<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1996.
REGISTRATION NO. 333-3558
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
P-COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 77-0289371
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3175 S. WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA 95008
(408) 866-3666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GEORGE P. ROBERTS
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
P-COM, INC.
3175 S. WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA 95008
(408) 866-3666
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
WARREN T. LAZAROW, ESQ. ALAN K. AUSTIN, ESQ.
H. RICHARD HUKARI, ESQ. BRIAN C. ERB, ESQ.
MICHAEL C. DORAN, ESQ. CARLA J. GARRETT, ESQ.
WILSON, SONSINI, GOODRICH & ROSATI,
PETER C. KU, ESQ. P.C.
BROBECK, PHLEGER & HARRISON LLP
2200 GENG ROAD 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94303 PALO ALTO, CALIFORNIA 94304-1050
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1)(2) PER SHARE(1)(2) OFFERING PRICE(2) FEE(2)(3)
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<S> <C> <C> <C> <C>
Common Stock, $0.0001
par value.............. 2,300,000 $23.625 $54,337,500 $18,737.07
</TABLE>
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(1) Includes 300,000 shares that the 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 pursuant to Rule 457(c) based on a per share price of
$23.625, the average of the high and low sale prices per share of the
Company's Common Stock on May 14, 1996.
(3) A registration fee of $13,879.31 was previously paid on April 16, 1996 in
connection with the filing of the Registration Statement with the
Commission to register 2,012,500 shares.
---------------
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.
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<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF FORM S-3
<TABLE>
<CAPTION>
FORM S-
3 REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
----------------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page; Additional
Information
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................. Summary; Risk Factors
4. Use of Proceeds............................... Summary; Use of Proceeds
5. Determination of Offering Price............... Outside Front Cover Page; Underwriting
6. Dilution...................................... Not Applicable
7. Selling Security Holders...................... Principal and Selling Stockholders
8. Plan of Distribution.......................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered.... Summary; Capitalization;
Description of Capital Stock
10. Interests of Named Experts and Counsel........ Legal Matters
11. Material Changes.............................. Not Applicable
12. Incorporation of Certain
Information by Reference..................... Incorporation of Certain Documents By
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 16, 1996
[LOGO TO COME]
2,000,000 SHARES
COMMON STOCK
Of the 2,000,000 shares of Common Stock offered hereby, 1,830,000 shares are
being issued and sold by P-COM, Inc. ("P-COM" or the "Company") and 170,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. On May 15, 1996, the last reported sale
price of the Company's Common Stock as reported on the Nasdaq National Market
was $26.00 per share. See "Price Range of Common Stock." The Common Stock is
quoted on the Nasdaq National Market under the symbol "PCMS."
---------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" AT PAGE 7.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE DISCOUNTS AND PROCEEDS TO SELLING
TO PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
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Total(2)................... $ $ $ $
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</TABLE>
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(1) Before deducting expenses payable by the Company, estimated at $725,000.
(2) The Company and one Selling Stockholder have granted to the Underwriters a
30-day option to purchase up to an additional 300,000 shares of Common
Stock in the aggregate solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ , $ and
$ , respectively.
---------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1996.
ROBERTSON, STEPHENS & COMPANY
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1996.
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>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
Regional Offices: Seven World Trade Center, 13th Floor, New York, New York
10048; and at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. The Common Stock of the Company
is quoted on the Nasdaq National Market. Reports and other information
concerning the Company may be inspected at the offices of the Nasdaq Stock
Market at 1735 K Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission pursuant to the Exchange
Act are incorporated herein by reference except as superceded or modified
herein: (i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; (ii) the Company's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 20, 1996; (iii) the description of the
Company's Common Stock contained in the Company's Registration Statement on
Form 8-A filed with the Commission on January 12, 1995, as amended on February
16, 1995; (iv) the Company's Report on Form 10-C filed with the Commission on
October 30, 1995; and (v) all other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of this offering.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus and the
Registration Statement of which it is a part to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated herein modifies or replaces such statement. Any statement so
modified or superseded shall not be deemed, in its unmodified form, to
constitute a part of this Prospectus or such Registration Statement.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of any such
person, a copy of any or all of the documents which are incorporated herein by
reference (other than exhibits to such information, unless such exhibits are
specifically incorporated by reference into the information this Prospectus
incorporates). Requests should be directed to P-COM, Inc., 3175 S. Winchester
Boulevard, Campbell, California 95008, Attention: Michael J. Sophie, Chief
Financial Officer, Vice President, Finance and Administration and Controller
or by telephone at (408) 866-3666.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS, IF ANY, OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET
IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
2
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN, OR INCORPORATED BY REFERENCE INTO,
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Summary................................................................... 4
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Price Range of Common Stock............................................... 18
Capitalization............................................................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 29
Management................................................................ 45
Principal and Selling Stockholders........................................ 48
Description of Capital Stock.............................................. 50
Underwriting.............................................................. 52
Legal Matters............................................................. 53
Experts................................................................... 53
Additional Information.................................................... 53
Index to Consolidated Financial Statements................................ F-1
</TABLE>
----------------
The Company has a Federal trademark application pending for Tel-Link. This
Prospectus also includes trademarks of other companies.
3
<PAGE>
SUMMARY
This Prospectus contains certain statements of a forward-looking nature
relating to future events or the future financial performance of the Company.
Prospective investors are cautioned that such statements are only predictions
and that actual events or results may differ materially. In evaluating such
statements, prospective investors should specifically consider the various
factors identified in or incorporated by reference into this Prospectus,
including the matters set forth under the caption "Risk Factors," which could
cause actual results to differ materially from those indicated in such forward-
looking statements. The following summary is qualified in its entirety by the
more detailed information, including "Risk Factors" and Financial Statements
and Notes thereto, appearing elsewhere in, or incorporated by reference into,
this Prospectus.
THE COMPANY
P-COM, Inc. (referred to herein, together with its wholly-owned subsidiaries,
as "P-COM" or the "Company") designs, manufactures and markets short-haul
millimeter wave radio systems for use in the worldwide wireless
telecommunications market. The Company's Tel-Link systems are used as digital
links by network operators to interconnect cellular or personal communications
services ("PCN/PCS") base stations with mobile switching centers and are used
by local telephone companies ("telcos") to provide voice and data services to
their customers. The integrated architecture and high software content of the
Company's systems are designed to offer cost-effective, high-performance
products with a high degree of flexibility and functionality.
Cellular service has been one of the faster growing segments of the wireless
telecommunications market. The United States Department of Commerce estimates
that there were approximately 52 million cellular subscribers worldwide as of
the end of 1994, as compared to approximately 33 million as of the end of 1993.
Microcellular architectures are being implemented by existing and new cellular
providers to accommodate increased subscribers and improve service levels on
existing networks, as well as to build new cellular networks that will be
capable of offering increased voice and data services. In the market for local
telephone services ("local loop"), the shift toward deregulation has for the
first time allowed multiple providers of these services to operate within one
geographic region. Many new service providers that lack wired infrastructure
are using wireless systems to deliver local loop services. Millimeter wave
radio systems are typically less expensive and operate in less crowded
frequency bands than traditional microwave systems and are therefore generally
more cost effective for these short-haul applications.
P-COM's Tel-Link wireless radios utilize a common architecture for systems in
multiple millimeter wave frequencies, including 15 GHz, 23 GHz, 38 GHz and 50
GHz. The Company's systems are designed to be highly reliable, cost effective
and simple to install and maintain. Software embedded in the Company's systems
allows the user to easily configure and adjust system settings such as
frequency, power and capacity with minimal manual tuning and mechanical
adjustments. The Company also markets a full line of Windows-based software
products that are complementary to its systems as sophisticated diagnostic,
maintenance and system configuration tools.
The Company's systems are sold internationally through strategic partners,
system providers, OEMs and distributors as well as directly to end-users, and
domestically primarily through its direct sales force. The Company's customers
include Advanced Radio Technologies Corporation (now known as Advanced Radio
Telecom Corp. and referred to herein as "ART"), Bosch Telecom GmbH, China
Magnetic Recording Corporation, Elettronica Industriale S.p.A., Grupo Iusacell
S.A. de C.V., International Communication Technologies, Inc., Lucent
Technologies, Inc. (including the entities formerly known as AT&T Network
Systems Deutschland GmbH and AT&T Network Systems Nederland BV), Mercury
Communications Ltd., Mercury Personal Communications, Norweb plc, Orange
Personal Communications Ltd., Pacific Bell Mobile Services, Siemens
Telecomunicazioni S.p.A. (now known as Italtel and referred to herein as
"Siemens"), Southwestern Bell Technology Resources, Inc. and WinStar Wireless,
Inc. ("Winstar").
4
<PAGE>
On April 15, 1996, the Company entered into a definitive agreement to acquire
a 51% interest in Geritel, S.p.A. ("Geritel"), a Tortona, Italy based
manufacturer of telecommunications equipment, with additional operations in
France. Pursuant to the agreement, the Company will make an initial cash
payment of $1.0 million, with an additional $1.3 million to be paid over the
four quarters following the acquisition. In connection with this transaction,
the Company was also granted a two-year option to acquire an additional 16% of
the equity capital of Geritel on terms specified in the agreement. Geritel
develops, sells and installs microwave transmission systems and owns mountain
top sites for antenna locations.
The Company was incorporated under the laws of the State of Delaware on
August 23, 1991. Its executive offices are located at 3175 S. Winchester
Boulevard, Campbell, California 95008, and its telephone number is (408) 866-
3666.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company........................ 1,830,000 shares
Common Stock Offered by the
Selling Stockholders........... 170,000 shares
Common Stock Outstanding after
the Offering................... 18,621,129 shares(1)
Use of Proceeds................ For working capital, general corporate purposes
and potential acquisitions.
