210 190 192
Warranty reserve.................................................... 130 15 14
Other............................................................... 224 503 469
--------- --------- -----------
Total............................................................... $ 889 $ 981 $ 990
--------- --------- -----------
--------- --------- -----------
</TABLE>

5. SENIOR DISCOUNT NOTES
In 1995, the Company received $175,837,000 in gross proceeds from the
issuance of $325,000,000 aggregate principal amount at maturity of its 13%
Senior Discount Notes due June 15, 2005 and related warrants to purchase
2,600,000 shares of common stock at $0.005 per share (the Notes and Common Stock
Warrants). Aggregate proceeds of $2,974,000 were attributed to the Common Stock
Warrants. Commencing December 15, 2000, interest will be payable on the Notes
semi-annually in arrears on each December 15 and June 15 at the rate of 13% per
annum.

The Notes are redeemable at the option of the Company, in whole or in part,
at any time on and after June 15, 2000 at specified redemption prices for the
relevant year of redemption, plus accrued and unpaid interest to the date of
redemption. In addition, the Company may redeem in cash at its option at any
time prior to June 15, 1998 up to 25% of the aggregate principal amount of the
Notes at 113% of the accreted value thereof on the date of redemption plus
accrued and unpaid interest, if any, from the proceeds of a public equity
offering (as defined). There are no sinking fund requirements. In the event of a
change of control (as defined), each holder of the Notes has the option to
require the Company to repurchase such holder's Notes at 101% of the accreted
value thereof on the date of repurchase (if prior to June 15, 2000) or 101% of
the aggregate principal face amount thereof, plus accrued and unpaid interest,
if any, to the repurchase date (if on or after June 15, 2000). The Notes rank
senior in right of payment to all existing and future subordinated indebtedness
of the Company and pari passu with all existing and future senior indebtedness
of the Company. The Indenture pursuant to which the Senior Discount Notes were
issued contains certain covenants that, among other things, limit the ability of
the Company to make dividend payments, make investments, repurchase outstanding
shares of stock, prepay other debt obligations, incur additional indebtedness,
effect asset dispositions, engage in sale and leaseback transactions,
consolidate, merge or sell all or substantially all of the Company's assets,
engage in transactions with affiliates, or effect certain transactions by its
restricted subsidiaries (as defined). At December 31, 1995, a portion of the
Company's short-term investments had been made in corporate debt securities and
auction-rate preferred stock in amounts which exceeded the investment
limitations under the Indenture. The Company was otherwise in compliance with
the financial covenants of the Indenture at December 31, 1995. The Company
subsequently adjusted its investment portfolio to bring it into compliance with
such limitations within the period provided by the Indenture, and at June 30,
1996 the Company was in compliance with all covenants of the Indenture.

6. SERIES CC REDEEMABLE CONVERTIBLE PREFERRED STOCK
In conjunction with the proposed initial public offering of the Company's
common stock, all outstanding shares of Series CC redeemable convertible
preferred stock will automatically convert into common stock upon the closing of
the offering (see Note 1).

F-12
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

6. SERIES CC REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
At December 31, 1995 and June 30, 1996, 3,215,768 shares of Series CC
redeemable convertible preferred stock were designated and outstanding. Each
share is convertible into two shares of common stock, subject to adjustments for
events of dilution. In addition to converting upon an initial public offering,
the Series CC redeemable convertible preferred stock is also automatically
convertible into common stock upon the election of the holders of more than 60%
of the outstanding shares of such series, or at such time as fewer than 500,000
shares remain outstanding. Each share has the same voting rights as the number
of shares of common stock into which it is convertible.

Holders are entitled to noncumulative dividends of $0.964 per share or, in
the event of liquidation or merger, liquidation distributions of $9.64 per share
in preference to all convertible preferred stock. The holders of Series CC
preferred stock have the right of first refusal to purchase a pro rata portion
of preferred or common stock the Company proposes to issue to any public or
private utility. Further, the holders of Series CC preferred stock have the
right of first refusal to purchase a pro rata portion of any preferred or common
stock that any subsidiary of the Company proposes to issue to any public or
private utility if the subsidiary's business is unrelated to the market area of
such utility or if such securities are convertible into common or preferred
stock of the Company. The right of first refusal terminates three years after an
initial public offering.

Under a Put Agreement dated August 15, 1994 (the Put Agreement), the holders
of Series CC preferred stock, acting as a group representing not less than 25%
of the outstanding Series CC preferred stock, have the right to "put" those
shares to the Company after May 12, 2001 (Investor Put) at the higher of $9.64
per share or the fair market value at the time of exercise of the Investor Put
(the Redemption Price). The Investor Put will be extinguished in the event of an
initial pubic offering by the Company of its common stock in which the net
proceeds to the Company are at least $20 million, in the event of the sale of
the Company or if not exercised by November 13, 2002. In the event the Investor
Put is not completed by the Company for any reason within six months after the
right is exercised then (a) the Redemption Price shall increase annually from
the date the Investor Put was exercised at a rate of 15% for the first year, and
five additional percentage points for each year thereafter (pro rated for any
partial year), and (b) the holders of Series CC preferred stock shall have the
right to initiate a separate demand registration at the Company's expense only
for the holders of shares with rights under the Investor Put. In the event the
fair market value of the Series CC preferred stock exceeds $96.40 (as adjusted
for any stock split, stock dividend, or other combinations or reclassifications)
per share at the time the Investor Put is exercised, the amount payable to the
holders of the Series CC preferred stock who participate in the Investor Put may
be paid 50% at closing and the balance, plus interest at the prime rate, on the
first anniversary of the closing. The Company's obligations under the Put
Agreement will be suspended for such time that performance of such obligations
would result in a breach of, a default, or an event of default under the
Indenture governing the Company's Senior Discount Notes or would otherwise
result in a violation of law.

F-13
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (DEFICIT)

CONVERTIBLE PREFERRED STOCK -- In conjunction with the proposed initial
public offering of the Company's common stock, all outstanding shares of
convertible preferred stock will automatically convert into common stock upon
the closing of the offering (See Note 1). At December 31, 1995, convertible
preferred stock consists of:

<TABLE>
<CAPTION>
AMOUNT (NET OF
ISSUE ISSUANCE LIQUIDATION
DESIGNATED OUTSTANDING PRICE COSTS) PREFERENCE
---------- ----------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Series AA...................................... 5,000,000 5,000,000 $ 1.00 $ 4,928,000 $ 5,000,000
Series BB...................................... 4,256,733 3,489,845 4.75 16,073,000 16,577,000
Series DD...................................... 647,923 646,830 9.64 6,194,000 6,235,000
---------- ----------- -------------- -------------
9,904,656 9,136,675 $ 27,195,000 $ 27,812,000
---------- ----------- -------------- -------------
---------- ----------- -------------- -------------
</TABLE>

Significant terms of the convertible preferred stock are as follows:

- Each share is convertible into two shares of common stock, subject to
adjustments for events of dilution. Shares of Series AA, BB and DD
preferred stock will automatically be converted into common stock upon
completion of a public offering with net proceeds in excess of $20 million
and at a price equal to or greater than $2.00, $6.00 ($12.05 after January
1, 1997) and $9.64 ($12.05 after January 1, 1997) per common share,
respectively (see Note 1). Each series of preferred stock is also
automatically convertible into common stock upon the election of the
holders of more than 50% of the outstanding shares of such series, or at
such time as fewer than 500,000 shares (1,000,000 shares in the case of
Series AA preferred stock) of such series (as adjusted for stock splits,
stock dividends and combinations) remain outstanding.

- Each share has the same voting rights as the number of shares of common
stock into which it is convertible.

- Holders of preferred stock are entitled to noncumulative dividends or, in
the event of liquidation or merger, distributions in the order of
preference shown as follows:

<TABLE>
<CAPTION>
NON-CUMULATIVE LIQUIDATION
DIVIDENDS PER DISTRIBUTION
SHARE PER SHARE
--------------- -------------
<S> <C> <C>
Series BB....................................................... $ 0.475 $ 4.75
Series AA....................................................... $ 0.100 $ 1.00
Series DD....................................................... $ 0.964 $ 9.64
</TABLE>

- Each series of preferred stock must receive their full dividend before the
next series receives any dividends. Additionally, any dividends exceeding
these minimum amounts are shared between the common and preferred shares
on a pro-rata basis.

- Each series of preferred stock must receive their full preferential
amounts before the next series receives any liquidation distributions.
Additionally, any funds available for distribution in excess of these
minimum amounts, plus $0.25 per share for common stock, is to be
distributed ratably among the holders of the common, redeemable
convertible preferred and convertible preferred stock.

- The holders of at least 5,000 shares of Series AA or BB preferred stock
have the right of first refusal to purchase their pro rata portion of
certain issues of preferred or common stock of the Company on the same
terms and conditions as the Company offers such securities to other
investors, subject to certain conditions and limitations. The right of
first refusal of all holders terminates upon the registered public
offering of the Company's common stock with net proceeds of at least $20
million.

F-14
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
COMMON STOCK -- At December 31, 1995 and June 30, 1996, the Company had
reserved shares of common stock for issuance as follows:

<TABLE>
<CAPTION>
DECEMBER JUNE 30,
31, 1995 1996
---------- -----------
Conversion of preferred stock.......................... 24,704,886 24,705,692
<S> <C> <C>
Issuance under stock option plans...................... 5,261,630 5,086,420
Issuance upon exercise of common stock warrants........ 2,653,832 2,653,832
Issuance upon exercise and conversion of Series BB
preferred stock warrants.............................. 1,533,776 1,532,970
---------- -----------
Total.................................................. 34,154,124 33,978,914
---------- -----------
---------- -----------
</TABLE>

WARRANTS -- At December 31, 1995, the following warrants to purchase stock
were outstanding:

Warrants to purchase 2,310 shares of common stock at $126.92 per share are
exercisable and expire at various dates through December 9, 1996, or, with
notice from the Company immediately prior to (a) the closing of a firm
committment underwritten initial public offering of the Company's securities,
(b) the merger of the Company into or with another corporation in which the
Company is not the survivor and the stockholders of the Company own less than
50% of the voting securities of the surviving corporation, or (c) the sale,
transfer or lease of all or substantially all of the assets of the Company.

Warrants to purchase 750 shares (300 shares at June 30, 1996) of common
stock at $20.00 per share, are exercisable and expire at various dates through
February 6, 1997, or, with notice from the Company immediately prior to (a) the
merger of the Company into or with another corporation in which the stockholders
of the Company hold less than 50% of the voting securities of the surviving
corporation or its parent; (b) the sale, conveyance or disposition of all or
substantially all of the assets of the Company, or (c) the liquidation,
dissolution or winding up of the Company.

Warrants to purchase 50,000 shares of common stock at $2.00 per share become
exercisable over a five-year period at the rate of 20% per year commencing
August 21, 1992, subject to certain conditions. The purchase right may not be
exercised prior to either (a) February 24, 1998, (b) the effective date of a
registration statement filed by the Company for an initial public offering of
its common stock, (c) five days prior to the merger of the Company with or into
another corporation as a result of which the stockholders of the Company hold
less than 50% of the equity securities of the surviving corporation or its
parent, or (d) five days prior to a sale, conveyance or disposition of all or
substantially all of the assets of the Company. The warrants expire on February
24, 1999, or, with written notice from the Company, two days prior to (a) the
merger of the Company with or into a corporation as a result of which the
stockholders of the Company hold less than 50% of the equity securities of the
surviving corporation or its parent (unless the securities received are freely
tradable and listed on a national securities exchange or on the Nasdaq National
Market), (b) the sale, conveyance or disposition of all or substantially all of
the assets of the Company, or (c) the liquidation, dissolution or winding up of
the Company.

In connection with the sale of Series BB preferred stock in 1993 certain
purchasers were granted warrants to purchase an additional 766,888 shares
(766,485 shares at June 30, 1996) of Series BB preferred stock at $4.75 per
share. The warrants are exercisable from the date of grant through the earlier
of (a) September 30, 1998 or (b) with written notice from the Company,
immediately prior to (i) the closing of a firm committment underwritten initial
public offering of the Company's securities (see Note 1), (ii) the merger of the
Company into or with another corporation in which the Company is not the
survivor and the stockholders of the Company hold less than 50% of the voting
securities of the surviving corporation, or (iii) the sale, transfer or lease of
all or substantially all of the assets of the Company.

F-15
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

7. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Warrants to purchase 2,600,000 shares of common stock at $0.005 per share
were granted in connection with the issuance and sale in 1995 of the Company's
Senior Discount Notes (see Note 5). The warrants expire on the earliest to occur
of (a) June 15, 2005, (b) 90 days after a change of control of the Company (as
defined) (see Note 1), and (c) 90 days after the consummation of a public equity
offering of the Company (as defined). The warrants may be exercised on the
earliest to occur of (a) the seventh day prior to a change of control of the
Company (as defined), (b) the consummation of a public equity offering (as
defined), or (c) 90 days prior to expiration.

STOCK OPTION PLANS -- The Company has stock option plans (the Plans) under
which shares are reserved for issuance to officers, directors, employees and
consultants. Under the Plans, both incentive and nonstatutory stock options to
purchase common stock may be granted or restricted common stock may be sold at
prices not less than the fair market value of the common stock at the date of
grant. The fair market value and terms of exercise are determined by the Board
of Directors. Options outstanding at December 31, 1995 generally become
exercisable ratably over five years, commencing six months from the date of the
individual's employment or the date of grant and expire ten years from the date
of grant. At December 31, 1995, there were 1,827,000 shares available for future
grants under the Plans.

A summary of stock option activity under the Plans on a combined basis is as
follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
NUMBER OF
SHARES PRICE PER SHARE
----------- ----------------
<S> <C> <C>
Balances, January 1, 1994......................................................... 1,618,434 $ 0.05 to $0.25
Granted........................................................................... 4,447,850 0.25 to 0.50
Exercised......................................................................... (533,656) 0.25 to 0.50
Cancelled......................................................................... (292,000) 0.25 to 0.50
-----------
Balances, December 31, 1994 5,240,628 0.05 to 0.50
Granted........................................................................... 514,600 0.50 to 1.50
Exercised......................................................................... (2,318,096) 0.05 to 0.50
Cancelled......................................................................... (163,498) 0.05 to 1.50
-----------
Balances, December 31, 1995 3,273,634 0.05 to 1.50
Granted........................................................................... 743,310 1.75 to 3.00
Exercised......................................................................... (175,210) 0.05 to 1.50
Cancelled......................................................................... (62,598) 0.50 to 2.00
-----------
Balances, June 30, 1996........................................................... 3,779,136 $ 0.05 to 3.00
-----------
-----------
</TABLE>

RESTRICTED STOCK -- Certain officers, employees and consultants exercised
unvested stock options with cash or full recourse notes. The related shares of
common stock are subject to repurchase by the Company at the orginal purchase
price per share upon the purchaser's cessation of service prior to the vesting
of such shares. The restricted stock continues to vest in accordance with the
terms of the original stock option. The related notes bear interest at rates
ranging from 6.04% to 7.92% and are due in 1999 through 2000. At December 31,
1995, 1,847,156 outstanding shares of such stock were subject to repurchase at
the original exercise price (1,688,908 shares at June 30, 1996).

F-16
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

8. INCOME TAXES
No federal income taxes were provided in 1993, 1994, 1995 or for the six
months ended June 30, 1996 due to the Company's net losses. The provisions for
income taxes for these periods represent various state minimum income and
franchise taxes. The provision for income taxes differs from the amount computed
by applying the federal statutory income tax rate to the loss before income
taxes as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
------------------------------- ENDED JUNE
1993 1994 1995 30, 1996
--------- --------- --------- -----------
Taxes computed at federal statutory rate............. 35.0% 35.0% 35.0% 35.0%
<S> <C> <C> <C> <C>
State income taxes, net of federal effect............ 4.5 4.5 4.5 4.5
Research tax credits................................. 2.8 3.1 1.0 0.6
Change in valuation allowance........................ (42.2) (42.5) (40.4) (40.0)
--------- --------- --------- -----------
Total provision...................................... 0.1% 0.1% 0.1% 0.1%
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>

The tax effects of temporary differences that give rise to deferred taxes
were as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
Deferred tax assets:
<S> <C> <C> <C>
Expenses not currently deductible for tax purposes......... $ 1,504 $ 2,182 $ 1,995
Senior discount note interest.............................. -- 3,817 8,274
Tax net operating loss and credit carryforwards............ 18,939 30,910 40,723
Research and development expenses capitalized for tax
purposes.................................................. 1,991 3,645 2,044
--------- --------- -----------
Total deferred tax assets.................................... 22,434 40,554 53,036
Valuation allowance on deferred tax assets................... (22,434) (40,554) (53,036)
--------- --------- -----------
Net deferred income taxes.................................... $ -- $ -- $ --
--------- --------- -----------
--------- --------- -----------
</TABLE>

At December 31, 1995, the Company had net operating loss carryforwards of
approximately $82,500,000 and $7,300,000 available to offset future federal and
California taxable income, respectively. The extent to which the loss
carryforwards can be used to offset future taxable income may be limited,
depending on the extent of ownership changes within any three-year period as
provided in the Tax Reform Act of 1986 and the California Conformity Act of
1987. Such federal carryforwards expire in 2001 through 2010. Such state
carryforwards expire in 1996 through 2000.

Equity issuances in April 1991 triggered such a limitation on loss
carryforwards. At that time, the Company had federal net operating loss
carryforwards of approximately $10,500,000. As of December 31, 1995,
approximately $4,000,000 of this net operating loss remains limited to an annual
usage of approximately $1,400,000 for federal income tax purposes. Any
significant stock issuances after December 31, 1995 will likely result in
another such ownership change. The annual limitation for utilization of the net
operating losses and tax credit carryforwards incurred up to the point of change
will be equal to the fair market value of the Company immediately before such
change multiplied by the then current long-term tax exempt interest rate.

The Company has capitalized approximately $59,400,000 of research and
development expenditures for California purposes which are available for
amortization in future years. Realization of the deferred tax assets associated
with these expenditures is contingent upon the amount of income or loss
apportioned to

F-17
<PAGE>
CELLNET DATA SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

(INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS
UNAUDITED)

8. INCOME TAXES (CONTINUED)
California during the subject amortization periods. Research and development tax
credit carryforwards of approximately $1,800,000 and $900,000 are also available
to offset future federal and California income taxes payable, respectively.

A valuation allowance has been recorded against tax assets for which
realization is uncertain. Based upon the Company's history of operating losses
and the expiration dates of the loss carryforwards, the Company has recorded a
valuation allowance to the full extent of its net deferred tax assets.

9. CONTINGENCIES AND COMMITMENTS
The industry in which the Company operates is characterized by frequent
litigation regarding patent and other intellectual property rights. The Company
is party to a trademark claim. Although the ultimate outcome of this matter is
not presently determinable, management believes that its resolution will not
have a material effect on the Company's financial position or results of
operations.

At December 31, 1994 and 1995 and June 30, 1996, equipment with a net book
value of $456,000, $854,000 and $822,000 (net of accumulated amortization of
$1,495,000, $372,000 and $536,000, respectively), has been leased under capital
leases.

The Company leases its manufacturing and office facilities under a
noncancelable operating lease which expires in December 2000. Deferred rent
results from the difference between facilities rent expense recognized on the
straight-line basis over the term of the lease as compared to the contractual
payments made.

Future minimum annual rental payments under capital and operating leases are
as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
- ----------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
1996..................................................................................... $ 360 $ 1,087
1997..................................................................................... 315 1,059
1998..................................................................................... 158 1,040
1999..................................................................................... 91 1,046
2000..................................................................................... 54 1,081
Thereafter............................................................................... -- 749
----------- -----------
Total minimum lease payments............................................................. 978 $ 6,062
-----------
-----------
Amount representing interest............................................................. (158)
-----------
Present value of minimum lease payments.................................................. $ 820
-----------
-----------
</TABLE>

Facilities rent expense was $245,000, $421,000, $901,000, and $599,000 for
1993, 1994, 1995 and for the six months ended June 30, 1996, respectively. Rent
expense is net of sublease income of $296,000 and $175,000 in 1993 and 1994,
respectively.

10. SUBSEQUENT EVENTS
On August 30, 1996 the Company reincorporated in Delaware. The Board of
Directors of the Company approved a two-for-one split of all outstanding shares
of common stock effective as of September 5, 1996. All shares and per-share
amounts have been adjusted to reflect this split.

* * * * *

F-18
<PAGE>
THE CELLNET NETWORK ENABLES:

UTILITY APPLICATIONS

- -Time-of-use and demand energy rates

- -Real-time response to billing inquiries

- -Real-time power outage detection, location, and notification

- -On-demand meter reads

- -Customer-selected billing dates and consolidated, multi-location billing

- -Automatic move-in/move-out meter reading

- -Distribution automation

- -Internet access to consumption, rate, and billing information

FUTURE NON-UTILITY APPLICATIONS

- -Security services for home security, fire alarm, and personal safety devices

- -Remote status monitoring for vending, postage, change, and commercial washing
machines; office and factory equipment; and intelligent home devices, such as
remote-control thermostats

- -Intelligent transportation systems for traffic lights, parking meters, and toll
booths

[Graphic: Collage showing various components and applications of the CellNet
System.]
<PAGE>
[LOGO]
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR
SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER , 1996

2,600,000 SHARES

[LOGO]
COMMON STOCK

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

ALL OF THE 2,600,000 SHARES OF COMMON STOCK (THE "NOTE WARRANT SHARES") OFFERED
HEREBY (THE "NOTE WARRANT OFFERING") ARE BEING SOLD BY THE COMPANY TO HOLDERS
ELECTING TO EXERCISE WARRANTS (THE "NOTE WARRANTS") ISSUED PURSUANT TO THE
WARRANT AGREEMENT DATED AS OF JUNE 15, 1995 AND AS SUPPLEMENTED BY THE FIRST
SUPPLEMENTAL WARRANT AGREEMENT DATED AS OF NOVEMBER 21, 1995 (COLLECTIVELY,
THE "NOTE WARRANT AGREEMENT") BETWEEN THE COMPANY AND THE BANK OF NEW YORK
AS WARRANT AGENT. THE NOTE WARRANTS WERE ORIGINALLY ISSUED IN CONNECTION
WITH THE COMPANY'S ISSUANCE OF 13% SENIOR DISCOUNT NOTES DUE 2005 (THE
"SENIOR DISCOUNT NOTES"). THE SENIOR DISCOUNT NOTES AND NOTE WARRANTS
WERE ORIGINALLY OFFERED IN UNITS WHICH BECAME SEPARATELY TRANSFERABLE
ON THE DATE OF ORIGINAL ISSUANCE. IN CONNECTION WITH THE INITIAL
PUBLIC OFFERING (THE "OFFERING") OF ITS COMMON STOCK (THE "SHARES"),
THE COMPANY HAS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, THE NOTE WARRANT SHARES ISSUABLE UPON EXERCISE OF THE NOTE
WARRANTS AS REQUIRED UNDER THE NOTE WARRANT AGREEMENT. THE NOTE
WARRANTS ARE EXERCISABLE AT ANY TIME BEGINNING ON THE CLOSING OF
THE OFFERING AND ENDING 90 DAYS THEREAFTER (THE "EXPIRATION
DATE"). IF NOT EXERCISED BY THE EXPIRATION DATE, THE NOTE
WARRANTS TERMINATE AND MAY NOT BE EXERCISED. THE NOTE WARRANT
SHARES ARE CURRENTLY SUBJECT TO A LOCK-UP AGREEMENT WHICH
PROHIBITS RESALE OF THE NOTE WARRANT SHARES FOR 90 DAYS FROM
THE CLOSING OF THE OFFERING.

CONCURRENTLY WITH THE CLOSING OF THE OFFERING, THE COMPANY IS ISSUING SHARES OF
COMMON STOCK DIRECTLY TO CERTAIN PURCHASERS (THE "DIRECT PLACEMENTS"). THE
OFFERING AND THE DIRECT PLACEMENTS, WHICH WILL OCCUR CONCURRENTLY WITH THE
NOTE WARRANT OFFERING, ARE DESCRIBED HEREIN. REFERENCES HEREIN TO "THE
OFFERING" OR "THIS OFFERING" REFER TO THE COMPANY'S INITIAL PUBLIC
OFFERING OF ITS COMMON STOCK AND REFERENCES TO THE "NOTE WARRANT
OFFERING" REFER TO THE OFFERING MADE HEREBY. THE OFFERING, DIRECT
PLACEMENTS AND THE NOTE WARRANT OFFERING ARE COLLECTIVELY
REFERRED TO HEREIN AS THE "OFFERINGS".

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

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 8 HEREOF.

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

PRICE $0.005 A SHARE

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

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS
WARRANT HOLDERS AND COMMISSIONS PROCEEDS TO COMPANY
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
PER SHARE............................... $0.005 $-- $0.005
TOTAL................................... $13,000 $-- $13,000
</TABLE>

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

THE NOTE WARRANTS MAY BE EXERCISED FOR CASH OR ON A CASHLESS BASIS ANY TIME
BEFORE THE EXPIRATION DATE.
DELIVERY OF NOTE WARRANT SHARES UPON EXERCISE OF THE NOTE WARRANT WILL BE MADE
TO THE HOLDER IMMEDIATELY FOLLOWING RECEIPT BY THE COMPANY OF THE ORIGINAL NOTE
WARRANT CERTIFICATE, AN EXECUTED ELECTION TO EXERCISE, AND PAYMENT OF THE
AGGREGATE EXERCISE PRICE IF THE EXERCISE IS ON A CASH BASIS. ANY HOLDER ELECTING
TO EXERCISE ON A CASHLESS BASIS WILL RECEIVE THE NUMBER OF NOTE WARRANT SHARES
EQUAL TO THE PRODUCT OF THE NUMBER OF SHARES FOR WHICH THE NOTE WARRANT IS
EXERCISABLE AND THE CASHLESS EXERCISE RATIO AS DEFINED IN THE WARRANT AGREEMENT.
SEE "PLAN OF DISTRIBUTION."

, 1996
<PAGE>

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE NOTE WARRANT
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS
OR SUBSCRIPTIONS.

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

For investors outside the United States: No action has been or will be taken
in any jurisdiction by the Company or any underwriter that would permit a public
offering of the Common Stock or possession or distribution of this Prospectus in
any jurisdiction where action for that purpose is required, other than in the
United States. Persons into whose possession this Prospectus comes are required
by the Company to inform themselves about and to observe any restrictions as to,
the offering of the Common Stock and the distribution of this Prospectus.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 19
Direct Placements.......................................................................................... 19
Dividend Policy............................................................................................ 19
Capitalization............................................................................................. 20
Dilution................................................................................................... 21
Selected Consolidated Financial Data....................................................................... 22
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Business................................................................................................... 29
Management................................................................................................. 47
Certain Transactions....................................................................................... 54
Principal Stockholders..................................................................................... 57
Description of Capital Stock............................................................................... 60
Shares Eligible for Future Sale............................................................................ 64
Plan of Distribution....................................................................................... 66
Legal Matters.............................................................................................. 67
Experts.................................................................................................... 67
Additional Information..................................................................................... 67
Glossary................................................................................................... A-1
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERINGS
(I) ASSUMES NO EXERCISE OF THE U.S. UNDERWRITERS' OVER-ALLOTMENT OPTION, (II)
REFLECTS THE AUTOMATIC CONVERSION OF ALL OUTSTANDING SHARES OF THE COMPANY'S
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE PREFERRED STOCK
(COLLECTIVELY, "PREFERRED STOCK") INTO COMMON STOCK EFFECTIVE UPON THE CLOSING
OF THE OFFERING, (III) ASSUMES THE EXERCISE OF WARRANTS TO PURCHASE 4,132,970
SHARES OF COMMON STOCK EFFECTIVE UPON THE CLOSING OF THE OFFERING WHICH INCLUDES
THE ASSUMED EXERCISE OF ALL NOTE WARRANTS ON A CASH BASIS, (IV) GIVES EFFECT TO
A 2-FOR-1 SPLIT OF THE COMMON STOCK WHICH WILL BE EFFECTED PRIOR TO THE DATE OF
THIS PROSPECTUS AND (V) ASSUMES THE SALE OF 937,500 AND 533,333 SHARES OF COMMON
STOCK TO NSP AND UE, RESPECTIVELY, CONCURRENTLY WITH THE CLOSING OF THE OFFERING
AT AN ASSUMED PRICE OF $16.00 PER SHARE AND $18.75 PER SHARE, RESPECTIVELY. SEE
"DIRECT PLACEMENTS" AND "DESCRIPTION OF CAPITAL STOCK." REFERENCES HEREIN TO
"CELLNET" OR THE "COMPANY" REFER TO CELLNET DATA SYSTEMS, INC. AND ITS
SUBSIDIARIES. THE NOTE WARRANT SHARES OFFERED HEREBY ARE SUBJECT TO A HIGH
DEGREE OF RISK. SEE "RISK FACTORS." CERTAIN INFORMATION CONTAINED IN THIS
SUMMARY AND ELSEWHERE IN THIS PROSPECTUS, INCLUDING INFORMATION WITH REGARD TO
THE COMPANY'S EXPECTED WIRELESS DATA COMMUNICATIONS NETWORK DEPLOYMENTS AND
OPERATIONS, ITS STRATEGY FOR MARKETING AND DEPLOYING SUCH NETWORKS AND RELATED
FINANCING ACTIVITIES, CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS."

THE COMPANY

4
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock Offered:
U.S. Offering (1)............................. 4,000,000 shares
International Offering........................ 1,000,000 shares
Total Common Stock Offered in the
Offering (1)............................. 5,000,000 shares
Note Warrant Offering......................... 2,600,000 shares
Common Stock to be outstanding after the
Offerings (1)(2)............................... 40,518,967 shares
Use of proceeds................................. For general corporate purposes, including
working capital, capital requirements
(capital expenditures and negative
operating cash flow) in connection with
the installation and operation of the
Company's networks and research and
development expenses. See "Use of
Proceeds."
Nasdaq National Market Symbol................... CNDS
</TABLE>

In addition, NSP and UE have agreed to acquire $15.0 million and $10.0
million, respectively, of restricted Common Stock from the Company (the "NSP
Purchase" and the "UE Purchase," respectively, and together, the "Direct
Placements") concurrently with the closing of the Offering. NSP will purchase
937,500 shares of Common Stock at a purchase price of $16.00 per share (the
initial public offering price, less a discount of up to 20%, which discount is
dependent upon entering into a letter of intent and the signing of a services
agreement with Wisconsin Electric Power Company for at least 750,000 meters (if
neither such event occurs, the purchase price per share will be adjusted to 90%
of the initial public offering price; and if only one such event occurs, the
purchase price per share will be adjusted to 85% of the initial public offering
price)). UE will purchase 533,333 shares of Common Stock at a purchase price of
$18.75 per share (the initial public offering price less the underwriting
discounts and commissions). Upon the closing of the Offering and the Direct
Placements, NSP and UE will own approximately 2.31% and 1.32%, respectively, of
the Common Stock. The closing of the Offering is not conditioned upon the
closing of the Direct Placements. See "Direct Placements."

- ---------

(1) Assumes the underwriters' over-allotment option in the Offering is not
exercised.

(2) Based on the number of shares outstanding as of June 30, 1996, after giving
effect to the automatic conversion of all outstanding shares of Preferred
Stock into Common Stock and the exercise of warrants to purchase 4,132,970
shares of Common Stock effective upon the closing of the Offering which
includes the assumed exercise of all Note Warrants on a cash basis. Also
includes the sale of 1,470,833 shares of Common Stock pursuant to the Direct
Placements concurrently with the closing of the Offering. See "Direct
Placements." Excludes 3,779,136 shares of Common Stock issuable upon
exercise of outstanding stock options as of June 30, 1996 granted under the
Company's 1992 Stock Option Plan and 1994 Stock Plan with a weighted average
exercise price of $0.625 per share. Also excludes 50,150 shares of Common
Stock issuable upon exercise of warrants outstanding as of June 30, 1996
with a weighted average exercise price of $7.59 per share. See "Management
-- Incentive Stock Plans," "Description of Capital Stock -- Warrants" and
Note 7 to Consolidated Financial Statements.

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

6
<PAGE>

Offering, nine directors will be persons designated by certain holders in
accordance with the Shareholders' Agreement. In addition, under the
Shareholders' Agreement the parties thereto have agreed that, until August 15,
1997, the Certificate of Incorporation will not be amended to eliminate
cumulative voting and that the Board of Directors shall not be comprised of less
than eight directors. The effect of the Shareholders' Agreement is to give
certain stockholders greater influence over the management of the Company than
they would otherwise have and to provide certain stockholders with, among other
things, certain registration, first refusal, co-sale and other rights. See
"Management -- Board of Directors," "Certain Transactions" and "Description of
Capital Stock."

NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY OF
STOCK PRICE

Prior to the Offering there has been no public market for the Common Stock,
and there can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price in the Offering will be determined by negotiation between the Company and
the underwriters based upon several factors, and may not be indicative of the
market price of the Common Stock after the Offering. The trading price of the
Common Stock could be subject to wide fluctuations in response to quarterly
variations in the Company's results of operations, uncertain periodic events
such as the signing or termination of services contracts, changes in financial
estimates by analysts, variations between the Company's results and results
expected by financial analysts and investors, announcements of technological
innovations by the Company or its competitors, conditions in the wireless
communications industry, regulatory changes or general market or economic
conditions and other events or factors. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. These fluctuations
have had a substantial effect on the market prices for many emerging growth
companies, often unrelated to the operating performance of the specific
companies. Such market fluctuations could adversely affect the price of the
Common Stock.