Nasdaq National Market Symbol.. PCMS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales................................ $ 738 $ 9,238 $42,805 $ 4,346 $17,552
Gross profit......................... 8 3,729 18,232 1,754 7,127
Total operating expenses............. 6,406 10,302 15,822 3,009 5,623
Income (loss) from operations........ (6,398) (6,573) 2,410 (1,255) 1,504
Net income (loss).................... (6,386) (6,680) 2,585 (1,312) 1,358
Net income (loss) per share.......... $ (0.59) $ 0.16 $ (0.10) $ 0.08
======= ======= ======= =======
Weighted average common and common
equivalent shares (2)............... 11,376 16,246 12,618 17,567
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 5,433 $ 49,671
Working capital......................................... 33,125 77,363
Total assets............................................ 61,509 105,747
Accumulated deficit..................................... (11,579) (11,579)
Stockholders' equity.................................... 43,584 87,822
</TABLE>
- --------
(1) Based on the number of shares outstanding at March 31, 1996. Excludes a
total of 1,561,324 shares of Common Stock reserved for issuance pursuant to
the exercise of outstanding options at March 31, 1996. Also excludes a
total of 86,077 additional shares of Common Stock reserved for future
issuance pursuant to the Company's 1995 Stock Option/Stock Issuance Plan
("SOP") and the Company's Employee Stock Purchase Plan ("ESPP") at March
31, 1996. Subsequent to March 31, 1996, the Company issued 19,845 shares
pursuant to the exercise of outstanding options. In addition, subsequent to
March 31, 1996, the Company's stockholders will vote on an increase of
shares available for issuance under the SOP of an additional 800,000 shares
and an increase of shares available for issuance under the ESPP of an
additional 100,000 shares.
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method of calculation.
(3) Adjusted to reflect the sale of 1,830,000 shares of Common Stock offered by
the Company hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
Unless otherwise indicated, all information contained in this Prospectus
assumes that the Underwriters' over-allotment option is not exercised, and all
share and per share data have been adjusted to reflect the two-for-one forward
stock split effected through a 100% stock dividend paid by the Company on
October 27, 1995. See "Underwriting."
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in, or incorporated by reference into, this Prospectus. In addition to the
other information in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company's business before purchasing
shares of the Company's Common Stock offered hereby.
LIMITED OPERATING HISTORY; HISTORY OF SIGNIFICANT LOSSES
The Company was founded in August 1991 and was in the development stage
until October 1993 when it began commercial shipments of its first product.
From inception to the end of the first quarter of fiscal 1996, the Company
generated a cumulative net loss of approximately $11.6 million. From October
1993 through March 31, 1996, the Company generated sales of approximately
$70.3 million, of which $60.4 million, or 86% of such amount, was generated in
the year ended December 31, 1995 and the first quarter of 1996. The Company
does not believe recent growth rates are indicative of future operating
results. Due to the Company's limited operating history and limited resources,
among other factors, there can be no assurance that profitability or
significant revenues on a quarterly or annual basis will occur in the future.
During 1995 and the first quarter of 1996, both the Company's sales and
operating expenses (particularly research and development expenses to support
new product development) increased more rapidly than the Company had
anticipated. There can be no assurance that the Company's revenues will
continue to remain at or increase from the levels experienced in 1995 or in
the first quarter of 1996 or that sales will not decline. The Company intends
to continue to invest significant amounts in its operations, particularly to
support product development and the marketing and sales of recently introduced
products, and operating expenses will continue to increase significantly in
absolute dollars. If the Company's sales do not correspondingly increase, the
Company's results of operations would be materially adversely affected.
Accordingly, although the Company achieved breakeven profitability for the
first time in the quarter ended June 30, 1995, yearly profitability for the
first time for the year ended December 31, 1995 and profitability for the
first quarter of 1996, there can be no assurance that the Company will achieve
profitability in future periods. The Company is subject to all of the risks
inherent in the operation of a new business enterprise, and there can be no
assurance that the Company will be able to successfully address these risks.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
SIGNIFICANT CUSTOMER CONCENTRATION
To date, approximately thirty customers have accounted for all of the
Company's sales. In 1994, four customers accounted for 62% of the Company's
sales. For 1995, five customers accounted for 89% of the Company's sales, and
as of December 31, 1995, seven customers accounted for a substantial majority
of the Company's backlog scheduled for shipment in the twelve months
subsequent to December 31, 1995. During the first quarter of 1996, four
customers accounted for 68% of the Company's sales, and as of March 31, 1996,
four customers accounted for 97% of the Company's backlog scheduled for
shipment in the twelve months subsequent to March 31, 1996. The Company
anticipates that it will continue to sell its radio systems to a changing, but
still relatively small, group of customers. Some of the Company's customers
that are implementing new networks are at early stages of development and may
require additional capital to fully implement their planned networks. The
Company's ability to achieve sales in the future will depend in significant
part upon its ability to obtain and fulfill orders from, maintain
relationships with and provide support to, existing and new customers, to
manufacture systems on a timely and cost-effective basis and to meet stringent
customer performance and other requirements and shipment delivery dates, as
well as the condition and success of its customers. As a result, any
cancellation, reduction or delay in orders by or shipments to any customer, as
a result of manufacturing or supply difficulties or otherwise, or the
inability of any customer to finance its purchases of the Company's radio
systems may materially adversely affect the
7
<PAGE>
Company's business, financial condition and results of operations. There can
be no assurance that the Company's sales will increase in the future or that
the Company will be able to support or attract customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Customers."
SIGNIFICANT FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced and may in the future continue to experience
significant fluctuations in sales, gross margins and operating results. The
procurement process for most of the Company's current and potential customers
is complex and lengthy, and the timing and amount of sales is difficult to
predict reliably. In addition, a single customer's order scheduled for
shipment in a quarter can represent a significant portion of the Company's
potential sales for such quarter. The Company has at times failed to receive
expected orders, and delivery schedules have been deferred as a result of
changes in customer requirements, among other factors. As a result, the
Company's operating results for a particular period have in the past been and
may in the future be materially adversely affected by a delay, rescheduling or
cancellation of even one purchase order. Moreover, purchase orders are often
received and accepted substantially in advance of shipment, and the failure to
reduce actual costs to the extent anticipated or an increase in anticipated
costs before shipment could materially adversely affect the gross margins for
such order, and as a result, the Company's results of operations. Moreover, at
least a majority of the Company's backlog scheduled for shipment in the twelve
months subsequent to March 31, 1996 can be canceled since orders are often
made substantially in advance of shipment, and the Company's contracts
typically provide that orders may be canceled with limited or no penalties. As
a result, backlog is not necessarily indicative of future sales for any
particular period. Furthermore, most of the Company's sales in recent quarters
have been realized near the end of such quarter. Accordingly, a delay in a
shipment near the end of a particular quarter, as the Company has experienced
in recent periods, due to, for example, an unanticipated shipment
rescheduling, a cancellation or deferral by a customer, competitive or
economic factors, unexpected manufacturing or other difficulties, delays in
deliveries of components, subassemblies or services by suppliers (one of
which, SPC Electronics Corp., is located in Japan and has caused delays of its
deliveries to the Company), or the failure to receive an anticipated order,
may cause sales in a particular quarter to fall significantly below the
Company's expectations and may materially adversely affect the Company's
operating results for such quarter.
A large portion of the Company's expenses are fixed and difficult to reduce
should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Furthermore, announcements
by the Company or its competitors of new products and technologies could cause
customers to defer or cancel purchases of the Company's systems, which would
materially adversely affect the Company's business, financial condition and
results of operations. Additional factors that have caused and may continue to
cause the Company's sales, gross margins and results of operations to vary
significantly from period to period include: new product introductions and
enhancements, including related costs; the Company's ability to manufacture
and produce sufficient volumes of systems and meet customer requirements;
manufacturing capacity, efficiencies and costs; mix of systems and related
software tools sold; operating and new product development expenses; product
discounts; changes in pricing by the Company, its customers or suppliers;
inventory obsolescence; natural disasters; seasonality; market acceptance and
the timing of availability of new products by the Company or its customers;
acquisitions, including costs and expenses; usage of different distribution
and sales channels; fluctuations in foreign currency exchange rates; delays or
changes in regulatory approval of its systems; warranty and customer support
expenses; customization of systems; and general economic and political
conditions. In addition, the Company's results of operations have been and
will continue to be influenced significantly by competitive factors, including
the pricing and availability of, and demand for, competitive products. The
Company expects to continue to expend significant resources with respect to
the development, any ramp-up of production and anticipated commercial
shipments of its newest products and expects its gross margins to be adversely
affected due to the start-up inefficiencies associated with these products,
among many other factors. All of the above factors are difficult for the
Company to forecast, and these or other factors could materially adversely
affect the Company's business, financial condition and results of operations.
As a result, the Company believes that period-to-period
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comparisons are not necessarily meaningful and should not be relied upon as
indications of future performance. Due to all of the foregoing factors, it is
likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock may be materially adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DEPENDENCE ON CONTRACT MANUFACTURERS; RELIANCE ON SOLE OR LIMITED SOURCES OF
SUPPLY
The Company's internal manufacturing capacity is very limited. The Company
utilizes contract manufacturers such as Celeritek, Remec, Inc., Sanmina
Corporation, SPC Electronics Corp. and Senior Systems Technology Inc. to
produce its systems, components and subassemblies and expects to continue to
rely increasingly on these and other manufacturers in the future. The Company
also relies on outside vendors to manufacture certain other components and
subassemblies. Certain necessary components, subassemblies and services
necessary for the manufacture of the Company's systems are obtained from a
sole supplier or a limited group of suppliers. In particular, Aethera, Inc.,
Celeritek, MilliWave, MIZAR, S.p.A. and Xilinx, Inc. each are sole or limited
source suppliers for critical components used in the Company's radio systems.
There can be no assurance that the Company's internal manufacturing capacity
and that of its contract manufacturers will be sufficient to fulfill the
Company's orders. Failure to manufacture, assemble and ship systems and meet
customer demands on a timely and cost-effective basis could damage
relationships with customers and have a material adverse effect on the
Company's business, financial condition and operating results.
The Company's reliance on contract manufacturers and on sole or a limited
group of suppliers and the Company's increasing reliance on contract
manufacturers and suppliers involves several risks, including a potential
inability to obtain an adequate supply of finished radio systems and required
components and subassemblies, and reduced control over the price, timely
delivery, reliability and quality of finished radio systems, components and
subassemblies. The Company does not have long-term supply agreements with most
of its manufacturers or suppliers. Manufacture of the Company's radio systems
and certain of these components and subassemblies is an extremely complex
process, and the Company has from time to time experienced and may in the
future continue to experience delays in the delivery of and quality problems
with radio systems and certain components and subassemblies from vendors.