RESALE RESTRICTIONS ON NOTE WARRANT SHARES; SHARES ELIGIBLE FOR FUTURE SALE;
REGISTRATION RIGHTS

The Note Warrant Shares are currently subject to a Lock-up Agreement which
prohibits resale of the Note Warrant Shares for 90 days from the closing of the
Offering. Sales of a substantial number of shares of Common Stock in the public
market following the Offering could adversely affect the market price for the
Company's Common Stock. The number of shares of Common Stock available for sale
in the public market is limited by restrictions under the Securities Act of
1933, as amended (the "Securities Act"), and lock-up agreements pursuant to
which holders have agreed not to sell or otherwise dispose of 26,420,242 shares
for 180 days after the date of the closing of the Offering without the prior
written consent of Morgan Stanley & Co. Incorporated. However, Morgan Stanley &
Co. Incorporated may, in its sole discretion and at any time without notice,
release all or any portion of such shares. In addition, certain other holders
have agreed not to sell or otherwise dispose of 2,839,906 shares for 120 days
after the closing of the Offering. Concurrently with the closing of the
Offering, the Company is registering the offer and sale of the Note Warrant
Shares which are being sold by the Company to holders electing to exercise the
Note Warrants issued pursuant to the Note Warrant Agreement. Under the Note
Warrant Agreement, the Company is required to register the offer and sale of the
Note Warrant Shares issuable upon exercise of the Note Warrants to the extent
legally permissible in connection with the Company's initial public offering of
its Common Stock. The Note Warrants are exercisable at any time beginning on the
closing of the Offering and ending on the "Expiration Date. If not exercised by
the Expiration Date, the Note Warrants terminate and may not be exercised. The
Note Warrant Shares are currently subject to a lock-up agreement which prohibits
resale of the Note Warrant Shares for 90 days from the closing of the Offering.
After the expiration of the various lock-up agreements, all such shares will
generally be eligible for sale in the public market subject in the case of
certain shares (including shares held by affiliates) to the limitations of Rule
144 under the Securities Act. On the date of the closing of the Offering, no
shares other than 366 shares of Common Stock previously issued, the Shares and
the Note Warrant Shares issuable upon exercise, subject to the 90-day lock-up
agreements, will be eligible for immediate sale in the public market. In
addition, the Company intends to register, following the Offering, a total of
5,086,420 shares of Common Stock subject to outstanding options or reserved for
issuance under the Company's 1992 Stock Option Plan and 1994 Stock Plan and
1,200,000 shares of Common Stock reserved for issuance under its 1996 Employee
Stock Purchase Plan. Furthermore, upon expiration of certain lock-up

17
<PAGE>

agreements referred to above, the holders of 28,188,916 shares of Common Stock
will be entitled to certain registration rights with respect to such shares.
Pursuant to the agreements related to the Direct Placements, NSP and UE each
agreed not to sell or otherwise dispose of 50% of the shares of Common Stock
acquired thereby for a period of twelve months and the remaining 50% of the
shares of Common Stock acquired thereby for a period of 24 months from the date
of the Offering. The 1,470,833 shares sold to NSP and UE will be eligible for
sale in the public market two years from the closing of the Offering pursuant to
Rule 144. If such holders, by exercising their registration rights, cause a
large number of shares of Common Stock to be registered and sold in the public
market, such sales could have a material adverse effect on the market price for
the Common Stock. See "Description of Capital Stock -- Registration Rights of
Certain Holders" and "Shares Eligible for Future Sale."

SUBSTANTIAL DILUTION

EFFECT OF CERTAIN CHARTER PROVISIONS; ANTITAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, INDENTURE, DELAWARE LAW AND CERTAIN AGREEMENTS

NO DIVIDENDS; DIVIDEND RESTRICTIONS.

18
<PAGE>

REGISTRATION RIGHTS OF CERTAIN HOLDERS

Pursuant to its obligation under the Warrant Agreement, concurrently with
the closing of the Offering the Company is registering the offer and sale of the
Note Warrant Shares which are being offered for sale hereby by the Company to
holders electing to exercise the Note Warrants. The Note Warrants are
exercisable at any time beginning on the closing of the Offering and ending on
the Expiration Date. If not exercised by the Expiration Date, the Note Warrants
terminate and may not be exercised. The Note Warrant Shares are currently
subject to lock-up agreements which prohibit resale of the Note Warrant Shares
for 90 days from the closing of the Offering. Under a Warrant Registration
Rights Agreement dated June 15, 1995, as supplemented on November 21, 1995 (the
"Warrant Registration Rights Agreement"), after the Offering the holders of Note
Warrants may require, subject to the provisions of certain lockup agreements,
that the Company file up to three registration statements under the Securities
Act with respect to the Note Warrant Shares. Furthermore, the holders may
require the Company to register the Note Warrant Shares on a Form S-3 when such
form becomes available to the Company, subject to certain conditions and
limitations. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the holders of the Note Warrant Shares are entitled to notice of such
registration and are entitled to include their shares therein, subject to
certain conditions and limitations including the right of underwriters of an
offering to limit the number of shares included in such registration in certain
circumstances. The Company will pay certain expenses in connection with the
exercise of the

61
<PAGE>

RIGHTS OF FIRST REFUSAL

OTHER RIGHTS

In addition, NSP has a right to participate in future public offerings of
newly issued shares of Common Stock by the Company. NSP will be entitled to
purchase a pro rata portion of the shares that the Company proposes to offer to
the public based on the ratio of the number of shares purchased by NSP in the
Direct Placements and owned on the date of such public offering to the total
number of shares of Common Stock then outstanding before giving effect to such
public offering. However, NSP may not exercise such participation right to the
extent that NSP's percentage ownership of the Common Stock after such new
offering would exceed the percentage ownership of NSP upon the closing of the
Offering (after giving effect to the release of any Escrow Shares to NSP). NSP's
participation shall be on the same terms and conditions as the public investors
in such public offering. NSP's participation right terminates two years after
the effective date of the Offering.

CERTAIN PROVISIONS OF DELAWARE LAW

62
<PAGE>

the "business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have an anti-takeover effect with respect to transactions not approved in
advance by the Board of Directors, including discouraging attempts that might
result in a premium over the market price for the shares of Common Stock held by
stockholders.

TRANSFER AGENT AND REGISTRAR; WARRANT AGENT

The transfer agent and registrar for the Common Stock as well as the Warrant
Agent under the Warrant Agreement is The Bank of New York.

63
<PAGE>

PLAN OF DISTRIBUTION

The price of the Common Stock offered hereby is based on the exercise price
of the Note Warrants as provided in the Note Warrant Agreement. As the Company
effected a 2-for-1 stock split of its outstanding Common Stock effective
immediately prior to the effective date of the Offering, the original Note
Warrant exercise price of $0.01 per share has been proportionately adjusted to
$0.005 per share to reflect such split. Similarly, the original number of shares
of Common Stock issuable upon exercise of the Note Warrants has been increased
from an aggregate of 1,300,000 shares to 2,600,000 shares. Certain of the
Company's executive officers will participate in the sale of the Note Warrant
Shares to holders upon exercise of the Note Warrants. These participants, who
will not receive any compensation for these activities, will not be deemed to
brokers pursuant to Rule 3a4-1 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and will merely ensure compliance with the
Company's obligations under the Warrant Agreement in connection with the
issuance of Note Warrant Shares upon exercise of the Note Warrants. The Company
will not pay any finder's fee or commission in connection with the offering
hereby of Note Warrant Shares in connection with the exercise of Note Warrants.
The Company will pay all of the expenses incident to the Note Warrant Offering
which are estimated to be less than $25,000.

The Note Warrants may be exercised for cash or on a cashless basis any time
before the Expiration Date. Any holder electing to exercise on a cashless basis
will receive the number of Note Warrant Shares equal to the product of the
number of Note Warrant Shares for which the Note Warrant is exercisable and the
Cashless Exercise Ratio as defined in the Warrant Agreement. The "Cashless
Exercise Ratio" is defined in Section 2.02(c) of the Warrant Agreement as a
fraction, the numerator of which is the excess of the Current Market Value of
the Common Stock on the date of exercise over the exercise price per share as of
the date of exercise and the denominator of which is the Current Market Value of
the Common Stock on the date of exercise. The "Current Market Value" per share
of the Note Warrant Shares is defined in Section 5.01(n) of the Warrant
Agreement as the average of the daily closing bid prices for each business day
during the period commencing 15 business days before such date and ending on the
date one day prior to such date or, if the security has been registered under
the Exchange Act for less than 15 consecutive business days before such date,
then the average of the daily closing bid prices for all of the business days
before such date for which daily closing bid prices are available. If the
closing bid is not determinable for at least 10 business days in such period,
the Current Market Value of the security shall be determined reasonably and in
good faith by a disinterested majority of the Board of Directors of the Company
and certified in a board resolution, or, if at the time there are not at least
three disinterested members of the Board of Directors, by a nationally
recognized investment banking firm or appraisal firm which is not an affiliate
of the Company.

Delivery of the Note Warrant Shares upon exercise of a Note Warrant will be
made to the holder immediately following receipt by the Company of the original
Note Warrant certificate, an Election to Exercise duly completed and signed by
the registered holder or holders thereof, and full payment of the aggregate
exercise price if the exercise is on a cash basis. If a Note Warrant is
currently held by the Depository Trust Company in global form, the holder must,
by written request, request the Warrant Agent to issue the holder a definitive
Note Warrant certificate which may then be delivered to the Company upon
exercise thereof. Upon receipt by the Company of the Note Warrant certificate
and Election to Exercise and collection of the aggregate exercise price, if
applicable, such Note Warrant certificate and any such payment must be delivered
by the Company immediately to the Warrant Agent. The exercise date shall be
deemed to be the date the Warrant Agent receives the foregoing items, and the
Warrant Agent upon determining that such exercise has been timely, shall then
promptly remit payment of the exercise price, if any, to the Company and advise
the Company with respect to delivery of Note Warrant Shares to the holder. The
Company as soon thereafter as practicable must issue or cause the issuance of
the appropriate number of Note Warrant Shares to such holder. Any such Note
Warrant Shares issued in connection with a timely exercise will be shares of the
Company's Common Stock which have been registered for resale under the
Securities Act as provided in the Warrant Agreement. All Note Warrant Shares are
subject to lock-up agreements which prohibit resale of such shares for 90 days
from the closing of the Offering. See "Shares Eligible for Future Sale."

66
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

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

<TABLE>
<S> <C>
SEC registration fee............................................ $ 41,635
NASD filing fee................................................. 17,750
Nasdaq National Market listing fee.............................. 50,000
Printing and engraving costs.................................... 150,000
Legal fees and expenses......................................... 375,000
Accounting fees and expenses.................................... 300,000
Blue Sky fees and expenses...................................... 22,500
Transfer Agent and Registrar fees............................... 10,000
Directors and Officers insurance coverage premiums.............. 375,000
Miscellaneous expenses.......................................... 58,115
---------
Total..................................................... $1,400,000
---------
---------
</TABLE>

- ---------

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article 7 of the Registrant's Restated Certificate of Incorporation provides
for the indemnification of directors to the fullest extent permissible under
Delaware law.

Article 6 of the Registrant's Bylaws provides for the indemnification of
officers, directors, employees and agents of the corporation if such person
acted in good faith and in a manner reasonably believed to be in and not opposed
to the best interest of the corporation, and, with respect to any criminal
action or proceeding the indemnified party had no reason to believe his conduct
was unlawful.

Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.

The Registrant has entered into indemnification agreements with its
directors and executive officers, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.

The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors, and by the Registrant of the Underwriters, for
certain liabilities arising under the Securities Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since January 1, 1993, the Registrant has issued and sold (without payment
of any selling commission to any person except as noted below) the following
unregistered securities:

(1) From inception of each respective plan, the Registrant issued and
sold an aggregate of 3,913,580 shares of Common Stock to employees,
directors and consultants at prices ranging from an aggregate of $0.05 to
$3.00, upon exercise of incentive stock options under the Registrant's 1992
Stock Option Plan and 1994 Stock Plan, or as stock purchases in connection
with their employment with or services to the Company.

(2) In January 1993, the Registrant issued 755,142 shares of Series AA
Preferred Stock to a group of 14 investors for an aggregate cash purchase
price of $755,142.

II-1
<PAGE>

(3) In October 1993 and December 1993, the Registrant issued 2,963,530
and 526,315 shares of Series BB Preferred Stock, respectively, and warrants
to purchase 661,625 and 105,263 shares of Series BB Preferred Stock,
respectively, to a group of 73 investors for an aggregate cash purchase
price of $16,576,763.75. The Company paid placement fees of $419,783 to
Hambrecht & Quist in connection with these issuances.

(4) In August 1994, the Registrant issued and sold 3,215,768 shares of
Series CC Preferred Stock, respectively, to a group of 28 investors for an
aggregate cash purchase price of $31,000,003.52. The Company paid placement
fees of $639,805 to Barclay's Bank and $615,853 to Toronto Dominion Bank in
connection with these issuances.

(5) From December 1994 to February 1995, the Registrant issued and sold
an aggregate of 646,830 shares of Series DD Preferred Stock to a group of 25
investors for an aggregate cash purchase price of $6,235,441.20.

(6) In June 1995 and December 1995, the Registrant sold 235,000 units
and 90,000 units consisting of $235,000,000 and $90,000,000 principal amount
at maturity, respectively, of 13% Senior Discount Notes due 2005 and
warrants to purchase 1,880,000 shares and 720,000 shares, respectively, of
Common Stock of the Company at an exercise price of $.005 per Warrant, to a
group of qualified institutional buyers and accredited and offshore
investors for aggregate cash proceeds of $175,837,000. The Company paid
placement fees of $4,220,085 to Smith Barney Inc. and $1,050,000 to Toronto
Dominion Bank in connection with these issuances.

(7) Concurrently with the closing of the Offering, the Registrant will
issue an aggregate of 1,470,833 shares of Common Stock to Northern States
Power Company ("NSP") and Union Electric Company, each of which are
accredited investors, for aggregate cash proceeds of $25,000,000. 104,167 of
the shares to be issued to NSP will be deposited into escrow and released to
NSP upon the achievement of certain customer milestones. If such milestones
are not met by December 31, 1997, such shares will released from escrow to
the Registrant.

The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act, as transactions by an issuer not involving a public
offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
1.1** Form of Underwriting Agreement.
3.1A* Restated Certificate of Incorporation.
3.1B Form of Amended and Restated Certificate of Incorporation of Registrant effecting a
two-for-one Common Stock split.
3.1C Form of Amended and Restated Certificate of Incorporation to be filed upon the closing of
the Offering made under this Registration Statement.
3.2A* Bylaws (formerly Exhibit 3.2).
3.2B Form of Bylaws to be filed upon the closing of the Offering made under this Registration
Statement.
4.1 Specimen Common Stock Certificate.
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
4.2* Indenture between the Company and the Bank of New York dated June 15, 1995, including form
of Senior Discount Note.
4.3* Warrant Agreement between the Company and the Bank of New York dated June 15, 1995,
including form of Warrant.
4.4* Notes Registration Rights Agreement dated June 15, 1995 by and between the Company and
Smith Barney Inc.
4.5* Warrants Registration Rights Agreement dated June 15, 1995 by and between the Company and
Smith Barney Inc.
4.6* First Supplemental Indenture between the Company and the Bank of New York dated November
21, 1995.
4.7* First Supplemental Warrant Agreement between the Company and the Bank of New York dated
November 21, 1995.
4.8* First Supplemental Notes Registration Rights Agreement dated November 21, 1995 by and
between the Company and Smith Barney Inc.
4.9* First Supplemental Warrants Registration Rights Agreement dated November 21, 1995 by and
between the Company and Smith Barney Inc.
4.10* Form of Warrant to purchase shares of Series BB Preferred Stock.
4.11* Warrant Agreement between the Company and Axonn Corporation dated August 12, 1992.
4.12* Form of Warrant Agreement between the Company and Diablo Research Corporation.
4.13* Form of Series E Warrant.
4.14 Stock Purchase Agreement dated September 6, 1996 between the Company and Northern States
Power Company.
4.15* Stock Purchase Agreement dated September 4, 1996 between the Company and Union Electric
Development Corporation.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1A* Form of current Indemnification Agreement for directors and officers (formerly Exhibit
10.1).
10.1B Form of Indemnification Agreement for directors and officers to be used after the closing
of the Offering made under this Registration Statement.
10.2A* 1992 Stock Option Plan and forms of agreements thereunder.
10.2B* 1994 Stock Plan and forms of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* Shareholders' Agreement between the Company and certain shareholders dated August 15, 1994,
as amended by Amendment No. 1 on December 22, 1994, Amendment No. 2 on June 15, 1995 and
Amendment No. 3 on November 21, 1995.
10.5* Lease between the Company and WDT Shoreway dated April 6, 1989 for the Company's San Carlos
headquarters.
10.6* Restricted Stock Purchase Agreement between the Company and John Seidl dated December 27,
1994.
10.7* Restricted Stock Purchase Agreement between the Company and James Jennings dated August 1,
1995.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------
<C> <S>
10.8* Restricted Stock Purchase Agreement between the Company and Philip Mallory dated July 21,
1995.
10.9* Restricted Stock Purchase Agreement between the Company and Larsh Johnson dated August 1,
1995.
10.10+ License Agreement between the Company and Axonn Corporation dated August 21, 1992, as
amended by an Addendum and a Second Addendum, each dated November 8, 1993.
10.11+ License Agreement between the Company and Axonn Corporation dated March 25, 1996.
10.12+* License Agreement between the Company and Life Point Systems Limited Partnership dated
August 12, 1994.
10.13* Agreement between the Company and James Jennings dated July 11, 1994.
10.14* Form of Employee Severance Agreement
10.15* Purchase Agreement between the Company and Smith Barney Inc. dated June 15, 1995.
10.16* Purchase Agreement between the Company and Smith Barney Inc. dated November 21, 1995.
10.17* Form of Promissory Note between the Company and certain officers of the Company in
connection with the purchase of restricted stock.
11.1* Statement regarding computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent and Report on Schedule.
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule
</TABLE>

- ---------
* Filed previously.
** To be filed by amendment.
+ Confidential treatment requested as to a portion of this exhibit.

(B) FINANCIAL STATEMENT SCHEDULES

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

The following financial statement schedule is filed as part of this
Registration Statement:

Schedule II -- Valuation and Qualifying Accounts and Reserves.

ITEM 17. UNDERTAKINGS

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

Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director,

II-4
<PAGE>
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered hereunder,
the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned registrant hereby undertakes that:

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

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

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Carlos, State
of California on the 23rd day of September, 1996.

CELLNET DATA SYSTEMS, INC.

By: /s/ JOHN M. SEIDL
-----------------------------------
John M. Seidl,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ JOHN M. SEIDL President, Chief Executive
------------------------------------------- Officer and Director (Principal September 23, 1996
(John M. Seidl) Executive Officer)

Vice President and Chief
/s/ PAUL G. MANCA* Financial Officer (Principal
------------------------------------------- Financial and Accounting September 23, 1996
(Paul G. Manca) Officer)

/s/ PAUL M. COOK*
------------------------------------------- Chairman of the Board, Director September 23, 1996
(Paul M. Cook)

/s/ NEAL M. DOUGLAS*
------------------------------------------- Director September 23, 1996
(Neal M. Douglas)

/s/ WILLIAM C. EDWARDS*
------------------------------------------- Director September 23, 1996
(William C. Edwards)

/s/ WILLIAM HART*
------------------------------------------- Director September 23, 1996
(William Hart)

/s/ BRIAN KWAIT*
------------------------------------------- Director September 23, 1996
(Brian Kwait)

/s/ NANCY E. PFUND*
------------------------------------------- Director September 23, 1996
(Nancy E. Pfund)

/s/ PAUL J. SALEM*
------------------------------------------- Director September 23, 1996
(Paul J. Salem)

/s/ HENRY B. SARGENT*
------------------------------------------- Director September 23, 1996
(Henry B. Sargent)
</TABLE>

*By: /s/ JOHN M. SEIDL
- ------------------------------------
(John M. Seidl)
(ATTORNEY-IN-FACT)

II-6
<PAGE>
SCHEDULE II

CELLNET DATA SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONS
ADDITIONS (DEDUCTIONS):
BALANCE AT CHARGED TO DEDUCTIONS: TRANSFERS
BEGINNING OF COSTS AND WRITE-OFFS OF BETWEEN BALANCE AT
YEAR EXPENSES ACCOUNTS ACCOUNTS END OF YEAR
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts receivable
Year ended December 31:
1993....................................... $ 60 $ -- $ -- $ (1) $ 59
1994....................................... 59 -- -- (34) 25
1995....................................... 25 -- -- -- 25

Warranty reserves
Year ended December 31:
1993....................................... $ 495 $ 315 $ (110) -- $ 700
1994....................................... 700 20 (624) 34 130
1995....................................... 130 16 (131) -- 15
</TABLE>

S-1
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1** Form of Underwriting Agreement.
3.1A* Restated Certificate of Incorporation.
3.1B Form of Amended and Restated Certificate of Incorporation of Registrant
effecting a two-for-one Common Stock split.....................................
3.1C Form of Amended and Restated Certificate of Incorporation to be filed upon the
closing of the Offering made under this Registration Statement.................
3.2A* Bylaws (formerly Exhibit 3.2).
3.2B Form of Bylaws to be filed upon the closing of the Offering made under this
Registration Statement.........................................................
4.1 Specimen Common Stock Certificate...............................................
4.2* Indenture between the Company and the Bank of New York dated June 15, 1995,
including form of Senior Discount Note.
4.3* Warrant Agreement between the Company and the Bank of New York dated June 15,
1995, including form of Warrant.
4.4* Notes Registration Rights Agreement dated June 15, 1995 by and between the
Company and Smith Barney Inc.
4.5* Warrants Registration Rights Agreement dated June 15, 1995 by and between the
Company and Smith Barney Inc.
4.6* First Supplemental Indenture between the Company and the Bank of New York dated
November 21, 1995.
4.7* First Supplemental Warrant Agreement between the Company and the Bank of New
York dated November 21, 1995.
4.8* First Supplemental Notes Registration Rights Agreement dated November 21, 1995
by and between the Company and Smith Barney Inc.
4.9* First Supplemental Warrants Registration Rights Agreement dated November 21,
1995 by and between the Company and Smith Barney Inc.
4.10* Form of Warrant to purchase shares of Series BB Preferred Stock.
4.11* Warrant Agreement between the Company and Axonn Corporation dated August 12,
1992.
4.12* Form of Warrant Agreement between the Company and Diablo Research Corporation.
4.13* Form of Series E Warrant.
4.14 Stock Purchase Agreement dated September 6, 1996 between the Company and
Northern States Power Company..................................................
4.15* Stock Purchase Agreement dated September 4, 1996 between the Company and Union
Electric Development Corporation.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.1A* Form of current Indemnification Agreement for directors and officers (formerly
Exhibit 10.1).
10.1B Form of Indemnification Agreement for directors and officers to be used after
the closing of the Offering made under this Registration Statement.............
10.2A* 1992 Stock Option Plan and forms of agreements thereunder.
10.2B* 1994 Stock Plan and forms of agreements thereunder.
10.3* 1996 Employee Stock Purchase Plan.
10.4* Shareholders' Agreement between the Company and certain shareholders dated
August 15, 1994, as amended by Amendment No. 1 on December 22, 1994, Amendment
No. 2 on June 15, 1995 and Amendment No. 3 on November 21, 1995.
10.5* Lease between the Company and WDT Shoreway dated April 6, 1989 for the Company's
San Carlos headquarters.
10.6* Restricted Stock Purchase Agreement between the Company and John Seidl dated
December 27, 1994.
10.7* Restricted Stock Purchase Agreement between the Company and James Jennings dated
August 1, 1995.
10.8* Restricted Stock Purchase Agreement between the Company and Philip Mallory dated
July 21, 1995.
10.9* Restricted Stock Purchase Agreement between the Company and Larsh Johnson dated
August 1, 1995.
10.10+ License Agreement between the Company and Axonn Corporation dated August 21,
1992, as amended by an Addendum and a Second Addendum, each dated November 8,
1993.
10.11+ License Agreement between the Company and Axonn Corporation dated March 25,
1996.
10.12+* License Agreement between the Company and Life Point Systems Limited Partnership
dated August 12, 1994.
10.13* Agreement between the Company and James Jennings dated July 11, 1994.
10.14* Form of Employee Severance Agreement
10.15* Purchase Agreement between the Company and Smith Barney Inc. dated June 15,
1995.
10.16* Purchase Agreement between the Company and Smith Barney Inc. dated November 21,
1995.
10.17* Form of Promissory Note between the Company and certain officers of the Company
in connection with the purchase of restricted stock.
11.1* Statement regarding computation of per share earnings.
21.1* Subsidiaries of the Registrant.
23.1 Independent Auditors' Consent and Report on Schedule............................
23.3* Consent of Counsel (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule
</TABLE>

- ---------
* Filed previously.
** To be filed by amendment.
+ Confidential treatment requested as to a portion of this exhibit.

<PAGE>

CELLNET DATA SYSTEMS, INC.

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

CellNet Data Systems, Inc., a corporation organized and existing under and
by virtue of the Delaware General Corporation Law, hereby certifies as follows:

1. The name of this corporation is CellNet Data Systems, Inc. and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on December 7, 1993.

2. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware. Pursuant to Sections 228, 242 and 245
of the General Corporation Law of Delaware, this Amended and Restated
Certificate of Incorporation restates and further integrates and further amends
the provisions of this corporation's Certificate of Incorporation.

3. The text of the Amended and Restated Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as set forth in Schedule A attached hereto.

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed under the seal of the corporation this ___ day of September,
1996.

CELLNET DATA SYSTEMS, INC.

By:
-------------------------------
John M. Seidl, President and
Chief Executive Officer

ATTEST:

- -------------------------
David L. Perry, Secretary

<PAGE>

SCHEDULE A

RESTATED CERTIFICATE OF INCORPORATION
OF
CELLNET DATA SYSTEMS, INC.

FIRST. The name of the corporation is CellNet Data Systems, Inc. (the
"Corporation").

SECOND. The address of the Corporation's registered office in the State
of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.

THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

FOURTH. This Corporation is authorized to issue two classes of shares,
designated "Common Stock," $0.001 par value and "Preferred Stock," $0.001 par
value, respectively. The number of shares of Common Stock authorized to be
issued is one hundred million (100,000,000) and the number of shares of
Preferred Stock authorized to be issued is fifteen million (15,000,000), five
million (5,000,000) of which shall be designated as "Series AA Preferred Stock,"
four million two hundred fifty-six thousand seven hundred thirty-three
(4,256,733) of which shall be designated as "Series BB Preferred Stock," three
million two hundred fifteen thousand seven hundred sixty-eight (3,215,768) of
which shall be designated as "Series CC Preferred Stock" and six hundred forty-
six thousand eight hundred thirty (646,830) of which shall be designated as
"Series DD Preferred Stock."

The Board of Directors shall have the authority to issue the balance of
the authorized but undesignated Preferred Stock from time to time in one or more
series and to fix the number of shares of such series and to determine the
designation of any such series and to determine or alter the powers,
preferences, rights, qualifications, limitations or restrictions granted to or
imposed upon any wholly unissued series. The Board of Directors, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, may
increase or decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.

Immediately upon the filing of this Amended and Restated Certificate of
Incorporation each share of the Corporation's Common Stock, par value $0.001 per
share, outstanding will be exchanged and subdivided, automatically and without
further action, into 2.0 shares of Common Stock, par value $0.001 per share.
Such split shall be effected on a certificate-by-certificate basis, and any
fractional shares resulting from such stock split shall be rounded up to the
nearest whole share.

The powers, preferences, rights, qualifications, limitations or
restrictions granted to or imposed upon the Series AA, Series BB, Series CC and
Series DD Preferred Stock are as follows:

-2-

<PAGE>

(a) DIVIDENDS.

(1) Subject to the rights of series of Preferred Stock which
may from time to time come into existence, the holders of outstanding Series AA,
Series BB, Series CC and Series DD Preferred Stock shall be entitled to receive
in any fiscal year, if, when and as declared by the Board of Directors, out of
any assets at the time legally available therefor, distributions (as defined
below) in cash at the rate of $0.10 per share of Series AA Preferred Stock per
annum, $0.475 per share of Series BB Preferred Stock per annum, $0.964 per share
of Series CC Preferred Stock per annum and $0.964 per share of Series DD
Preferred Stock per annum. Distributions may be declared or paid upon shares of
Common Stock in any fiscal year of the Corporation only if distributions shall
have been paid or declared and set apart upon all shares of Series AA,
Series BB, Series CC and Series DD Preferred Stock in the full annual amount set
forth above for such fiscal year. No distributions shall be declared or paid
upon the Series AA Preferred in any fiscal year unless distributions shall have
been paid or declared and set apart upon all shares of Series BB and Series CC
Preferred Stock in the full amount set forth above for each fiscal year. No
distributions shall be declared or paid upon the Series BB Preferred Stock in
any fiscal year unless distributions shall have been paid or declared and set
apart upon all shares of Series CC Preferred Stock in the full amount set forth
above for each fiscal year. No distributions shall be declared or paid upon the
Series DD Preferred Stock in any fiscal year unless distributions shall have
been paid or declared and set apart upon all shares of Series AA, Series BB and
Series CC Preferred Stock in the full amount set forth above for each fiscal
year. After payment of the distribution preference for the Series AA,
Series BB, Series CC, and Series DD Preferred Stock stated above, any additional
distributions shall be distributed on a pro rata basis to the holders of Common
Stock, Series AA, Series BB, Series CC and Series DD Preferred Stock based upon
the number of shares held by each holder on an as-converted into Common Stock
basis. The right to such distributions on Series AA, Series BB, Series CC and
Series DD Preferred Stock shall not be cumulative, and no right shall accrue to
holders of Series AA, Series BB, Series CC and Series DD Preferred Stock by
reason of the fact that distributions on said shares are not declared in any
prior year, nor shall any undeclared or unpaid dividend bear or accrue interest.

(2) For purposes of this Section (a), unless the context
otherwise requires, "distribution" shall mean the transfer of cash or property
whether by way of dividend or otherwise, payable other than in Common Stock,
directly or indirectly in respect of or the purchase or redemption of shares of
this Corporation (other than repurchases at cost of Common Stock held by
officers, directors, employees or consultants of this Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase) for cash or property, including any such transfer, purchase or
redemption by a subsidiary of this Corporation.

(b) PREFERENCE ON LIQUIDATION.

(1) Subject to the rights of series of Preferred Stock which
may from time to time come into existence (subject to the limitations of
subsection (b)(1)(i) below), in the event of any voluntary or involuntary
liquidation (whether complete or partial), dissolution or winding up of the
Corporation, the assets available for distribution, after satisfaction of all
obligations to purchase, redeem or retire any outstanding capital stock, shall
be distributed in accordance with the following:

-3-

<PAGE>

(i) The holders of shares of Series CC Preferred
Stock then outstanding shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, before any payment shall be made in respect of any
other series of the Corporation's Preferred Stock or the Corporation's Common
Stock, an amount equal to $9.64 per share of Series CC Preferred Stock plus all
declared and unpaid dividends thereon to the date fixed for distribution for
each share of Series CC Preferred Stock held (the "Series CC Liquidation
Value"). If upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of the Series CC Preferred Stock the full
amounts to which they shall be entitled pursuant to this subsection (i), then
the assets of the Corporation shall be distributed on a pro rata basis to the
holders of the Series CC Preferred Stock, based upon the preferential amounts
applicable to the number of shares of Series CC Preferred Stock then held by
each holder. Any series of Preferred Stock which are Permitted Issuances as
defined in Section (e) may participate on a parity basis with the Series CC
Preferred Stock in a liquidation if the original purchase price per share of
Common Stock (or other securities on an as-converted to Common Stock basis) of
such Permitted Issuance was equal to or greater than the Conversion Price (as
defined in Section (d)) of the Series CC Preferred Stock in effect on the date
of such Permitted Issuance.

(ii) After setting apart or paying in full the
preferential amounts due the holders of the Series CC Preferred Stock, the
holders of shares of Series BB Preferred Stock then outstanding shall be
entitled to be paid, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of any other series of the
Corporation's Preferred Stock (other than the Series CC Preferred Stock) or the
Corporation's Common Stock, an amount equal to $4.75 per share of Series BB
Preferred Stock plus all declared and unpaid dividends thereon to the date fixed
for distribution for each share of Series BB Preferred Stock held (the "Series
BB Liquidation Value"). If upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series BB Preferred
Stock the full amounts to which they shall be entitled pursuant to this
subsection (ii), then the assets of the Corporation shall be distributed on a
pro rata basis to the holders of the Series BB Preferred Stock, based upon the
preferential amounts applicable to the number of shares of Series BB Preferred
Stock then held by each holder.

(iii) After setting apart or paying in full the
preferential amounts due the holders of the Series BB and Series CC Preferred
Stock, the holders of shares of Series AA Preferred Stock then outstanding shall
be entitled to be paid, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of any other series of the
Corporation's Preferred Stock (other than Series BB and Series CC Preferred
Stock) or the Corporation's Common Stock, an amount equal to $1.00 per share of
Series AA Preferred Stock plus all declared and unpaid dividends thereon to the
date fixed for distribution for each share of Series AA Preferred Stock held
(the "Series AA Liquidation Value"). If upon liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of the
Series AA Preferred Stock the full amounts to which they shall be entitled
pursuant to this subsection (iii), then the assets of the Corporation shall be
distributed on a pro rata basis to the holders of the Series AA Preferred Stock,
based upon the number of shares of Series AA Preferred Stock then held by each
holder.

-4-

<PAGE>

(iv) After setting apart or paying in full the
preferential amounts due the holders of the Series AA, BB, and CC Preferred
Stock, the holders of shares of Series DD Preferred Stock then outstanding shall
be entitled to be paid, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of any other series of the
Corporation's Preferred Stock (other than Series AA, Series BB and Series CC
Preferred Stock) or the Corporation's Common Stock, an amount equal to $9.64 per
share of Series DD Preferred Stock plus all declared and unpaid dividends
thereon to the date fixed for distribution for each share of Series DD Preferred
Stock held (the "Series DD Liquidation Value"). If upon liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be insufficient to pay the
holders of the Series DD Preferred Stock the full amounts to which they shall be
entitled pursuant to this subsection (iv), then the assets of the Corporation
shall be distributed on a pro rata basis to the holders of the Series DD
Preferred Stock, based upon the number of shares of Series DD Preferred Stock
then held by each holder.

(v) After setting apart or paying in full the
preferential amounts due the holders of the Series AA, Series BB, Series CC and
Series DD Preferred Stock, the holders of the Common Stock then outstanding
shall be entitled to be paid, out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings, an
amount equal to $0.25 per share, plus all declared and unpaid dividends thereon
to the date fixed for distribution. If upon liquidation, dissolution or winding
up of the Corporation, and after setting apart or paying in full the
preferential amounts due the holders of the Series AA, Series BB, Series CC and
Series DD Preferred Stock, the assets of the Corporation remaining available for
distribution to its stockholders shall be insufficient to pay the holders of the
Common Stock the full amounts to which they shall be entitled pursuant to this
subsection (v), then the remaining assets of the Corporation shall be
distributed on a pro rata basis to the holders of the Common Stock, based upon
the preferential amounts applicable to the number of shares of Common Stock then
held by each holder.

(vi) After setting apart or paying in full the
preferential amounts due pursuant to subsections (i), (ii), (iii), (iv) and (v)
of this Section (b)(1), the remaining assets of the Corporation available for
distribution to stockholders, if any, shall be distributed to the holders of
Series AA, Series BB, Series CC and Series DD Preferred Stock and Common Stock
on a pro rata basis, based upon the number of shares of Common Stock then held
by each holder on an as-converted basis.

(vii) The assets available for distribution
pursuant to Section (b) shall be determined by applicable law and prior to
payment of any liquidation preference the Company shall first satisfy its
outstanding obligations concerning rights, if any, which have been exercised to
have purchased, redeemed or otherwise retired any capital stock.

(2) The merger or consolidation of the Corporation into or with
another corporation in which this Corporation shall not survive and the
stockholders of this Corporation shall own less than 50% of the voting
securities of the surviving corporation or its parent or the sale, transfer or
lease (but not including a transfer or lease by pledge or mortgage to a bona
fide lender) of all or substantially all of the assets of the Corporation shall
be deemed, except as otherwise provided for in subsection (b)(3) herein, to be a
liquidation, dissolution or winding up of the Corporation as those terms are
used in this

-5-

<PAGE>

Section (b). In the event of such merger, consolidation or sale of
substantially all of the Company's assets, the holders of shares of Series AA,
Series BB, Series CC and Series DD Preferred Stock shall have the right to
preference upon the distribution of assets as provided in this Section (b), or
alternatively at such holder's election, shall have the right to convert to
shares of Common Stock and receive distribution of assets as holders of Common
Stock as provided in this Section (b).

(3) Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Corporation's
assets to another person or other transaction which is effected in such a manner
that holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets (other than solely cash
and/or publicly traded securities) with respect to or in exchange for Common
Stock is referred to herein as an "Organic Change." Prior to the consummation
of any Organic Change, the Corporation shall make appropriate provisions (in
form and substance reasonably satisfactory to each of the holders of a majority
of the Series AA, Series BB, Series CC and Series DD Preferred Stock then
outstanding voting separately) to insure that each of the holders of Series AA,
Series BB, Series CC and Series DD Preferred Stock shall thereafter have the
right to acquire and receive, in lieu of or in addition to (as the case may be)
the shares of Common Stock immediately theretofore acquirable and receivable
upon the conversion of such holder's Series AA, Series BB, Series CC and/or
Series DD Preferred Stock, such shares of stock, securities or assets as such
holder would have received in connection with such Organic Change if such holder
had converted its Series AA, Series BB, Series CC and/or Series DD Preferred
Stock into Common Stock immediately prior to such Organic Change. The
Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor corporation (if other than the
Corporation) resulting from consolidation or merger or the corporation
purchasing such assets assumes by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Series AA,
Series BB, Series CC and Series DD Preferred Stock then outstanding voting
separately), the obligation to deliver to each such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire.

(4) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the Corporation shall, within ten
(10) days after the date the Board of Directors approves such action, or twenty
(20) days prior to any stockholders' meeting called to approve such action, or
twenty (20) days after the commencement of an involuntary proceeding, whichever
is earlier, give each holder of shares of Preferred Stock initial written notice
of the proposed action. Such initial written notice shall describe the material
terms and conditions of such proposed action, including a description of the
stock, cash and property to be received by the holders of shares of Preferred
Stock upon consummation of the proposed action and the date of delivery thereof.
If any material change in the facts set forth in the initial notice shall occur,
the Corporation shall promptly give written notice to each holder of shares of
Preferred Stock of such material change.

(5) The Corporation shall not consummate any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation before the
expiration of thirty (30) days after the mailing of the initial notice or ten
(10) days after the mailing of any subsequent written notice, whichever is
later; provided that any such 30-day or 10-day period may be shortened upon the
written consent of the holders of all of the outstanding shares of the Preferred
Stock voting as a single class.

-6-

<PAGE>

(6) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation which will involve the distribution
of assets other than cash, the Corporation shall promptly engage competent
independent appraisers to determine the value of the assets to be distributed to
the holders of shares of Preferred Stock and the holders of shares of Common
Stock (it being understood that with respect to such valuation, the Corporation
shall engage such appraiser as shall be approved by the holders of a majority of
shares of the Corporation's outstanding Common Stock, Series AA, Series BB,
Series CC and Series DD Preferred Stock voting together on an as-converted
basis). The Corporation shall, upon receipt of such appraiser's valuation, give
prompt written notice to each holder of shares of Common Stock, Series AA,
Series BB, Series CC and Series DD Preferred Stock of the appraiser's valuation.

(i) Except as otherwise required by law or as set
forth herein and subject to the rights of series of Preferred Stock which may
from time to time come into existence, the shares of the Series AA, Series BB,
Series CC and Series DD Preferred Stock shall vote together with the shares of
the Corporation's Common Stock at any annual or special meeting of stockholders
of the Corporation, or may act by written consent in the same manner as the
Corporation's Common Stock, upon the following basis: each holder of shares of
Series AA, Series BB, Series CC and Series DD Preferred Stock shall be entitled
to such number of votes for the Series AA, Series BB, Series CC and Series DD
Preferred Stock held by him on the record date fixed for such meeting, or on the
effective date of such written consent, as shall be equal to the whole number of
shares of the Corporation's Common Stock into which his shares of Series AA,
Series BB, Series CC and Series DD Preferred Stock are convertible, in
accordance with the terms of this Certificate of Incorporation, immediately
after the close of business on the record date fixed for such meeting or the
effective date of such written consent.

(ii) In the election of directors, one (1)
director shall be elected by the holders of the Series CC Preferred Stock voting
as a separate class and two (2) directors shall be elected by the holders of
Series BB Preferred Stock, voting as a separate class. All other directors
shall be elected by the holders of Series AA, Series BB, Series CC and Series DD
Preferred Stock (collectively, on an as-converted basis) and Common Stock voting
together as a separate class.

(iii) Until such time as the Corporation is a
publicly-traded company with more than 800 stockholders of record, in the
election of directors, each holder of Preferred Stock and Common Stock shall be
entitled to as many votes as shall equal the number of votes entitled to be cast
for the election of directors with respect to each holder's shares of stock
multiplied by the number of directors to be elected by each holder, and may cast
all of such votes for a single director or may distribute such votes among the
number of directors to be elected, provided, that, such holder has given notice
of the intention to cumulate votes as specified in the bylaws; provided after
August 15, 1997 at such time as the Corporation is a publicly traded company
with more than 800 stockholders of record, thereafter such right to cumulative
voting will be eliminated.

-7-

<PAGE>

(d) CONVERSION RIGHTS.

(1) Each share of Series AA, Series BB, Series CC and Series DD
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time after issuance into fully paid and nonassessable shares of Common Stock
of the Corporation.

(2) Each share of Series AA Preferred Stock shall automatically
be converted into fully paid and non-assessable shares of Common Stock of the
Corporation immediately upon (i) the closing of a sale, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, at any
time, of the Corporation's Common Stock in a firmly underwritten registered
public offering with aggregate net proceeds to the Corporation of at least
twenty million dollars ($20,000,000) and an offering price per share to the
public equal to or greater than $2.00 per share (as adjusted for stock splits,
stock dividends and combination) or (ii) the vote or written consent, in the
manner provided by law, of holders of more than fifty percent (50%) of the total
number of outstanding shares of Series AA Preferred Stock or (iii) at such time
as fewer than 1,000,000 shares of Series AA Preferred Stock remain outstanding
as adjusted for stock splits, stock dividends and combinations. The number of
shares of Common Stock into which each share of Series AA Preferred Stock may be
converted shall be determined by dividing $1.00 by the Conversion Price
determined as hereinafter provided in effect at the time of conversion.

(3) Each share of Series BB Preferred Stock shall automatically
be converted into fully paid and non-assessable shares of Common Stock of the
Corporation immediately upon (i) the closing of a sale, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, at any
time, of the Corporation's Common Stock in a firmly underwritten registered
public offering with aggregate net proceeds to the Corporation of at least
twenty million dollars ($20,000,000) and an offering price per share to the
public equal to or greater than $6.00 per share (as adjusted for stock splits,
stock dividends and combinations) or (ii) the vote or written consent, in the
manner provided by law, of holders of more than fifty percent (50%) of the total
number of outstanding shares of Series BB Preferred Stock or (iii) at such time
as fewer than 500,000 shares of Series BB Preferred Stock remain outstanding (as
adjusted for stock splits, stock dividends and combinations). The number of
shares of Common Stock into which each share of Series BB Preferred Stock may be
converted shall be determined by dividing $4.75 by the Conversion Price
determined as hereinafter provided in effect at the time of conversion.

(4) Each share of Series CC Preferred Stock shall automatically
be converted into fully paid and non-assessable shares of Common Stock of the
Corporation immediately upon (i) the closing of a sale, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, at any
time, of the Corporation's Common Stock in a firmly underwritten registered
public offering with aggregate net proceeds to the Corporation of at least
twenty million dollars ($20,000,000) and an offering price per share to the
public equal to or greater than $9.64 per share (as adjusted for stock splits,
stock dividends and combinations) until January 1, 1997, and thereafter $12.05
per share (as adjusted for stock splits, stock dividends and combinations),
(ii) the vote or written consent, in the manner provided by law, of holders of
at least sixty percent (60%) of the total number of outstanding shares of
Series CC Preferred Stock, or (iii) at such time as fewer than 500,000 shares of
Series CC

-8-

<PAGE>

Preferred Stock remain outstanding (as adjusted for stock splits, stock
dividends and combinations). The number of shares of Common Stock into which
each share of Series CC Preferred Stock may be converted shall be determined by
dividing $9.64 by the Conversion Price determined as hereinafter provided in
effect at the time of conversion.

(5) Each share of Series DD Preferred Stock shall automatically
be converted into fully paid and non-assessable shares of Common Stock of the
Corporation immediately upon (i) the closing of a sale, pursuant to an effective
registration statement under the Securities Act of 1933, as amended, at any
time, of the Corporation's Common Stock in a firmly underwritten registered
public offering with aggregate net proceeds to the Corporation of at least
twenty million dollars ($20,000,000) and an offering price per share to the
public equal to or greater than $9.64 per share (as adjusted for stock splits,
stock dividends and combinations) until January 1, 1997, and thereafter $12.10
per share (as adjusted for stock splits, stock dividends and combinations),
(ii) the vote or written consent, in the manner provided by law, of holders of
at least fifty percent (50%) of the total number of outstanding shares of
Series DD Preferred Stock, or (iii) at such time as fewer than 500,000 shares of
Series DD Preferred Stock remain outstanding (as adjusted for stock splits,
stock dividends and combinations). The number of shares of Common Stock into
which each share of Series DD Preferred Stock may be converted shall be
determined by dividing $9.64 by the Conversion Price determined as hereinafter
provided in effect at the time of conversion.

(6) The Conversion Price per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of Series AA
Preferred Stock shall be $0.50, subject to adjustment as provided in Section (e)
hereof.

(7) The Conversion Price per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of Series BB
Preferred Stock shall be $2.375, subject to adjustment as provided in
Section (e) hereof.

(8) The Conversion Price per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of Series CC
Preferred Stock shall be $4.82, subject to adjustment as provided in Section (e)
hereof.

(9) The Conversion Price per share at which shares of Common
Stock shall be initially issuable upon conversion of any shares of Series DD
Preferred Stock shall be $4.82, subject to adjustment as provided in Section (e)
hereof.

(10) The holder of any shares of Series AA, Series BB, Series CC
or Series DD Preferred Stock may exercise the conversion rights as to such
shares or any part thereof by delivering to the Corporation during regular
business hours at the office of any transfer agent of the Corporation for the
Series AA, Series BB, Series CC or Series DD Preferred Stock, or at the
principal office of the Corporation or at such other place as may be designated
by the Corporation, the certificate or certificates for the shares to be
converted, duly endorsed for transfer to the Corporation (if required by it),
accompanied by written notice stating that the holder elects to convert such
shares. Conversion shall be deemed to have been effected on the date when such
delivery is made, or, if the conversion is made in

-9-

<PAGE>

connection with a public offering, immediately prior to the closing of the
public offering, and such date is referred to herein as the "Conversion Date."
As promptly as practicable thereafter the Corporation shall issue and deliver to
or upon the written order of such holder, at such office or other place
designated by the holder, a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check for cash
with respect to any fractional interest in a share of Common Stock as provided
in subsection (11) of this Section (d). The holder shall be deemed to have
become a stockholder of record of the Common Stock issuable upon such conversion
on the applicable Conversion Date unless the transfer books of the Corporation
are closed on said date, in which event he shall be deemed to have become a
stockholder of record on the next succeeding date on which the transfer books
are open, but the Conversion Price shall be that in effect on the Conversion
Date. Upon conversion of only a portion of the number of shares of Series AA,
Series BB, Series CC or Series DD Preferred Stock represented by a certificate
surrendered for conversion, the Corporation shall issue and deliver to or upon
the written order of the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new certificate covering the
number of shares of Series AA, Series BB, Series CC or Series DD Preferred Stock
representing the unconverted portion of the certificate so surrendered.

(11) No fractional shares of Common Stock or script shall be
issued upon conversion of shares of the Series AA, Series BB, Series CC or
Series DD Preferred Stock. If more than one share of Series AA, Series BB,
Series CC or Series DD Preferred Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series AA, Series BB, Series CC or Series DD Preferred Stock
so surrendered. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series AA, Series BB,
Series CC or Series DD Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest equal to the fair market value
of such fractional interest as determined by the Corporation's Board of
Directors.

(12) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Series AA, Series BB, Series CC and
Series DD Preferred Stock, the full number of shares of Common Stock deliverable
upon the conversion of all Series AA, Series BB, Series CC and Series DD
Preferred Stock from time to time outstanding.

(13) All shares of Common Stock which may be issued upon
conversion of the shares of Series AA, Series BB, Series CC and Series DD
Preferred Stock will upon issuance by the Corporation be validly issued, fully
paid and non-assessable and free from all taxes, liens and charges with respect
to the issuance thereof.

(14) If any event occurs of the type contemplated by the
provisions of Sections (d) and (e) but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights, profit participation rights in debt instruments or
other rights with equity features), then the Corporation's board of directors
shall make an appropriate adjustment in the Conversion Price so as to protect
the rights of the holders of Series AA, Series BB, Series CC and Series DD
Preferred Stock; provided that no such adjustment shall increase the Conversion

-10-

<PAGE>

Price as otherwise determined pursuant to this Section (d) or decrease the
number of shares of Common Stock issuable upon conversion of each share of
Series AA, Series BB, Series CC or Series DD Preferred Stock.

(15) The Corporation shall take all action as may be necessary
to assure that all such shares of Common Stock issuable upon conversion of the
Series AA, Series BB, Series CC and Series DD Preferred Stock may be so issued
without violation of any applicable law, governmental regulation or any
requirements of any domestic securities exchange upon which shares of the Common
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Corporation upon each such issuance).

(16) The issuance of the certificate for shares of Series AA,
Series BB, Series CC and Series DD Preferred Stock upon conversion shall be made
without charge to the holders of such Series AA, Series BB, Series CC and
Series DD Preferred Stock for issuance taxes in respect thereof or other costs
incurred by the Corporation in connection with such conversion and the related
issuance of the shares of Common Stock. Upon conversion of any Series AA,
Series BB, Series CC or Series DD Preferred Stock, the Corporation shall take
all action as necessary in order to insure that the Common Stock issuable with
respect to such conversion shall be validly issued, fully paid and
nonassessable.

(e) ADJUSTMENT OF CONVERSION PRICE OF SERIES AA, SERIES BB, SERIES CC
AND SERIES DD PREFERRED STOCK. The Conversion Price of the Series AA,
Series BB, Series CC and Series DD Preferred Stock from time to time in effect
shall be subject to adjustment from time to time as provided in this
Section (e).

(1) SPECIAL DEFINITIONS. For purposes of this Section (e), the
following definitions shall apply:

(i) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities.

(ii) "ORIGINAL ISSUE DATE" for the Series BB and
Series CC Preferred Stock shall mean the date on which the first share of
Series BB or Series CC or Series DD Preferred Stock was issued.

(iii) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than the Series AA, Series BB,
Series CC and Series DD Preferred Stock and Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Common Stock.

(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares (including reissued shares) of Common Stock issued (or, pursuant
to paragraph (e)(3), deemed to be issued) by the Corporation after the Original
Issue Date, other than:

(A) shares of Common Stock issued upon
conversion of the Series AA, Series BB, Series CC and Series DD Preferred Stock
authorized herein;

-11-

<PAGE>

(B) shares of Common Stock (including any
of such shares which are repurchased) issued to officers, directors, employees
and consultants of the Corporation pursuant to stock option or purchase plans
approved by a majority of the members of the Board of Directors and any other
shares of Common Stock held by officers, directors, employees and consultants
which are repurchased at cost subsequent to the Original Issue Date;

(C) as a dividend or distribution on
Series AA, Series BB, Series CC or Series DD Preferred Stock or any event for
which adjustment is made pursuant to paragraph (e)(8) or (9) hereof;

(D) shares of Common Stock issued or
deemed issued upon exercise of warrants of the Corporation outstanding as of the
Original Issue Date; or

(E) Options (or shares of Common Stock
issued upon exercise thereof) issued in connection with the issuance of the
Senior Notes.

(v) "SENIOR NOTES" shall mean the 13% Senior
Discount Notes due June 15, 2005 issued on June 15, 1995 and issued on
November 21, 1995 as governed by the Indenture between the Corporation and The
Bank of New York as Trustee dated June 15, 1995, as amended on November 21,
1995.

(2) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the
Conversion Price of the Series BB or Series CC or Series DD Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the applicable
Conversion Price of such series in effect on the date of and immediately prior
to such issue.

(3) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities entitled to
receive any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein for a subsequent adjustment of such number that
would result in an adjustment pursuant to clause (ii) below) of Common Stock
issuable upon the exercise of such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to paragraph (e)(7) hereof) of such Additional
Shares of Common Stock would be less than the applicable Conversion Price of the
Series BB or Series CC or Series DD Preferred Stock as the case may be in effect
on the date of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued:

-12-

<PAGE>

(i) no further adjustment in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;

(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or increase or
decrease in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;

(iii) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if;

(A) in the case of Convertible Securities
or Options for Common Stock, the only Additional Shares of Common Stock issued
were shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities which were actually converted
or exchanged, plus the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and

(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;

(iv) no readjustment pursuant to clause (ii)
or (iii) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from any
issuance of Additional Shares of Common Stock between the original adjustment
date and such readjustment date; and

(v) in the case of any Options which expire by
their terms not more than 30 days after the date of issue thereof, no adjustment
of the Conversion Price shall be made until the

-13-

<PAGE>

expiration or exercise of all such Options, whereupon such adjustment shall be
made in the manner provided in clause (iii) above.

(4) ADJUSTMENT OF CONVERSION PRICE OF SERIES BB PREFERRED STOCK
UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event that after the
Original Issue Date this Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to paragraph (e)(3)) without consideration or for a consideration per share less
than the Conversion Price of the Series BB Preferred Stock in effect on the date
of and immediately prior to such issue, then and in such event, such Conversion
Price of the Series BB Preferred Stock shall be reduced, concurrently with such
issue, to a price (calculated to the nearest cent) determined by multiplying
such Conversion Price of the Series BB Preferred, by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for the
purposes of this subsection (4), all shares of Common Stock issuable upon
conversion of outstanding Series AA, Series BB, Series CC and Series DD
Preferred Stock and outstanding Convertible Securities or exercise of
outstanding Options shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to
subsection (e)(3), such Additional Shares of Common Stock shall be deemed to be
outstanding.

(5) ADJUSTMENT OF CONVERSION PRICE OF SERIES CC PREFERRED STOCK
UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.

(i) In the event that after the Original Issue
Date this Corporation shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subsection
(e)(3)) without consideration or for a consideration per share less than the
Conversion Price of the Series CC Preferred Stock in effect on the date of and
immediately prior to such issue, then and in such event, such Conversion Price
of the Series CC Preferred Stock shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) determined by multiplying such
Conversion Price of the Series CC Preferred Stock, by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price; and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued; and provided further that, for the
purposes of this subsection (5), all shares of Common Stock issuable upon
conversion of outstanding Series AA, Series BB, Series CC and Series DD
Preferred Stock and outstanding Convertible Securities or exercise of
outstanding Options shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to
subsection (e)(3), such Additional Shares of Common Stock shall be deemed to be
outstanding.

-14-

<PAGE>

(ii) Notwithstanding the foregoing, the Conversion
Price of the Series CC Preferred Stock and the number of shares issuable upon
conversion of such Series CC Preferred Stock shall not be adjusted upon any
issuance of Additional Shares of Common Stock to any public or private utility
companies ("Permitted Issuances") provided such Permitted Issuances will not
result in an adjustment to the Conversion Price of any other Preferred Stock of
the Company, in which event the appropriate adjustment shall be made under
subsection e(5)(i) above. In the event an adjustment shall be made to the
Conversion Price of the Series CC Preferred Stock as a result of a Permitted
Issuance, for purposes of calculating such adjustment, the only type of
consideration that will be counted as having been received by the Corporation
for the issuance of Additional Shares of Common Stock shall be Cash, as defined
in subsection e(7)(i) herein, and tangible personal property with a readily
ascertainable fair market value.

(6) ADJUSTMENT OF CONVERSION PRICE OF SERIES DD PREFERRED STOCK
UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In the event that after the
Original Issue Date this Corporation shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to subsection (e)(3)) without consideration or for a consideration per share
less than the Conversion Price of the Series DD Preferred Stock in effect on the
date of and immediately prior to such issue, then and in such event, such
Conversion Price of the Series DD Preferred Stock shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price of the Series DD Preferred Stock, by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Conversion Price; and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued; and provided further
that, for the purposes of this subsection (6), all shares of Common Stock
issuable upon conversion of outstanding Series AA, Series BB, Series CC and
Series DD Preferred Stock and outstanding Convertible Securities or exercise of
outstanding Options shall be deemed to be outstanding, and immediately after any
Additional Shares of Common Stock are deemed issued pursuant to
subsection (e)(3), such Additional Shares of Common Stock shall be deemed to be
outstanding.

(7) DETERMINATION OF CONSIDERATION. For purposes of this
Section (e), except as provided in subsection e(5)(ii), the consideration
received by the Corporation for the issue of any Additional Shares of Common
Stock shall be computed as follows:

(i) CASH AND PROPERTY: Except as provided in
clause (ii) below, such consideration shall:

(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board; provided,

-15-

<PAGE>

however, that no value shall be attributed to any services performed by any
employee, officer or director of the Corporation; and

(C) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other assets
of the Corporation for consideration which covers both, be the proportion of
such consideration so received with respect to such Additional Shares of Common
Stock, computed as provided in clauses (A) and (B) above, as determined in good
faith by the Board.

(ii) EXPENSES. In the event the Corporation pays
or incurs expenses, commissions or compensation, or allows concessions or
discounts to underwriters, dealers or others performing similar services in
connection with such issue, in an aggregate amount in excess of 10% of the
aggregate consideration received by the Corporation for such issue, as
determined in clause (i) above, consideration shall be computed as provided in
clause (i) above after deducting the aggregate amount in excess of 10% of the
aggregate consideration received by the Corporation for the issue.

(iii) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section (e)(3), relating to
Options and Convertible Securities, shall be determined by dividing

(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by

(y) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.

(8) ADJUSTMENTS FOR STOCK DIVIDENDS, SUBDIVISIONS, COMBINATIONS
OR CONSOLIDATIONS OF COMMON STOCK. In the event the outstanding shares of
Common Stock shall be subdivided (by stock dividend, stock split, or otherwise),
into a greater number of shares of Common Stock, the Series AA, Series BB,
Series CC and Series DD Conversion Prices then in effect shall, concurrently
with the effectiveness of such subdivision, be proportionately decreased. In
the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, the Series AA, Series BB, Series CC and Series DD Conversion
Prices then in effect shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately increased.

-16-

<PAGE>

(9) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. In the event the
Corporation at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive any
distribution payable in securities or assets of the Corporation other than
shares of Common Stock then and in each such event provision shall be made so
that the holders of Series AA, Series BB, Series CC and Series DD Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities or assets of the
Corporation which they would have received had their Series AA, Series BB,
Series CC and Series DD Preferred Stock been converted into Common Stock on the
date of such event and had they thereafter, during the period from the date of
such event to and including the date of conversion, retained such securities or
assets receivable by them as aforesaid during such period, subject to all other
adjustments called for during such period under this Section (e) with respect to
the rights of the holders of the Series AA, Series BB, Series CC and Series DD
Preferred Stock.

(10) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon conversion of the Series AA,
Series BB, Series CC and Series DD Preferred Stock shall be changed into the
same or a different number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or otherwise (other than a
subdivision or combination of shares provided for above), then and in each such
event the holder of each share of Series AA, Series BB, Series CC and Series DD
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization or reclassification or other change by holders of the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Series AA, Series BB, Series CC and Series DD
Preferred Stock immediately before that change, all subject to further
adjustment as provided herein.

(11) NO IMPAIRMENT. This Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by this Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section (e) and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series AA, Series BB, Series CC and Series DD Preferred Stock against
impairment.

(12) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Series AA, Series BB, Series CC and Series DD
Conversion Price pursuant to this Section (e), this Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series AA, Series BB, Series CC and
Series DD Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.

(f) STATUS OF CONVERTED STOCK. In case any shares of Series AA,
Series BB, Series CC and Series DD Preferred Stock shall be converted pursuant
to Section (d) hereof, the shares so converted shall resume the status of
authorized but unissued shares of Preferred Stock, undesignated as to series.

-17-

<PAGE>

(g) CHANGES.

(1) So long as any shares of the Series AA, Series BB,
Series CC and Series DD Preferred Stock are outstanding, the Corporation shall
not, without first obtaining the approval by vote or written consent, in the
manner provided by law, of both (i) the holders of more than fifty percent (50%)
of the total number of shares of Series AA, Series BB, Series CC and Series DD
Preferred Stock outstanding, voting together as a single class; and (ii) the
holders of more than fifty percent (50%) of the total number of shares of
Series BB and Series CC Preferred Stock outstanding, voting together as a single
class, (1) increase the authorized number of shares of Preferred Stock,
(2) amend the Bylaws to change the authorized number of directors or (3) sell
all or substantially all of the Corporation's assets or enter into a merger or
consolidation as a result of which the stockholders of the Corporation shall own
less than 50% of the voting securities of the surviving corporation or its
parent or enter into a liquidation (whether complete or partial) or dissolution
or winding up of the Corporation.

(2) So long as any shares of Series AA Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of more
than fifty percent (50%) of the total number of outstanding shares of Series AA
Preferred Stock, voting separately as a class, (i) alter or change any of the
rights, preferences, privileges or restrictions of the Series AA Preferred
Stock; (ii) amend the provisions of this subsection (g)(2); or (iii) create any
new class or series of shares of Preferred Stock or securities convertible into
Preferred Stock on a parity with or senior to the Series AA or BB Preferred
Stock except with respect to rights which may be granted to such new class or
series to share in participation rights on dividends and on liquidation after
the preferences of the Series AA and Series BB Preferred Stock have been paid.

(3) So long as any shares of Series BB Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of more
than fifty percent (50%) of the total number of outstanding shares of Series BB
Preferred Stock, voting separately as a class, (i) alter or change any of the
rights, preferences, privileges or restrictions of the Series BB Preferred
Stock; (ii) amend the provisions of this subsection (g)(3); (iii) create any new
class or series of shares of Preferred Stock or securities convertible into
Preferred Stock on a parity with or senior to the Series AA or BB Preferred
Stock except with respect to rights which may be granted to such new class or
series to share in participation rights on dividends and upon liquidation after
the preferences of the Series AA and Series BB Preferred Stock have been paid;
or (iv) repurchase, acquire or retire any shares of Series AA Preferred Stock or
Common Stock or any other securities ranking junior to the Series BB Preferred
Stock (other than pursuant to the terms of stock purchase agreements with
employees, officers, directors or consultants of the Corporation providing for
such repurchase at cost in the event of termination), or pay, declare or set
aside funds for the payment of any dividend or other distribution with respect
to any such shares of Series AA Preferred Stock or Common Stock or any other
securities ranking junior to the Series BB Preferred Stock.

(4) So long as any shares of Series CC Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of more
than fifty percent (50%) of the total number of outstanding

-18-

<PAGE>

shares of Series CC Preferred Stock, voting separately as a class, (i) alter or
change any of the rights, preferences, privileges or restrictions of the
Series CC Preferred Stock; (ii) amend the provisions of this subsection (g)(4);
or (iii) create any new class or series of shares of Preferred Stock or
securities convertible into Preferred Stock or issue any equity securities
(including Options or Convertible Securities) on a parity with or senior to the
Series CC Preferred Stock except with respect to rights which may be granted to
such new class or series (A) to receive a dividend and liquidation preference
junior to the Series CC Preferred Stock initial preferences and thereafter to
share in participation rights on dividends and upon liquidation after the
initial preferences of all securities have been paid or (B) in a Permitted
Issuance (as defined in Section (e)), issued at a price per share of Common
Stock or other securities on an as-converted to Common Stock basis equal to or
greater than the Conversion Price (as defined in Section (d)) of the Series CC
Preferred Stock in effect on the date of issuance of such security to share in
liquidation rights on a parity with the Series CC Preferred Stock;
(iv) repurchase, acquire or retire any shares of Series AA or BB Preferred Stock
or Common Stock or any other securities ranking junior to the Series CC
Preferred Stock (other than pursuant to the terms of stock purchase agreements
with employees, officers, directors or consultants of the Corporation providing
for such repurchase at cost in the event of termination), or pay, declare or set
aside funds for the payment of any dividend or other distribution with respect
to any such shares of Series AA or BB Preferred Stock or Common Stock or any
other securities ranking junior to the Series CC Preferred Stock.

(5) So long as any shares of Series DD Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of more
than fifty percent (50%) of the total number of outstanding shares of Series DD
Preferred Stock, voting separately as a class, (i) alter or change any of the
rights, preferences, privileges or restrictions of the Series DD Preferred
Stock; (ii) amend the provisions of this subsection (g)(5); or (iii) repurchase,
acquire or retire any shares of Series DD Preferred Stock or Common Stock or any
other securities ranking junior to the Series DD Preferred Stock (other than
pursuant to the terms of stock purchase agreements with employees, officers,
directors or consultants of the Corporation providing for such repurchase at
cost in the event of termination), or pay, declare or set aside funds for the
payment of any dividend or other distribution with respect to any securities
ranking junior to the Series DD Preferred Stock. So long as any shares of
Series DD Preferred Stock are outstanding, the Corporation shall not, without
first obtaining the approval by vote or written consent, in the manner provided
by law, of the holders of more than fifty percent (50%) of the total number of
outstanding shares of Series AA, BB, CC and DD Preferred Stock, voting together
as a class, create any new class or series of shares of Preferred Stock or
securities convertible into Preferred Stock (x) senior to the Series AA, BB, CC
and DD Preferred Stock, or (y) senior to the Series AA, BB and DD Preferred
Stock, but on a parity with the Series CC Preferred Stock.

(6) In the event the Corporation has consummated a public
offering of its Common Stock in which the net proceeds to the Corporation are at
least twenty million dollars ($20,000,000), and the Series AA or BB or CC or DD
Preferred Stock is entitled under law to a separate class vote on the sale of
all or substantially all of the Corporation's assets, or a merger or
consolidation as a result of which the stockholders of the Corporation shall own
less than 50% of the voting securities of the surviving corporation or its
parent (a "Material Change"), then the Corporation shall also as a condition of
approval of the Material Change obtain the approval of holders of more than
fifty percent (50%) of the Common

-19-

<PAGE>

Stock and Series AA and/or BB and/or CC and/or DD Preferred Stock which shall
vote together with the holders of Common Stock on an as-converted into Common
Stock basis.

(h) REDEMPTION. In the event that the Corporation has consummated a
public offering of its Common Stock in which the net proceeds to the Corporation
are at least twenty million dollars ($20,000,000), and the Series AA or BB or CC
or DD Preferred Stock is entitled under law to a separate class vote on a
Material Change and such vote has been taken and the Material Change has not
been approved by the holders of Preferred Stock but has been approved in the
vote provided for by Section (g)(6), the holders of the Series AA, BB, CC and DD
Preferred Stock agree that the Corporation may, at the option of the Board of
Directors, redeem in whole or in part the Series AA, BB, CC and DD Preferred
Stock held by Holders who shall not have voted in favor of the Material Change
by paying cash therefor a sum per share equal to the Series AA, BB, CC and DD
Liquidation Values, respectively, as defined in Section (b) (the "Redemption
Price"); any such shares of Preferred Stock which may be redeemed in a partial
redemption shall be selected at the discretion of the Board of Directors.

(1) At least fifteen (15) days prior to the date fixed for any
redemption of any Series AA, BB, CC or DD Preferred Stock (the "Redemption
Date"), written notice shall be mailed, to each holder of record (at the close
of the business day next preceding the day on which notice is given) of the
Series AA, BB, CC or DD Preferred Stock to be redeemed, at the address last
shown on the records of the Corporation for such holder or given by the holder
to the Corporation for the purpose of notice or if no such address appears or is
given at the place where the principal executive office of the Corporation is
located, notifying the holder of the redemption to be effected, specifying the
number of shares to be redeemed from such holder, the Redemption Date, the
Redemption Price, the place at which payment may be obtained and the date on
which such holder's right to convert to shares of Common Stock terminate, and
calling upon the holder to surrender to the Corporation, in the manner and at
the place designated, his certificate or certificates representing the shares to
be redeemed (the "Redemption Notice"). Except as otherwise provided herein, on
or after the Redemption Date, each holder of Series AA, BB, CC or DD Preferred
Stock to be redeemed shall surrender to the Corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable on the date the Material Change occurs, which date shall not be
more than sixty (60) days after the Redemption Date. Payment shall be made to
the order of the person whose name appears on such certificate or certificates
as the owner thereof and each surrendered certificate shall be canceled. In the
event that less than all the shares represented by any such certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares.

(2) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
such shares as holders of the Series AA, BB, CC or DD Preferred Stock (except
the right to receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever. Subject to the
rights of Preferred Stock which from time to time may come into existence, if
the funds of the Corporation legally available for the redemption of shares of
Series AA, BB, CC or DD Preferred Stock on any Redemption Date are insufficient
to redeem the total number of shares

-20-

<PAGE>

of Series AA, BB, CC or DD Preferred Stock to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares ratably among the holders of such shares to be redeemed.
The shares of Series AA, BB, CC or DD Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. Subject
to the rights of Preferred Stock which from time to time may come into
existence, at any time thereafter when additional funds of the Company are
legally available for the redemption of shares of Series AA, BB, CC or DD
Preferred Stock, such funds will be immediately used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date but which it has not redeemed.

(3) Each share of Series AA, BB, CC and DD Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share and prior to (unless such right has expired,
terminated or is otherwise unavailable as provided in Section (d)) the close of
business on any Redemption Date as may have been fixed in any Redemption Notice
with respect to such share, at the office of the Corporation or any transfer
agent for the Series AA, BB, CC or DD Preferred Stock, in the manner and in the
amount as provided in Section (d) (the "Conversion Rights"). In the event of a
call for redemption of any shares of Series AA, BB, CC or DD Preferred Stock
pursuant to Section (h) hereof, the Conversion Rights shall terminate as to the
shares designated for redemption at the close of business on the Redemption
Date, unless default is made in payment of the Redemption Price.