Certain of the Company's suppliers have relatively limited financial and other
resources. Any inability to obtain timely deliveries of components and
subassemblies of acceptable quality or any other circumstance that would
require the Company to seek alternative sources of supply, or to manufacture
its finished radio systems or such components and subassemblies internally,
could delay the Company's ability to ship its systems, which could damage
relationships with current or prospective customers and have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Manufacturing."
NO ASSURANCE OF SUCCESSFUL EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
Recently, the Company has significantly increased the scale of its
operations to support the increases in its sales levels that have occurred and
to address critical infrastructure and other requirements. This increase has
included the leasing of new space, the opening of branch offices in the United
Kingdom and Germany, the pending acquisition of a majority interest in
Geritel, significant investments in research and development to support
product development, including the new products recently introduced, and the
hiring of additional personnel, including in sales and marketing,
manufacturing and operations and finance and has resulted in significantly
higher operating expenses. The Company anticipates that its operating expenses
will continue to increase significantly. If the Company's sales do not
correspondingly increase, the Company's results of operations would be
materially adversely affected. See "-- Limited Operating History; History of
Significant Losses." Expansion of the Company's operations has caused and is
continuing to impose a significant strain on the Company's management,
financial, manufacturing and other resources. The Company's ability to manage
the recent and any possible future growth, should it occur, will depend upon a
significant expansion of its manufacturing, accounting and other internal
management systems and the implementation and subsequent improvement of a
variety of systems, procedures and controls. There can be no assurance that
significant problems in these areas will not occur. Any failure to expand
these areas and implement and
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improve such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations. In
particular, the Company must successfully manage the transition to higher
internal and external volume manufacturing, including the establishment of
adequate facilities, the control of overhead expenses and inventories, the
development, introduction, marketing and sales of new products, the management
and training of its employee base and the monitoring of its third party
manufacturers and suppliers. Although the Company has substantially increased
the number of its manufacturing personnel and significantly expanded its
internal and external manufacturing capacity, there can be no assurance that
the Company will not experience manufacturing or other delays or problems that
could materially adversely affect the Company's business, financial condition
or results of operations.
In this regard, any significant sales growth will be dependent in
significant part upon the Company's expansion of its manufacturing, marketing,
sales and customer support capabilities. This expansion will continue to
require significant expenditures to build the necessary infrastructure. There
can be no assurance that the Company's attempts to expand its manufacturing,
marketing, sales and customer support efforts will be successful or will
result in additional sales or profitability in any future period. As a result
of the expansion of its operations and the significant increase in its
operating expenses, as well as the difficulty in forecasting revenue levels,
the Company may continue to experience significant fluctuations in its
revenues, costs and gross margins, and therefore its results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Business--Sales and Marketing."
DECLINING AVERAGE SELLING PRICES
The Company believes that average selling prices and gross margins for its
systems will decline in the long term as such systems mature, as volume price
discounts in existing and future contracts take effect and as competition
intensifies, among many other factors. To offset declining average selling
prices, the Company believes that it must successfully introduce and sell new
systems on a timely basis, develop new products that incorporate advanced
software and other features that can be sold at higher average selling prices
and reduce the costs of its systems through contract manufacturing, design
improvements and component cost reduction, among many other actions. To the
extent that new products are not developed in a timely manner, do not achieve
customer acceptance or do not generate higher average selling prices, and the
Company is unable to offset declining average selling prices, the Company's
gross margins and other results will decline, and such decline will have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Research and Development."
UNCERTAINTY OF MARKET ACCEPTANCE
The future operating results of the Company depend to a significant extent
upon the continued growth and increased availability and acceptance of
microcellular, PCN/PCS and wireless local loop access telecommunications
services in the United States and internationally. There can be no assurance
that the volume and variety of wireless telecommunications services or the
markets for and acceptance of such services will grow, or that such services
will create a demand for the Company's systems. Because these markets are
relatively new, it is difficult to predict which segments of these markets
will develop and at what rate these markets will grow, if at all. If the
short-haul millimeter wave wireless radio market for the Company's systems
fails to grow, or grows more slowly than anticipated, the Company's business,
financial condition and results of operations would be materially adversely
affected. Certain sectors of the communications market will require the
development and deployment of an extensive and expensive communications
infrastructure. In particular, the establishment of PCN/PCS networks will
require very large capital expenditures. There can be no assurance that
communications providers have the ability to, or will, make the necessary
investment in such infrastructure or that the creation of this infrastructure
will occur in a timely manner. Moreover, a potential application of the
Company's technology, use of the Company's systems in conjunction with the
provision by wireless telecommunications service providers of alternative
wireless access in competition with the existing
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wireline local exchange providers, is dependent on the pricing of wireless
telecommunications services at rates competitive with those charged by
wireline telephone companies. Rates for wireless access are currently
substantially higher than those charged by wireline companies, and there can
be no assurance that rates for wireless access will be competitive with rates
charged by wireline companies. If wireless access rates are not competitive,
consumer demand for wireless access will be materially adversely affected. If
the Company allocates its resources to any market segment that does not grow,
it may be unable to reallocate its resources to other market segments in a
timely manner, which may curtail or eliminate its ability to enter such market
segments.
To date, a substantial majority of the Company's sales have been to
customers located outside the United States. In addition, the Company recently
entered into a definitive agreement to acquire a majority interest in Geritel,
which sells its products to customers in Europe. The Company's future results
of operations will be dependent in significant part on its ability to
penetrate the telecommunications market in the United States and foreign
countries in which the Company has not yet established a meaningful presence.
There can be no assurance that the Company will be successful in penetrating
these additional markets.
Certain of the Company's current and prospective customers are currently
utilizing competing technologies such as fiber optic and copper cable,
particularly in the local loop access market. To successfully displace
existing technologies, the Company must, among many actions, offer systems
with superior price/performance characteristics and extensive customer service
and support, supply such systems on a timely and cost-effective basis in
sufficient volume to satisfy such prospective customers' requirements and
otherwise overcome any reluctance on the part of such customers to transition
to new technologies. Any delay in the adoption of the Company's systems may
result in prospective customers utilizing alternative technologies in their
next generation of systems and networks, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that prospective customers will design
their systems or networks to include the Company's systems, that existing
customers will continue to include the Company's systems in their products,
systems or networks in the future, or that the Company's technology will to
any significant extent replace existing technologies and achieve widespread
acceptance in the wireless telecommunications market. Failure to achieve or
sustain commercial acceptance of the Company's currently available radio
systems or to develop other commercially acceptable radio systems would
materially adversely affect the Company's business, financial condition and
results of operations. In addition, there can be no assurance that industry
technical standards will remain the same or, if emerging standards become
established, that the Company will be able to conform to these new standards
in a timely and cost-effective manner. See "Business--Technology and
Products."
INTENSELY COMPETITIVE INDUSTRY
The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media. The Company
experiences intense competition worldwide from a number of leading
telecommunications companies that offer a variety of competitive products and
broader telecommunications product lines, including Alcatel Network Systems,
California Microwave, Inc., Digital Microwave Corporation, Ericsson Limited,
Harris Corporation -- Farinon Division and Nokia Telecommunications, most of
which have substantially greater installed bases, financial resources and
production, marketing, manufacturing, engineering and other capabilities than
the Company. The Company also faces competition from startup companies. The
Company may also face competition in the future from new market entrants
offering competing technologies. In addition, the Company's current and
prospective customers and partners have developed, are currently developing or
could develop the capability to manufacture products competitive with those
that have been or may be developed or manufactured by the Company. Certain of
such customers and partners have access to the Company's technology or have
been granted the right to use the technology for purposes of manufacturing
under defined circumstances. The Company's future results of operations may
depend in part upon the extent to which these customers elect to purchase from
outside sources rather than develop and manufacture their own radio systems.
Recently, certain of the Company's competitors have
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<PAGE>
announced the introduction of competitive products, including related software
tools, and the acquisition of other competitors and competitive technologies.
Within the near future, the Company expects its competitors to continue to
improve the performance and lower the price of their current products and to
introduce new products or new technologies that provide added functionality
and other features that may or may not be comparable to the Company's
products, which could cause a significant decline in sales or loss of market
acceptance of the Company's systems, or make the Company's systems or
technologies obsolete or noncompetitive. The Company expects to continue to
experience significant price competition that may materially adversely affect
its gross margins and its business, financial condition and other results of
operations. The Company believes that to be competitive, it will continue to
be required to expend significant resources on, among other items, new product
development and enhancements and to reduce the costs of its systems. There can
be no assurance that the Company will be able to compete successfully in the
future. See "Business--Competition."
REQUIREMENT FOR RESPONSE TO RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT FOR
FREQUENT NEW PRODUCT INTRODUCTIONS
The wireless communications market is subject to rapid technological change,
frequent new product introductions and enhancements, product obsolescence,
changes in end-user requirements and evolving industry standards. The
Company's ability to be competitive in this market will depend in significant
part upon its ability to successfully develop, introduce and sell new systems
and enhancements and related software tools on a timely and cost-effective
basis that respond to changing customer requirements. Any success of the
Company in developing new and enhanced systems and related software tools will
depend upon a variety of factors, including new product selection, integration
of the various elements of its complex technology, timely and efficient
completion of system design, timely and efficient implementation of
manufacturing and assembly processes and its cost reduction program,
development and completion of related software tools, system performance,
quality and reliability of its systems and development and introduction of
competitive systems by competitors. The Company has experienced and may in the
future experience delays from time to time in completing development and
introduction of new systems and related software tools. Moreover, there can be
no assurance that the Company will be successful in selecting, developing,
manufacturing and marketing new systems or enhancements or related software
tools. There can be no assurance that errors will not be found in the
Company's systems after commencement of commercial shipments, which could
result in the loss of or delay in market acceptance. The inability of the
Company to introduce in a timely manner new systems or enhancements or related
software tools that contribute to sales could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Research and Development."