(i) NOTICE. In case:

(1) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, payable otherwise than in cash; or

(2) the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or

(3) there is any capital reorganization of the Corporation,
reclassification of the capital stock of the Corporation (other than a
subdivision or combination of its outstanding shares of Common Stock),
consolidation or merger of the Corporation with or into another corporation as a
result of which the stockholders of the Corporation shall own less than 50% of
the voting securities of the surviving corporation or its parent or conveyance
of all or substantially all of the assets of the Corporation to another
corporation; or

(4) there is a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;

then, and in any such case, the Corporation shall cause to be mailed to the
transfer agent for the Series AA, Series BB, Series CC and Series DD Preferred
Stock, and to the holders of record of the outstanding Series AA, Series BB,
Series CC and Series DD Preferred Stock, at least ten (10) days prior to the
date hereinafter specified, a notice stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or
(y) such reclassification, reorganization, consolidation,

-21-

<PAGE>

merger, conveyance, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.

FIFTH. The Board of Directors of the Corporation is expressly authorized
to make, alter or repeal the Bylaws of the Corporation.

SIXTH. Elections of directors need not be by written ballot except and
to the extent provided in the Bylaws of the Corporation.

SEVENTH. (a) To the fullest extent permitted by the Delaware
General Corporation Law as the same exists or as may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director.

(b) The Corporation shall indemnify to the fullest
extent permitted by law any person made or threatened to be made a party to an
action or proceeding, whether criminal, civil, administrative or investigative,
by reason of the fact that he, his testator or intestate is or was a director or
executive officer of the Corporation or any predecessor of the Corporation or
serves or served any other enterprise as a director or executive officer at the
request of the Corporation or any predecessor to the Corporation. The
Corporation shall have the authority upon approval of the Board of Directors to
indemnify any other officer and employee of the Corporation.

(c) Neither any amendment nor repeal of this Article
SEVENTH, nor the adoption of any provision of the Corporation's Certificate of
Incorporation inconsistent with this Article SEVENTH, shall eliminate or reduce
the effect of this Article SEVENTH in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article SEVENTH,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.

-22-

<PAGE>

CELLNET DATA SYSTEMS, INC.

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

CellNet Data Systems, Inc., a corporation organized and existing under and
by virtue of the Delaware General Corporation Law, hereby certifies as follows:

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been signed under the seal of the corporation this ___ day of September,
1996.

CELLNET DATA SYSTEMS, INC.

By:
------------------------------------------
John M. Seidl, President and
Chief Executive Officer

ATTEST:

- --------------------
David L. Perry, Secretary

<PAGE>

SCHEDULE A

RESTATED CERTIFICATE OF INCORPORATION
OF
CELLNET DATA SYSTEMS, INC.

FIRST. The name of the corporation is CellNet Data Systems, Inc. (the
"Corporation").

SECOND. The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation
Trust Company.

THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

FOURTH. This Corporation is authorized to issue two classes of shares,
designated "Common Stock," $0.001 par value and "Preferred Stock," $0.001 par
value, respectively. The number of shares of Common Stock authorized to be
issued is one hundred million (100,000,000) and the number of shares of
Preferred Stock authorized to be issued is fifteen million (15,000,000). The
Board of Directors shall have the authority to issue the authorized but
undesignated Preferred Stock from time to time in one or more series and to fix
the number of shares of such series and to determine the designation of any such
series and to determine or alter the powers, preferences, rights,
qualifications, limitations or restrictions granted to or imposed upon any
wholly unissued series. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of shares in any such series then
outstanding) the number of shares of any series subsequent to the issue of
shares of that series.

FIFTH. The Board of Directors of the Corporation is expressly authorized
to make, alter or repeal the Bylaws of the Corporation.

SIXTH. Elections of directors need not be by written ballot except and to
the extent provided in the Bylaws of the Corporation.

SEVENTH. (a) To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or as may hereafter be amended, a director of
the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.

-2-
<PAGE>

or executive officer of the Corporation or any predecessor of the Corporation or
serves or served any other enterprise as a director or executive officer at the
request of the Corporation or any predecessor to the Corporation. The
Corporation shall have the authority upon approval of the Board of Directors to
indemnify any other officer and employee of the Corporation.

(c) Neither any amendment nor repeal of this Article SEVENTH,
nor the adoption of any provision of the Corporation's Certificate of
Incorporation inconsistent with this Article SEVENTH, shall eliminate or reduce
the effect of this Article SEVENTH in respect of any matter occurring, or any
action or proceeding accruing or arising or that, but for this Article SEVENTH,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.

EIGHTH. Until such time as the Corporation is a publicly-traded
company with more than 800 stockholders of record, in the election of
directors, each holder of stock of any class or series of the Corporation
shall be entitled to as many votes as shall equal the number of votes
entitled to be cast for the election of directors with respect to each
holder's shares of stock multiplied by the number of directors to be elected
by each holder, and may cast all of such votes for a single director or may
distribute such votes among the number of directors to be elected, provided,
that, such holder has given notice of the intention to cumulate votes as
specified in the bylaws; provided after August 15, 1997 at such time as the
Corporation is a publicly traded company with more than 800 stockholders of
record, thereafter such right to cumulative voting will be eliminated.

NINTH. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of the stockholders called in
accordance with the Bylaws and no action shall be taken by the stockholders
by written consent. The affirmative vote of sixty-six and two thirds percent
(66 2/3%) of the then outstanding voting securities of the Corporation,
voting together as a single class, shall be required for the amendment,
repeal or modification of the provisions of this Article NINTH of this
Amended and Restated Certificate of Incorporation or Sections 2.3 and 2.5 of
the Corporation's Bylaws.

-3-

<PAGE>

BYLAWS

CELLNET DATA SYSTEMS, INC.

ARTICLE I

CORPORATE OFFICES

1.1 REGISTERED OFFICE

The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is Corporation Trust Center.

1.2 OTHER OFFICES

The board of directors may at any time establish other offices at any place
or places where the corporation is qualified to do business.

ARTICLE II

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS

Meetings of stockholders shall be held at any place, within or outside the
State of Delaware, designated by the board of directors. In the absence of any
such designation, stockholders' meetings shall be held at the registered office
of the corporation.

2.2 ANNUAL MEETING

The annual meeting of stockholders shall be held each year on a date and at
a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the Second
Tuesday of December in each year at 10:00 a.m. However, if such day falls on a
legal holiday, then the meeting shall be held at the same time and place on the
next succeeding full business day. At the meeting, directors shall be elected
and any other proper business may be transacted.

-1-
<PAGE>

2.3 SPECIAL MEETING

A special meeting of the stockholders may be called at any time by the
(i) board of directors, (ii) chairman of the board, or (iii) president. No
other person or persons are permitted to call a special meeting.

If a special meeting is called by any person or persons other than the
board of directors, then the request shall be in writing, specifying the time of
such meeting and the general nature of the business proposed to be transacted,
and shall be delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the president, any
vice president or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Sections 2.4 and 2.6 of these bylaws,
that a meeting will be held at the time requested by the person or persons
calling the meeting so long as that time is not less than thirty-five (35) nor
more than sixty (60) days after the receipt of the request. If the notice is
not given within twenty (20) days after receipt of the request, then the person
or persons requesting the meeting may give the notice. Nothing contained in
this paragraph of Section 2.3 shall be construed as limiting, fixing or
affecting the time when a meeting of stockholders called by action of the board
of directors may be held.

2.4 NOTICE OF STOCKHOLDERS' MEETINGS

All notices of meetings of stockholders shall be sent or otherwise given in
accordance with Section 2.6 of these bylaws not less than ten (10) nor more than
sixty (60) days before the date of the meeting. The notice shall specify the
place, date, and hour of the meeting, and, (i) in the case of a special meeting,
the purpose of purposes for which the meeting is called (no business other than
that specified in the notice may be transacted) or (ii) in the case of the
annual meeting, those matters which the board of directors, at the time of
giving the notice, intends to present for action by the stockholders (but any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.

2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND STOCKHOLDER BUSINESS

Subject to the rights of holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation,

(i) nominations for the election of directors, and

(ii) business proposed to be brought before any stockholder meeting

may be made by the board of directors or proxy committee appointed by the board
of directors or by any stockholder entitled to vote in the election of directors
generally if such nomination or business proposed is otherwise proper business
before such meeting. However, any such stockholder may nominate one or

-2-
<PAGE>

more persons for election as directors at a meeting or propose business to be
brought before a meeting, or both, only if such stockholder has given timely
notice in proper written form of their intent to make such nomination or
nominations or to propose such business. To be timely, such stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation not less than one hundred twenty (120) calendar days
in advance of the date specified in the corporation's proxy statement released
to stockholders in connection with the previous year's annual meeting of
stockholders; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received a reasonable time before the solicitation is made. To be in proper
form, a stockholder's notice to the secretary shall set forth:

(a) the name and address of the stockholder who intends to make the
nominations or propose the business and, as the case may be, of the
person or persons to be nominated or of the business to be proposed;

(b) a representation that the stockholder is a holder of record of
stock of the corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice;

(c) if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nomination or nominations are to be made by the stockholder;

(d) such other information regarding each nominee or each matter of
business to be proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated, or
intended to be nominated, or the matter been proposed, or intended to
be proposed by the board of directors; and

(e) if applicable, the consent of each nominee to serve as director
of the corporation if so elected.

The chairman of the meeting shall refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.

2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE

Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.

-3-
<PAGE>

2.7 QUORUM

The holders of a majority of the stock issued and outstanding and entitled
to vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business
except as otherwise provided by statute or by the certificate of incorporation.
If, however, such quorum is not present or represented at any meeting of the
stockholders, then the stockholders entitled to vote thereat, present in person
or represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present or represented. At such adjourned meeting at which a quorum is present
or represented, any business may be transacted that might have been transacted
at the meeting as originally noticed.

2.8 ADJOURNED MEETING; NOTICE

When a meeting is adjourned to another time or place, unless these bylaws
otherwise require, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business that
might have been transacted at the original meeting. If the adjournment is for
more than forty-five (45) days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.

2.9 VOTING

The stockholders entitled to vote at any meeting of stockholders shall be
determined in accordance with the provisions of Section 2.12 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).

Except as provided in the last paragraph of this Section 2.9, or as may be
otherwise provided in the certificate of incorporation, each stockholder shall
be entitled to one vote for each share of capital stock held by such
stockholder.

Except as otherwise provided in the certificate of incorporation, at a
stockholders' meeting at which directors are to be elected, or at elections held
under special circumstances, a stockholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the number of votes
which such stockholder normally is entitled to cast). Each holder of stock, or
of any class or classes or of a series or series thereof, who elects to cumulate
votes shall be entitled to as many votes as equals the number of votes which
(absent this provision as to cumulative voting) he would be entitled to cast for
the election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and he may cast all of such votes for
a single director or may distribute them among the number to be voted for, or
for any two or more of them, as he may see fit.

-4-
<PAGE>

2.10 WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.

2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Unless otherwise provided in the certificate of incorporation, any action
required or permitted to be taken at any annual or special meeting of
stockholders, may be taken without a meeting, without prior notice, and without
a vote if a consent or consents in writing, setting forth the action so taken,
is signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Such consents shall be delivered to the corporation by delivery to its
registered office in the state of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.

2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS

For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat, the board of directors may fix, in advance, a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors and which shall not be more
than sixty (60) days nor less than ten (10) days before the date of any such
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote, notwithstanding any transfer of any shares on
the books of the corporation after the record date.

If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.

A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.

-5-
<PAGE>

2.13 PROXIES

Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but no such
proxy shall be voted or acted upon after three (3) years from its date, unless
the proxy provides for a longer period. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of
Section 212(c) of the General Corporation Law of Delaware.

2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE

The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

ARTICLE III

DIRECTORS

3.1 POWERS

Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.

3.2 NUMBER OF DIRECTORS

The number of directors of the corporation shall be not less than six (6)
nor more than eleven (11). The exact number of directors shall be ten (10)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of the majority of

-6-
<PAGE>

the stock issued and outstanding and entitled to vote or by resolution of the
majority of the board of directors.

No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stockholders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to
fill a vacancy, shall hold office until his successor is elected and qualified
or until his earlier resignation or removal.

Elections of directors need not be by written ballot.

3.4 RESIGNATION AND VACANCIES

Any director may resign at any time upon written notice to the corporation.
When one or more directors so resigns and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section in the filling of other vacancies.

Unless otherwise provided in the certificate of incorporation or these
bylaws:

(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.

(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.

If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.

-7-
<PAGE>

If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten (10) percent of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

The board of directors of the corporation may hold meetings, both regular
and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.

3.6 FIRST MEETINGS

The first meeting of each newly elected board of directors shall be held at
such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.

3.7 REGULAR MEETINGS

Regular meetings of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by the
board.

3.8 SPECIAL MEETINGS; NOTICE

Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.

Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telecopy or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall

-8-
<PAGE>

be deposited in the United States mail at least four (4) days before the time of
the holding of the meeting. If the notice is delivered personally or by
telephone, telecopy or by telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose or the place of the meeting, if the meeting is to be held at the
principal executive office of the corporation.

3.9 QUORUM

At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the board of directors, except as may be
otherwise specifically provided by statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.

3.10 WAIVER OF NOTICE

Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the certificate of incorporation or these
bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.

3.11 ADJOURNED MEETING; NOTICE

If a quorum is not present at any meeting of the board of directors, then
the directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum is present.

3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Unless otherwise restricted by the certificate of incorporation or these
bylaws, any action required or permitted to be taken at any meeting of the board
of directors, or of any committee thereof, may be taken without a meeting if all
members of the board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the board or committee.

3.13 FEES AND COMPENSATION OF DIRECTORS

-9-
<PAGE>

Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.

3.14 APPROVAL OF LOANS TO OFFICERS

The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.

3.15 REMOVAL OF DIRECTORS

Unless otherwise restricted by statute, by the certificate of incorporation
or by these bylaws, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.

No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of such director's term of office.

ARTICLE IV

COMMITTEES

4.1 COMMITTEES OF DIRECTORS

The board of directors may, by resolution passed by a majority of the whole
board, designate one or more committees, with each committee to consist of one
or more of the directors of the corporation. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any

-10-
<PAGE>

of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation), (ii) adopt an agreement of merger or consolidation under
Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend
to the stockholders the sale, lease or exchange of all or substantially all of
the corporation's property and assets, (iv) recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or (v) amend
the bylaws of the corporation; and, unless the board resolution establishing the
committee, the bylaws or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of Delaware.

4.2 COMMITTEE MINUTES

Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES

Meetings and actions of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these bylaws, Section 3.5
(place of meetings and meetings by telephone), Section 3.7 (regular meetings),
Section 3.8 (special meetings and notice), Section 3.9 (quorum), Section 3.10
(waiver of notice), Section 3.11 (adjournment and notice of adjournment), and
Section 3.12 (action without a meeting), with such changes in the context of
those bylaws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may also be called by resolution of the board of
directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The board of directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.

ARTICLE V

OFFICERS

5.1 OFFICERS

The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a chief financial officer. The corporation may
also have, at the discretion of the board of directors, a chairman of the board,
one or more assistant vice presidents, assistant secretaries, treasurer,
assistant treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 5.3 of these bylaws. Any number of offices may
be held by the same person.

-11-
<PAGE>

5.2 ELECTION OF OFFICERS

The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Sections 5.3 or 5.5 of these bylaws, shall
be chosen by the board of directors, subject to the rights, if any, of an
officer under any contract of employment.

5.3 SUBORDINATE OFFICERS

The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.

Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.

5.5 VACANCIES IN OFFICES

Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.

5.6 CHAIRMAN OF THE BOARD

The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.

5.7 PRESIDENT

Subject to such supervisory powers, if any, as may be given by the board of
directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the

-12-
<PAGE>

shareholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the board of directors. He shall have the general powers and
duties of management usually vested in the office of president of a corporation
and shall have such other powers and duties as may be prescribed by the board of
directors or these bylaws.

5.8 VICE PRESIDENT

In the absence or disability of the president, the vice presidents, if any,
in order of their rank as fixed by the board of directors or, if not ranked, a
vice president designated by the board of directors, shall perform all the
duties of the president and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the president. The vice presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors, these bylaws, the
president or the chairman of the board.

5.9 SECRETARY

The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal executive
office of the corporation or at the office of the corporation's transfer agent
or registrar, as determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the board of directors required to be given by law or by
these bylaws. He shall keep the seal of the corporation, if one be adopted, in
safe custody and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by these bylaws.

5.10 CHIEF FINANCIAL OFFICER

The chief financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.

The chief financial officer shall deposit all money and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the

-13-
<PAGE>

president and directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the corporation, and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or these bylaws.

5.11 ASSISTANT SECRETARY

The assistant secretary, if any, or, if there is more than one, the
assistant secretaries in the order determined by the stockholders or board of
directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the secretary or in the event of his or her
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors or the stockholders may from time to time prescribe.

5.12 ASSISTANT TREASURER

The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the treasurer
and shall perform such other duties and have such other powers as the board of
directors or the stockholders may from time to time prescribe.

5.13 AUTHORITY AND DUTIES OF OFFICERS

In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.

ARTICLE VI

INDEMNITY

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS

The corporation shall, to the maximum extent and in the manner permitted by
the General Corporation Law of Delaware, indemnify each of its directors and
executive officers against expenses (including attorneys' fees), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the corporation. For purposes of this Section 6.1, a
"director" or "executive officer" of the corporation includes any person (i) who
is or was a director or executive officer of the corporation, (ii) who is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director or executive officer of a

-14-
<PAGE>

corporation which was a predecessor corporation of the corporation or a director
or officer of another enterprise at the request of such predecessor corporation.

6.2 INDEMNIFICATION OF OTHERS

The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
officers, employees and agents (other than directors and executive officers)
against expenses (including attorneys' fees), judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding, arising by reason of the fact that such person is or was an agent of
the corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the corporation (other than a director or executive officer) includes any person
(i) who is or was an employee or agent of the corporation, (ii) who is or was
serving at the request of the corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was an employee or agent of a corporation which was a predecessor corporation of
the corporation or of another enterprise at the request of such predecessor
corporation.

6.3 INSURANCE

The corporation may purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of the General Corporation Law of Delaware.

ARTICLE VII

RECORDS AND REPORTS

7.1 MAINTENANCE AND INSPECTION OF RECORDS

The corporation shall, either at its principal executive office or at such
place or places as designated by the board of directors, keep a record of its
stockholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.

Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power

-15-
<PAGE>

of attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed to
the corporation at its registered office in Delaware or at its principal place
of business.

7.2 INSPECTION BY DIRECTORS

Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.

7.3 ANNUAL STATEMENT TO STOCKHOLDERS

The board of directors shall present at each annual meeting a full and
clear statement of the business and condition of the corporation.

7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.

ARTICLE VIII

GENERAL MATTERS

8.1 CHECKS

From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.

-16-
<PAGE>

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES

The shares of a corporation shall be represented by certificates, provided
that the board of directors of the corporation may provide by resolution or
resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until such certificate is surrendered to the
corporation. Notwithstanding the adoption of such a resolution by the board of
directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the corporation by the chairman or vice-chairman of
the board of directors, or the president or vice-president, and by the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
Any or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate has ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.

8.4 SPECIAL DESIGNATION ON CERTIFICATES

If the corporation is authorized to issue more than one class of stock or
more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences,

-17-
<PAGE>

and the relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.

8.5 LOST CERTIFICATES

Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.

8.6 CONSTRUCTION; DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of
this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.

8.7 DIVIDENDS

The directors of the corporation, subject to any restrictions contained in
the certificate of incorporation, may declare and pay dividends upon the shares
of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.

The directors of the corporation may set apart out of any of the funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.

8.8 FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.

8.9 TRANSFER OF STOCK

Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignation or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate, and record the transaction in its books.

-18-
<PAGE>

8.10 STOCK TRANSFER AGREEMENTS

The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.

8.11 REGISTERED STOCKHOLDERS

The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.

ARTICLE IX

AMENDMENTS

The original or other bylaws of the corporation may be adopted, amended or
repealed by the stockholders entitled to vote or by the board of directors of
the corporation. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal bylaws.

ARTICLE X

DISSOLUTION

If it should be deemed advisable in the judgment of the board of directors
of the corporation that the corporation should be dissolved, the board, after
the adoption of a resolution to that effect by a majority of the whole board at
any meeting called for that purpose, shall cause notice to be mailed to each
stockholder entitled to vote thereon of the adoption of the resolution and of a
meeting of stockholders to take action upon the resolution.

At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's

-19-
<PAGE>

becoming effective in accordance with Section 103 of the General Corporation Law
of Delaware, the corporation shall be dissolved.

Whenever all the stockholders entitled to vote on a dissolution consent in
writing, either in person or by duly authorized attorney, to a dissolution, no
meeting of directors or stockholders shall be necessary. The consent shall be
filed and shall become effective in accordance with Section 103 of the General
Corporation Law of Delaware. Upon such consent's becoming effective in
accordance with Section 103 of the General Corporation Law of Delaware, the
corporation shall be dissolved. If the consent is signed by an attorney, then
the original power of attorney or a photocopy thereof shall be attached to and
filed with the consent. The consent filed with the Secretary of State shall
have attached to it the affidavit of the secretary or some other officer of the
corporation stating that the consent has been signed by or on behalf of all the
stockholders entitled to vote on a dissolution; in addition, there shall be
attached to the consent a certification by the secretary or some other officer
of the corporation setting forth the names and residences of the directors and
officers of the corporation.

ARTICLE XI

CUSTODIAN

11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES

The Court of Chancery, upon application of any stockholder, may appoint one
or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:

(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or

(ii) the business of the corporation is suffering or is threatened
with irreparable injury because the directors are so divided respecting the
management of the affairs of the corporation that the required vote for action
by the board of directors cannot be obtained and the stockholders are unable to
terminate this division; or

(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.

11.2 DUTIES OF CUSTODIAN

The custodian shall have all the powers and title of a receiver appointed
under Section 291 of the General Corporation Law of Delaware, but the authority
of the custodian shall be to continue the business of the corporation and not to
liquidate its affairs and distribute its assets, except when the Court of
Chancery otherwise orders and except in cases arising under Sections 226(a)(3)
or 352(a)(2) of the General Corporation Law of Delaware.

-20-
<PAGE>

-21-
<PAGE>

CERTIFICATE OF SECRETARY

The undersigned, Secretary of CELLNET DATA SYSTEMS, INC., a Delaware
Corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said Corporation, with all amendments to date of these
Bylaws.

The undersigned hereby certifies that such Bylaws were adopted as the
Bylaws of the corporation effective September __, 1996 by the Board of
Directors of the corporation and by written consent of the stockholders of the
corporation as of such date.

WITNESS the signature of the undersigned and the seal of the Corporation
this ____ day of September, 1996.

____________________________________
David L. Perry, Secretary

-22-

<PAGE>

Common Stock Common Stock

Number C Shares

CELLNET DATA SYSTEMS, INC.

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

THIS IS TO CERTIFY THAT

is the registered holder of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF

CELLNET DATA SYSTEMS, INC.

transferable only on the share register of the Corporation in person or by duly
authorized attorney upon surrender of this certificate properly endorsed or
assigned. This certificate and the shares represented hereby are issued and
shall have the rights specified in and be held subject to all of the provisions
of the Articles of Incorporation and the Bylaws of the Corporation and any
amendments thereof to all of which the holder of this certificate by acceptance
hereof assents.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated

/s/ DAVID L. PERRY /s/ JOHN M. SEIDL
Secretary President and Chief Executive Officer

CELLNET DATA SYSTEMS, INC.
Corporate Seal
December 7, 1993
Delaware

Countersigned and Registered:
THE BANK OF NEW YORK
TRANSFER AGENT AND REGISTRAR

By:
Authorized Signature

<PAGE>

FOR VALUE RECEIVED
-------------------------------------------------------------
(fill in amount for purposes of stamp duty)

- --------------------------------------------------------------------------------
(name in full of Transferor)

hereby sell, assign and transfer unto
------------------------------------------
(name in full of Transferee)

- --------------------------------------------------------------------------------
(address)

shares of the capital stock
- ----------------------------------------------------

represented by the within Certificate, and do hereby irrevocably constitute and
appoint ______________________ as Attorney to transfer said shares on the share
register of the within named Corporation with full power of substitution in the
premises.

Dated
--------------------
in the presence of:

- ------------------------- ----------------------------------------
(Transferor)
- -------------------------

- -------------------------
(2 witnesses sign here)

In the presence of:

- ------------------------- ----------------------------------------
(Transferee)
- -------------------------
(2 witnesses sign here)

Signature(s) Guaranteed:

- -------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Association and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17 Ad-15.

<PAGE>

STOCK PURCHASE AGREEMENT

BY AND AMONG

CELLNET DATA SYSTEMS, INC.

AND

NORTHERN STATES POWER COMPANY

DATED AS OF SEPTEMBER 6, 1996

<PAGE>

TABLE OF CONTENTS

PAGE

SECTION 1. PURCHASE AND SALE OF SHARES. . . . . . . . . . . . . . . . . . . 1

1.1 Authorization of Shares. . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale of the Shares . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

SECTION 2. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 4

2.1 Restrictions on Transfer of Common Stock . . . . . . . . . . . . 4
2.2 Future Public Offerings. . . . . . . . . . . . . . . . . . . . . 5

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 5

3.1 Organization, Good Standing and Qualification. . . . . . . . . . 5
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . 6
3.5 Final Prospectus . . . . . . . . . . . . . . . . . . . . . . . . 6

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . 6

4.1 Purchase of Securities . . . . . . . . . . . . . . . . . . . . . 6
4.2 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Investment Experience. . . . . . . . . . . . . . . . . . . . . . 7
4.5 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Restricted Securities; Rule 144. . . . . . . . . . . . . . . . . 7
4.7 Access to Data . . . . . . . . . . . . . . . . . . . . . . . . . 8

SECTION 5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS. . . . . . . . . . . . 8

5.1 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Representations and Warranties . . . . . . . . . . . . . . . . . 8
5.3 Compliance with this Agreement . . . . . . . . . . . . . . . . . 8
5.4 Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Securities Law Compliance. . . . . . . . . . . . . . . . . . . . 8
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

-i-

<PAGE>

TABLE OF CONTENTS
(CONTINUED)
PAGE
SECTION 6. CONDITIONS TO THE COMPANY'S OBLIGATIONS. . . . . . . . . . . . . 9

6.1 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Representations and Warranties . . . . . . . . . . . . . . . . . 9
6.3 Compliance with this Agreement . . . . . . . . . . . . . . . . . 9
6.4 Legal Investment . . . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Securities Law Compliance. . . . . . . . . . . . . . . . . . . . 9
6.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

SECTION 7. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . .10

7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.2 Registration Procedures and Expenses . . . . . . . . . . . . . .10
7.3 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .11
7.4 Information Available. . . . . . . . . . . . . . . . . . . . . .12
7.5 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . .12
7.6 Temporary Cessation of Offers and Sales by Purchaser . . . . . .13
7.7 Transfer of Shares After Registration. . . . . . . . . . . . . .13
7.8 Termination of Obligations . . . . . . . . . . . . . . . . . . .13

SECTION 8. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .14

8.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
8.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . .14
8.3 Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . .14
8.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .15
8.6 Survival of Representations and Warranties . . . . . . . . . . .15
8.7 Termination or Modification of Agreement . . . . . . . . . . . .15

-ii-

<PAGE>

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (this "AGREEMENT") is made as of September
6, 1996, by and among CellNet Data Systems, Inc., a Delaware corporation
(the "COMPANY") and Northern States Power Company, a Minnesota corporation
(the "PURCHASER").

WHEREAS, the Company and Purchaser have entered into the CellNet MSP and
NSP Data Services Agreement dated as of August 30, 1996, providing for at least
1,000,000 meters (the "Data Services Agreement");

WHEREAS, the Company has determined that it is in the best interests of the
Company and its stockholders for the Purchaser to make the investment in the
Company provided for, and on the terms and conditions set forth, in this
Agreement; and

WHEREAS, the Purchaser desires to make such investment on such terms and
conditions.

NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions herein contained, the Company and the Purchaser hereby agree as
follows:

SECTION 1. PURCHASE AND SALE OF SHARES

1.1 AUTHORIZATION OF SHARES. The Company has authorized the issuance
of shares of its Common Stock, par value $.001 per share (the "SHARES")
sufficient to meet the purposes of Section 1.2.

1.2 SALE OF THE SHARES. Subject to the terms and conditions hereof,
the Company will issue and sell to the Purchaser, and the Purchaser will
purchase from the Company, at the Closing, a number of Shares pursuant to the
calculations and conditions listed in Section 1.2(b) below.

(a) DEFINITIONS.

(i) PURCHASE PRICE. The aggregate purchase price paid by the
Purchaser (the "Aggregate Purchase Price" or "APP") for the Shares shall be
equal to $15,000,000, provided the Aggregate Purchase Price shall be reduced
if, and only to the extent necessary, so that the number of shares (including
the Escrow Shares as defined below) purchased does not equal or exceed five
percent (5%) of the outstanding voting securities of the Company.

(ii) FORMULA. In Section 1.2(b) a formula is used to
determine the number of Shares sold to the Purchaser for the Aggregate
Purchase Price, and of these Shares, the number of Shares placed in escrow
(the "Escrow Shares"), and the number of Escrow Shares to be released from
escrow. The formula is: the number of Shares equals a quotient where the
numerator is

<PAGE>

the Aggregate Purchase Price and the denominator is the Offering
Price Per Share of the Company's Common Stock at the Initial Public Offering
(the "Offering Price" or "OP") multiplied by an Adjustment Factor ( the
"Adjustment Factor" or "AF")). Algebraically: number of Shares = APP/(OP*AF).

(iii) ESCROW SHARES. The escrow shares are the number of
Shares determined by Section 1.2(b)(i) that will be placed in escrow and held
by the Company as Escrow Agent. The Escrow Shares placed in escrow will be
governed by this Agreement and an Escrow Agreement (the "Escrow Agreement").

(iv) CONDITION (A). Condition (A) is satisfied if the
Purchaser provides to the Company by September 16, 1996, a letter of intent
signed with Wisconsin Electric Power Company ("WEPCO") or a Controlled
Corporation (as defined in Section 2.1(c) herein) of WEPCO to enter into a
services agreement for at least 750,000 meters with meter routes with an
average density of at least 250 meters per square mile. The Company has the
sole right exercisable in its sole discretion to extend the completion of
Condition (A) after September 16, 1996, through a written notice to the
Purchaser.

(v) CONDITION (B). Condition (B) is satisfied if the
Purchaser provides to the Company by December 31, 1997, a services agreement
signed with WEPCO for at least 750,000 meters with meter routes with an
average density of at least 250 meters per square mile.

(vi) OFFERING PRICE PER SHARE. The Offering Price Per Share
shall be the price at which the Company's Common Stock is sold to the public
in the Initial Public Offering.

(vii) INITIAL PUBLIC OFFERING means the sale of Common Stock
by the Company to the public in a firm commitment underwriting pursuant to an
effective registration statement filed with the Securities and Exchange
Commission (the "SEC").

(b) SHARES PURCHASED AND ESCROW OF SHARES.

(i) Purchaser will purchase from Company a number of Shares
equal to the number of Shares determined by the Formula where the AF equals
.80. The Company shall deliver to Purchaser at the Closing a stock
certificate for the number of Shares as so determined less the number of the
Escrow Shares. The number of Escrow Shares will equal the number of Shares
computed when using the Formula where AF equals .80, minus the number of
Shares computed when using the Formula where AF equals .90. The Company
shall deliver a stock certificate for the Escrow Shares to the Escrow Agent
at the Closing.

(ii) If Condition (A) is satisfied by September 16, 1996 (or
such later date as the Company permits), the number of Escrow Shares released
from escrow to the Purchaser will equal the number of Shares computed when
using the Formula where AF equals .85, minus the number of Shares computed
when using the Formula where AF equals .90.

-2-

<PAGE>

(iii) If Condition (A) is satisfied and Condition (B) is
satisfied by December 31, 1997, the remaining Escrow Shares shall be released
from escrow to the Purchaser.

(iv) If Condition (A) is not satisfied and Condition (B) is
satisfied by December 31, 1997, the number of Escrow Shares released from
escrow to the Purchaser will equal the number of Shares computed when using
the Formula where AF equals .85, minus the number of Shares computed when
using the Formula where AF equals .90.

(v) If Condition (A) is not satisfied by September 16, 1996
(or such later date as the Company permits), the number of Escrow Shares
released from escrow to the Company and cancelled will equal the number of
Shares computed when using the Formula where AF equals .80, minus the number
of Shares computed when using the Formula where AF equals .85.

(vi) If Condition (A) is not satisfied by September 16, 1996
(or such later date as the Company permits) and Condition (B) is not
satisfied by December 31, 1997 (or such later date as the Company permits),
all Escrow Shares shall be released from escrow to the Company and cancelled.

(vii) If Condition (A) is satisfied and Condition (B) is not
satisfied by December 31, 1997, (or such later date as the Company permits),
all remaining Escrow Shares shall be released from escrow to the Company and
cancelled.

(viii) The number of shares shall be rounded to the nearest
whole share as necessary.

1.3 CLOSING.

(a) The purchase and sale of the Shares shall take place at a
closing (the "CLOSING") to be held at the offices of Wilson, Sonsini,
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304-1050, concurrent
with the closing of the Company's Initial Public Offering (the "CLOSING
DATE"), or at such other place as the Purchaser and the Company shall agree.
This Agreement shall terminate and be of no further force and effect if the
closing of the Initial Public Offering does not occur on or before June 30,
1997.

(b) On the Closing Date, subject to the conditions stated herein,
the Company will deliver to the Purchaser and the Escrow Agent stock
certificates representing the number of Shares to be purchased by such
Purchaser as provided in Section 1.2(b)(i) against payment to the Company by
certified check or wire transfer of the purchase price therefor in federal or
other immediately available funds.

-3-

<PAGE>

SECTION 2. OTHER AGREEMENTS

1.4 RESTRICTIONS ON TRANSFER OF COMMON STOCK.

(a) The Purchaser shall not, directly or indirectly, sell or
transfer any Common Stock purchased under this Agreement for a period of two
years after the Closing Date except as permitted by and in accordance with
Section 2.1(b)and Section 2.1(c).

(b) Notwithstanding Section 2.1(a), one year after the Closing Date
Agreement, Purchaser shall be able to, directly or indirectly, sell or transfer
one-half of the Common Stock received on the Closing Date, including one-half of
any Escrow Shares released to Purchaser.

(c) Notwithstanding Section 2.1(a), the Purchaser shall be able to
sell or transfer any Common Stock purchased under this Agreement at any time
(i) to the Company or any person or group approved by the Company (such
approval to be granted or withheld in its sole discretion); or (ii) to a
corporation of which the Purchaser owns not less than 80% of the voting power
entitled to be cast in the election of the Purchaser's directors or a
corporation which owns directly or indirectly not less than 80% of the voting
power entitled to be cast in the election of the Purchaser's directors or a
corporation which directly or indirectly is under common control with the
Purchaser through the ownership of not less then 80% of the voting power
entitled to be cast in the election of directors of the affiliated
corporation (any of such corporation being referred to as a "Controlled
Corporation"), so long as such Controlled Corporation agrees to hold such
Common Stock subject to all the provisions of this Agreement, and agrees to
transfer such Common Stock to the Purchaser or another Controlled Corporation
of the Purchaser if it ceases to be a Controlled Corporation of the
Purchaser; or (iii) in response to (1) an offer to purchase or exchange for
cash or other consideration any Common Stock (a) which is made by or on
behalf of the Company, or (b) which is made by another person or group and is
not opposed by the Board of Directors of the Company within the time such
Board is required, pursuant to regulations under the Securities Exchange Act
of 1934, to advise the Company's stockholders of such Board's position on
such offer, or (2) any other offer made by another person or group to
purchase or exchange for cash or other consideration any Common Stock which,
if successful, would result in such person or group owning or having the
right to acquire Common Stock representing more than 40% of the total Common
Stock of the Company then outstanding; or (iv) pursuant to a bona fide pledge
of such Common Stock to an institutional lender to secure a loan, guarantee
or other financial support, provided that such lender agrees to hold such
Common Stock subject to all provisions of this Agreement and any sale or
disposition by such lender of such pledged Common Stock shall be subject to
the limitations of this Section 2.1; or (v) in the event of a merger or
consolidation in which the holders of Common Stock of the Company prior to
the merger or consolidation cease to hold, directly or indirectly, at least
51% of the Common Stock of the surviving entity, or (vi) pursuant to a plan
of liquidation of the Company. Notwithstanding Section 2.1(a) and subject to
compliance with all securities laws applicable to restricted securities,
Purchaser shall be entitled to sell or transfer not more than one-half of the

-4-

<PAGE>

Common Stock received on the Closing Date, including one-half of the Escrow
Shares, to WEPCO or a Controlled Corporation (as defined above substituting
WEPCO for Purchaser in such definition) of WEPCO.

2.2 FUTURE PUBLIC OFFERINGS. Purchaser will have the right to
participate in future public offerings of newly issued Common Stock by the
Company within two years after the Closing Date. Purchaser shall be entitled
to purchase a percentage of the shares issued in the new offering determined
by dividing (A) the number of Shares of Common Stock acquired by Purchaser
pursuant to this Agreement and owned on the date of such public offering by
(B) the number of shares of Common Stock of the Company outstanding on such
date, before giving effect to the shares to be issued in such public
offering. Notwithstanding the foregoing, if Purchaser has acquired additional
shares of Common Stock of the Company not pursuant to this Agreement, then
Purchaser may not acquire shares of Common Stock from the Company in the new
offering to the extent the percentage ownership held by the Purchaser of the
Company's Common Stock outstanding after such new offering exceeds such
percentage ownership held by Purchaser immediately after the Initial Public
Offering (giving effect to any Escrow Shares released to Purchaser). Such
participation by the Purchaser will be on the same terms and conditions as
the public investors and the shares shall be purchased from the underwriters.

The Company shall notify Purchaser in writing promptly after any filing
with the SEC for any such offering and Purchaser will advise the Company
promptly in light of the proposed schedule of the offering of Purchaser's
election whether or not to participate.

SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to the Purchaser that:

3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to carry on
its business as now conducted and as proposed to be conducted in the future.
The Company is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure to so qualify would have a material
adverse effect on its business or properties.

3.2 AUTHORIZATION. The Company has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of this Agreement and the issuance of the Shares and (ii)
the performance of all obligations of the Company hereunder has been taken.
This Agreement has been duly executed and delivered by the Company and
constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and rules of law governing specific performance, injunctive
relief and other equitable remedies and to

-5-

<PAGE>

limitations of public policy as they may apply to the indemnification
provisions set forth in Section 7.3 of this Agreement. Upon their issuance
and delivery pursuant to this Agreement, the Shares will be validly issued,
fully paid and nonassessable and will be free of any liens or encumbrances;
provided, however, that the Shares are subject to restrictions on transfer
under state and/or federal securities laws. The issuance and sale of the
Shares will not give rise to any preemptive right or right of first refusal
or right of participation on behalf of any person.

3.3 NO CONFLICT. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Restated Certificate of Incorporation or Bylaws of the Company
or any material mortgage, indenture, lease or other agreement or instrument,
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company, its properties or
assets.

3.4 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for any post-sale filings pursuant to
applicable state securities laws, which filings will be effected within the
applicable time periods. The offer and sale of the Shares pursuant to the terms
of this Agreement are exempt from the registration requirements of Section 5 of
the Securities Act of 1933, as amended (the "SECURITIES ACT").

3.5 FINAL PROSPECTUS. The Company's Prospectus for the Initial Public
Offering as filed with the Securities and Exchange Commission pursuant to
Rule 424 shall not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading.

SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

The Purchaser hereby represents and warrants that:

4.1 PURCHASE OF SECURITIES. The Purchaser is purchasing the Shares for
investment for its own account, not as nominee or agent, and not with a view to
the distribution or resale thereof, subject, nevertheless, to any requirement of
law that the disposition of its property shall be at all times within its
control. The Purchaser will not, in any event, make any sale or other
disposition of such securities in contravention of the Securities Act and the
rules and regulations of the Securities and Exchange Commission thereunder.

4.2 LEGENDS. The Purchaser understands that the certificates evidencing
the Shares shall bear legends in the following form:

-6-

<PAGE>

"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK
PURCHASE AGREEMENT BETWEEN THE

ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER
RESTRICTIONS ARE BINDING ON TRANSFEREES OF THESE SHARES."

4.3 AUTHORIZATION. The Purchaser has all corporate right, power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. All corporate action on the part of the Purchaser, its
officers, directors and stockholders necessary for (i) the authorization,
execution and delivery of this Agreement and (ii) the performance of all
obligations of the Purchaser hereunder has been taken. This Agreement has been
duly executed and delivered by the Purchaser and constitutes the valid and
legally binding obligation of the Purchaser, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and rules of
law governing specific performance, injunctive relief and other equitable
remedies and to limitations of public policy as they may apply to the
indemnification provisions set forth in Section 7.3 of this Agreement.

4.4 INVESTMENT EXPERIENCE. The Purchaser acknowledges that it can bear
the economic risk of its investment, including a complete loss of its
investment, and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the investment
in the Shares. The Purchaser also represents that it has not been organized
solely for the purpose of acquiring the Shares. The Purchaser understands that
the Shares have not been registered under the Securities Act or under the
securities laws of any jurisdiction by reason of reliance upon certain
exemptions, and that the reliance of the Company on such exemptions is
predicated upon the accuracy of the Purchaser' representations and warranties in
this Section 4.

4.5 ACCREDITED INVESTOR. The Purchaser is an "accredited investor" as
defined in Rule 501 of Regulation D under the Securities Act.

4.6 RESTRICTED SECURITIES; RULE 144. The Purchaser understands that the
Shares and the Common Shares issuable upon conversion thereof are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under such laws and applicable regulations the Shares may be

-7-

<PAGE>

resold without registration under the Securities Act only in certain limited
circumstances. The Purchaser acknowledges that the Shares must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Purchaser is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than two (2) years after a
party has purchased and paid for the security to be sold, the sale being
effected through a "broker's transaction" or in transactions directly with a
"market maker" (as provided by Rule 144(f)) and the number of shares being sold
during any three (3) month period not exceeding specified limitations.

4.7 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management and obtain all information regarding the Company which Purchaser has
required in determining to purchase the Shares.

SECTION 5. CONDITIONS TO THE PURCHASER'S OBLIGATIONS

The following conditions to the Purchaser' obligations must be satisfied on
the Closing Date:

5.1 OPINION OF COUNSEL. The Purchaser shall have received from Wilson
Sonsini Goodrich & Rosati, counsel for the Company, an opinion that (i) the
Shares purchased by such Purchaser have been duly authorized and upon payment of
the consideration as provided in this Agreement, will be validly issued, fully
paid and nonassessable, (ii) the Agreement has been duly authorized, executed
and delivered by the Company, and (iii) the issuance of the Shares pursuant to
the terms of the Agreement will not be required to be registered under the
Securities Act.

5.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Section 3 shall be true in all material respects on the Closing
Date with the same effect as though made on and as of that date.

5.3 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement which
are required to be performed or complied with by the Company on or before the
Closing Date.

5.4 LEGAL INVESTMENT. On the Closing Date, the purchase of the Shares by
the Purchaser shall be legally permitted by all laws and regulations to which
the Company and the Purchaser are subject.

5.5 SECURITIES LAW COMPLIANCE. All actions and steps necessary to assure
compliance with applicable federal and state securities laws, including all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body in any states where the Shares are being sold

-8-

<PAGE>

that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall have been duly obtained and shall be
effective on the Closing Date except for any such filings as may under
applicable law be made subsequent to the Closing Date, which filings the
Company agrees it will make in a timely manner.

5.6 CONSENTS. All material consents, approvals and authorizations, and
all material filings with and notifications of governmental authorities and
regulatory agencies or other entities which regulate the business of the
Company, necessary on the part of the Company to the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
shall have been obtained or effected.

SECTION 6. CONDITIONS TO THE COMPANY'S OBLIGATIONS

The following conditions to the Company's obligations must be satisfied on
the Closing Date:

6.1 OPINION OF COUNSEL. The Company shall have received from counsel to
the Purchaser an opinion that the Agreement has been duly authorized, executed
and delivered by the Purchaser.

6.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
contained in Section 4 shall be true in all material respects on the Closing
Date with the same effect as though made on and as of that date.

6.3 COMPLIANCE WITH THIS AGREEMENT. The Purchaser shall have performed
and complied with all agreements and conditions contained in the Agreement which
are required to be performed or complied with by the Purchaser on or before the
Closing Date.

6.4 LEGAL INVESTMENT. On the Closing Date, the purchase of the Shares by
the Purchaser shall be legally permitted by all laws and regulations to which
the Company and the Purchaser are subject.

6.5 SECURITIES LAW COMPLIANCE. All actions and steps necessary to assure
compliance with applicable federal and state securities laws, including all
authorizations, approvals or permits, if any, of any governmental authority or
regulatory body in any states where the Shares are being sold that are required
in connection with the lawful issuance and sale of the Shares pursuant to this
Agreement shall have been duly obtained and shall be effective on the Closing
Date except for any such filings as may under applicable law be made subsequent
to the Closing Date, which filings the Company agrees it will make in a timely
manner.

6.6 CONSENTS. All material consents, approvals and authorizations, and
all material filings with and notifications of governmental authorities and
regulatory agencies or other entities which regulate the business of the
Company, necessary on the part of the Company to the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
shall have been obtained or effected.

-9-

<PAGE>

SECTION 7. REGISTRATION RIGHTS

7.1 DEFINITIONS. For the purpose of this Section 7:

(a) the term "Registration Statement" shall mean any registration
statement required to be filed by Section 7.2 below, and shall include any
preliminary prospectus, final prospectus, exhibit or amendment included in or
relating to such registration statement; and

(b) the term "untrue statement" shall include any untrue statement
or alleged untrue statement, or any omission or alleged omission to state in
the Registration Statement a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.

7.2 REGISTRATION PROCEDURES AND EXPENSES. The Company shall:

(a) promptly upon written notice from Purchaser delivered to the
Company at any time after ten months from the Closing Date file with the SEC
a registration statement under the Securities Act on a form which is
appropriate to register the re-sale of one-half of the Shares purchased by
Purchaser hereunder;

(b) use its best efforts, subject to receipt of necessary
information from the Purchaser, to cause such Registration Statement to
become effective as promptly as practicable but not earlier than on the date
one year from the Closing Date;

(c) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith as
may be necessary to keep such Registration Statement effective until termination
of such obligation as provided in Section 7.8 below;

(d) furnish to the Purchaser with respect to the Shares registered on
the Registration Statement (and to each underwriter, if any, of such Shares)
such number of copies of prospectuses in conformity with the requirements of the
Securities Act as the Purchaser may reasonably request, in order to facilitate
the public sale or other disposition of the Shares by the Purchaser; provided,
however, that the obligation of the Company to deliver copies of prospectuses to
the Purchaser shall be subject to the receipt by the Company of reasonable
assurances from the Purchaser that the Purchaser will comply with the applicable
provisions of the Securities Act and of such other securities laws as may be
applicable in connection with any use of such prospectuses;

(e) file such documents as may be required of the Company for normal
securities law clearance for the resale of the Shares in such states of the
United States as may be reasonably requested by the Purchaser; provided,
however, that the Company shall not be required in connection with this
paragraph (e) to qualify as a foreign corporation or execute a general consent
to service of process in any jurisdiction; and

-10-

<PAGE>

(f) bear all expenses in connection with the procedures in
paragraphs (a) through (e) of this Section 7.2 and the registration of the
Shares on such Registration Statement and the satisfaction of the blue sky laws
of such states, excluding underwriting discounts and selling commissions, legal
or accounting expenses of Purchaser and expenses required by law to be borne by
Purchaser, all of which shall be borne by Purchaser.

7.3 INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless Purchaser (and
each of its officers, directors, partners or persons, if any, who controls
Purchaser within the meaning of Section 15 of the Securities Act) from and
against any losses, claims, damages or liabilities to which Purchaser (and each
of its officers, directors, partners or persons, if any, who controls Purchaser
within the meaning of Section 15 of the Securities Act) may become subject
(under the Securities Act or otherwise) insofar as such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case on the effective date
thereof, or arise out of any failure by the Company to fulfill any undertaking
included in the Registration Statement, and the Company will, as incurred,
reimburse Purchaser (and each of its officers, directors, partners or persons,
if any, who controls Purchaser within the meaning of Section 15 of the
Securities Act) for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding or
claim; provided, however, that the Company shall not be liable in any such case
to the extent that such loss, claim, damage or liability arises out of, or is
based upon, an untrue statement or omission or alleged untrue statement or
omission made in such Registration Statement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of Purchaser
specifically for use in preparation of the Registration Statement.

(b) Purchaser agrees to indemnify and hold harmless the Company
(and each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
Registration Statement and each director of the Company), from and against
any losses, claims, damages or liabilities to which the Company (or any such
officer, director or controlling person) may become subject (under the
Securities Act or otherwise), insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of, or
are based upon, any untrue statement of a material fact contained in the
Registration Statement or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading in each case, on the effective date
thereof, if such untrue statement was made in reasonable reliance upon and in
conformity with written information furnished by or on behalf of Purchaser
specifically for use in preparation of the Registration Statement, and
Purchaser will, as incurred, reimburse the Company (or such officer, director
or controlling person) for any legal or other expenses reasonably incurred in
investigating, defending or preparing to defend any such action, proceeding
or claim; provided,

-11-

<PAGE>

however, that Purchaser shall in no event be liable for an amount in excess
of the proceeds actually received by Purchaser upon any sale of Shares by
Purchaser pursuant to the Registration Statement.

(c) Promptly after receipt by any indemnified person of a notice of a
claim or the beginning of any action in respect of which indemnity is to be
sought against an indemnifying person pursuant to this Section 7.3, such
indemnified person shall notify the indemnifying person in writing of such claim
or of the commencement of such action, and, subject to the provisions
hereinafter stated, in case any such action shall be brought against an
indemnified person and such indemnifying person shall have been notified
thereof, such indemnifying person shall be entitled to participate therein, and,
to the extent that it shall wish, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified person. After notice from the
indemnifying person to such indemnified person of its election to assume the
defense thereof, such indemnifying person shall not be liable to such
indemnified person for any legal expenses subsequently incurred by such
indemnified person in connection with the defense thereof; provided, however,
that if there exists or shall exist a conflict of interest that would make it
inappropriate in the reasonable judgment of the indemnified person for the same
counsel to represent both the indemnified person and such indemnifying person or
any affiliate or associate thereof, the indemnified person shall be entitled to
retain its own counsel at the expense of such indemnifying person.

(d) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities referred to above, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the parties
in connection with the statements or failures which resulted in such losses,
claims, damages or liabilities; provided that Purchaser shall not be required to
contribute an amount in excess of the proceeds actually received by the
Purchaser upon any sale of Shares pursuant to the Registration Statement.

7.4 INFORMATION AVAILABLE. So long as any registration statement is
effective covering the resale of Shares, the Company will furnish to Purchaser
as soon as practicable after available and upon request of Purchaser, one copy
of (i) its Annual Report to Stockholders (which Annual Report shall contain
financial statements audited in accordance with generally accepted accounting
principles in the United States of America by a national firm of certified
public accountants), (ii) if not included in substance in the Annual Report to
Stockholders, its annual report on Form 10-K, (iii) each of its Quarterly
Reports to Stockholders, and its quarterly report on Form 10-Q, and (iv) a full
copy of the registration statement covering the Shares (the foregoing, in each
case, excluding exhibits).

7.5 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the SEC which may at any time permit the sale
of the Shares to the public without registration, the Company agrees to use its
best efforts to:

-12-

<PAGE>

(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date on which the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act; and

(b) Use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act.

7.6 TEMPORARY CESSATION OF OFFERS AND SALES BY PURCHASER. The Purchaser
acknowledges that there may occasionally be times when the Company may be
required to suspend the use of the prospectus forming part of the Registration
Statement until such time as an amendment to the Registration Statement has been
filed by the Company and declared effective by the Commission, until the
prospectus is supplemented or amended to comply with the Securities Act, or
until such time as the Company has filed an appropriate report with the
Commission pursuant to the Exchange Act. The Company agrees to file any
necessary amendments, supplements and reports as soon as practicable under the
circumstances. Purchaser hereby covenants that it will not sell any Shares
pursuant to said prospectus during a period of not more than 60 days commencing
at the time at which the Company gives the Purchaser notice of the suspension of
the use of said prospectus and ending at the time the Company gives the
Purchaser notice that the Purchaser may thereafter effect sales pursuant to said
prospectus, as the same may have been supplemented or amended provided the
Company may not suspend the use of such prospectus until at least 60 days has
elapsed since the previous suspension.

7.7 TRANSFER OF SHARES AFTER REGISTRATION. Purchaser hereby covenants
with the Company not to make any sale of the Shares except either (i) in
accordance with the Registration Statement, in which case Purchaser covenants to
comply with the requirement of delivering a current prospectus, or (ii) in
accordance with Rule 144, in which case Purchaser covenants to comply with Rule
144. Purchaser further acknowledges and agrees that such Shares are not
transferable on the books of the Company unless the certificate submitted to the
Company's transfer agent evidencing such Shares is accompanied by a certificate
executed by an officer of, or other person duly authorized by, Purchaser
certifying to such compliance.

7.8 TERMINATION OF OBLIGATIONS. The obligations of the Company pursuant
to Section 7.2 hereof shall cease and terminate upon the earlier to occur of (i)
such time as all of the Shares which have been registered have been resold or
(ii) such time as all of the Shares may be resold in any three-month period
pursuant to Rule 144 under the Securities Act or its successors. All
obligations of the Company in Section 7 shall cease and terminate upon the
earliest to occur of (i) such time as all of the Shares have been resold or
(ii) such time as all of the Shares may be resold under Rule 144(k) under the
Securities Act or its successor.

-13-

<PAGE>

SECTION 8. MISCELLANEOUS

8.1 NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by certified or registered
mail, postage prepaid, delivered either by hand or by messenger, or transmitted
by electronic telecopy (fax) addressed:

(i) If to the Company, at:

CellNet Data Systems, Inc.
Attn: Paul Manca
125 Shoreway Road
San Carlos, California 94070
Fax: 415/

with a copy to:

Wilson Sonsini Goodrich & Rosati
Attn: Barry E. Taylor, Esq.
Trevor J. Chaplick, Esq.
650 Page Mill Road
Palo Alto, California 94304
Fax: 415/493-6811

(ii) If to Northern States Power Company:

Northern States Power Company
Attn: Chief Financial Officer
414 Nicollett Mall
Minneapolis, Minnesota 55401
Tel.: 612/330-7712
Fax: 612/330-7558

or at such other address as a party shall have furnished to the other parties in
writing. All such notices and other written communications shall be effective
(i) if mailed, seven days after mailing, (ii) if delivered, upon delivery, or
(iii) if faxed, one business day after transmission with telephone or fax
confirmation of receipt.

8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors, assigns, heirs, executors and administrators of each of the parties
hereto.

8.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with

-14-

<PAGE>

regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the Company and the Purchaser. Purchaser has no
obligation to invest in the Company other than the obligations contained in
this Agreement.

8.4 COUNTERPARTS. This Agreement may be executed by the several parties on
separate counterparts which, when taken together with counterparts signed by all
the other parties, shall

constitute a single fully executed Agreement which shall be as fully binding and
effective as a counterpart which has been executed by all parties.

8.5 GOVERNING LAW. This Agreement shall be deemed a contract made under
the laws of the State of California and together with the rights and obligations
of the parties hereunder, shall be construed under and governed by the laws of
the State of California.

8.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties set forth in Sections 3 and 4 shall survive the
execution and delivery of this Agreement and the issuance of the Shares.

8.7 TERMINATION OR MODIFICATION OF AGREEMENT.

(a) Notwithstanding anything contained herein this Agreement shall
be terminated and cancelled or modified as provided in Section 8.7(b) (i) if
the Company and the Purchaser do not enter into the PrimeNet License and
Services Agreement (the "PrimeNet Agreement") on or before November 15, 1996;
(ii) if the PrimeNet Agreement after being entered into is terminated or
cancelled for any reason; or (iii) if the Data Services Agreement is
terminated or cancelled for any reason.

(b) If any of the events in Section 8.7(a) occur, then as of the date
of such event, (i) if Purchaser has not purchased any Shares then all provisions
of this Agreement shall be immediately terminated and cancelled, (ii) if
Purchaser has purchased Shares and the event in Section 8.7(a) occurs prior to
release to Purchaser or the Company of all Escrow Shares under Section 1.2(b),
then all remaining Escrow Shares shall be released to the Company
notwithstanding the Purchaser's future satisfaction of Condition (A) and/or
Condition (B) and the provisions of Section 2.2 of this Agreement shall be
immediately terminated and cancelled, and (iii) if the event in
Section 8.7(a) occurs after release to Purchaser or the Company of all Escrow
Shares under Section 1.2(b), then the provisions of Section 2.2 of this
Agreement shall be immediately terminated and cancelled. Except as provided in
the preceding sentence, the remaining provisions of this Agreement shall
continue in full force and effect.

-15-

<PAGE>

IN WITNESS WHEREOF, the Company and the Purchaser have caused this
Agreement to be executed by their duly authorized officers as the date first
above written.

CELLNET DATA SYSTEMS, INC.

/s/ DAVID L. PERRY
------------------------------------
SIGNATURE

/s/ DAVID L. PERRY, VICE PRESIDENT
AND GENERAL COUNSEL
------------------------------------
NAME AND TITLE OF SIGNATORY

NORTHERN STATES POWER COMPANY

/s/ E. J. MCINTYRE
------------------------------------
SIGNATURE

E. J. MCINTYRE, VICE PRESIDENT & CFO
------------------------------------
NAME AND TITLE OF SIGNATORY

<PAGE>

CELLNET DATA SYSTEMS, INC.
INDEMNIFICATION AGREEMENT

This INDEMNIFICATION AGREEMENT is made as of the __ day of _____, 1996 by
and between CellNet Data Systems, Inc., a Delaware corporation (the
"Corporation"), and the individual whose name appears on the signature page
hereof (such individual being referred to herein as the "Indemnified
Representative" and, together with other persons who may execute similar
agreements, as "Indemnified Representatives").

WHEREAS, the Indemnified Representative currently is and will be in the
future serving in one or more capacities as a director, officer, employee, or
agent the Corporation or, at the request of the Corporation, as a director,
officer, employee, agent fiduciary, or trustee of, or in a similar capacity for,
another corporation, partnership, joint venture, trust, employee benefit plan,
or other entity, and in so doing is and will be performing a valuable service to
or on behalf of the Corporation;

WHEREAS, the Board of Directors of the Corporation has determined that, in
order to attract and retain qualified individuals, the Corporation will attempt
to maintain, at its sole expense, liability insurance to protect persons serving
the Corporation and its subsidiaries from certain liabilities. Although the
furnishing of such insurance has been a customary and widespread practice among
United States based corporations and other business enterprises, the Corporation
believes that, given current market conditions and trends, such insurance may be
available to it in the future only at higher premiums and with more exclusions.
At the same time, directors, officers, and other persons in service to
corporations or business enterprises are being increasingly subjected to
expensive and time-consuming litigation relating to, among other things, matters
that traditionally would have been brought only against the Corporation or
business enterprise itself;

WHEREAS, the Indemnified Representative is willing to continue to serve
and to undertake additional duties and responsibilities for and on behalf of the
Corporation on the condition that he be indemnified contractually by the
Corporation; and

WHEREAS, as an inducement to the Indemnified Representative to continue to
serve the Corporation, and in consideration for such continued service, the
Corporation has agreed to indemnify the Indemnified Representative upon the
terms set forth herein.

NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and intending to be legally bound hereby, the Corporation and
the Indemnified Representative agree as follows.

1. AGREEMENT TO SERVE. The Indemnified Representative agrees to serve or
continue to serve for or on behalf of the Corporation in each Official Capacity
(as hereinafter defined) held now or in the future for so long as the
Indemnified Representative is duly elected or appointed or until such time as
the Indemnified

<PAGE>

Representative tenders a resignation in writing. This Agreement shall not be
deemed an employment contract between the Corporation or any of its subsidiaries
and any Indemnified Representative who is an employee of the Corporation or any
of its subsidiaries. The Indemnified Representative specifically acknowledges
that the Indemnified Representative's employment with the Corporation or any of
its subsidiaries, if any, is at will, and that the Indemnified Representative
may be discharged at any time for any reason, with or without cause, except as
may be otherwise provided in any written employment contract between the
Indemnified Representative and the Corporation or any of its subsidiaries, other
applicable formal severance policies duly adopted by the board of directors of
the Indemnified Representative's employer, or, with respect to service as a
director of the Corporation, by the Corporation's Certificate of Incorporation,
by-laws, and the Delaware General Corporation Law. The foregoing
notwithstanding, this Agreement shall continue in force after the Indemnified
Representative has ceased to serve in any Official Capacity for or on behalf of
the Corporation or any of its subsidiaries.

2. INDEMNIFICATION.

(a) Except as provided in Section 3 and 5 hereof, the Corporation
shall indemnify the Indemnified Representative against any Liability (as
hereinafter defined) incurred by or assessed against the Indemnified
Representative in connection with any Proceeding (as hereinafter defined) in
which the Indemnified Representative may be involved, as a party or otherwise,
by reason of the fact that the Indemnified Representative is or was serving in
any Official Capacity held now or in the future, including, without limitation,
any Liability resulting from actual or alleged breach or neglect of duty, error,
misstatement, misleading statement, omission, negligence, act giving rise to
strict or product liability, act giving rise to liability for environmental
contamination, or other act or omission, whether occurring prior to or after the
date of this Agreement. As used in this Agreement.

(1) "Liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damage, or expense of any nature (including
attorneys' fees and expenses);

(2) "Proceeding" means any threatened, pending, or completed
action, suite, appeal, arbitration, or other proceeding of any nature, whether
civil, criminal, administrative, or investigative, whether formal or informal,
and whether brought by or in the right of the Corporation, a class of its
security holders, or any other party; and

(3) "Official Capacity" means service to the Corporation as a
director or officer or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary, or trustee of, or in a similar capacity
for, another corporation, partnership, joint venture, trust, employee benefit
plan (including a plan qualified under the Employee Retirement Income Security
Act of 1974), or other entity.

<PAGE>

(b) Notwithstanding Section 2(a) hereof, except for a Proceeding
brought pursuant to Section 5(d) of this Agreement, the Corporation shall not
indemnify the Indemnified Representative under this Agreement for any Liability
incurred in a Proceeding initiated by the Indemnified Representative unless the
Proceeding is authorized, either before or after commencement of the Proceeding,
by the majority vote of a quorum of the Board of Directors of the Corporation.
An affirmative defense or counterclaim of an Indemnified Representative shall
not be deemed to constitute a Proceeding initiated by the Indemnified
Representative.

3. EXCLUSIONS.

(a) The Corporation shall not be liable under this Agreement to make
any payment in connection with any Liability incurred by the Indemnified
Representative:

(1) to the extent payment for such Liability is made to the
Indemnified Representative under an insurance policy obtained by the
Corporation;

(2) to the extent payment is made to the Indemnified
Representative for such Liability by the Corporation under its Certification of
Incorporation, by-laws, the Delaware General Corporation Law, or otherwise than
pursuant to this Agreement;

(3) to the extent such Liability is determined in a final
determination pursuant to Section 5(d) hereof to be based upon or attributable
to the Indemnified Representative gaining any personal profit to which such
Indemnified Representative was not legally entitled;

(4) for any claim by or on behalf of the Corporation for
recovery of profits resulting from the purchase and sale or sale and purchase by
such Indemnified Representative of equity securities of the Corporation pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended;

(5) for which the conduct of the Indemnified Representative has
been determined in a final determination pursuant to Section 5(d) hereof to
constitute bad faith or active and deliberate dishonesty, in either such case
material to the cause of action or claim at issue in the Proceeding, or

(6) to the extent such indemnification has been determined in a
final determination pursuant to Section 5(d) hereof to be unlawful.

(b) Any act, omission, liability, knowledge, or other fact of or
relating to any other person, including any other person who is also an
Indemnified Representative, shall not be imputed to the Indemnified
Representative for the purposes of determining the applicability of any
exclusion set forth herein.

<PAGE>

(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent shall not, of
itself, create a presumption that the Indemnified Representative is not entitled
to indemnification under this Agreement.

4. ADVANCEMENT OF EXPENSES. The Corporation shall pay any Liability in
the nature of an expense (including attorneys' fees and expenses) incurred in
good faith by the Indemnified Representative in advance of the final disposition
of a Proceeding within thirty (30) days of receipt of a demand for payment by
the Indemnified Representative; provided, however, that the Indemnified
Representative shall repay such amount if it shall ultimately be determined,
pursuant to Section 5(d) hereof, that the Indemnified Representative is not
entitled to be indemnified by the Corporation pursuant to this Agreement. The
financial ability of the Indemnified Representative to repay an advance shall
not be a prerequisite to the making to such advance.

5. INDEMNIFICATION PROCEDURE.

(a) The Indemnified Representative shall use his best efforts to
notify promptly the Secretary of the Corporation of the commencement of any
Proceeding or the occurrence of any event which might give rise to a Liability
under this Agreement, but the failure to so notify the Corporation shall not
relieve the Corporation of any obligation which it may have to the Indemnified
Representative under this Agreement or otherwise.

(b) The Corporation shall be entitled, upon notice to the Indemnified
Representative, to assume the defense of any Proceeding with counsel reasonably
satisfactory to the Indemnified Representative involved in such Proceeding or,
if there be more than one (1) Indemnified Representatives involved in such
Proceeding, to a majority of the Indemnified Representatives involved in such
Proceeding. If, in accordance with the foregoing, the Corporation defends the
Proceeding, the Corporation shall not be liable for the expenses (including
attorneys' fees and expenses) of the Indemnified Representative incurred in
connection with the defense of such Proceeding subsequent to the required
notice, unless (i) such expenses (including attorneys' fees) have been
authorized by the Corporation or (ii) the Corporation shall not in fact have
employed counsel reasonably satisfactory to such Indemnified Representative, or
to the majority of Indemnified Representative if more than one (1) is involved,
to assume the defense of such Proceeding. The foregoing notwithstanding, the
Indemnified Representative may elect to retain counsel at the Indemnified
Representative's own cost and expense to participate in the defense of such
Proceeding.

(c) the Corporation shall not be required to obtain the consent of
the Indemnified Representative to the settlement of any Proceeding which the
Corporation has undertaken to defend if the Corporation assumes full and sole
responsibility for such settlement and the settlement grants the Indemnified
Representative a complete and unqualified release in respect of the potential
Liability. The Corporation shall not be liable for any amount paid by an
Indemnified Representative in settlement of any Proceeding that

<PAGE>

is not defended by the Corporation, unless the Corporation has consented to such
settlement, which consent shall not be unreasonably withheld.

(d) Except as set forth herein, any dispute concerning the right to
indemnification under this Agreement and any other dispute arising hereunder,
including but not limited to matters of validity, interpretation, application,
and enforcement, shall be determined exclusively by and through final and
binding arbitration in Wilmington, Delaware, each party hereto expressly and
conclusively waiving its, his or her right to proceed to a judicial
determination with respect to such matter; provided, however, that in the event
that a claim for indemnification against liabilities arising under the
Securities Act of 1933 (the "Act") (other than the payment by the Corporation of
expenses incurred or paid by a director, officer, or controlling person of the
Corporation in the successful defense of any action, suit, or proceeding) is
asserted by a director, officer, or controlling person in connection with
securities being registered under the Act, the Corporation will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue. The arbitration shall be
conducted in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association before a panel of three (3) arbitrators,
one (1) of whom shall be selected by the Corporation, the second of whom shall
be selected by the Indemnified Representative, and the third of whom shall be
selected by the other two (2) arbitrators. Each arbitrator selected as provided
herein is required to be serving or to have served as a director or an executive
officer of a corporation whose shares of common stock, during at least one year
of such service, were quoted in the NASDAQ National Market System or listed on
the New York Stock Exchange or the American Stock Exchange. The Corporation
shall reimburse the Indemnified Representative for the expenses (including
attorneys' fees) incurred in prosecuting or defending such arbitration to the
full extent of such expenses if the Indemnified Representative is awarded 50% or
more of the monetary value of his claim or, if not, to the extent such expenses
are determined by the arbitrators to be allocable to the Corporation. It is
expressly understood and agreed by the parties that a party may compel
arbitration pursuant to this Section 5(d) through an action for specific
performance and that any award entered by the arbitrators may be enforced,
without further evidence or proceedings, in any court of competent jurisdiction.

(e) Upon a payment under this Agreement to the Indemnified
Representative with respect to any Liability, the Corporation shall be
subjugated to the extent of such payment to all of the rights of the Indemnified
Representative to recover against any person with respect to such Liability, and
the Indemnified Representative shall execute all documents and instruments
required and shall take such other actions as may be necessary to secure such
rights including the execution of such documents as may be necessary for the
Corporation to bring suit to enforce such rights.

6. CONTRIBUTION. If the indemnification provided for in this Agreement
is unavailable for any reason to hold harmless an Indemnified Representative in
respect of

<PAGE>

any Liability or portion thereof the Corporation shall contribute to such
Liability or portion thereof in such proportion as is appropriate to reflect the
relative benefits received by the Corporation and the Indemnified Representative
from the transaction giving rise to the Liability.