INTERNATIONAL OPERATIONS; RISKS OF DOING BUSINESS IN DEVELOPING COUNTRIES
Most of the Company's sales to date have been made to customers located
outside of the United States. In addition, the Company recently entered into a
definitive agreement to acquire 51% of Geritel, which sells its products to
customers in Europe. The Company anticipates that international sales will
continue to account for at least a majority of its sales for the foreseeable
future. The Company's international sales may be denominated in foreign or
United States currencies. The Company does not currently engage in foreign
currency hedging transactions. As a result, a decrease in the value of foreign
currencies relative to the United States dollar could result in losses from
transactions denominated in foreign currencies. With respect to the Company's
international sales that are United States dollar-denominated, such a decrease
could make the Company's systems less price-competitive and could have a
material adverse effect upon the Company's business, financial condition and
results of operations. Additional risks inherent in the Company's
international business activities include changes in regulatory requirements,
costs and risks of localizing systems in foreign countries, delays in
receiving components and materials, availability of suitable export financing,
timing and availability of export licenses, tariffs and other trade barriers,
political and economic instability, difficulties in staffing and managing
foreign operations, branches and subsidiaries, including Geritel, difficulties
in managing distributors, customs requirements, potentially adverse tax
consequences, foreign currency exchange fluctuations, as experienced in the
first quarter of 1996, the burden of complying with a wide variety of
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<PAGE>
complex foreign laws and treaties and the possibility of difficulty in
accounts receivable collections. Many of the Company's customer purchase
agreements are governed by foreign laws, which may differ significantly from
U.S. laws. Therefore, the Company may be limited in its ability to enforce its
rights under such agreements and to collect damages, if awarded. There can be
no assurance that any of these factors will not have a material adverse effect
on the Company's business, financial condition and results of operations.
Some of the Company's potential markets consist of developing countries that
may deploy wireless communications networks as an alternative to the
construction of a limited wired infrastructure. These countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons, in which event any demand for the
Company's systems in those countries will be similarly limited or delayed. In
doing business in developing markets, the Company may also face economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States and other areas.
EXTENSIVE GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by the United
States and foreign laws and international treaties. The Company's equipment
must conform to a variety of domestic and international requirements. In order
for the Company to operate in a jurisdiction, it must obtain regulatory
approval for its systems and comply with different regulations in each
jurisdiction. The delays inherent in this governmental approval process may
cause the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of systems by the Company to such
customers. The failure to comply with current or future regulations or changes
in the interpretation of existing regulations could result in the suspension
or cessation of operations. Such regulations or such changes in interpretation
could require the Company to modify its radio systems and incur substantial
costs to comply with such time-consuming regulations and changes. In addition,
the Company is also affected to the extent that domestic and international
authorities regulate the allocation and auction of the radio frequency
spectrum. Equipment to support new services can be marketed only if permitted
by suitable frequency allocations, auctions and regulations, and the process
of establishing new regulations is complex and lengthy. To the extent PCS
operators and others are delayed in deploying these systems, the Company could
experience delays in orders. Failure by the regulatory authorities to allocate
suitable frequency spectrum could have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, delays in the radio frequency spectrum auction process in the United
States could delay the Company's ability to develop and market equipment to
support new services. These delays could have a material adverse effect on the
Company's business, financial condition and results of operations.
The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting development efforts by the Company and its
customers, making current systems obsolete or increasing the opportunity for
additional competition. Any such regulatory changes could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company might deem it necessary or advisable to modify its
systems to operate in compliance with such regulations. Such modifications
could be extremely expensive and time-consuming. See "Business--Government
Regulation."
NO ASSURANCE OF PRODUCT QUALITY, PERFORMANCE AND RELIABILITY
The Company has limited experience in producing and manufacturing its
systems and contracting for such manufacture. The Company's customers require
demanding specifications for quality, performance and reliability. There can
be no assurance that problems will not occur in the future with respect to the
quality, performance and reliability of the Company's systems or related
software tools. If such problems occur, the Company could experience increased
costs, delays in or cancellations or reschedulings of orders or shipments,
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delays in collecting accounts receivable and product returns and discounts,
any of which would have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, in order to
maintain its ISO 9001 registration, the Company periodically must undergo a
recertification assessment. Failure to maintain such registration could
materially adversely affect the Company's business, financial condition and
results of operations. The Company's United Kingdom branch office is
undergoing and other facilities will also be undergoing an ISO 9001
registration and there is no assurance that such registrations will be
achieved. See "Business--Manufacturing."
ACQUISITIONS
In April 1996, the Company entered into a definitive agreement to acquire a
majority interest in Geritel, a manufacturer of telecommunications equipment,
with operations in Italy and France. Geritel generated net revenues of $1.4
million and net losses of approximately $500,000 in 1995 and, in connection
with the acquisition, the Company will assume approximately $3.2 million in
total liabilities. There can be no assurance that Geritel's operations will be
profitable after the acquisition. Moreover, there can be no assurance that the
anticipated benefits of the Geritel acquisition will be realized. The process
of integrating Geritel's business into the Company's operations may result in
unforeseen operating difficulties and could absorb significant management
attention, expenditures and reserves that would otherwise be available for the
ongoing development of the Company's business.
The Company will in the future pursue other acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets, which could materially
adversely affect any Company profitability. In addition, acquisitions, such as
Geritel, involve numerous risks, including difficulties in the assimilation of
the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior
experience, operating companies in different geographical locations with
different cultures, and the potential loss of key employees of the acquired
company. There are currently no binding agreements with respect to any
acquisitions. In the event that such an acquisition does occur, however, there
can be no assurance as to the effect thereof on the Company's business,
financial condition or operating results. See "Use of Proceeds."
FUTURE CAPITAL REQUIREMENTS
The Company's future capital requirements will depend upon many factors,
including the development of new radio systems and related software tools,
potential acquisitions, requirements to maintain adequate manufacturing
facilities and contract manufacturing agreements, the progress of the
Company's research and development efforts, expansion of the Company's
marketing and sales efforts, and the status of competitive products. The
Company believes that current and future available capital resources will be
adequate to fund its operations for at least twelve months. There can be no
assurance, however, that the Company will not require additional financing
prior to such date. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. If additional
funds are raised by issuing equity securities, further dilution to the
existing stockholders will result. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate its research and
development or manufacturing programs or obtain funds through arrangements
with partners or others that may require the Company to relinquish rights to
certain of its technologies or potential products or other assets.
Accordingly, the inability to obtain such financing could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY RIGHTS
The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets and a variety of other measures. However,
there can be no assurance that such measures will provide
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<PAGE>
adequate protection for the Company's trade secrets or other proprietary
information, that disputes with respect to the ownership of its intellectual
property rights will not arise, that the Company's trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that the Company can otherwise meaningfully
protect its intellectual property rights. There can be no assurance that any
patent owned by the Company will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future
patent applications will be issued with the scope of the claims sought by the
Company, if at all. Furthermore, there can be no assurance that others will
not develop similar products or software, duplicate the Company's products or
software or design around the patents owned by the Company or that third
parties will not assert intellectual property infringement claims against the
Company. In addition, there can be no assurance that foreign intellectual
property laws will adequately protect the Company's intellectual property
rights abroad. The failure of the Company to protect its proprietary rights
could have a material adverse effect on its business, financial condition and
results of operations.
Litigation may be necessary to protect the Company's intellectual property
rights and trade secrets, to determine the validity of and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
infringement, invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims will not be
asserted in the future. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that a
license will be available under reasonable terms or at all. In addition,
should the Company decide to litigate such claims, such litigation could be
extremely expensive and time consuming and could materially adversely affect
the Company's business, financial condition and results of operations,
regardless of the outcome of the litigation. See "Business-- Intellectual
Property."
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. None of such persons has an
employment or non-competition agreement with the Company. The Company's future
operating results also depend in significant part upon its ability to attract
and retain qualified management, manufacturing, quality assurance,
engineering, marketing, sales and support personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. There may be only a
limited number of persons with the requisite skills to serve in these
positions and it may be increasingly difficult for the Company to hire such
personnel over time. The loss of any key employee, the failure of any key
employee to perform in his or her current position, the Company's inability to
attract and retain skilled employees as needed or the inability of the
officers and key employees of the Company to expand, train and manage the
Company's employee base could materially adversely affect the Company's
business, financial condition and results of operations. See "Business--
Employees" and "Management."
VOLATILITY OF STOCK PRICE
The Company's initial public offering was completed in March 1995, and its
secondary offering was completed in August 1995. The market price of the
Company's Common Stock has fluctuated significantly since the Company's
initial public offering. The Company believes that factors such as
announcements of developments related to the Company's business, announcements
of technological innovations or new products or enhancements by the Company or
its competitors, sales by competitors, including sales to the Company's
customers, sales of the Company's Common Stock into the public market,
including by members of management, developments in the Company's
relationships with its customers, partners, distributors and
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suppliers, shortfalls or changes in revenues, gross margins, earnings or
losses or other financial results from analysts' expectations, regulatory
developments, fluctuations in results of operations and general conditions in
the Company's market or the markets served by the Company's customers or the
economy could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market in
general, and the market for shares of small capitalization and technology
stocks in particular, have experienced extreme price fluctuations, which have
often been unrelated to the operating performance of affected companies. Many
companies in the telecommunications industry, including the Company, have
recently experienced historic highs in the market price of their common stock.
There can be no assurance that the market price of the Company's Common Stock
will not decline substantially from its historic highs, or otherwise continue
to experience significant fluctuations in the future, including fluctuations
that are unrelated to the Company's performance. Such fluctuations could
materially adversely affect the market price of the Company's Common Stock.
POSSIBLE ADVERSE EFFECT ON MARKET PRICE FOR COMMON STOCK OF SHARES ELIGIBLE
FOR FUTURE SALE AFTER THE OFFERING
Sales of the Company's Common Stock in the public market after this offering
could materially adversely affect the market price of the Company's Common
Stock. The 2,000,000 shares sold hereby will be freely transferable without
restriction under the Securities Act of 1933, as amended. In addition, shares
of Common Stock sold in the initial public offering in March 1995 and
secondary offering in August 1995 and shares of unregistered stock and option
shares registered on the Company's registration statements covering employee
compensation plans are also eligible for immediate sale in the public market.
Most of the other shares of the Company's Common Stock are not restricted and
are freely tradeable in the public market. In addition, holders of most of
such shares are entitled to certain rights with respect to the registration of
such shares of Common Stock for sale to the public.
CONTROL BY EXISTING STOCKHOLDERS; EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Members of the Board of Directors and the officers of the Company, together
with members of their families and entities that may be deemed affiliates of
or related to such persons or entities, beneficially own approximately 13% of
the outstanding shares of Common Stock of the Company. Accordingly, these
stockholders are able to significantly influence the election of the members
of the Company's Board of Directors and significantly influence the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. This level of ownership, together with certain provisions of the
Company's certificate of incorporation, equity incentive plans, bylaws and
Delaware law, may have a significant effect in delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. See "Management--
Directors and Executive Officers," "Principal and Selling Stockholders" and
"Description of Capital Stock."
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USE OF PROCEEDS
The net proceeds to the Company from the issuance and sale of 1,830,000
shares of Common Stock offered by the Company hereby, after deducting
estimated underwriting discounts and commissions and estimated expenses
payable by the Company in connection with this offering, are estimated to be
$44.2 million. The Company will not receive any proceeds from the sale of the
shares of Common Stock by the Selling Stockholders. The Company intends to use
the net proceeds of this offering for working capital and general corporate
purposes, including continuing significant investments in development of the
Company's wireless radio systems and related software tools and marketing and
sales and customer support. In addition, the Company may use a portion of the
net proceeds to acquire or invest in other businesses or technologies or to
acquire the rights to use complementary technologies. Pending application of
the net proceeds as described above, the Company intends to invest the net
proceeds of the offering in short-term, investment-grade, interest-bearing
instruments.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company currently anticipates that it will retain any available
funds for use in the operation of its business, and does not anticipate paying
any cash dividends in the foreseeable future. In addition, the Company's line
of credit prohibits the Company from paying any dividends without the prior
approval of Silicon Valley Bank.
17
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock of the Company has been quoted on the Nasdaq National
Market since the Company's initial public offering on March 3, 1995 at $7.50
per share. Prior to the initial public offering, there was no public market
for the Company's Common Stock. The following table sets forth the range of
high and low closing sale prices for the Common Stock for the periods
indicated, as reported by the Nasdaq National Market, which prices reflect the
2-for-1 stock split effected on October 27, 1995.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
---------------
HIGH LOW
------- -------
<S> <C> <C>
Year Ended December 31, 1995
First Quarter (from March 3, 1995)...................... $12.50 $ 9.38
Second Quarter.......................................... 10.88 8.63
Third Quarter........................................... 22.63 9.25
Fourth Quarter.......................................... 21.57 16.00
Year Ending December 31, 1996
First Quarter........................................... 21.00 13.50
Second Quarter (through May 15, 1996)................... 26.25 19.50
</TABLE>
On May 15, 1996, the closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market was $26.00 per share. On March 31,
1996, there were approximately 179 holders of record of the Company's Common
Stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company: (i)
as of March 31, 1996 and (ii) as adjusted to reflect the sale by the Company
of 1,830,000 shares of Common Stock offered hereby, after deduction of
estimated underwriting discounts and commissions and estimated offering
expenses payable by the Company. This table should be read in conjunction with
the Consolidated Financial Statements and related Notes set forth herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $0.0001 par value; 2,000,000 shares
authorized, no shares issued and outstanding......... $ -- $ --
Common stock, $0.0001 par value; 30,000,000 shares
authorized, 16,791,129 shares issued and outstanding,
18,621,129 shares issued and outstanding,
as adjusted (1)...................................... 2 2
Additional paid-in capital.............................. 55,161 99,399
Accumulated deficit..................................... (11,579) (11,579)
------- -------
Total stockholders' equity............................ $43,584 $87,822
======= =======
</TABLE>
- --------
(1) Based on the number of shares outstanding at March 31, 1996. Excludes a
total of 1,561,324 shares of Common Stock reserved for issuance pursuant
to the exercise of outstanding options at March 31, 1996. Also excludes a
total of 86,077 additional shares of Common Stock reserved for future
issuance pursuant to the Company's SOP and the ESPP at March 31, 1996.
Subsequent to March 31, 1996, the Company issued 19,845 shares pursuant to
the exercise of outstanding options. In addition, subsequent to March 31,
1996, the Company's stockholders will vote on an increase of shares
available for issuance under the SOP of an additional 800,000 shares and
an increase of shares available for issuance under the ESPP of an
additional 100,000 shares.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of December 31, 1994
and 1995 and for the years ended December 31, 1993, 1994 and 1995 have been
derived from, and are qualified by reference to, the consolidated financial
statements of the Company audited by Price Waterhouse LLP, independent
accountants, included elsewhere in this Prospectus. The selected consolidated
financial data as of December 31, 1993 has been derived from the Company's
audited consolidated financial statements not included herein. The selected
consolidated financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 have been prepared on a basis consistent with
the audited consolidated financial statements and derived from unaudited
consolidated financial statements also appearing herein which, in the opinion
of management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
position and results of operations of the Company for the unaudited interim
periods. The consolidated statement of operations data for any particular
period are not necessarily indicative of the results of operations for any
future period, including the Company's fiscal year ending December 31, 1996.
The data set forth below are qualified by reference to, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto and
the discussion thereof included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales............................... $ 738 $ 9,238 $42,805 $ 4,346 $17,552
Cost of sales....................... 730 5,509 24,573 2,592 10,425
------- ------- ------- ------- -------
Gross profit........................ 8 3,729 18,232 1,754 7,127
------- ------- ------- ------- -------
Operating expenses:
Research and development.......... 4,782 6,872 10,645 2,021 3,599
Selling and marketing............. 906 1,947 3,321 637 1,185
General and administrative........ 718 1,483 1,856 351 839
------- ------- ------- ------- -------
Total operating expenses........ 6,406 10,302 15,822 3,009 5,623
------- ------- ------- ------- -------
Income (loss) from operations....... (6,398) (6,573) 2,410 (1,255) 1,504
Interest and other income (expense),
net................................. 12 (107) 313 (57) 5
------- ------- ------- ------- -------
Income (loss) before income taxes... (6,386) (6,680) 2,723 (1,312) 1,509
Provision for income taxes.......... -- -- 138 -- 151
------- ------- ------- ------- -------
Net income (loss)................... $(6,386) $(6,680) $ 2,585 $(1,312) $ 1,358
======= ======= ======= ======= =======
Net income (loss) per share......... $ (0.59) $ 0.16 $ (0.10) $ 0.08
======= ======= ======= =======
Weighted average common and common
equivalent
shares (1)......................... 11,376 16,246 12,618 17,567
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1993 1994 1995 1996
------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 3,560 $ 1,294 $ 7,655 $ 5,433
Working capital......................... 2,878 756 34,334 33,125
Total assets............................ 5,535 9,485 54,020 61,509
Notes payable........................... -- 2,610 -- --
Capital lease obligations, less current
portion................................. 559 743 -- --
Accumulated deficit..................... (8,842) (15,522) (12,937) (11,579)
Stockholders' equity.................... 3,358 1,694 41,750 43,584
</TABLE>
- --------
(1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the method of calculation.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in, or incorporated by reference into, this Prospectus.
OVERVIEW
The Company was founded in August 1991 to develop, manufacture, market and
sell millimeter wave radio systems for wireless networks. The Company was in
the development stage until October 1993 when it began commercial shipments of
its first products, a 38 GHz radio system and related software tools. In
September 1994, the Company began commercial shipments of its second product,
a 50 GHz radio system and related software tools. In January 1995, the Company
began commercial shipments of a 23 GHz radio system and related software
tools. From October 1993 through March 31, 1996, the Company generated sales
of approximately $70.3 million from approximately 30 customers, of which $60.4
million, or 86% of such amount, was generated in the fifteen months ended
March 31, 1996. From inception through March 31, 1996, the Company generated a
cumulative net loss of approximately $11.6 million, although the Company
generated net income of approximately $2.6 million for the year ended December
31, 1995 and net income of approximately $1.4 million for the quarter ended
March 31, 1996. Although the Company has experienced a significant percentage
growth in sales and gross profit from fiscal 1993 through March 31, 1996, the
Company does not believe recent growth rates are indicative of future
operating results. Due to the Company's limited operating history and limited
resources, among other factors, there can be no assurance that profitability
or significant revenues on a quarterly or annual basis will occur in the
future. During the year ended December 31, 1995 and the quarter ended March
31, 1996, both the Company's sales and its operating expenses (particularly
research and development expenses to support new product development)
increased more rapidly than the Company had anticipated. There can be no
assurance that the Company's revenues will continue to remain at or increase
from the levels experienced in recent quarters, or that sales will not
decline. The Company intends to continue to invest significant amounts in its
operations, particularly to support product development and the marketing and
sales of recently introduced products, and operating expenses will continue to
increase significantly in absolute dollars. If the Company's sales do not
correspondingly increase, the Company's results of operations would be
materially adversely affected. Accordingly, although the Company achieved
yearly profitability for the year ended December 31, 1995 and the quarter
ended March 31, 1996, there can be no assurance that the Company will achieve
profitability in future periods.
The Company is currently marketing millimeter wave radio systems ranging
from 15 GHz to 60 GHz and has commenced commercial shipments of 23 GHz, 38 GHz
and 50 GHz radio systems. The Company expects to continue to invest
significant resources in new product development and enhancements, including
different capacities and varying frequencies, and related software tools.
Recently, the Company has significantly expanded the scale of its operations
to support the increases in its sales levels and to address critical
infrastructure and other requirements. This increase has included the leasing
of new space, the opening of branch offices in the United Kingdom and Germany,
the pending acquisition of a majority interest in Geritel, significant
investments in research and development to support product development,
including the new products recently introduced, and the hiring of additional
personnel in all functional areas, including in finance, manufacturing and
operations, and has resulted in significantly higher operating expenses. The
Company achieved breakeven profitability during the second quarter of 1995 and
the Company generated net income of $1.7 million, $2.2 million and $1.4
million for the third and fourth quarters of 1995 and the first quarter of
1996, respectively. The Company anticipates that its operating expenses will
continue to increase significantly. If the Company's sales do not
correspondingly increase, the Company's results of operations would be
materially adversely affected. Expansion of the Company's
21
<PAGE>
operations has caused and is continuing to impose a significant strain on the
Company's management, financial, manufacturing and other resources. The
Company's ability to manage the recent and any possible future growth, should
it occur, will depend upon a significant expansion of its manufacturing,
accounting and other internal management systems and the implementation and
subsequent improvement of a variety of systems, procedures and controls. There
can be no assurance that significant problems in these areas will not occur.