7. NON-EXCLUSIVITY. The rights granted to the Indemnified Representative
pursuant to this Agreement shall not be deemed exclusive of any other rights to
which the Indemnified Representative may be entitled under statute, the
provisions of any certificate of incorporation, by-laws, or agreement, a vote of
stockholders or directors, or otherwise, both as to action in an Official
Capacity and in any other capacity.

8. RELIANCE ON PROVISIONS. The Indemnified Representative shall be
deemed to be acting in any Official Capacity in reliance upon the rights of
indemnification provided by this Agreement and the indemnification provisions of
the Corporation's by-laws.

9. SEVERABILITY AND REFORMATION. Any provision of this Agreement which
is determined to be invalid or unenforceable in any jurisdiction or under any
circumstances shall be ineffective only to the extent of such invalidity or
unenforceability and shall be deemed reformed to the extent necessary to conform
to the applicable law of such jurisdiction and still give maximum effect to the
intent of the parties hereto. Any such determination shall not invalidate or
render unenforceable the remaining provisions hereof and shall not invalidate or
render unenforceable such provision in any other jurisdiction or under any other
circumstances.

10. NOTICES. Any notice, claim, request, or demand required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally
or sent by telegram or by registered or certified mail, first class, postage
prepaid: (i) if to the Corporation to CellNet Data Systems, Inc., 125 Shoreway
Road, San Carlos, California 94070, Attention: Secretary, or (ii) if to any
Indemnified Representative, to the address of such Indemnified Representative
listed on the signature page hereof, or to such other address as any party
hereto shall have specified in a notice duly given in accordance with this
Section 10.

11. AMENDMENTS: BINDING EFFECT. No amendment, modification, termination,
or cancellation of this Agreement shall be effective as to the Indemnified
Representative unless signed in writing by the Corporation and the Indemnified
Representative. This Agreement shall be binding upon the Corporation and its
successors and assigns and shall inure to the benefit of the Indemnified
Representative's heirs, executors, administrators, and personal representatives.

12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions thereof.

<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first set forth above.

(Corporate Seal) CELLNET DATA SYSTEMS, INC.

-----------------------------
Attest:

- -----------------------------
Secretary

INDEMNIFIED REPRESENTATIVE

Witness:

- ----------------------------- -----------------------------
Name
Address

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

<PAGE>

AGREEMENT BY AND BETWEEN

AXONN CORPORATION AND

DOMESTIC AUTOMATION COMPANY

UNITED STATES OF AMERICA
STATE OF LOUISIANA
PARISH OF ORLEANS

THIS AGREEMENT is between Axonn Corporation, a Louisiana corporation,
having its principal offices at 101 W. Robert E. Lee Boulevard, New Orleans,
Louisiana, 70124 (hereinafter referred to as "LICENSOR") and Domestic Automation
Company, a California corporation, having its principal offices at 125 Shoreway
Road, San Carlos, California, 94070 (hereinafter referred to as "LICENSEE").

W I T N E S S E T H:

WHEREAS, LICENSOR owns INTELLECTUAL PROPERTY covering spread spectrum radio
devices;

WHEREAS, LICENSEE desires to obtain from LICENSOR, a worldwide, license and
right under such INTELLECTUAL PROPERTY to use, modify, manufacture, have
manufactured, sell, lease and otherwise distribute PRODUCTS in the UDS Market
worldwide;

NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties agree as follows:

1. DEFINITIONS. As used herein, the term:

(a) "ADDITIONAL DEVICES" shall mean NEXT GENERATION DEVICES in whose
development LICENSEE has financially participated as per Section 4(a) of this
Agreement. Such ADDITIONAL DEVICES shall, as mutually agreed, include but shall
not be limited to:

(i) Repeater/Transceiver

(ii) Special Antennas and Diversity Techniques

<PAGE>

(iii) Frequency Hopping Transceiver appropriate for WAN

(iv) Lower cost, smaller ASIC version of Frequency Hopper

(v) Higher data rate Spread Spectrum Radio for WAN

(b) "CellNet" shall mean a communication system developed and
marketed by LICENSEE.

DELIVERABLES due upon license execution include LICENSOR'S
existing non-customized spread spectrum receiver and transmitter devices and the
following:

(i) Schematics therefor;

(ii) PCB artworks therefor;

(iii) Software object code therefor;

(iv) Assembly drawings therefor;

(v) Test and alignment procedures therefor;

(vi) Parts list with vendor names and costs therefor;

(vii) Interface specifications therefor;

(viii) LICENSOR'S standard non-customized transmitter and
electronic components having a direct material parts cost of approximately [*]
and not including the battery, the PCB, or connector costs.

(ix) LICENSOR'S standard non-customized receiver and electronic
components having a direct materials parts cost of approximately [*]
and not including the PCB, or connector costs.

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-2-

<PAGE>

(x) LICENSOR'S standard non-customized PC application and
testing programs for LICENSEE'S internal use.

(d) "DEFECT/DEFECTS" shall mean a deviation from SPECIFICATION or any
other mutually agreed to modifications to SPECIFICATION that is so material it
prevents the economical commercial marketing of the PRODUCT.

(e) "DEVICE" shall mean a spread spectrum radio wireless system
developed by LICENSOR as it currently exists and all modifications and
IMPROVEMENTS of such system to be used in the Utility Distribution and Services
Market ("UDS") defined in Section 1(p) and which meets SPECIFICATION 6.18.GI5
including the proprietary processes, proprietary technical and other
information, and INTELLECTUAL PROPERTY rights relating thereto, whether or not
patentable under the patent laws of the United States or any foreign country.

(f) "FIRST PROJECT PROTOTYPE" shall mean the prototype to be
developed by LICENSOR pursuant to the development program set forth in Section 7
below, which may be made with wire jumpers, or with generally accepted prototype
assembly procedures.

(g) "FIRST PRODUCT PROTOTYPE ACCEPTANCE" shall mean Licensor
demonstrating a PROTOTYPE which is absent of DEFECTS and performs to a mutually
agreed upon specification.

(h) "IMPROVEMENT" means LICENSOR'S initiated Engineering Change Order
level updates (hereinafter an Engineering Change Order shall be referred to as
an "ECO"), modifications and changes to any DEVICE, ADDITIONAL DEVICE OR NEXT
GENERATION DEVICE licensed to LICENSEE that are distributed to other licensees,
including, but not limited to, cut circuit trace, add jumper/trace and/or
component, software updates, including new code to enhance performance or that
will otherwise update existing products. IMPROVEMENTS also include ECO level
updates, including, but not limited to, hardware component changes which require
only minor software modification, if any, and/or software changes which require
only minor hardware changes, if any. The term IMPROVEMENT does not include
technical work which requires large investments of capital or labor to effect
and excludes improvements which are incompatible with existing systems or
subsystems or which require major layout and/or software revision to
incorporate. For purposes of this agreement, the term

-3-

<PAGE>

large investments of capital or labor shall mean technical work which requires
and/or necessitates the expenditure of $30,000 in cash or billable services
(regardless or whether such services were actually billed by LICENSOR) and/or
any combination of the two. The term IMPROVEMENT also does not include a CHANGE
for LICENSEE as set forth in Section 6. IMPROVEMENTS are provided to LICENSEE
at no additional cost except for incidental expenses which include, but are not
limited to, photocopying, telephone costs, mailing and transcribing information
to LICENSEE.

(i) "INTELLECTUAL PROPERTY" means PATENT RIGHTS, CONFIDENTIAL
INFORMATION, copyrights, mask work rights, trade secret rights and any other
intellectual property rights which LICENSOR may possess during the term of this
Agreement.

(j) "NEXT GENERATION DEVICES" are new spread spectrum radio devices
or DEVICES which have undergone major modifications initiated by or on behalf of
LICENSOR (i) resulting from large investments or capital or labor (as that term
is defined in Section 1(h)), or (ii) which alter the basic character or function
of DEVICES making them incompatible with existing systems or subsystems, or
(iii) which require incorporation of major changes in hardware or software.
IMPROVEMENTS and CHANGES are not NEXT GENERATION DEVICES.

(k) "PRODUCT" shall mean any spread spectrum radio device which
results from, is based upon, uses or contains INTELLECTUAL PROPERTY including,
without limitation, the DEVICE and ADDITIONAL DEVICES or other NEXT GENERATION
DEVICES which LICENSEE obtains under this Agreement. PRODUCTS may only be sold
to the UDS Market.

(l) "PATENT RIGHTS" shall mean patents and patent applications of all
countries owned or licensed by LICENSOR to the extent the claims thereof cover
any DEVICE and/or ADDITIONAL DEVICE, including any additions, continuations,
continuations-in-part, divisions, reissues or extensions based thereon. The
patents issued which relate to DEVICE and/or ADDITIONAL DEVICE shall be listed
on Exhibit 1, which shall be updated throughout the term of this Agreement.

-4-

<PAGE>

(m) "ROYALTY/ROYALTIES" shall mean an amount to be paid by LICENSEE
to LICENSOR pursuant to the terms of Section 3 of this Agreement.

(n) "SPECIFICATION" means the specification 6.18.GI5 attached as
Exhibit 1 including any IMPROVEMENT thereto.

(o) "SUBLICENSEE" means any entity which has entered into a
sublicense arrangement with LICENSEE whereby the sublicense agreement grants
such SUBLICENSEE the right to manufacture and sell PRODUCT to any entity selling
to the UDS Market for the sole purpose of incorporating PRODUCT into CellNet
compatible devices.

(p) The Utility Distribution and Services Market "UDS" means all
functions associated with managing the transmission and distribution network,
demand-side management programs and customer service applications of
electricity, gas and water utilities, including substation, feeder and customer
site power demand automation or the equivalent thereof. Specific UDS
applications include monitoring of field equipment, automatic meter reading,
real-time pricing, remote connect/disconnect, appliance monitoring and control,
load management and customer information services or the equivalent thereof.
The following applications are specifically excluded from the UDS Market: Fire
and Security, access control, voice communication, and time of flight
measurement applications.

2. GRANT.

(a) Upon the terms and conditions set forth herein, LICENSOR hereby
grants to LICENSEE

(i) a worldwide, exclusive license and right, with the right to
grant and authorize sublicenses pursuant to subparagraph (b) below, under
LICENSOR'S INTELLECTUAL PROPERTY to use, modify, manufacture, have manufactured,
sell, lease and otherwise dispose of spread spectrum communication systems under
the control of, or contracted by, electricity, gas and water utilities in
managing the transmission and distribution network and demand-side management
programs. For the purposes of this Section 2(a)(i) only:

"Transmission and Distribution Network" shall mean:

-5-

<PAGE>

Controlling transmission lines, substations and feeder
circuits

Remote meter reading

Two way communication with metering devices

Capacitor bank control

Feeder switching control

Power factor control

Voltage control, and

"Demand-side Management" shall mean:

Load control in real time by a utility of an end use device
(e.g. Air Conditioner, Refrigerator, Water Heater)

Time of use monitoring and measurement (load profiling)

Real time pricing (active) (Communication to customer of
utility prices that change on a daily, hourly or other
periodic basis)

Time of use billing (passive) (Measurement of utility
consumption to enable billing with prices that vary
depending on the time of day at which consumption occurred)

Real time billing (Communication to the customer of
consumption or billing data within any given time period
e.g. month, day, hour or minute)

Utility rate applications (Communication of customer
identification, pricing, consumption and billing information
between the utility and its customers)

-6-

<PAGE>

Remote connect and disconnect (Remote start or
discontinuation of utility service either logically via
reading the utility meter, or actually via communication
with a device on the utility meter that shuts off or turns
on delivery of utility service)

Energy theft detection

Real time bill processing (Communication back to the utility
by the customer of some or all of the following information
required for bill processing: authorization to transfer
funds; approval of bill; identification of account, bank or
other entity to bill; security code to authorize use of a
customer's particular account, or identity of customer.)

Power restoration notification

The following applications are expressly excluded from use of
spread spectrum radio devices in transmission and distribution networks: fire
and security, access control, voice communication, and time of flight
measurement applications

and,

(ii) a worldwide, non-exclusive license and right, with the right
to grant and authorize sublicenses pursuant to subparagraph (b) below, under
LICENSOR'S INTELLECTUAL PROPERTY to use, modify, manufacture, have manufactured,
sell, lease and otherwise distribute PRODUCTS in the UDS Market.

Nothing in this Agreement shall preclude LICENSOR from licensing
INTELLECTUAL PROPERTY to or with Dicon Systems, Ltd. or Disys, Ltd. for use in
the one-way communication of automatic meter readings.

(b) LICENSOR, subject to its rights contained herein, hereby consents
to the sublicensing by LICENSEE of the INTELLECTUAL PROPERTY to use,
manufacture, have manufactured, sell, lease and otherwise distribute PRODUCTS to
SUBLICENSEES. The grant of the

-7-

<PAGE>

licenses to LICENSEE as well as the grant of the right to LICENSEE to sublicense
to SUBLICENSEES hereunder is contingent on LICENSEE and all SUBLICENSEES having
totally complied with the terms of this Agreement such that there are no
conditions which would permit termination by LICENSOR of LICENSEE or such
SUBLICENSEES pursuant to Section 2(d) or Section 10. Additionally, LICENSEE may
only grant SUBLICENSEES rights to use, modify, manufacture, have manufactured,
sell, lease and otherwise distribute PRODUCTS to the UDS Market for the sole
purpose of incorporating the PRODUCTS into CellNet compatible devices. It is
understood that LICENSEE'S right to grant sublicenses hereunder includes the
right to grant exclusive sublicenses within the scope of the exclusive license
granted to LICENSEE under Section 2(a)(i) above; provided that such sublicenses
are limited in scope so as to grant rights to only a limited portion of
LICENSEE'S total rights under such license; and provided further that such
sublicenses provide that any exclusive sublicenses granted by LICENSEE shall
automatically convert to nonexclusive in the event the license under Section
2(a)(i) becomes nonexclusive.

(c) Notwithstanding LICENSOR'S grant to LICENSEE of the right to
sublicense to entities subject to the aforereferenced qualifications, the right
to sublicense is not unqualified. More particularly, LICENSEE is required to
notify and request the approval of LICENSOR, in writing, of every entity to whom
LICENSEE is interested in sublicensing INTELLECTUAL PROPERTY; provided that
LICENSOR shall only have the right to withhold approval in the event that the
entity to which LICENSEE proposes to grant a sublicense (i) appears on the list
attached hereto in Exhibit 3, (ii) is involved, at the time of the request to
sublicense is made, in the development, manufacture or sale of spread spectrum
radio devices, (iii) is focused on the development, manufacture or sale of
products in the fire detection and security markets, or (iv) is an entity with
whom LICENSOR or its licensee in the fire and security business, Life Point
Systems Limited Partnership, has had more than introductory discussions with
respect to such entity obtaining license rights to the INTELLECTUAL PROPERTY
during the two (2) year period directly preceding the date LICENSEE submits its
written request; provided that where LICENSOR claims the existence of such prior
contacts, LICENSOR shall be required to provide evidence of these earlier
contacts. In any event, LICENSOR may unreasonably withhold consent to any
entity that falls within categories

-8-

<PAGE>

(i)-(iv) enumerated above; provided that LICENSOR shall have thirty (30) days
from the date of notice to approve or disapprove any potential SUBLICENSEE.
Failure to respond within such thirty (30) day period shall be deemed to be
approval to grant a sublicense to such entity.

(d) To the extent that the provisions of this Agreement apply to a
SUBLICENSEE, LICENSEE warrants the discharge of all of SUBLICENSEE'S obligations
hereunder; provided that LICENSEE shall be deemed to have fulfilled its
obligations under this Agreement to cure a breach by a SUBLICENSEE with regard
to such SUBLICENSEE'S performance of the terms of this agreement if LICENSEE
takes and continues to pursue diligent efforts to cure such breach, including
without limitation the payment of royalties due from such SUBLICENSEE hereunder
and to take legal or other action against such SUBLICENSEE to restrain such
SUBLICENSEE from pursuing such breaching behavior. LICENSEE shall reimburse
LICENSOR for reasonable costs incurred by LICENSOR in assisting LICENSEE in
pursuing a remedy with such a SUBLICENSEE in breach. LICENSEE agrees that it
will use its best efforts to ensure that all SUBLICENSEES abide by the terms of
their sublicense agreements and will keep LICENSOR apprised of its activities to
enforce such provisions with particular SUBLICENSEE.

(e) In addition, LICENSEE shall ensure that LICENSOR will have the
right to enforce such agreements as a third party beneficiary, and LICENSEE
agrees that (i) LICENSOR may join LICENSEE as a named plaintiff in any suit
brought by LICENSOR against SUBLICENSEES (ii) LICENSEE will take such other
actions, give such information and render such aid, at LICENSOR'S request, as
may be necessary to allow LICENSOR to bring and prosecute such suits.

(f) LICENSEE agrees to include in any sublicense agreement that, upon
termination of a sublicense agreement, all rights of such former SUBLICENSEE to
use LICENSOR'S INTELLECTUAL PROPERTY shall immediately cease and such former
SUBLICENSEE shall immediately render unusable all portions of INTELLECTUAL
PROPERTY then under its control and shall immediately destroy or deliver to
LICENSEE each and every other part of such INTELLECTUAL PROPERTY in the
SUBLICENSEE'S possession.

-9-

<PAGE>

(g) LICENSOR agrees to offer to LICENSEE license rights to NEXT
GENERATION DEVICES developed by LICENSOR during the term of this Agreement, but
which are not ADDITIONAL DEVICES, subject to all the terms and conditions of
this Agreement, with the exception of any initial license fee and royalty rate
which shall be mutually negotiated by the parties in good faith. Such agreement
may be documented by way of Attachment to this Agreement.

3. ROYALTY.

(a) As partial consideration for the license granted under Section
2(a), LICENSEE agrees to pay [*] to be paid upon completion of the
following milestones, in installments as follows:

(i) Upon signing of Memo of Understanding, a copy of which is
attached hereto as Exhibit 4 and made a part hereof - [*] cash already
received;

(ii) Upon signing of this Agreement - [*];

(iii) Upon information transfer - [*] which shall be
paid in twelve (12) monthly installments beginning on the date that the
DELIVERABLES are transferred to LICENSEE with [*]
interest being charged on the unpaid balance; and

(iv) Upon FIRST PROJECT PROTOTYPE ACCEPTANCE - [*] which
shall be paid in nine (9) monthly installments beginning on the date of
LICENSEE'S acceptance of the FIRST PROJECT PROTOTYPE pursuant to Section 7(e)
below, with [*] interest being charged on the unpaid balance.

(b) As partial consideration for the rights granted to it hereunder,
LICENSEE agrees to pay LICENSOR a ROYALTY on PRODUCTS leased, sold or otherwise
distributed by LICENSEE or any of its SUBLICENSEES. The ROYALTY rate for each
PRODUCT shall be determined based upon what kind of DEVICE such PRODUCT is, as
determined according to the Table set forth below:

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-10-

<PAGE>

Product Type Rate Per Product
-------------- ----------------
Transmitter [*]
Receiver [*]
Transceiver [*]

The parties will agree to negotiate corresponding ROYALTY rates for ADDITIONAL
DEVICES having significantly different functionality from the three product
types recorded in the above Table. For any such ADDITIONAL DEVICE, the parties
agree that they shall agree on such new ROYALTY rate prior to commencement of
LICENSEE funded development of such a new ADDITIONAL DEVICE. Notwithstanding
the foregoing, no ROYALTY shall be due on PRODUCTS provided to others as samples
or demonstration units, used for Product development purposes, or returned to
LICENSEE or its SUBLICENSEES for refund. ROYALTIES paid on PRODUCTS returned
for refund shall be creditable against future ROYALTIES.

(c) Additionally, the ROYALTY due on each DEVICE, ADDITIONAL DEVICE
or NEXT GENERATION DEVICE which incorporates IMPROVEMENTS contributed by
LICENSOR may be increased as set forth below. The increase in the ROYALTY due
on such improved DEVICES shall be calculated at [*] of the
estimated amount by which the then prevailing total manufactured cost for a
100,000 quantity batch of a given DEVICE (adjusted for any change such as
transferring any functionality from the DEVICE and the inclusion of that
functionality elsewhere separate from the DEVICE) is, as a result of
IMPROVEMENTS contributed by LICENSOR, less than the total manufactured cost for
a 100,000 quantity batch of the given DEVICE prior to the implementation of
ADDITIONAL DEVICES or IMPROVEMENTS contributed by LICENSOR. This ROYALTY will
be computed annually at the close of business on the last day of each calendar
year and be due and payable on or before March 31 following the end of the
calendar year. To ensure that the original estimations on which these
additional ROYALTY payments are based were correct, the ROYALTY rate shall be
adjusted based upon the actual manufacturing costs incurred by LICENSEE during
the manufacture of the first 100,000 units. Any additional payments or refunds
to ROYALTIES paid on such first 100,000 units based upon the adjustment in
ROYALTY payments shall be promptly paid by LICENSEE or may be credited against
future ROYALTIES to be paid by LICENSEE to LICENSOR, as appropriate; provided
that in the event a

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-11-

<PAGE>

credit is obtained, the amount creditable against any one ROYALTY payment shall
not exceed [*] of such ROYALTY payment.

(d) In return for the exclusive rights granted, LICENSEE shall commit
to make annual minimum ROYALTY payments to LICENSOR in the amount of [*] for
the calendar year 1994, [*] for the calendar year 1995 and [*] for
each calendar year thereafter. Should LICENSEE fail to make said minimum
ROYALTY payments, LICENSOR shall serve written notice on LICENSEE that the
minimum payment for the particular year has not been made, and if LICENSEE does
not cure such deficiency within thirty (30) days of receipt of notice, the
license granted hereunder shall become a non-exclusive license.

(e) ROYALTY payments are due in full for all PRODUCTS shipped in a
quarter within forty five (45) days after the end of such quarter.

(f) In the event that no PATENT RIGHTS exist in a given country
relative to a DEVICE sold in that country, and any product which would infringe
such PATENT RIGHTS had such PATENT RIGHTS existed in said country is offered for
sale in the UDS Market by any entity other than LICENSEE or a SUBLICENSEE, or
should, through no fault of LICENSEE OR SUBLICENSEE, the CONFIDENTIAL
INFORMATION relative to a DEVICE sold in a particular country where no PATENT
RIGHTS exist relative to said DEVICE become available to and deployed by third
parties participating in the UDS Market in that particular country, then
LICENSOR and LICENSEE agree to review and consider a downward adjustment to the
amount of ROYALTIES payable by LICENSEE to LICENSOR with respect to that said
PRODUCT in that country.

(g) PRODUCT is deemed sold or leased at the time of first invoicing
or, if not, invoiced, at the time of first shipment, delivery, or other transfer
to a party other than LICENSEE, or when first actually put into use, including
use by LICENSEE, whichever occurs first, excluding internal use by LICENSEE.
For purposes of determining ROYALTIES, a lease shall be deemed a sale.

(h) During the term of this Agreement, LICENSEE shall deliver to
LICENSOR, within forty-five (45) days after the end of each calendar quarter, a
royalty report indicating the number of

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-12-

<PAGE>

PRODUCTS, sold in the preceding calendar quarter and the computation of the
ROYALTY due and payable. Each royalty report shall be accompanied by the
payment of the corresponding ROYALTIES due LICENSOR, less any taxes or other
charges withheld.

(i) Overdue payments hereunder shall be subject to a late payment
charge calculated at an annual prime rate (as quoted by Citibank, N.A., New
York, U.S.A.), plus two (2) percentage points during delinquency. If the amount
of such charge exceeds the maximum permitted by law, such charge shall be
reduced to such maximum.

(j) LICENSEE shall keep full and true books of account and other
records in sufficient detail so that the ROYALTIES payable to LICENSOR hereunder
can be properly ascertained. LICENSEE agrees, on the request of LICENSOR no
more frequently than two times per year, and at LICENSOR'S expense, to permit an
independent certified public accountant, selected by LICENSOR and to whom
LICENSEE has no reasonable objection, to have access to such books and records
as may be necessary to determine, in respect of any accounting period ending not
more than three (3) years prior to the date of such request, the correctness of
any report or payment under this Agreement, or to obtain information as to the
amounts payable in the case of failure of LICENSEE to report. Any such
accountant entitled hereunder to examine the books of LICENSEE shall be entitled
to make such examination at LICENSEE'S business premises during reasonable
business hours and shall be entitled to disclose only the amount of discrepancy,
if any, due LICENSOR. LICENSOR shall promptly furnish a copy of such
accountant's calculations to LICENSEE, and unless LICENSOR shall receive from
LICENSEE a written objection within thirty (30) days thereafter, with respect to
the calculations of such accountant, the report of such accountant as to the
correctness of any report or amounts payable hereunder shall be conclusive and
binding upon the parties hereto for all the purposes of this Agreement. In the
event of a discrepancy of three (3) percent or less underpayment is found, the
fees, costs and expenses by the accountant shall be borne by LICENSOR;
otherwise, the costs shall be borne by LICENSEE. Lastly, if a discrepancy is
discovered that is in LICENSEE'S favor, i.e., the LICENSEE overpaid ROYALTIES
payable to LICENSOR hereunder, such excess amounts shall be repaid by LICENSOR
to LICENSEE. LICENSEE,

-13-

<PAGE>

however, will not be entitled to a "late payment charge" or interest on this
amount.

4. FURTHER CONSIDERATION.

(a) Both LICENSEE and LICENSOR have an expressed interest in actively
pursuing the development of ADDITIONAL DEVICES. LICENSEE will provide
additional funding for its support, at LICENSOR'S standard rates as referenced
in Section 6(b), of such mutually agreed development projects to be conducted
by LICENSOR in accordance with the following minimum funding schedule.

SCHEDULE:

Commencing no later than the calendar quarter commencing October 1, 1992,
LICENSEE shall fund development project(s) with LICENSOR in an amount not
less than [*] in the first calendar quarter, then an amount not less
than [*] per calendar quarter for each of eight successive calendar
quarters, followed by one calendar quarter in an amount not less than
[*]; or [*] in aggregate whichever first occurs. Should LICENSEE
default in its obligations under this Section 4(a), and such default shall
not be cured within sixty (60) days after written notice thereof is given
by LICENSOR to LICENSEE, then the grant per Section 2(a)(i) of this
Agreement shall become non-exclusive. Nothing in these terms shall be
deemed to preclude LICENSOR and LICENSEE from mutually agreeing to
commitments in excess of the above declared minimums and/or duration.

It is the understanding of the parties that LICENSOR shall own the resulting
designs and patents, without limitation, and be entitled to use, modify, sell,
lease and otherwise dispose of such ADDITIONAL DEVICES and INTELLECTUAL PROPERTY
related thereto in any market other than the market exclusively licensed to
LICENSEE under Section 2(a)(i) of this Agreement.

(b) In recognition of the anticipated co-operation between LICENSOR
and LICENSEE in optimizing, cost reducing, integrating and developing innovative
ADDITIONAL DEVICES for deployment in the UDS Market, LICENSEE will at execution
of this Agreement grant to LICENSOR warrants to acquire 100,000 shares of
LICENSEE'S

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-14-

<PAGE>

Common Stock at a price of $1.00 per share. Said warrants shall issue in five
equal installments on the first through the fifth anniversary of the execution
date of this Agreement on condition that LICENSOR continues to meet mutually
agreed upon development objectives.

5. OBLIGATIONS OF LICENSOR.

(a) LICENSOR agrees to provide LICENSEE upon execution of this
Agreement with DELIVERABLES.

(b) LICENSOR guarantees that the transmitter and receiver per the
DELIVERABLES meet FCC part 15.126, Rules for Spread Spectrum Unlicensed
Operation. In the event that either the transmitter and/or the receiver should
fail to meet such Rules, and such failure shall not be cured within sixty (60)
days after written notice thereof is given by LICENSEE to LICENSOR, then all
amounts paid by the LICENSEE to the LICENSOR will be refunded within thirty (30)
days thereafter.

(d) LICENSOR agrees to provide NEXT GENERATION DEVICES to LICENSEE
subject to the provisions of Section 2(e) during the term of this Agreement.

(e) LICENSOR agrees that the filing of patent applications is an
essential step in sustaining PATENT RIGHTS, and LICENSOR will actively record
and witness invention disclosures in a timely fashion to enable such filings.
LICENSOR will promptly advise LICENSEE of LICENSOR'S decision whether or not to
file patent applications in the U.S.A. and those other countries in which
LICENSOR proposes to file such patent applications. LICENSOR agrees further
that with respect to all countries in which LICENSOR elects not to file patent
applications, LICENSEE may, at LICENSEE'S expense, file such applications in the
name of LICENSOR. In the event that LICENSEE has elected to file patent
applications in the name of LICENSOR, LICENSEE shall, upon issuance of any such
patent, share equally with LICENSOR in any subsequent royalty payments which may
accrue from LICENSEE to LICENSOR as owner of said patent

-15-

<PAGE>

until LICENSEE has recovered the filing expenses relating to that patent.

6. RIGHTS AND OBLIGATIONS OF LICENSEE.

(a) LICENSEE shall have the right to make modifications, improvements
or enhancements, including ASIC developments (a "CHANGE") to the DEVICE either
by submitting to LICENSOR a request for a CHANGE or by implementing the CHANGE
itself. The implementation of any such CHANGE shall not be deemed to be the
development of an ADDITIONAL DEVICE or any IMPROVEMENT. Any CHANGE implemented
by LICENSEE at its option may be provided to LICENSOR solely for the purposes of
enabling LICENSOR to perform support services as provided herein. If LICENSEE
independently implements a CHANGE, any warranties made by LICENSOR in favor of
LICENSEE will not apply to such CHANGE.

(b) If LICENSEE submits a request for a CHANGE to LICENSOR, such
request shall be in writing. LICENSEE shall pay all engineering costs incurred
for such customization to LICENSEE'S specifications or manufacturing
requirements which shall be billed and accounted for bi-weekly and due net 10
days, on the following basis, namely:

Senior Engineer [*]
Engineer [*]
Programmer [*]
Technician [*]
Research Associate [*]
Project Engineer [*]
and Support [*]

Any miscellaneous buy-out time or materials will be billed at
[*]. All travel necessitated by
and/or requested by LICENSEE shall be billed at [*]
of the above rates and no more than [*] being
charged on any one day.

Within twenty (20) business days of receipt of such request, LICENSOR will
provide LICENSEE with an estimate to implement the CHANGE based on the hourly
rates and costs set forth above. Upon

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-16-

<PAGE>

receipt of a Purchase Order or written authorization from LICENSEE, LICENSOR
shall implement the requested CHANGE in accordance with a schedule to be
mutually agreed upon.

(c) All right, title and interest in and to INTELLECTUAL PROPERTY
created prior to the effective date of this Agreement shall belong to and/or
remain the property of the party who developed, created or otherwise then owns
such INTELLECTUAL PROPERTY and, except for grant of a license to LICENSEE under
Section 2, no license is implied or granted herein to any such existing
INTELLECTUAL PROPERTY except as provided explicitly herein.

All work done by LICENSOR in connection with a CHANGE at LICENSEE'S
written request will be at LICENSEE'S expense as set forth in Section 6(b). Any
resulting INTELLECTUAL PROPERTY created by the parties jointly or individually
in connection with such CHANGE and paid for by LICENSEE shall belong to
LICENSEE. LICENSOR agrees to assign (or cause to be assigned) and does hereby
assign and deliver fully to LICENSEE any INTELLECTUAL PROPERTY RIGHTS which
LICENSOR may obtain as part of developing such CHANGE.

The INTELLECTUAL PROPERTY described above as belonging to LICENSEE shall be
limited to circuit board artworks, resulting optimized biasing resistor and
capacitor coupling values or specific, unique LICENSEE application interfaces.
Any other areas will be mutually agreed to and, specifically listed in a
separate writing signed by the parties. This Section 6 does not, however,
preclude LICENSOR from providing similar engineering services to other
customers, without using any of the INTELLECTUAL PROPERTY of LICENSEE.

(d) LICENSEE shall not be precluded from using LICENSOR'S standard
radio communications protocols, however, LICENSOR agrees to modify LICENSOR'S
standard radio communications protocols to LICENSEE'S specification upon request
by LICENSEE. Such protocols shall be designed with the assistance of LICENSOR
to prevent interference with, or acceptability to, other licensees and
sublicensees of LICENSOR.

(e) It is acknowledged and agreed by LICENSEE that should a PRODUCT
based on LICENSOR'S INTELLECTUAL PROPERTY not be competitive and should LICENSEE
desire to commence the development

-17-

<PAGE>

of an alternative spread spectrum device (hereinafter: "NEW DEVICE") not covered
by LICENSOR'S INTELLECTUAL PROPERTY RIGHTS, such development shall only be
conducted by employees, subcontractors, agents or assigns of LICENSEE who have
not had access to LICENSOR'S INTELLECTUAL PROPERTY licensed herein (including
source code to LICENSOR'S software included in a DEVICE) and such NEW DEVICE
cannot use/infringe on LICENSOR'S INTELLECTUAL PROPERTY, save that LICENSOR
acknowledges and agrees that any such NEW DEVICE would and may transmit and
receive on the same frequencies, have the same spread spectrum parameters and
the same packet data format as employed in other DEVICES manufactured for or by
LICENSEE. It is further acknowledged by LICENSEE that to the extent that any
NEW DEVICE employs the same spread spectrum parameters or data format, and such
spread spectrum parameters are covered by valid claims of any of LICENSOR'S
patents, LICENSEE shall be obligated to continue Section 3(b) ROYALTY payments
to LICENSOR. LICENSOR in turn acknowledges that LICENSEE shall not be
restricted in any other non-spread spectrum radio development which does not
violate LICENSOR'S valid patents or use LICENSOR'S SOURCE CODE.

7. FIRST DEVELOPMENT PROJECT.

(a) LICENSOR agrees to use its best efforts to develop the FIRST
PROJECT PROTOTYPE according to the specifications set forth in Exhibit 5
attached hereto ("DEVELOPMENT SPECIFICATIONS") and in accordance with the
schedule and milestones set forth in Exhibit 6 attached hereto ("Schedule").
Such development shall be deemed a CHANGE made by LICENSOR at the request of
LICENSEE subject to the provisions of Section 6(b) or (c) above, as well as the
terms of this Section 7.

(b) LICENSOR will be responsible for the day to day management and
operation of activities with respect to the development of the FIRST PROJECT
PROTOTYPE. However, LICENSOR agrees to provide LICENSEE with written reports
regarding its work as reasonably requested by LICENSEE, but no more often than
monthly. Representatives of LICENSOR and LICENSEE will meet on a regular basis
at such times and at such locations as are mutually agreed in order to discuss
the status and progress of the development of the FIRST PROJECT PROTOTYPE.

-18-

<PAGE>

(c) Upon completion of a milestone, LICENSOR shall deliver to
LICENSEE the deliverables required to complete such milestone as identified in
the Schedule and the DEVELOPMENT SPECIFICATIONS ("Project Deliverables").
LICENSEE shall have thirty (30) days to review the FIRST PROJECT PROTOTYPE to
verify there are no DEFECTS. If the delivered FIRST PROJECT PROTOTYPE contains
a DEFECT, such failure or DEFECT is to be communicated in writing by LICENSEE to
LICENSOR and LICENSOR shall from the receipt of notification of such failure,
use its best efforts to effect a cure for the DEFECT and to meet the DEVELOPMENT
SPECIFICATIONS within sixty (60) days and redeliver the FIRST PROJECT PROTOTYPE
FOR LICENSEE'S inspection according to the procedure specified above. If upon
redelivery after such sixty (60) day period, the FIRST PROJECT PROTOTYPE is not
acceptable to LICENSEE, LICENSEE may, at its discretion, allow LICENSOR
additional time necessary to cure DEFECT and resubmit the FIRST PROJECT
PROTOTYPE to LICENSEE for acceptance. LICENSEE shall continue to pay all
engineering costs during extensions authorized by LICENSEE.

(d) In the event LICENSOR cannot effect a cure within the sixty (60)
day period (and any extension thereof), LICENSEE shall have the right to either
(i) terminate this Agreement without obligation to pay the fee due under Section
3(a)(iv) upon First PROTOTYPE ACCEPTANCE and return to LICENSOR, any and all
INTELLECTUAL PROPERTY, DELIVERABLES and other information transferred/supplied
by LICENSOR to LICENSEE; provided that LICENSEE'S payment obligations under
Section 3(a)(iii) shall survive, or (ii) obtain rights to use such uncompleted
FIRST PROJECT PROTOTYPE as is and continue the licenses granted hereunder upon
payment to LICENSOR of the fee under Section 3(a)(iv) which would have been due
upon FIRST PROJECT PROTOTYPE ACCEPTANCE, as well as any and all fees due per
this Agreement. In the event LICENSEE chooses to continue this Agreement, upon
payment of the fee due under 3(a)(iv) fee, LICENSOR shall provide LICENSEE with
copies of all designs, drawings, prototypes, TRANSMITTER SOFTWARE (as defined in
Section 7(e)) and any other work in progress directly related to the development
of the FIRST PROJECTED PROTOTYPE, whereupon LICENSEE may complete development if
it chooses.

(e) (i) LICENSOR agrees that after FIRST PROJECT PROTOTYPE
ACCEPTANCE, and the payment by LICENSEE of all amounts due thereon, LICENSOR
shall provide LICENSEE the source code and

-19-

<PAGE>

related documents for the power-meter transmitter software as customized for
LICENSEE ("TRANSMITTER SOFTWARE") as per the terms and conditions contained
within Section 8(c) of this Agreement. If, however, at any point subsequent to
FIRST PROJECT PROTOTYPE ACCEPTANCE but prior to the payment of all amounts due
by LICENSEE upon FIRST PROJECT PROTOTYPE ACCEPTANCE, LICENSOR has agreed to
provide a CHANGE, as requested by LICENSEE as per Section 6, and LICENSOR has
failed to provide such CHANGE by the mutually agreed upon schedule, provided
such failure is not caused by LICENSEE, and LICENSEE has given written notice of
such breach to LICENSOR and LICENSOR has failed to cure such breach within
ninety (90) days thereafter, LICENSOR shall make available to the LICENSEE the
source code and related documentation to TRANSMITTER SOFTWARE pursuant to the
terms set forth in Section 8(c) of this Agreement.

(ii) With regard to this source code for LICENSOR'S receiver
"master" and "slave" software as customized by LICENSOR for LICENSEE
(hereinafter referred to as "ESCROW MATERIAL"), LICENSOR will agree to deposit,
in a sealed package, ESCROW MATERIAL, pursuant to a mutually agreed upon escrow
agreement (hereinafter referred to as "ESCROW AGREEMENT") with a bank or other
mutually agreed upon third party within thirty (30) days after payment of all
amounts required by LICENSEE TO LICENSOR upon FIRST PROJECT PROTOTYPE
ACCEPTANCE. A representative of LICENSEE shall have the right to observe the
sealing and delivery activities to ensure that the required software and
documentation is included.

The ESCROW AGREEMENT shall provide for the following:

(A) LICENSEE shall have the right to all of the ESCROW
MATERIAL upon the occurrence of any of the following:

(1) Liquidation of LICENSOR; or

(2) Filing of insolvency or bankruptcy of LICENSOR
whether voluntary or involuntary which is not
dismissed within sixty (60) days thereafter;

(3) Appointment of a trustee or receiver for LICENSOR.

-20-

<PAGE>

(B) In addition, LICENSEE shall have the right to a portion
of the ESCROW MATERIAL upon the occurrence of the
following:

(1) In the event none of the conditions of Section
7(d)(i) has occurred; and

(2) LICENSEE has requested a CHANGE, per Section 6 and
such change is a material change capable of
realization and a documented DEFECT is found in
the receiver code; and

(3) LICENSOR has not agreed to provide such CHANGE;
and

(4) LICENSEE has given written notice of such to
LICENSOR; and

(5) LICENSOR has failed to complete such CHANGE within
three (3) months after a mutually agreed upon
milestone as per the Schedule.

(C) LICENSEE shall also have the right to receive the
ESCROWED MATERIALS in the event LICENSOR fails to cure
DEFECT within three (3) months after written notice of
such DEFECT from LICENSEE.

(D) LICENSEE shall have the right to the ESCROW MATERIAL,
by giving notice to the ESCROW AGENT with a copy to the
LICENSOR, stating the basis for demand to the ESCROW
MATERIAL. The ESCROW MATERIAL shall be made available
to LICENSEE in accordance with Section 8(c) of this
Agreement. The ESCROW AGENT shall have no
responsibility to determine the truth of any statement
made to it, except to determine the identity of the
parties.

-21-

<PAGE>

(E) Upon release of the ESCROW MATERIAL, or any portion
thereof, the ESCROW AGENT shall notify LICENSOR.

(F) The ESCROW AGENT'S fees and all costs related to this
escrow arrangement shall be borne by LICENSEE, with
LICENSEE having the right to choose the ESCROW AGENT,
subject to the convenience of LICENSOR.

8. CONFIDENTIAL INFORMATION.

(a) As used in this Agreement, the term "Confidential Information"
shall mean any information disclosed by one party to the other pursuant to this
Agreement which is in written, graphic, machine readable or other tangible form
and is marked "Confidential", "Proprietary" or in some other manner to indicate
its confidential nature. Confidential Information may also include oral
information disclosed by one party to the other pursuant to this Agreement,
provided that such information is designated as confidential at the time of
disclosure and reduced to a written summary by the disclosing party, within
thirty (30) days after its oral disclosure, which is marked in a manner to
indicate its confidential nature and delivered to the receiving party.
Confidential Information transferred pursuant to that Nondisclosure Agreement
between the parties dated February 18, 1992 shall be deemed as Confidential
Information under this Agreement, and the provisions of this Section 8 shall be
deemed to replace such Agreement.

(b) Each party shall treat as confidential all Confidential
Information of the other party, shall not use such Confidential Information
except as expressly set forth herein or otherwise authorized in writing, shall
implement reasonable procedures to prohibit the disclosure, unauthorized
duplication, misuse or removal of the other party's Confidential Information and
shall not disclose such Confidential Information to any third party except as
may be necessary and required in connection with the rights and obligations of
such party under this Agreement, and subject to confidentiality obligations at
least as protective as those set forth herein. Without limiting the foregoing,
each of the parties shall use at least the same procedures and degree of care
which it uses to prevent the disclosure of its own confidential information

-22-

<PAGE>

of like importance to prevent the disclosure of Confidential Information
disclosed to it by the other party under this Agreement, but in no event less
than reasonable care.

(c) If, as and when LICENSEE is in receipt of source code information
and/or all documents related to the TRANSMITTER SOFTWARE or the ESCROWED
MATERIAL (hereinafter collectively referred to as "SOURCE CODE"), such SOURCE
CODE shall remain in a locked area under the control of Larsh Johnson or Paul
Cook (hereinafter referred to as the "SOURCE CODE COORDINATOR"). The SOURCE
CODE COORDINATOR and LICENSEE agree to only use the SOURCE CODE under carefully
controlled conditions for the purposes set forth in this Agreement and to inform
all employees who are given access to the SOURCE CODE by LICENSEE that such
materials are confidential trade secrets of LICENSOR and are licensed to
LICENSEE by LICENSOR as such. The SOURCE CODE COORDINATOR and LICENSEE shall
restrict access to only those employees which are identified to LICENSOR in
advance according to the procedure listed in the next sentence of LICENSEE who
have agreed to be bound by a confidentiality obligation which incorporates the
protections and restrictions as set forth herein, and who have a need to know in
order to carry out the purposes of this Agreement. If LICENSEE desires to
change SOURCE CODE COORDINATORS, LICENSEE shall request authorization to make
such change by providing LICENSOR with notice of the transfer of authority
together with a representation that such new SOURCE CODE COORDINATOR agrees to
be bound by confidentiality obligations which incorporate the protection and
restrictions contained herein. LICENSOR agrees to review such request in good
faith and shall accept or reject LICENSEE'S proposal within twenty (20) days of
receipt of request. SOURCE CODE COORDINATOR and LICENSEE agree that as a
precondition to access to SOURCE CODE, LICENSOR is to be given written notice of
a malfunction with the SOURCE CODE and LICENSOR is not able to remedy the
malfunction within five (5) business days of receipt of notice. LICENSEE agrees
to keep a written records of those persons accessing such materials and will
store such materials in a locked area under the control of the SOURCE CODE
COORDINATOR when not in use. The SOURCE CODE COORDINATOR and LICENSEE shall
provide LICENSOR with written notice of the names of the individuals who have
access to such materials and shall take all actions required to recover any such
materials in the event of loss or misappropriation, or to otherwise prevent
their unauthorized disclosure or use. LICENSEE shall be fully

-23-

<PAGE>

responsible for the conduct of all its employees, contractors, agents,
representatives and visitors, who may in any way breach this agreement, such
responsibility to include, but not be limited to, pursuing injunctive relief to
prevent further violations of this Agreement, as well as indemnifying and
holding LICENSOR harmless as a result of a loss, misappropriation, unauthorized
disclosure or use of the SOURCE CODE.

(d) Notwithstanding the above, neither party shall have liability to
the other with regard to any Confidential Information of the other which:

(i) was generally known and available in the public domain at
the time it was disclosed or becomes generally known and available in the public
domain through no fault of the receiver;

(ii) was known to the receiver at the time of disclosure as shown
by the files of the receiver in existence at the time of disclosure;

(iii) is disclosed with the prior written approval of the
discloser;

(iv) was independently developed by the receiver without any use
of the Confidential Information and by employees or other agents of the receiver
who have not been exposed to the Confidential Information, provided that the
receiver can demonstrate such independent development by documented evidence
prepared contemporaneously with such independent development;

(v) becomes known to the receiver from a source other than the
discloser without breach of this Agreement by the receiver and otherwise not in
violation of the discloser's rights; or

(vi) is disclosed pursuant to the order or requirement of a
court, administrative agency, or other governmental body; provided, that the
receiver shall provide prompt, advanced notice thereof to enable the discloser
to seek a protective order or otherwise prevent such disclosure.

-24-

<PAGE>

(e) Each party shall obtain the execution of proprietary non-
disclosure agreements with its employees, agents and consultants having access
to Confidential Information of the other party, and shall diligently enforce
such agreements, or shall be responsible for the actions of such employees,
agents and consultants in this respect.

(f) If either party breaches any of its obligations with respect to
confidentiality and unauthorized use of Confidential Information hereunder, the
other party shall be entitled to equitable relief to protect its interest
therein, including but not limited to injunctive relief, as well as money
damages.

9. MARKING.

(a) LICENSEE agrees to affix to each PRODUCT or the PACKAGE
containing such PRODUCT or to an insertion slip in the package with each PRODUCT
a legible notice reading: "Licensed under one or more of the following
Patents", followed by a list of patent numbers applicable to such PRODUCT taken
from attached Exhibit 1 or as otherwise instructed by LICENSOR.

(b) Neither the granting of the license herein or the acceptance of
royalties hereunder shall constitute an approval of or acquiescence in
LICENSEE'S practices with respect to trademarks, trade names, corporation names,
advertising, or similar practices with respect to the PRODUCT, nor does the
granting of any license hereunder constitute an authorization or approval of, or
acquiescence in the use of any trade name or trademark of LICENSOR or its
affiliates in connection with the manufacture, advertising, or marketing of
PRODUCT; and LICENSOR hereby expressly reserves all rights with respect thereto.

10. DURATION AND TERMINATION/CANCELLATION.

(a) Unless otherwise terminated/canceled as hereinafter set forth,
this Agreement and the licenses under PATENT RIGHTS shall continue from the date
of execution of this Agreement through the expiry date of the last to expire of
any one of the PATENT RIGHTS. The Agreement may be extended on similar terms
upon the mutual agreement of LICENSOR and LICENSEE.

-25-

<PAGE>

(b) LICENSOR shall have the right to terminate this Agreement upon
notice if LICENSEE shall at any time default in its performance of any
obligation hereunder, and such default is not cured within sixty (60) days after
written notice thereof is given by LICENSOR to LICENSEE. LICENSEE shall provide
LICENSOR in every sublicense agreement, an equivalent right to terminate such
SUBLICENSEE'S rights to the INTELLECTUAL PROPERTY licensed hereunder. LICENSEE
or SUBLICENSEE shall have the right to cure any such default up to, but not
after, the giving of such notice of termination/cancellation.

(c) LICENSOR shall have the right to terminate/cancel this Agreement
by giving written notice of termination/cancellation to LICENSEE in the event of
any one of the following, such termination/cancellation being effective upon
receipt of such notice or five (5) days after such notice is mailed, whichever
is earlier:

(i) Liquidation of LICENSEE;

(ii) Insolvency or bankruptcy of LICENSEE, whether voluntary or
involuntary; provided that if involuntary, LICENSOR may only terminate this
Agreement under this Section 10 if such bankruptcy proceeding is not dismissed
within sixty (60) days of filing.

(iii) Failure of LICENSEE to satisfy any judgement against it
relative to this Agreement; or

(iv) Appointment of a trustee or receiver for LICENSEE unless
previously agreed to in writing by LICENSOR.

(d) The waiver of any default under this Agreement by LICENSOR shall
not constitute a waiver of the right to terminate/cancel this Agreement for any
subsequent or like default, and the exercise of the right of
termination/cancellation shall not impose any liability by reason of
termination/cancellation nor have the effect of waiving any damages to which
LICENSOR might otherwise be entitled.

(e) Termination/cancellation of this Agreement, shall in no manner
interfere with, affect or prevent the collection by LICENSOR of any and all sums
of money due to it under this Agree-

-26-

<PAGE>

ment. Upon termination/cancellation of this Agreement for any reason,
LICENSEE'S payments required by Section 3, but not yet due, shall become
immediately due and payable, and LICENSEE'S inventory of DEVICE's for which
payments are not yet required by Section 3 shall either, at LICENSEE'S option,
(i) be included in LICENSEE'S and SUBLICENSEES' payments as though sales of such
DEVICE had taken place prior to termination/cancellation of this Agreement; or
(ii) be destroyed, provided appropriate certification is given to LICENSOR by an
officer of LICENSEE.

(f) LICENSEE shall have the right to terminate this Agreement upon
notice if LICENSOR shall at any time default in its performance of any
obligation hereunder, and such default is not cured within sixty (60) days after
written notice thereof is given by LICENSEE to LICENSOR. LICENSOR shall have
the right to cure any such default up to, but not after, the giving of such
notice of termination/cancellation.

(g) LICENSEE shall have the right to terminate/cancel this Agreement
by giving written notice of termination/cancellation to LICENSOR in the event of
any one of the following, such termination/cancellation being effective upon
receipt of such notice or five days after such notice is mailed, whichever is
earlier:

(i) Liquidation of LICENSOR;

(ii) Insolvency or bankruptcy of LICENSOR, whether voluntary or
involuntary; provided that if involuntary, LICENSOR may only terminate this
Agreement under this Section 10 if such bankruptcy proceeding is not dismissed
within sixty (60) days of filing.

(iii) Failure of LICENSOR to satisfy any judgement against it
relative to this Agreement; or

(iv) Appointment of a trustee or receiver for LICENSOR unless
previously agreed to in writing by LICENSEE.

(h) The waiver of any default under this Agreement by LICENSEE shall
not constitute a waiver of the right to terminate/cancel this Agreement for any
subsequent or like default, and the exercise of the right of
termination/cancellation shall not

-27-

<PAGE>

impose any liability by reason of termination/cancellation nor have the effect
of waiving any damages to which LICENSEE might otherwise be entitled.

(i) This Agreement shall survive the termination of any sublicense
agreement with a SUBLICENSEE by LICENSOR provided LICENSEE is not in default
under this Agreement. Additionally, any sublicense agreement shall survive
termination of this Agreement with LICENSEE; provided that effective immediately
upon termination of this Agreement, LICENSOR shall have the right to enforce
directly all provisions of LICENSEE'S agreements with its SUBLICENSEES with
respect to use of LICENSOR'S INTELLECTUAL PROPERTY and ROYALTY payments pursuant
to the terms of Section 2(d); and provided further that all such licenses with
SUBLICENSEES with respect to LICENSOR'S INTELLECTUAL PROPERTY shall be deemed
converted to nonexclusive licenses. LICENSEE agrees to include provisions in
its sublicense agreements to confirm such rights.

11. WARRANTIES.

(a) LICENSOR warrants to LICENSEE, that it has the right, power and
authority to enter into this Agreement and to grant the license rights granted
hereunder.

(b) LICENSOR warrants that the making of this Agreement by LICENSOR
does not violate any agreement, rights or obligations existing between LICENSOR
and any other person or entity with the exception that a cross license of United
States Letters Patent Number 4,977,577 has been granted to Dicon Systems which
grants Dicon Systems a worldwide, non-exclusive license to use, manufacture,
have manufactured, a product based upon, in whole or in part, United States
Patent Number 4,977,577 and any continuations, divisions, re-issues, re-
examinations and foreign counterparts to the extent such action relates solely
to United States Patent Number 4,977,577.

(c) LICENSOR warrants that during the term of this Agreement, and for
so long as the license granted under Section 2(a)(i) remains exclusive, LICENSOR
shall not license any INTELLECTUAL PROPERTY to any person or entity other than
LICENSEE for the implementation specified in Section 2(a)(i) of this Agreement,
save that nothing in this Agreement shall preclude LICENSOR

-28-

<PAGE>

from licensing INTELLECTUAL PROPERTY to or with Dicon Systems, Ltd. or Disys,
Ltd. for use in the one-way communication of automatic meter readings.

(d) LICENSOR warrants that a transmitter and receiver manufactured
using DELIVERABLES will meet Federal Communications Commission Part 15.126 Rules
for Spread Spectrum Unlicensed Operation.

(e) LICENSOR warrants that DELIVERABLES provided per Section 1(c)
will be free from DEFECTS. If a DEFECT is found LICENSOR will correct DEFECT
and provide updated DELIVERABLES.

(f) LICENSEE agrees to name LICENSOR as an additional insured on its
general liability insurance coverage and hold LICENSOR harmless to the extent of
any potential liabilities which may arise from LICENSEE'S exploitation of
PRODUCTS unless and to the extent that such damages or injuries are due to the
intentional act or gross negligence of LICENSOR. LICENSEE agrees to send
LICENSOR a copy of an insurance binder noting LICENSOR as an additional insured
on LICENSEE'S general liability insurance coverage.

12. MISCELLANEOUS.

(a) PATENT INFRINGEMENT.

(i) LICENSOR, at its own expense, will defend any claims of
patent infringement against the INTELLECTUAL PROPERTY being licensed under this
Agreement. In the case a resulting judgement is made against LICENSEE/LICENSOR,
then LICENSOR will be liable to assist in damage payments with a limit of
seventy five (75) percent of all payments collected from LICENSEE under the
provisions of Section 3 of this Agreement. As of the effective date, to the
best of LICENSOR'S knowledge, the use of the licensed information will neither
infringe any patent, copyright, mask right, nor incorporate proprietary
information belonging to any third party. LICENSOR shall have full control of
the defense of any such suit, and LICENSEE shall render all reasonable
assistance to LICENSOR in connection with any suit to be defended by LICENSOR
and shall have the right to be represented therein by advisory counsel of its
choice at its expense.

-29-

<PAGE>

(ii) In the event that LICENSEE, in exercising the rights granted
under this Agreement, shall be unable to continue to exercise the rights under
this Agreement as a result of the existence of patents or other intellectual
property rights now held or which will be held by others in the field, LICENSOR
may, to minimize its liability under Section 12(a)(1) above, at its sole option
and expense, either: (i) procure for LICENSEE the right to exercise its rights
as granted herein, or (ii) replace or modify the infringing technology so that
it is functionally equivalent but non-infringing products.

(b) PATENT PROTECTION. (i) LICENSOR shall always have the right to
prosecute any entity it believes infringes upon its INTELLECTUAL PROPERTY.
LICENSEE is obligated to render all reasonable assistance requested by LICENSOR
in connection with any action being pursued by LICENSOR; (ii) In the event that
LICENSEE advises LICENSOR of a potential infringement upon LICENSOR'S
INTELLECTUAL PROPERTY and LICENSOR elects not to exercise its right per (i)
above, then LICENSEE shall have the right to prosecute any entity it believes
infringes upon LICENSOR'S INTELLECTUAL PROPERTY doing business in the UDS
Market. LICENSOR is obligated to render all reasonable assistance requested by
LICENSEE at LICENSEE's expense in connection with any action being pursued by
LICENSEE including, without limitation, allowing LICENSEE to name LICENSOR as a
named party where such is required in order to bring an action against an
infringer; and (iii) LICENSEE, at its own expense, has the right to prosecute
any entity which LICENSEE believes infringes upon any technology owned by
LICENSEE pursuant to Section 6 of this Agreement. LICENSOR shall render all
reasonable assistance to LICENSEE in connection with any suit relating to
INTELLECTUAL PROPERTY to be defended by LICENSEE including, without limitation,
allowing LICENSEE to name LICENSOR a named party where such is required in order
to bring an action against an infringer and shall have the right to be
represented therein by advisory counsel of its choice at its expense. LICENSEE
shall have full control of the defense of any such suit involving a potential
infringement of its products using the licensed technology to the extent it does
not conflict with an action by LICENSOR, but LICENSEE shall not be free to
settle the same without the consent of LICENSOR, which consent shall not be
unreasonably withheld. Where LICENSEE brings an action against an infringer
under (ii) above, LICENSEE shall have

-30-

<PAGE>

the right to retain all amounts incurred at settlement or as a result of a
judgment rendered in such case.

13. NOTICES.

(a) All notices, requests, demands and other communications under
this Agreement or in connection therewith shall be given to or be made upon the
respective parties hereto as follows:

TO LICENSEE:

Domestic Automation Company
125 Shoreway Road
San Carlos, CA 94070
Attn: Paul M. Cook, Chairman & CEO

TO LICENSOR:

Axonn Corporation
101 W. Robert E. Lee Boulevard
2nd Floor
New Orleans, LA 70124
Attn: H. Britton Sanderford, Jr., President

Michael L. Eckstein, Esq.
829 Baronne Street
New Orleans, LA 70113

(b) All notices, requests, demands and other communications given or
made in accordance with the provision of this Agreement shall be in writing,
shall be forwarded by registered mail and shall be deemed to have been given
when received by addressee, or upon tender where delivery cannot be accomplished
due to some fault of addressee.

14. CONSTRUCTION AND ASSIGNMENT.

(a) This Agreement shall be binding upon and inure to the benefit of
LICENSOR, its legal representatives, successors, heirs, and assigns. Nothing
contained herein shall prevent LICENSOR from assigning this Agreement to any
successor entity acquiring all or substantially all of its assets whether by
sale,

-31-

<PAGE>

merger, operation or otherwise (including all rights in the INTELLECTUAL
PROPERTY). Additionally, LICENSOR shall have the right to assign or pledge to
any person, without the necessity of obtaining the consent of LICENSEE, all or
any portion of the royalties due LICENSOR hereunder. Also, LICENSOR shall have
the right to assign this Agreement to any entity in which Axonn or H. Britton
Sanderford, Jr., the current president of LICENSOR, owns more than 51% of the
outstanding shares entitled to vote or other controlling equity interest,
subject to LICENSEE'S reasonable approval that such assignee is reasonably
capable of and willing to perform LICENSOR'S obligations under this Agreement.

(b) This Agreement shall be binding upon and inure to the benefit of
LICENSEE its legal representatives, successors, heirs and assigns, and may be
assigned by LICENSEE, without approval from LICENSOR, to any successor entity
acquiring all or substantially all of its assets whether by sale, merger,
operation or otherwise.

(c) This Agreement shall be deemed to be a contract made under the
laws of the State of Louisiana, United States of America, and for all purposes
shall be interpreted in its entirety in accordance with the laws of said State.
No litigation between the signatories to this Agreement shall be instituted or
conducted in any court other than a competent court in the State of Louisiana.
The parties hereby consent to service of process and their agents appointed
herein for such purpose, and agree not to contest the jurisdiction and choice of
law agreed upon in this clause for any reason. In the event this Agreement is
translated into any language other than the English language for any purpose,
the parties agree that the English version shall be the governing version.

(d) Neither LICENSOR nor LICENSEE shall be deemed a joint venturer or
partner of the other nor shall this document be deemed to constitute the parties
hereto to be an association, partnership, unincorporated business or other
separate entity.

(e) At any time or from time to time on and after the date of this
Agreement, each party shall, at the request of the other party (i) deliver to
the requesting party such records, data or other documents consistent with the
provisions of this Agreement, (ii) execute, and deliver or cause to be
delivered, all such

-32-

<PAGE>

assignments, consents, documents or further instruments of transfer or license,
and (iii) take or cause to be taken all such other actions, as the requesting
party may reasonably deem necessary or desirable in order for the requesting
party to obtain the full benefits of this Agreement and the transactions
contemplated hereby.

15. MODIFICATION. This Agreement embodies all of the understandings and
obligations between the parties with respect to the subject matter hereof. No
amendment or modification of this Agreement shall be valid or binding upon the
parties unless made in writing, signed on behalf of each of the parties by their
respective proper officers thereto duly authorized and validated.

16. COMPLIANCE WITH LAWS.

(a) Any payment which requires governmental approval or permission
under Foreign Exchange Control Law or other law, if any, shall be made in
accordance with such law.

(b) LICENSEE agrees to comply with all provisions of the Export
Administration Regulations of the United States Department of Commerce, as they
currently exist and as they may be amended from time to time.

(c) This Agreement may be executed in two (2) or more counterparts,
all of which, taken together, shall be regarded as one and the same instrument.

IN WITNESS WHEREOF the representatives hereunto duly authorized on behalf
of LICENSOR have set their hands hereto this 21 day of August,
1992, and the representatives hereunto duly authorized on behalf of LICENSEE
have set their hands hereto this _____ day of ____________, 1992.

-33-

<PAGE>

DOMESTIC AUTOMATION COMPANY AXONN CORPORATION

By: /S/ Alan H. Bushell By: /S/ H. Britton Sanderford, Jr.
--------------------------- -------------------------------
Alan H. Bushell H. Britton Sanderford, Jr.

Title: Vice President Title: President

Attest: Attest:

/S/ [Signature] /S/ [Signature]
- -------------------------------- --------------------------------

-34-

<PAGE>

EXHIBIT 1

DEVICES AND ADDITIONAL DEVICES

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

<PAGE>

EXHIBIT 2

SPECIFICATION 6.18.GI5

<PAGE>
EXHIBIT 3

SCHEDULE OF RESTRICTED ENTITIES

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

<PAGE>

EXHIBIT 4

MEMORANDUM OF UNDERSTANDING

<PAGE>

EXHIBIT 5

DEVELOPMENT SPECIFICATIONS

<PAGE>

EXHIBIT 6

DEVELOPMENT SCHEDULE

<PAGE>

ADDENDUM TO THE AGREEMENT BETWEEN
DOMESTIC AUTOMATION COMPANY
AND
AXONN CORPORATION

This Addendum ("Addendum") is entered into as of 8 Nov. 93 ("Effective
Date") by and between DOMESTIC AUTOMATION COMPANY, a California corporation with
principal offices at 125 Shoreway Road, San Carlos, California 94070 ("DAC"),
and AXONN CORPORATION, a Louisiana corporation with principle offices at 101 W.
Robert E. Lee Boulevard, New Orleans, Louisiana 70124 ("Axonn")

WHEREAS, DAC and Axonn entered into that certain Agreement dated August 21,
1992, ("Agreement"), wherein Axonn granted DAC certain rights to manufacture,
use and sell spread spectrum radio products in the UDS MARKET as defined
therein.

WHEREAS, Axonn has previously entered into that certain Agreement with Life
Point Systems Limited Partnership ("Life Point") dated May 12, 1989, together
with any subsequent amendments thereto (collectively, the "Axonn/Life Point
Agreement") wherein Axonn has granted Life Point an exclusive license under much
of the same technology licensed by Axonn to DAC in the Axonn/DAC Agreement to
manufacture, use and sell spread spectrum radio products in the FIRE/SECURITY
MARKET (as defined below) which may or may not include all improvements which
Axonn may make to its spread spectrum technology;

WHEREAS, DAC has entered into a license agreement with Life Point on even
date herewith ("DAC/Life Point Agreement") under which Life Point is granting
DAC certain rights to manufacture, use and sell spread spectrum radio products
in the FIRE/SECURITY MARKET;

WHEREAS, DAC wants to ensure that it shall have the right to utilize any of
the spread spectrum technology which it is licensed under the Agreement in the
FIRE/SECURITY MARKET if such technology is not licensed by Axonn to Life Point,
and Axonn is willing to provide DAC with this assurance:

NOW, THEREFORE IN CONSIDERATION OF THE COVENANTS AND CONDITIONS CONTAINED
HEREIN, THE PARTIES AGREE AS FOLLOWS.

<PAGE>

A. Axonn agrees that to the extent that any ADDITIONAL DEVICES,
IMPROVEMENTS or additions to the INTELLECTUAL PROPERTY ("NEW TECHNOLOGY") which
are licensed by Axonn to DAC hereunder are not included in the exclusive license
granted by Axonn to LIFE POINT SYSTEMS for the FIRE/SECURITY MARKET under the
LIFE POINT AGREEMENT, then Axonn agrees that it shall grant, and does hereby
grant, to DAC a worldwide, nonexclusive right and license (including the right
to sublicense to SUBLICENSEES (as defined in the Agreement) under such NEW
TECHNOLOGY to use, modify, manufacture, have manufactured, sell, lease and
otherwise distribute PRODUCTS in the FIRE/SECURITY MARKET.

B. For purposes of this Addendum, the "FIRE/SECURITY MARKET" shall mean the
following:

1. use of PRODUCTS with UL 985, UL 217, or UL 268 or the like,
smoke/heat initiating detectors, automatic elevator return, sprinkler waterflow
monitoring devices, automatic smoke evacuation systems, pull station monitoring
devices, remote siren activation and automatic door closure devices when used in
conjunction with a local receiving UL 1023, UL 1076, UL 864, UL 985 or
equivalent UL or non UL panel; and

2. use of PRODUCTS with contact input perimeter protection devices,
IR, ultrasonic or microwave motion detection or the like, break glass detection,
entry/exit keypad interface for system activation/deactivation and
panic/emergency button alarms when used in conjunction with a local receiving UL
1023, UL 1637, UL 1076 residential or commercial equivalent or equivalent UL or
non UL fire/security/emergency annunciator panel or system.

C. The parties understand and acknowledge that many PRODUCTS which DAC
may sell or lease in the FIRE/SECURITY MARKET (as defined in the DAC/Life Point
Agreement) may also have uses in the UDS MARKET, and the parties wish to ensure
that DAC will not be obligated to pay royalties to both Axonn and Life Point
upon the sale or lease of any single PRODUCT. Therefore, where a PRODUCT is
first sold or leased to a customer in the FIRE/SECURITY MARKET under the rights
granted to DAC under the DAC/Life Point Agreement for which DAC has paid Life
Point a ROYALTY to Life Point under such agreement, and the customer may also
use the PRODUCT in the UDS MARKET, DAC shall have no obligation to pay Axonn a
ROYALTY under the DAC/Axonn Agreement. However, where an obligation to pay

-2-

<PAGE>

a ROYALTY upon the sale or lease of a PRODUCT arises simultaneously under both
the DAC/Axonn Agreement and the DAC/Life Point Agreement, DAC shall be obligated
to only pay the ROYALTY due under the DAC/Axonn Agreement, and no ROYALTY shall
be due under the DAC/Life Point Agreement.

D. Except as specifically provided above, the terms and the conditions of
the DAC/Axonn Agreement shall remain in full force and effect. Any terms not
specifically defined herein shall have the meanings set forth in the DAC/Axonn
Agreement.

Agreed:

AXONN CORPORATION DOMESTIC AUTOMATION COMPANY

By: /s/ H. Britton Sanderford, Jr. By: /s/ Paul M. Cook
------------------------------ ------------------------------

Title President Title: CEO
-------------------------- ------------------------------

-3-

<PAGE>

SECOND ADDENDUM TO THE AGREEMENT
BETWEEN
DOMESTIC AUTOMATION COMPANY
AND AXONN CORPORATION

This Addendum ("Addendum") is entered into as of 8 Nov. 93 ("Effective
Date") by and between DOMESTIC AUTOMATION COMPANY, a California corporation with
principal offices at 125 Shoreway Road, San Carlos, California 94070 ("DAC"),
and AXONN CORPORATION, a Louisiana corporation with principal offices at 101 W.
Robert E. Lee Boulevard, New Orleans, Louisiana 90124 ("Axonn").

WHEREAS, DAC and Axonn entered into that certain Agreement dated August 21,
1992 together with any subsequent amendments thereto ("Agreement"), wherein
Axonn granted DAC certain rights to manufacture, use and sell spreads spectrum
radio products in the UDS MARKET as defined therein; and

WHEREAS, DAC's CELLNET SYSTEM wide area communications network, once
installed, for the purpose of providing services to the UDS MARKET, may serve as
a backbone for the provision of other services not related to the UDS MARKET
using Axonn's spread spectrum radio technology; and

WHEREAS, both parties believe it would be mutually beneficial to maximize
the number of royalty bearing products which DAC distributes and therefore to
grant DAC the right to distribute spread spectrum radio products based on Axonn
spread spectrum technology for applications outside the UDS MARKET provided that
they are sold in such non-UDS applications only for use with DAC's CELLNET
SYSTEM; and

NOW THEREFORE, in consideration of the covenants and conditions contained
herein, the parties agree to include the following provisions as part of the
Agreement as follows:

1. ADDITIONAL DEFINITIONS. The following changes shall be made to the
definitions included in Section 1:

(a) Section 1(b), the definition of "CELLNET SYSTEM" shall be
modified to read as follows:

<PAGE>

(b) "CELLNET SYSTEM" shall mean a wide area (greater than 50
square miles) communication system developed and marketed by
LICENSEE primarily for the purpose of servicing the UDS MARKET
and which may be expanded on a secondary function basis. The
architecture of the CELLNET SYSTEM is cellular in nature, where
Cell Masters of greater range control and/or communicate with the
cell masters of smaller, nestled cells, which, ultimately,
control, communicate with and/or monitor a number of individual
end points.