Any failure to expand these areas and implement and improve such systems,
procedures and controls in an efficient manner at a pace consistent with the
Company's business could have a material adverse effect on the Company's
business, financial condition and results of operations. In particular, the
Company must successfully manage the transition to higher internal and
external volume manufacturing, including the establishment of adequate
facilities, the control of overhead expenses and inventories, the development,
introduction, marketing and sales of new products, the management and training
of its employee base and the monitoring of its third party manufacturers and
suppliers. Although the Company has substantially increased the number of its
manufacturing personnel and significantly expanded its internal and external
manufacturing capacity, there can be no assurance that the Company will not
experience manufacturing or other delays or problems that could materially
adversely affect the Company's business, financial condition or results of
operations. See "Risk Factors--Significant Fluctuations in Results of
Operations" and "--No Assurance of Successful Expansion of Operations;
Management of Growth."
On April 15, 1996, the Company entered into a definitive agreement to
acquire a 51% interest in Geritel, a Tortona, Italy based manufacturer of
telecommunications equipment, with additional operations in France. Pursuant
to the agreement, the Company will make an initial cash payment of $1.0
million, with an additional $1.3 million to be paid over the four quarters
following the acquisition. In connection with this transaction, the Company
was also granted a two-year option to acquire 16% of the equity capital of
Geritel on terms specified in the agreement. Geritel develops, sells and
installs microwave transmission systems and owns mountain top sites for
antenna locations. The Company will account for the stock acquisition through
the purchase method of accounting and the results of operations of Geritel
will be included in the Company's consolidated results for all periods
subsequent to the date of acquisition. The Company does not expect to incur a
significant non-recurring charge in connection with the acquisition and
therefore does not expect the consummation of this acquisition to have a
material adverse effect upon the Company's results of operations for fiscal
1996.
22
<PAGE>
QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
the six quarters ended March 31, 1996. In the opinion of management, this
information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such quarterly information
when read in conjunction with the consolidated financial statements included
elsewhere herein. The operating results for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
1994 1995 1996
-------- ------------------------------------- --------
DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales.................... $ 2,810 $ 4,346 $8,551 $13,489 $16,419 $17,552
Cost of sales............ 1,678 2,592 4,919 7,687 9,375 10,425
------- ------- ------ ------- ------- -------
Gross profit............. 1,132 1,754 3,632 5,802 7,044 7,127
------- ------- ------ ------- ------- -------
Operating expenses:
Research and
development.............. 1,949 2,021 2,603 3,009 3,012 3,599
Selling and marketing.. 732 637 734 752 1,198 1,185
General and
administrative........... 629 351 492 496 517 839
------- ------- ------ ------- ------- -------
Total operating
expenses................. 3,310 3,009 3,829 4,257 4,727 5,623
------- ------- ------ ------- ------- -------
Income (loss) from
operations............... (2,178) (1,255) (197) 1,545 2,317 1,504
Interest and other income
(expense), net........... (57) (57) 197 167 6 5
------- ------- ------ ------- ------- -------
Income (loss) before
income taxes............. (2,235) (1,312) -- 1,712 2,323 1,509
Provision for income tax-
es...................... -- -- -- 20 118 151
------- ------- ------ ------- ------- -------
Net income (loss)........ $(2,235) $(1,312) $ -- $ 1,692 $2,205 $ 1,358
======= ======= ====== ======= ======= =======
Net income (loss) per
share(1)................. $ (0.20) $ (0.10) $ -- $ 0.10 $ 0.13 $ 0.08
======= ======= ====== ======= ======= =======
Weighted average common
and common equivalent
shares (1).............. 11,386 12,618 16,552 17,090 17,520 17,567
Gross profit as a
percentage of sales...... 40.3% 40.4% 42.5% 43.0% 42.9% 40.6%
</TABLE>
- --------
(1) Weighted average common and common equivalent shares for the quarter ended
December 31, 1994 is presented on a pro forma basis to reflect the
conversion of the Company's then outstanding preferred stock into a like
number of shares of Common Stock upon consummation of the IPO. See Note 1
of Notes to Consolidated Financial Statements for an explanation of the
method of calculation.
The Company has experienced and may in the future continue to experience
significant fluctuations in sales, gross margins and operating results from
period to period. The procurement process for most of the Company's current
and potential customers is lengthy, and the timing and amount of sales is
difficult to predict reliably. In addition, a single customer's order
scheduled for shipment in a quarter can represent a significant portion of the
Company's potential sales for such quarter. The Company has at times failed to
receive expected orders, and delivery schedules have been deferred as a result
of changes in customer requirements, among other factors. As a result, the
Company's operating results for a particular period have in the past been and
may in the future be materially adversely affected by delays, reschedulings or
cancellations of one or a small number of purchase orders. Moreover, purchase
orders are often received and accepted substantially in advance of shipment,
and the failure to reduce actual costs to the extent anticipated or an
increase in anticipated costs during the time between acceptance of a purchase
order and shipment could adversely affect the gross margins for such order,
and as a result, the Company's results of operations. Backlog is not
necessarily indicative of future sales for any particular period. Moreover, a
majority of the Company's backlog scheduled for shipment in the twelve months
subsequent to March 31, 1996 can be canceled since orders are often made
substantially in advance of shipment, and the Company's contracts
23
<PAGE>
typically provide that orders may be canceled with limited or no penalties
before shipment. Furthermore, most of the Company's sales in recent quarters
have been realized near the end of such quarter. Accordingly, a delay in a
shipment near the end of a particular quarter, due to, for example, an
unanticipated shipment rescheduling, a cancellation or deferral by a customer,
competitive or economic factors, unexpected manufacturing or other
difficulties, delays in deliveries of components, subassemblies or services by
suppliers (one of which, SPC Electronics Corp., is located in Japan and has
caused delays of its deliveries to the Company), or the failure to receive an
anticipated order, may cause net sales in a particular quarter to fall
significantly below the Company's expectations and may materially adversely
affect the Company's operating results for such quarter.
A large portion of the Company's expenses are fixed and difficult to reduce
should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any such revenue shortfall. Furthermore,
announcements by the Company or its competitors of new products and
technologies could cause customers to defer or cancel purchases of the
Company's systems, which would materially adversely affect the Company's
business, financial condition and results of operations. Additional factors
that have caused and may continue to cause the Company's sales, gross margins
and results of operations to vary significantly from period to period include:
new product introductions and enhancements, including related costs; the
Company's ability to manufacture and produce sufficient volumes of systems and
meet customer requirements; manufacturing capacity, efficiencies and costs;
mix of systems and related software tools sold; operating and new product
development expenses; product discounts; changes in pricing by the Company,
its customers or suppliers; inventory obsolescence; natural disasters;
seasonality; market acceptance and the timing of availability of new products
by the Company or its customers; acquisitions, including costs and expenses;
usage of different distribution and sales channels; fluctuations in foreign
currency exchange rates; delays or changes in regulatory approval of its
systems; warranty and customer support expenses; customization of systems; and
general economic and political conditions. Finally, the Company's sales, gross
margins and results of operations are influenced by competitive factors,
including the pricing and availability of, and demand for, competitive
products. The Company expects to continue to expend significant resources with
respect to the development, any ramp-up of production and anticipated
commercial shipments of its newest products and expects its gross margins to
be adversely affected due to the start-up inefficiencies associated with these
products, among other factors. All of the above factors are difficult for the
Company to forecast, and these or other factors could materially adversely
affect the Company's business, financial condition and results of operations.
As a result, the Company believes that period-to-period comparisons are not
necessarily meaningful and should not be relied upon as indications of future
performance. Due to all of the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the
Company's Common Stock may be materially adversely affected.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED 1993, 1994 AND 1995
Sales. Sales consist of revenues from radio systems and related software
tools. The Company generated revenues from the sale of its 38 GHz radio
systems commencing in October 1993, 50 GHz radio systems commencing in
September 1994 and 23 GHz radio systems commencing in January 1995. In 1993,
1994 and 1995 sales were approximately $738,000, $9.2 million and $42.8
million, respectively. The increased sales from 1993 to 1994 were due to
increased volume of 38 GHz radio systems to new and existing customers. The
increased sales from 1994 to 1995 were due to increased unit sales of 38 GHz
and 23 GHz radio systems. There can be no assurance that sales of the
Company's radio systems will increase or that such systems will achieve market
acceptance. The Company provides significant volume price discounts to its
customers, which are expected to lower the average selling price of a
particular product line as more units are sold. In addition, the Company
expects that the average selling price of a particular product line will also
decline as such product matures, and as competition increases in the future.
Accordingly, the Company's ability to maintain or increase sales will depend
upon many factors, including its ability to increase unit sales volumes of its
systems and to introduce and sell systems at prices sufficient to compensate
for reduced revenues resulting from declines in the average selling price of
the Company's more mature products. To date, most of the
24
<PAGE>
Company's sales have been made to customers located outside the United States.
See "Risk Factors--Significant Customer Concentration," "--Declining Average
Selling Prices," "--Significant Fluctuations in Results of Operations" and "--
International Operations; Risks of Doing Business in Developing Countries."
Gross Profit. The Company's cost of sales consists primarily of costs
related to materials, labor and overhead. In 1993, 1994 and 1995, gross profit
was $8,000, $3.7 million and $18.2 million, respectively, or 1.1%, 40.4% and
42.6% of sales, respectively. The improvement from the periods in 1993 to 1995
was primarily due to product design improvements and economies of scale, but
there can be no assurance that such improvements will continue.
The Company has an ongoing program to reduce the costs of manufacturing its
radio systems. As part of this program, the Company has been attempting to
achieve cost reductions principally through engineering and manufacturing
improvements, production economies and utilization of third party
subcontractors for the manufacture of the Company's radio systems and certain
components and subassemblies used in the systems. The Company also is
implementing other cost reduction programs in order to increase and maintain
gross margins in the future. There can be no assurance that the Company's
ongoing or future programs can be accomplished or that they will maintain or
increase gross profits. The Company believes that average selling prices and
product gross margins for its systems will decline in the long term as such
systems mature, as volume price discounts take effect and as competition
intensifies. To the extent the Company is unable to reduce its production
costs or introduce new products with higher margins, the Company's gross
margins and other results of operations could be materially adversely
affected. The Company's gross profit may also be affected by a variety of
other factors, including mix of systems and related software tools sold;
production, reliability or quality problems; price competition; and warranty
expenses and discounts. See "Risk Factors--Significant Fluctuations in Results
of Operations," "--Declining Average Selling Prices" and "--No Assurance of
Product Quality, Performance and Reliability."
Research and Development. These expenses consist primarily of costs
associated with personnel and equipment. The Company's research and
development activities include the development of the Company's millimeter
wave radio systems and related software tools. In accordance with Financial
Accounting Standards Board Statement No. 86, the Company's policy is to
capitalize internal software development costs incurred on a project
subsequent to the time technological feasibility of such project has been
achieved. The Company's software development costs subject to capitalization
have not been significant to date and, as a result, have been expensed during
the periods incurred.
In 1993, 1994 and 1995, research and development expenses were approximately
$4.8 million, $6.9 million and $10.6 million, respectively. Research and
development expenses in 1993 included expenses associated with completion of
the Company's initial radio systems. During 1994 and 1995, research and
development expenses increased as the Company concentrated on new product
development. The Company intends to continue to invest significant resources
to continue the development of new systems and enhancements, including
additional frequencies and varying operating features, and related software
tools, and expects that research and development expenses in 1996 will
continue to increase significantly in absolute dollars as compared to 1995.
Sales and Marketing. These expenses consist of salaries of certain
personnel, investments in international operations, sales commissions, travel
expenses, customer service and support expenses and costs related to
advertising and trade shows. In 1993, 1994 and 1995, sales and marketing
expenses were $906,000, $1.9 million and $3.3 million, respectively. The
Company intends to continue to invest significant resources to expand its
sales and marketing effort, including the hiring of additional personnel, and
to establish the infrastructure necessary to support future operations. The
Company expects that such expenses in 1996 will continue to increase
significantly in absolute dollars as compared to 1995.
General and Administrative. These expenses consist primarily of salaries and
other expenses for management, finance, accounting, legal and other
professional services. In 1993, 1994 and 1995, general and administrative
expenses were $718,000, $1.5 million and $1.9 million, respectively. The
Company expects
25
<PAGE>
general and administrative expenses to continue to increase significantly in
absolute dollars in 1996 as compared to 1995, as the Company continues to
expand its operations. The Company also has incurred and expects to continue
to incur additional significant ongoing expenses as a publicly owned company
related to legal, insurance, accounting and other administrative services and
expenses.
Interest and Other Income (Expense), Net. Interest and other income
(expense), net consists primarily of interest expense accrued under the
Company's bank line of credit and equipment lease lines, partially offset by
interest income generated from the investment of cash received from financing
activities in 1993, 1994 and 1995. To date, contracts negotiated in foreign
currencies have been limited to pound sterling contracts, and any impact due
to currency fluctuations has been insignificant. However, the Company may in
the future be exposed to the risk of foreign currency gains or losses
depending upon the magnitude of a change in the value of a local currency in
an international market. The Company does not currently engage in foreign
currency hedging transactions, although it may implement such transactions in
the future.
Income Tax Provision. The Company accounts for income taxes under the
liability method, which recognizes deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the tax
basis of assets and liabilities and their financial statement reported
amounts. The Company's history of operating losses makes the realization of
its net operating loss carryforwards uncertain. Accordingly, the Company has
reserved 100% of its deferred tax asset. At December 31, 1995, the Company had
federal net operating loss carryforwards of approximately $9.2 million which
may be utilized to reduce future taxable income through the year 2010, subject
to certain limitations. Under the Tax Reform Act of 1986, the amounts of and
benefit from net operating losses that can be carried forward may be impaired
or limited in certain circumstances. Events which may cause changes in the
amounts of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative stock ownership change of more
than 50% over a three-year period. In April 1992, an ownership change
occurred, but did not affect the loss carryforwards as the annual limitation
exceeded the carryforwards as of the date of change. See Note 5 of Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
Sales. Sales for the three months ended March 31, 1995 and 1996 were $4.3
million and $17.6 million, respectively. The increase was primarily due to
increased unit sales of 38 GHz and 23 GHz radio systems to new and existing
customers. For the three months ended March 31, 1996, four customers accounted
for 68% of the Company's sales, and as of March 31, 1996, four customers
accounted for 97% of the Company's backlog scheduled for shipment in the
twelve months subsequent to March 31, 1996.
Gross Profit. For the three months ended March 31, 1995 and 1996, gross
profit was approximately $1.8 million, or 40% of sales, and approximately $7.1
million, or 41% of sales, respectively. This improvement was primarily due to
product design improvements and economies of scale. There can be no assurance
that either of these trends will continue. In the first quarter of 1996, gross
profit as a percentage of sales was slightly lower than the gross profit as a
percentage of sales for full fiscal 1995 due in part to new product
introductions in the first quarter and related inefficiencies in production.
Research and Development. For the three months ended March 31, 1995 and
1996, research and development expenses were approximately $2.0 million and
$3.6 million, respectively. The increase in absolute dollars in research and
development expenses during the three months ended March 31, 1996, as compared
to the corresponding period in 1995, was due primarily to expenses associated
with increased staffing. As a percentage of sales, research and development
expenses decreased from 47% in the three months ended March 31, 1995 to 21% in
the corresponding period in 1996. The decrease in research and development
expenses as a percentage of sales was primarily due to a higher level of sales
in the three months ended March 31, 1996, as compared to the corresponding
period in 1995. The Company expects that research and development expenses
will continue to increase significantly in absolute dollars during the
remainder of 1996.
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Sales and Marketing. For the three months ended March 31, 1995 and 1996,
sales and marketing expenses were $637,000 and $1.2 million, respectively. The
increase in sales and marketing expenses in the three months ended March 31,
1996, as compared to the corresponding period in 1995 was primarily due to
increased headcount and increased expenses relating to the Company's expansion
of its international sales and marketing organization. As a percentage of
sales, sales and marketing expenses were 15% during the three-month period
ended March 31, 1995, as compared to 7% in the corresponding period in 1996.
This decrease was due primarily to a higher level of sales in the three months
ended March 31, 1996 as compared to the corresponding period in 1995. The
Company expects that such expenses will continue to increase significantly in
absolute dollars during the remainder of 1996 as compared to 1995.
General and Administrative. For the three months ended March 31, 1995 and
1996, general and administrative expenses were $351,000 and $839,000,
respectively. This increase was principally due to increases in headcount and
other costs resulting from the Company's expansion of its operations. As a
percentage of sales, general and administrative expenses were 8% in the three
months ended March 31, 1995 as compared to 5% in the corresponding period in
1996. This decrease in general and administrative expenses as a percentage of
sales was due primarily to a higher level of sales in the three months ended
March 31, 1996 as compared to the corresponding period in 1995. The Company
expects that such expenses will continue to increase significantly in absolute
dollars during the remainder of 1996 as compared to 1995, as the Company
continues to expand its operations.
Interest and Other Income (Expense), Net. The Company incurred net interest
expense of $57,000, or 1% of sales, during the three months ended March 31,
1995, as compared to $5,000 of net interest and other income during the
corresponding period in 1996. The Company's improvement was primarily due to
the investment of the net proceeds of the initial public offering and
secondary offering partially offset by exchange rate losses generated by
collections of foreign accounts receivable. See "Risk Factors--International
Operations; Risks of Doing Business in Developing Countries."
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in August 1991, the Company has financed its operations
and met its capital requirements through three preferred stock financings
aggregating approximately $17.0 million, net proceeds of approximately $26.1
million from the Company's initial public offering of its Common Stock (the
"IPO") completed in March 1995, net proceeds of approximately $10.8 million
from the Company's secondary public offering of its Common Stock (the
"Secondary Offering") completed in August 1995 and borrowings under its bank
line of credit and equipment lease arrangements.
Operating activities used net cash in 1993 of $6.0 million, primarily as a
result of operating losses. In 1994, operating activities used net cash of
$9.2 million primarily due to operating losses and increases in accounts
receivable and inventory of $3.9 million and $1.7 million, respectively, which
were partially offset by increases in accounts payable of $1.6 million and in
accrued employee benefits and other liabilities of $1.0 million. In 1995,
operating activities used $20.2 million primarily due to increases in accounts
receivable and inventory of $15.3 million and $13.5 million, respectively,
which were partially offset by an increase in accounts payable of $8.1
million. For the three months ended March 31, 1996, operating activities used
$935,000 primarily due to net income of $1.4 million, a decrease in accounts
receivable of $1.7 million and increases in accounts payable and other accrued
liabilities of $5.0 million and $775,000, respectively, which were partially
offset by increases in inventory, prepaid expenses and other assets of
$941,000, $7.4 million and $1.6 million, respectively.
Investing activities provided net cash of $833,000 in 1993 through the sale
of $1.0 million in short-term investments, partially offset by capital
equipment purchases, and used net cash of $209,000 during 1994 for capital
equipment purchases. During 1995 and the three months ended March 31, 1996,
cash used in investing activities totaled $6.8 million and $1.9 million,
respectively, for capital equipment purchases, consisting primarily of tools
and lab equipment used in engineering and manufacturing, computer hardware,
leasehold improvements and office equipment.
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Financing activities consisted primarily of the sale of preferred stock and
the incurrence of $2.6 million under the credit facility with Silicon Valley
Bank, partially offset by payments on capitalized lease obligations, provided
net cash of $7.7 million and $7.1 million in 1993 and 1994, respectively.
Financing activities during 1995, which consisted primarily of the issuance of
stock from the IPO and Secondary Offering, raised net proceeds of $37.2
million in the aggregate. During 1995, the Company used approximately
$2.6 million to retire all existing bank debt under the line of credit with
Silicon Valley Bank and approximately $1.3 million to retire all existing
equipment lease obligations owed to Dominion Ventures, Inc. and Phoenix
Leasing, Inc. For the three months ended March 31, 1996, cash provided from
financing activities totaling $476,000 resulted from the issuance of the
Company's Common Stock pursuant to the Company's stock option and employee
stock purchase plans.