(b) Section 1(o), the definition of "SUBLICENSEE" shall be modified
to read as follows:

(o) "SUBLICENSEE", for purposes of the UDS MARKET, means any
entity which has entered into a sublicense arrangement with
LICENSEE whereby the sublicense agreement grants such SUBLICENSEE
the right to manufacture and sell PRODUCT to any entity selling
to the UDS MARKET for the sole purpose of incorporating PRODUCT
into CELLNET compatible devices. With regard to the NON-UDS
MARKET, the right to grant sublicenses to SUBLICENSEES for the
sole purpose of manufacturing, using and selling PRODUCTS in
CELLNET SYSTEM compatible devices outside the UDS MARKET shall be
limited to SUBLICENSEES which (i) have as their primary business
activity either the UDS MARKET or are a manufacturer of utility
meters ("UDS Companies"), (ii) are AFFILIATES of such UDS
Companies, or (iii) are AFFILIATES of LICENSEE. SUBLICENSEES
shall not have the right to grant further sublicenses.

(q) "AFFILIATE" of a party (the "Subject") shall mean an entity
that through one or more intermediaries, controls, is controlled
by or is under common control with the Subject. For
corporations, "Control" shall mean, among other things, the
direct

-2-

<PAGE>

ownership of more than fifty percent (50%) of its outstanding voting securities.
For partnerships, control shall mean among other things, the ownership of a
controlling partnership interest in excess of fifty percent (50%).

2. LICENSE. Section 2(a) of the Agreement shall be deemed to be amended
to add the following license as Section 2(a)(iii):

(iii) LICENSOR hereby grants to LICENSEE a worldwide, nonexclusive
right and LICENSE, with the right to grant and authorize
sublicenses pursuant+ to Agreement and any amendment to the
Agreement and specifically including, but not limited to
Section 2(b)++ and 2(c) of the Agreement and subject to
Paragraphs 3(a) and 3(b) of this Addendum, under the
LICENSOR'S INTELLECTUAL PROPERTY to use, modify,
manufacture, have manufactured, sell, lease and otherwise
distribute PRODUCTS for applications outside of the
UDS MARKET; provided that such PRODUCTS are used to
communicate to a CELLNET SYSTEM.

+ Agreement and any amendment to the Agreement and specifically
including, but not limited to,

++ and 2(c)

3. RESTRICTIONS. The following restrictions shall apply to the license
grant under Paragraph 2 above, not withstanding any terms and conditions to the
contrary in the Agreement:

(a) The parties understand and acknowledge that the applications
outside the UDS MARKET which DAC may exploit using CELLNET SYSTEM under this
license may include, without limitation: traffic signal
control/synchronization; pager message receipt verification; copier and other
machine service signaling; one and two way digital data communications (e.g.
e-mail); vending machine monitoring; point of sale credit authorization and/or
transaction processing, including lottery ticket sales and off track betting;
information and entertainment access control and billing, including impulse pay
per view cable television; automated vehicle monitoring and tracking; and home
health marketing. DAC agrees to notify Axonn of the initiation of negotiations
for exploitation of the PRODUCTS in an application outside the UDS MARKET which
Axonn had not previously been notified about, and the parties shall decide at
that time whether such application fits into the Personal/Residential or
Commercial/Industrial category.

-3-

<PAGE>

(b) Notwithstanding anything in the Agreement or any Addendum to the
Agreement to the contrary, the license shall not grant DAC any right to
manufacture, use or sell PRODUCTS for time of flight measurement, voice
communications or fire, security and access control applications.

4. EXCLUDED SUBLICENSEES. Exhibit 3 to the Agreement shall be amended to
include those entities listed on Exhibit A attached hereto. DAC's rights to
grant sublicenses to these entities shall be limited as provided in Section 2(c)
of the Agreement.

5. CONSIDERATION.

(a) As partial consideration for the license granted under this
addendum, DAC agrees to pay Axonn a pre-paid license fee of [*], the first
[*] of which shall be paid by DAC within fifteen (15) days after the
Effective Date of this Addendum, and the remaining [*] shall be paid by DAC
within forty five (45) days after the Effective Date.

(b) The full amount of all pre-paid license fees paid under Paragraph
5(a) above shall be creditable against up to [*] of ROYALTIES
payable by DAC to Axonn under the Agreement until such time as the credits taken
by DAC under this Paragraph 5(b) shall equal the full amount of pre-paid license
fees paid by DAC to Axonn under Paragraph 5(a) above.

(c) LICENSEE agrees to pay LICENSOR a royalty on each PRODUCT sold or
leased by it outside the UDS MARKET pursuant to the rights granted under the
license set forth in Paragraph 2 above based upon (i) what kind of device the
PRODUCT is and (ii) the primary environment for which such PRODUCT is deployed,
as set forth in the following table:

PERSONAL/RESIDENTIAL MIXED COMMERCIAL/INDUSTRIAL

Transmitter: [*] [*] [*]
Receiver: [*] [*] [*]
Transceiver: [*] [*] [*]

ROYALTIES on Products sold in the UDS MARKET shall continue to be those set
forth in Section 3 of the Agreement.

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-4-

<PAGE>

(A) Whether a PRODUCT is best classified as used in a
Personal/Residential environment or a Commercial/Industrial environment shall be
based upon the viewpoint of a neutral third party familiar with the wireless
communications industry. For purposes of this Agreement, the parties agree as
follows:

(i) Personal/Residential applications shall be those
applications which are embodied in PRODUCTS utilized by individual
consumers for their use on their persons, in the home or in their
automobile. For purposes of this Agreement, the parties agree that
information and entertainment access control and billing, including impulse
pay for view cable television and home health monitoring shall be deemed
Personal/Residential applications.

(ii) Commercial/Industrial applications are those applications,
whether private or public related, which are not Residential/Personal
applications which are associated with the business activity.
Applications installed are intended for use inside hotels, offices,
manufacturing facilities, stadiums, hospitals or other commercial
structures shall be deemed to be a Commercial/Industrial application.
The parties agree that traffic signal control/synchronization; copier
and other machines service signalling; and point of sale credit
authorization and/or transaction and processing, including lottery
ticket sales and off-track betting shall be deemed
commercial/industrial applications.

(iii) "Mixed" applications shall be those applications which the
parties can envision substantial uses in both the Personal/Residential
and Commercial/Industrial areas. For purposes of this Agreement, the
parties agree that pager message receipt verification, one and two way
digital data communications (e.g. e-mail) and automatic vehicle
monitoring and tracking shall be deemed Mixed applications.

(iv) Additional applications identified by LICENSOR to LICENSEE
pursuant to Section 3 above shall be categorized as they are
identified.

-5-
<PAGE>

(B) Where the parties are unable to agree as to the proper
classification of a PRODUCT, such dispute in itself shall not be deemed a breach
of this Agreement, but rather the question of which category such PRODUCT
properly falls in shall be settled as provided below:

(C) For any dispute as to proper classification of a Product, the
parties shall first attempt to first negotiate in good faith a written
resolution of such dispute for a period not to exceed thirty (30) days from the
date of receipt of a party's request for such negotiation. Such negotiations
shall be conducted by Chief Executive Officers of each party, or other senior
officer appointed by the CEO who have authorization to resolve any such dispute.
In the event the parties cannot negotiate a written resolution to such dispute
during this thirty(30) day negotiation period, the parties shall then submit
such dispute or claim to nonbinding mediation with Judicial Arbitration &
Mediation Services ("JAMS") in Santa Clara County, California. The mediation
may be initiated by the written request of either party to the other party,
shall commence within fifteen (15) days of receipt of such notice and shall be
conducted in accordance with the standard mediation procedures established by
JAMS, unless otherwise agreed by the parties. The mediation shall not exceed a
period of thirty (30) days. Each party shall bear its own expenses in any such
mediation; provided that the parties shall split the costs charged by JAMS.

(D) The parties understand and acknowledge that PRODUCTS sold for
applications outside the UDS MARKET may, by their requirement to be integrated
with a CELLNET SYSTEM owned or leased to a customer in the UDS MARKET, also
fall within the definition of PRODUCTS on which royalties are due under Section
3(b) of the Agreement, and the parties wish to ensure that they will not be
obligated to pay two royalties to Axonn upon the sale or lease of a single
PRODUCT. Therefore, DAC shall pay ROYALTIES under Section 2(b) of the Agreement
on all PRODUCTS which have application within the UDS MARKET, and shall pay
ROYALTIES under Paragraph 5(c) of this Addendum on those PRODUCTS which have no
application within the UDS MARKET other than communication with a CELLNET
SYSTEM; provided that in no event shall two royalties be due upon the sale of a
single PRODUCT.

-6-

<PAGE>

6. ACKNOWLEDGEMENT. Except as specifically provided above, the terms and
conditions of the Agreement shall remain in full force and effect and the rights
granted herein shall be subject to the terms and conditions therein. Any terms
not specifically defined herein shall have the meaning set forth in the
Agreement.

DOMESTIC AUTOMATION CORPORATION AXONN CORPORATION

By: /s/ Paul M. Cook By: /s/ H. Britton Sanderford, Jr.
-------------------------- ------------------------------

Name: Paul M. Cook Name: H. Britton Sanderford, Jr.
-------------------------- ------------------------------

Title: CEO Title: President
-------------------------- -----------------------------

-7-

<PAGE>

ATTACHMENT 2(g) CONTAINING THE SECOND UNITED STATES OF AMERICA
NEXT GENERATION LICENSE AGREEMENT

BY AND BETWEEN
STATE OF LOUISIANA
CELLNET DATA SYSTEMS, INC.

AND
PARISH OF ORLEANS
AXONN CORPORATION

THIS attachment (the "Attachment") contains the Second Next Generation
License Agreement ("NGL") entered into as of this twenty fifth day of March,
1996 ("effective date") by and between CellNet Data Systems, Inc., a California
corporation with principal offices at 125 Shoreway Road, San Carlos, California
94070 ("CellNet") and Axonn Corporation, a Louisiana corporation with principal
offices at 101 West Robert E. Lee Boulevard, New Orleans, Louisiana 70124
("Axonn").

W I T N E S S E T H:

WHEREAS, CellNet and Axonn had entered into that certain agreement dated
August 21, 1992 together with any subsequent amendments thereto ("Agreement")
wherein Axonn granted CellNet certain rights to manufacture, use and sell spread
spectrum radio products in the UDS market as well as other fields of use;

<PAGE>

WHEREAS, Agreement provides that Axonn will agree to offer to CellNet,
license rights to NEXT GENERATION DEVICES developed by Axonn during the term of
the Agreement, subject to all of the terms and conditions of the Agreement, with
the exception of any initial license fee and royalty rate as well as other
agreed upon modifications to the Agreement which will be mutually negotiated by
the parties by way of an attachment to the Agreement;
WHEREAS, Axonn has developed a digital spread spectrum transceiver
technology that has significant performance advantages over the original
"ADDITIONAL DEVICE" spread spectrum transceiver and the cost of the development
of this technology was in excess of [ * ], qualifying it as a NEXT
GENERATION DEVICE;
WHEREAS, Agreement provides that to the extent any INTELLECTUAL PROPERTY is
licensed by Axonn to CellNet which is not included in the exclusive license
granted by Axonn to Life Point Systems Limited Partnership ("Life Point") for
the FIRE/SECURITY MARKET under the license agreement by and between Axonn and
Life Point ("NEW TECHNOLOGY"), CellNet is to be granted a worldwide, non-
exclusive right and license under such NEW TECHNOLOGY as the term is defined in
the Agreement to use, modify, manufacture, have manufactured, sell and otherwise
distribute PRODUCTS in FIRE/SECURITY MARKET;

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-2-

<PAGE>

WHEREAS, Agreement provides that in the event any INTELLECTUAL PROPERTY
licensed by Axonn to CellNet subsequently becomes included in the exclusive
license granted by Axonn to Life Point for the FIRE/SECURITY MARKET, the terms
of any licenses granted by Axonn to CellNet for such INTELLECTUAL PROPERTY will
remain unchanged, and if CellNet is paying Axonn a ROYALTY for PRODUCTS based on
such INTELLECTUAL PROPERTY, CellNet will not be required to pay any ROYALTY to
Life Point for such PRODUCTS;
WHEREAS, CellNet desires to incorporate this NEXT GENERATION DEVICE
technology into its PRODUCT, and each party agrees as follows:
1. GRANT.
Axonn grants CellNet: (1) a non-exclusive license to make, modify,
manufacture, have manufactured, sell, lease and otherwise dispose of the digital
transceiver product developed by Axonn ("NG TRANSCEIVER DEVICE") which utilizes
patents and patents pending listed on Exhibit A to this Addendum in accordance
with the terms and conditions contained within the Agreement, and (2) an
exclusive license, to the extent specifically noted and provided for within
Section 2(a)(i) of the Agreement, with respect to the NG TRANSCEIVER DEVICE in
the fields of use specified in such Section 2(a)(i). This NGL is limited to the
fields of use as defined in Agreement.
2. CONSIDERATION.
(a) As partial consideration for the NGL granted pursuant to this
Attachment, CellNet agrees to pay Axonn a license

-3-

<PAGE>

fee of [ * ] to be paid per the milestone schedule in Exhibit B, namely:

(i) Payment of [ * ] to Axonn will occur upon execution of
this Attachment by CellNet and Axonn.

(ii) Payment of [ * ] to Axonn will occur upon completion of
the PRELIMINARY DESIGN REVIEW MILESTONE.

(iii) Payment of [ * ] to Axonn for the PROTOTYPE DVT REVIEW
MILESTONE will occur within 2 days of the completion of such PROTOTYPE
DVT REVIEW MILESTONE unless CellNet has notified Axonn of a DEFECT
with the Prototype DVT Review Deliverables within such 2 day period
after the completion of the PROTOTYPE DVT REVIEW MILESTONE. If
CellNet notifies Axonn of a DEFECT, the provisions of subsection 2(b)
below shall apply.

(iv) Payment of [ * ] to Axonn for the DELIVERY OF BETA
DOCUMENTATION MILESTONE will occur within 2 days of the completion of
such DELIVERY OF BETA DOCUMENTATION MILESTONE unless CellNet has
notified Axonn of a DEFECT with the Beta Documentation Deliverables
within such 2

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-4-

<PAGE>

day period after the DELIVERY OF BETA DOCUMENTATION MILESTONE. If
CellNet notifies Axonn of a DEFECT, the provisions of Section 2(b)
below shall apply.

In the event that Axonn completes the DELIVERY OF BETA
DOCUMENTATION MILESTONE before the scheduled date (the "Scheduled
Date") for completion of such milestone as listed in Exhibit B, for
every week that Axonn completes such DELIVERY OF BETA DOCUMENTATION
MILESTONE in advance of the Scheduled Date, the payment for completion
of the DELIVERY OF BETA DOCUMENTATION MILESTONE shall increase by
[ * ] (up to a maximum increase of [ * ]) and the aggregate
Incentive Royalty Payment (defined in Section 2(d) below) shall
decrease by [ * ] (up to a maximum decrease of [ * ]).

(v) Payment of [ * ] to Axonn for the BETA DVT REVIEW
MILESTONE will occur at the earlier of: (1) 2 days after the
completion of the BETA DVT MILESTONE ("BDR Payment Date 1"), or (2) 90
days after the date of the DELIVERY OF BETA DOCUMENTATION MILESTONE
("BDR Payment Date 2") unless CellNet has notified Axonn of a DEFECT
with such Beta DVT Review before the earlier to occur of either BDR

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-5-

<PAGE>

Payment Date 1 or BDR Payment Date 2. If CellNet notifies Axonn of a
DEFECT, the provisions of Section 2(b) below shall apply.

(vi) Payment of [ * ] to Axonn will occur upon completion of the
RELEASE OF FINAL DOCUMENTATION MILESTONE.

(b) In the event CellNet informs Axonn of a DEFECT pursuant to the
procedures outlined in subsections 2(a)(iii) - (v) above, the milestone that
corresponds to the payment that was to have been made in such subsection (the
"Corresponding Milestone") will be deemed to have not occurred and Axonn will
undertake to correct such DEFECT. Once Axonn has determined that it has
corrected such DEFECT and has resubmitted the Corresponding Milestone
deliverables to CellNet, such Corresponding Milestone will be deemed complete,
and the payment for such Corresponding Milestone will be made subject to the
procedures stated in subsections 2(a)(iii)-(v) above.

(c) Upon completion of a milestone, Axonn shall deliver to CellNet
the deliverables as noted in Exhibit C required to complete such milestone as
identified in the schedule noted in Exhibit B. In the event Axonn fails to
complete any milestone

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-6-

<PAGE>

within ninety (90) days after the date such milestone was to be completed as per
Exhibit B, or a deliverable due under a milestone includes a DEFECT, as defined
in Agreement, then notwithstanding Section 2(b) above, CellNet may complete the
development of the NG TRANSCEIVER DEVICE if it chooses and Axonn would not be
entitled to the remainder of the milestone payments, provided such delay of
completion or DEFECT is not caused by CellNet. In the event CellNet decides to
complete the development of the NG TRANSCEIVER DEVICE, Axonn shall promptly
deliver to CellNet any prototypes, documentation, and technical materials
related to the NG TRANSCEIVER DEVICE which are necessary for CellNet to complete
the development of the NG TRANSCEIVER DEVICE to the extent such materials have
not already been provided. Notwithstanding the above, if Axonn has diligently
pursued correction of the DEFECT or completion of the scheduled milestone then
Axonn may request an appropriate time extension from CellNet to cure such DEFECT
and/or provide such milestone deliverables and such grant of an extension cannot
be unreasonably withheld.
(d) In consideration for Axonn's timely completion of the
DELIVERY OF BETA DOCUMENTATION MILESTONE, CellNet is also required to pay Axonn
an Incentive Royalty Payment which initially shall be equal to [ * ].
The Incentive Royalty Payment will be decreased by any amounts advanced to Axonn
pursuant to

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-7-

<PAGE>

Section 2(a)(iv) above for early completion of the DELIVERY OF BETA
DOCUMENTATION MILESTONE. In addition, the Incentive Royalty Payment will be
decreased by [ * ] (a "Late Penalty") for every month that the completion of
the BETA DVT REVIEW MILESTONE is delayed beyond the scheduled date for
completion of such milestone as listed in Exhibit B, provided that any delay
relating to such milestone was not caused by CellNet or by act of God or force
majeure or other cause beyond Axonn's control. In no event shall the Incentive
Royalty Payment be less than $0. Notwithstanding the foregoing, no Late Penalty
will be applied to the Incentive Royalty Payment in the event that: (1) Axonn
completes the DELIVERY OF BETA DOCUMENTATION MILESTONE on or before September 1,
1996, and (2) CellNet fails to inform Axonn, within ninety (90) days of the date
Axonn completes the DELIVERY OF BETA DOCUMENTATION MILESTONE, of any DEFECT in
the deliverables associated with such DELIVERY OF BETA DOCUMENTATION MILESTONE,
or with any DEFECT in achieving the BETA DVT REVIEW MILESTONE.

If the Incentive Royalty Payment is greater than $0 at the time that
CellNet commences production of NG TRANSCEIVER DEVICES, CellNet shall pay the
Incentive Royalty Payment to Axonn as follows: for each of the first [ * ] NG
Transceiver Devices

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-8-

<PAGE>

produced by CellNet, CellNet will pay Axonn an amount equal to the Incentive
Royalty Payment, divided by [ * ].

(e) As additional consideration, the transceiver ROYALTY to be paid
upon the sale, lease or disposition of any transceiver utilizing INTELLECTUAL
PROPERTY associated with this NGL shall be increased [ * ] per transceiver.
(f) In the event CellNet chooses to complete the NG TRANSCEIVER
DEVICE development and successfully completes the BETA DVT REVIEW MILESTONE
prior to the expiration of 15 months from the date such milestone was to have
been completed as listed in Exhibit B, CellNet shall pay Axonn an amount equal
to the Incentive Royalty Payment that Axonn would have earned based on the date
that CellNet successfully completes the BETA DVT REVIEW MILESTONE, plus all
milestone payments that were not paid to Axonn, less all documented engineering
development expenses incurred by CellNet. Additionally, under no circumstances
will Axonn be required to refund any previously paid milestone payments.
Notwithstanding the foregoing, no Late Penalty will be applied to the Incentive
Royalty Payment in the event that: (1) Axonn completes the DELIVERY OF BETA
DOCUMENTATION MILESTONE on or before September 1, 1996, and (2) CellNet fails to
inform Axonn, within ninety (90) days of the date Axonn completes the DELIVERY
OF BETA DOCUMENTATION MILESTONE, of any DEFECT in the deliverables

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-9-

<PAGE>

associated with such DELIVERY OF BETA DOCUMENTATION MILESTONE, or with any
DEFECT in achieving the BETA DVT REVIEW MILESTONE.

3. SOURCE CODE.
(a) Axonn's SOURCE CODE is its best and closest secret. With regard
to the disclosure of the "SOURCE CODE" information, such information shall be
provided to Larsh Johnson or such other individual noted as the "SOURCE CODE
COORDINATOR". The SOURCE CODE COORDINATOR and CellNet agree to only use the
SOURCE CODE under carefully controlled conditions for the purposes set forth in
the Agreement and to inform all employees and agreed upon consultants who are
given access to the SOURCE CODE by CellNet that such materials are confidential
trade secrets of Axonn and are licensed to CellNet by Axonn as such. The SOURCE
CODE COORDINATOR and CellNet shall restrict access to only those employees which
are identified to Axonn in advance according to the procedures listed in the
Agreement and such employees shall have agreed to be bound by confidentiality
obligation which incorporates the protections and restrictions as set forth in
the Agreement and who have a need to know in order to carry out the purposes of
the Agreement. The Source Code may NOT be disclosed to consultants, agents or
other individuals or companies that are not employees of CellNet without

-10-

<PAGE>

the written consent of Axonn and such consent may be unreasonably denied.
(b) CellNet shall be provided the source code for the ADDITIONAL
DEVICE at the earlier to occur of: (1) two weeks after the completion of the
Prototype DVT Review Milestone, pursuant to the deliverables specified for such
milestone in Exhibit C; or (2) ninety days following the date that the Prototype
DVT Review Milestone was to have been completed, as specified in Exhibit B.
Such source code information shall be controlled by CellNet in accordance with
the terms of the Agreement and this Attachment.
4. TREATMENT OF HOPPER.
The "Hopper," which was partially funded by CellNet, is to be treated
as a NEXT GENERATION DEVICE. Upon development of a NEXT GENERATION DEVICE
incorporating the hopper technology, Axonn will offer such technology to
CellNet, in accordance with the Agreement, and will discount the up-front fees
by [ * ].
5. PURCHASE RIGHTS.
Axonn shall be granted the right to purchase the NG TRANSCEIVER
DEVICES from CellNet at CellNet's direct cost plus a [ * ] overhead percentage
adder.
6. PROMOTION.
Axonn is to be informed of CellNet's business activities and future
plans when appropriate, and additionally, CellNet will

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-11-

<PAGE>

mention Axonn as licensor in all appropriate press releases, brochures and
promotional materials. This promotional enclosure shall begin on or before one
(1) year subsequent to the successful field installation of the new
transceivers.
7. SPECIFICATIONS AND DELIVERABLES.
A. TRANSCEIVER TECHNICAL SPECIFICATIONS
The transceiver technical specifications areas mutually agreed
upon are noted on Exhibit D.
B. TRANSCEIVER COST
The Transceiver production costs are to be estimated in
quantities of [ * ] annually and total direct materials costs may not exceed
[ * ] including PCB and excluding the costs of the housing and connectors.
CellNet will provide costs for all standard CellNet part numbers.
Axonn will present a costed Bill of Materials at each Milestone
for CellNet's review.
C. DELIVERABLES
Deliverables mutually agreed upon are noted on Exhibit C.
Deliverables at each Milestone will be per CellNet's Product Life Cycle manual.
The PLC, DFT and DFX manuals shall be provided to Axonn and agreed to prior to
execution and shall then be frozen. Specifically included are the following:
1. All source code for the NG TRANSCEIVER DEVICE;

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-12-

<PAGE>

2. Complete Theory of Operations for all RF and Digital
Circuitry, Signal Processing, and Control Logic as implemented in firmware;
3. Documented Lab View-based receiver simulation software that
matches actual unit performance and includes an instruction manual;
4. PCB layouts in PADS 2000 format on or before the DELIVERY OF
BETA DOCUMENTATION MILESTONE;
5. Bill of Materials with CellNet part Numbers. CellNet will
contribute to this effort;
6. Complete Source Control specifications for all components
not on CellNet's current Approved Vendor List. All critical component
parameters and tolerances to be called out in this specification.
D. MANUFACTURABILITY
100% PCB test point availability, to be determined based on size
and performance trade-offs. All materials used in the design will be sourced
first from CellNet's Approved Vendor List. Single-sourced and custom components
to be approved by CellNet at the PRELIMINARY DESIGN REVIEW MILESTONE and such
approval cannot be unreasonably withheld. Deliverables must meet CellNet DFX
requirements or be approved prior to THE COMPLETE ALPHA

-13-

<PAGE>

DOCUMENTATION MILESTONE, such approval cannot be unreasonably withheld.
E. DEVELOPMENT PROCESS AND PROJECT MANAGEMENT
1. At each Milestone, Axonn will commit two (2) days of the
Development Team's time to present and review the Deliverables with CellNet and
address any questions that arise. Additional time will be billed hourly.
2. Axonn will provide two (2) hours no charge per week for
project updates (via a visit or conference call) between Axonn's Project Manager
and CellNet's Project Manager.
3. At the PRELIMINARY DESIGN REVIEW MILESTONE, the RF, Digital
and Firmware designs are to be presented. Prior to the Design Review, Axonn
will deliver a Preliminary Theory of Operation and design documentation package
in order for CellNet's engineers to prepare. Axonn will deliver formal Theory
of Operation by completion of the RELEASE OF FINAL DOCUMENATION MILESTONE.
4. All Milestone DVT Plans will be mutually agreed to by Axonn
and CellNet. Conceptually, each DVT will be designed to verify operation over
voltage and temperature for successively higher levels of performance and under
more demanding stress levels. First proto tests shall be conducted at Axonn and
witnessed by CellNet staff (at CellNet's option), whose time shall

-14-

<PAGE>

be made available to coincide with Axonn's schedules. Alpha DVT Tests will be
conducted at Axonn and Beta DVT tests shall be performed at CellNet, whereby
Axonn will have the right, at its own expense, to send an engineer to witness
part or all of CellNet's DVT process.
The alpha build will be performed by Axonn and the beta build will be performed
by CellNet.
Four alpha units built by Axonn will be used for Alpha DVT and four beta units
built by CellNet will be used for Beta DVT.

-15-

<PAGE>

This Attachment may be executed in counterparts, and a facsimile copy of this
Attachment, signed by either party and transmitted to the other party, shall
constitute a binding signature to this Attachment.

Offered To: CELLNET DATA SYSTEMS

Offered By: /s/ H. Britton Sanderford Jr.
-----------------------------
Date: 3/25/96
-----------------------------
H. Britton Sanderford, Jr.
AXONN CORPORATION
President

Accepted By: /s/ John M. Seidl
-----------------------------

Date: 3/25/96
-----------------------------
John M. Seidl
CELLNET DATA SYSTEMS
President and Chief
Executive Officer

-16-

<PAGE>

EXHIBIT A

NG TRANSCEIVER DEVICE
Patents and Patents Pending

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-17-

<PAGE>

EXHIBIT B

MILESTONE SCHEDULE

MILESTONE DATE COMPLETED PAYMENT DUE

Execution of Attachment [*] [*]
Preliminary Design Review [*] [*]

Start Prototype DVT+ [*] [*]
Prototype DVT Review [*] [*]
Complete Alpha Documentation+ [*] [*]

Alpha Units Available+ [*] [*]
Complete Alpha DVT and review+ [*] [*]
Delivery of Beta Documentation [*] [*]

Beta Units Available+ [*] [*]
Complete Beta DVT+ [*] [*]
Beta DVT Review [*] [*]

Release Final Documentation [*] [*]

[ * ]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-18-

<PAGE>

EXHIBIT C
AXONN DSP TRANSCEIVER DELIVERABLES
25 MARCH 1996

ASSUMPTIONS
Full hand-off of design to Cellnet in Cellnet format
Axonn does proto and alpha DVT and redesign as required
Cellnet does beta DVT and field tests as required
Cellnet does FCC compliance
Cellnet does PGE certification test
Axonn does reliability prediction and redesign as required
Cellnet does reliability burn-in and redesign as required following production
Axonn does all documentation except market forecast, product plan, product cost,
MPIs, MCC hardware
manual modifications, PGE certification test plan and report, manufacturing
plan, Cellnet Beta DVT and
field test procedures and reports and labels.
Design Review includes manufacturability and testability reviews
Axonn builds 5 alpha units, Cellnet builds 5 alpha and 20 beta units

PROJECT MILESTONES (see Exhibit B)

AXONN DELIVERABLES
PRELIMINARY DESIGN REVIEW DELIVERABLES
1 WEEK PRIOR TO PRELIMINARY DESIGN REVIEW
Preliminary Specifications in hardcopy
Preliminary Prototype Test Plan in hardcopy
Receiver Simulation in Labview
Prototype Schematics in hardcopy
RF
Digital
Prototype Firmware Source Listings in hardcopy
Preliminary Theory of Operations in hardcopy
Prototype Block Diagrams in hardcopy
RF
Digital
Firmware
Prototype Gerber Files including silkscreen
RF
Digital
List of Exceptions to Cellnet DFX Guidelines in hardcopy limited to
Testability, section 2, Datatest mechanical and electrical ATE guidelines,
Printed Circuit Design Rules, section 3,
List of sole or single source parts in prototype in hardcopy
List of parts with performance not specified over full temperature range in
prototype in hardcopy

-19-

<PAGE>

PROTOTYPE DVT REVIEW DELIVERABLES
2 WEEKS AFTER COMPLETION OF PROTOTYPE DVT REVIEW
Action Items from Design Review in Word
Summary of Resolution of Design Review Action Items in Word
Project Schedule in Microsoft Project
Product Specification in Word
Block Diagrams in Micrographics Designer exported for Autocad
Firmware
RF
Digital
Alpha DVT Test Plan and Procedures in Word
Theory of Operations including algorithm descriptions, design tradeoffs, design
margins, circuit and
firmware operation, timing diagrams in Word, Spice and Monte Carlo simulations
Firmware
RF
Digital
Schematics and Schematic Netlists in Protel
Component Library
RF
Digital
Costed Bill of Materials in Word
RF
Digital
Top
Source Control Drawings for all parts not in Cellnet's Approved Vendor List in
Autocad
Reliability prediction with 10% stress and 25 degree C temperature in Bellcore
format
List of sole or single source parts in Word
List of parts with performance not specified over full temperature range in Word
Firmware Source Code in Assembly Language
Firmware Link and Load Scripts in DOS
Firmware Object Code in Intel Hex
Fabrication Drawings in Autocad
RF
Digital
Shields
Gerber Plots in Protel
RF
Digital
PC Layouts in Protel
RF
Digital
Assembly Drawings in Autocad
RF
Digital
Top
DVT Test Results in Word
Prototype
One functional prototype NG TRANSCEIVER DEVICE meeting Specification as measured
during the Prototype DVT

-20-

<PAGE>

DELIVERY OF BETA DOCUMENTATION DELIVERABLES
Action Items from Alpha DVT Review in Word
Summary of Resolution of Alpha DVT Review Action Items in Word
Product Specification in Word
Receiver Simulations in Labview
Final Block Diagrams in Micrographics Designer exported to Autocad
Firmware
RF
Digital
Theory of Operations in Word
Firmware
RF
Digital
Final Schematics and Schematic Netlists in Orcad
Component Library
RF
Digital
Final Costed Bill of Materials in Word
RF
Digital
Top
Source Control Drawings for all parts not in Cellnet's Approved Vendor List in
Autocad
Reliability prediction with 10% stress and 25 degree C temperature in Bellcore
format
Final list of sole or single source parts in Word
Final list of parts with performance not specified over full temperature range
in Word
Firmware Source Code in Assembly Language
Firmware Object Code in Intel Hex
Final Fabrication Drawings in Autocad
RF
Digital
Shields
Final Gerber Plots in Pads
RF
Digital
Final PC Layouts in Pads
RF
Digital
Final Assembly Drawings in Autocad
RF
Digital
Top
Alpha DVT Test Results in Word
Two Alpha NG TRANSCEIVER DEVICES meeting Specifications as measured during the
Alpha DVT

-21-

<PAGE>

FINAL DOCUMENTATION DELIVERABLES
ONE MONTH AFTER COMPLETION OF BETA DVT REVIEW
Final Product Specification in Word
Final Receiver Simulations in Labview
Final Theory of Operations in Word
Final Source Control Drawings for all parts not in Cellnet's Approved Vendor
List in Autocad
Final reliability prediction with 10% stress and 25 degree C temperature in
Bellcore format
Final Firmware Source Code in Assembly Language
Final Firmware Object Code in Intel Hex
Production Test Procedures including expected voltages and timing at circuit
nodes in Word
RF
Digital

-22-

<PAGE>

Exhibit D

DSP Transceiver Specification

Document #: 0556-0200-SP0
Date: 26 MAR 96

Prepared by:
Axonn Corporation
101 W. Robert E. Lee Boulevard
Suite 202
New Orleans, LA 70124
PH: (504) 282-8119

-23-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-24-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-25-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-26-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-27-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-28-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-29-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-30-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-31-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-32-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-33-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-34-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-35-

<PAGE>

[*]

* Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to the
omitted portions.

-36-

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE

We consent to the use in this Registration Statement of CellNet Data
Systems, Inc. on Form S-1 of our report dated February 9, 1996 (April 11, 1996
as to the last sentence of the second paragraph of Note 5 and September 5, 1996
as to Note 10), appearing in the Prospectus, which is part of this Registration
Statement and to the reference to us under the heading "Experts" in such
Prospectus.

Our audits of the consolidated financial statements referred to in our
aforementioned report also included the consolidated financial statement
schedule of CellNet Data Systems, Inc., listed in Item 16(b). The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

DELOITTE & TOUCHE LLP
San Jose, California
September 20, 1996