At March 31, 1996, the Company had working capital of approximately $33.1
million. In recent quarters, most of the Company's sales have been realized
near the end of each quarter, resulting in a significant investment in
accounts receivable at the end of the quarter. The Company expects that its
investments in accounts receivable and inventories will be significant and
will continue to represent a significant portion of working capital.
Significant investments in accounts receivable and inventories may subject the
Company to increased risks which could materially adversely affect the
Company's business, financial condition and results of operations.
The Company's principal sources of liquidity as of March 31, 1996 consisted
of approximately $5.4 million of cash and cash equivalents. The Company has a
$10.0 million line of credit with Silicon Valley Bank which expires in October
1996. The agreement provides for an interest rate equal to the bank's prime
rate and contains certain covenants, including those relating to quarterly
profitability, minimum levels of tangible net worth, limitations of additional
debt and liens and various financial ratios. As of March 31, 1996, the Company
did not have any borrowings under such line.
Subsequent to March 31, 1996, the Company agreed to pay approximately $2.3
million in cash to acquire a majority interest in Geritel.
At present, the Company does not have any material commitments for capital
equipment purchases. However, the Company's future capital requirements will
depend upon many factors, including the development of new radio systems and
related software tools, potential acquisitions, the extent and timing of
acceptance of the Company's radio systems in the market, requirements to
maintain adequate manufacturing facilities, working capital requirements for
Geritel, the progress of the Company's research and development efforts,
expansion of the Company's marketing and sales efforts, the Company's results
of operations and the status of competitive products. The Company believes
that cash and cash equivalents on hand, anticipated cash flow from operations,
if any, and funds available from the Company's bank line of credit will be
adequate to fund its operations for at least the next twelve months. There can
be no assurance, however, that the Company will not require additional
financing prior to such date to fund its operations. In addition, the Company
may require additional financing after such date to fund its operations. There
can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all, when required by the Company. If
additional funds are raised by issuing equity securities, further dilution to
the existing stockholders will result. If adequate funds are not available,
the Company may be required to delay, scale back or eliminate one or more of
its research and development or manufacturing programs or obtain funds through
arrangements with partners or others that may require the Company to
relinquish rights to certain of its technologies or potential products or
other assets that the Company would not otherwise relinquish. Accordingly, the
inability to obtain such financing could have a material adverse effect on the
Company's business, financial condition and results of operations.
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in, or incorporated by reference into, this Prospectus.
P-COM designs, manufactures and markets short-haul millimeter wave radio
systems for use in the worldwide wireless telecommunications market. The
Company's Tel-Link systems are used as digital links in applications that
include interconnecting base stations and mobile switching centers in
microcellular and PCN/PCS networks and providing local telco connectivity in
the local loop. The integrated architecture and high software content of the
Company's systems are designed to offer cost-effective, high-performance
products with a high degree of flexibility and functionality.
P-COM's Tel-Link wireless radios utilize a common architecture for systems
in multiple millimeter wave frequencies including 15 GHz, 23 GHz, 38 GHz and
50 GHz. The Company's systems are designed to be highly reliable, cost
effective and simple to install and maintain. Software embedded in the
Company's systems allows the user to easily configure and adjust system
settings such as frequency, power and capacity with minimal manual tuning and
mechanical adjustments. The Company also markets a full line of Windows-based
software products that are complementary to its systems as sophisticated
diagnostic, maintenance and system configuration tools.
The Company's systems are sold internationally through strategic partners,
system providers, OEMs and distributors as well as directly to end-users, and
domestically primarily through its direct sales force. The Company's customers
include ART, Bosch Telecom GmbH, China Magnetic Recording Corporation,
Elettronica Industriale S.p.A., Grupo Iusacell S.A. de C.V., International
Communication Technologies, Inc., Lucent Technologies, Inc. (including the
entities formerly known as AT&T Network Systems Deutschland GmbH and AT&T
Network Systems Nederland BV), Mercury Communications Ltd., Mercury Personal
Communications, Norweb plc, Orange Personal Communications Ltd., Pacific Bell
Mobile Services, Siemens, Southwestern Bell Technology Resources, Inc. and
WinStar.
P-COM received its initial ISO 9001 registration in December 1993, a
standard established by the International Organization for Standardization
that provides a methodology by which manufacturers can obtain quality
certification. In accordance with ISO 9001 requirements, the Company's ISO
9001 registration was subsequently recertified. The Company is in the process
of ISO 9001 registration for its facilities outside of the United States.
BACKGROUND
In recent years, there has been an increase in consumer demand for mobile
high performance voice, data and facsimile communications. This trend, coupled
with regulatory changes in the United States (including passage of the
Telecommunications Reform Bill of 1996) and abroad and technological advances,
has led to significant growth in the number of subscribers for existing
wireless telecommunications systems and the emergence of new wireless
applications.
Cellular service has been one of the faster growing segments of the wireless
telecommunications market. The United States Department of Commerce estimates
that there were approximately 52 million cellular subscribers worldwide as of
the end of 1994, as compared to approximately 33 million as of the end of
1993. Moreover, intensified competition among service providers is resulting
in declining costs to end-users as well as new types of service offerings. In
response to the increase in subscribers, existing cellular service providers
in densely populated urban areas are expanding the capacity of their existing
cellular systems by incorporating microcellular networks that divide cells
into several smaller radius cells in order to maintain service quality and
availability. At the same time, other telecommunications service providers are
beginning to establish PCN/PCS networks to provide a broad range of wireless
voice, data and facsimile communications services from remote locations using
a single device. These PCN/PCS networks require the establishment of new,
interconnected base stations. Internationally, PCN markets are currently being
implemented, and in the United States, PCS licenses are currently being
auctioned by the Federal Communications Commission.
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Recently, there has been a worldwide trend toward privatization of public
telephone operators ("PTOs") and deregulation of local loop services. This has
resulted in increased spending by existing PTOs and increased competition
through the emergence of new companies providing telephone service. In
addition, existing companies in other industries, such as public utilities and
cable TV providers, are entering the telecommunications business. In Europe,
this competition has been most intense in the local loop service market. While
the long distance market in the United States has been most competitive due to
the breakup of AT&T, the local loop market is experiencing accelerating
competition resulting from increasing deregulation of this market (including
passage of the Telecommunications Reform Bill of 1996). As companies enter
this market, they must establish an infrastructure to deliver local telephone
services. These local loop services can be more efficiently partitioned and
distributed using numerous short distance connections. Utilization of wired
networks for this purpose is limited by their fixed access points and high
cost to install, upgrade and maintain. Wireless technology offers a solution
that can in most cases be implemented faster and more cost-effectively than
traditional wired approaches.
Millimeter wave systems have been increasingly utilized for short-haul
wireless connections. While long distance wireless connectivity must be
implemented using low frequency systems, short-haul applications can be
implemented using lower cost, higher frequency systems, as these applications
do not require the longer transmission distances possible at lower
frequencies. The lower end of the frequency spectrum, encompassing the
traditional microwave frequency bands, requires the use of more expensive
equipment and has become increasingly congested as compared to the millimeter
wave frequency bands. Moreover, higher frequencies allow a greater number of
channels to be allocated in the same percentage of spectrum compared to lower
frequencies. The shorter transmission distances of higher frequencies also
allow these frequencies to be reutilized beyond relatively small geographic
areas such as those covered by existing cellular systems. Therefore,
regulatory authorities responsible for the allocation of the radio wave
spectrum are under increasing pressure to assign millimeter wave frequency
bands to those applications that can effectively utilize this portion of the
spectrum. For example, cellular, PCN/PCS and local loop service applications
are being assigned millimeter wave frequency bands.
FREQUENCY GRAPH SPECTRUM
Most conventional millimeter wave radio systems have been introduced by
suppliers of microwave technology based on architectures that were originally
designed and optimized for microwave frequency bands. These conventional
systems often are expensive to install and configure, lack certain advanced
features
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and do not readily support remote system management and maintenance. The
Company believes that there is a significant market opportunity for short-haul
communications solutions that are optimized for millimeter wave applications
and offer high levels of functionality, ease of installation and a low cost of
ownership.
THE P-COM SOLUTION
The Company's Tel-Link millimeter wave radio systems and proprietary
software offer telecommunications service providers wireless connections for
short-haul applications. These systems are designed to be highly reliable,
cost-effective and simple to install and maintain, thus lowering the service
provider's overall cost of ownership. The Company markets its systems to
cellular and PCN/PCS service providers implementing microcellular networks and
to companies offering local loop services. The diagram below illustrates the
use of the Company's systems to connect base stations in a PCN/PCS
application; the Company's systems are used in a similar manner in cellular
networks. This diagram also shows the use of the Company's systems in a
PTO/local loop application to establish short-haul radio connections for telco
service from a high capacity communications infrastructure.
P-COM TEL-LINK SYSTEMS
DIAGRAM
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The Company believes its systems offer the following benefits:
Commonality of Architecture. The Company's Tel-Link systems employ a design
architecture that is optimized for operation at millimeter wave frequencies.
In contrast to most conventional radio systems, the Company's systems across
this frequency range are identical in architecture, functionality and
features, except for the final stage of the system which determines the
transmit and receive frequencies. This degree of commonality assists P-COM in
providing a range of products to customers that operate systems in numerous
millimeter wave bands. Currently, the Company is shipping 23 GHz, 38 GHz and
50 GHz systems, and has developed prototypes of a 15 GHz system. The common
architecture employed in the Company's systems is designed to offer P-COM's
customers lower overall cost of ownership and ease of system implementation
through such benefits as reduced spare part inventories, common features and
software across the family of systems, reduced training and easy integration
into a network management system. The Tel-Link systems employ a high level of
circuit integration, with the concomitant advantages of fewer components and
connections, less heat dissipation and reduced human involvement in production
and testing.
Ease of Installation. The Company's systems were designed to lower
installation costs by minimizing the time and effort involved in system
implementation. The two primary assemblies of the systems, the outdoor unit
("ODU"), which is typically located on a tower or a rooftop, and the indoor
unit ("IDU"), are connected with a single coaxial cable. Most conventional
systems require multiple cable connections between the IDU and the ODU, are
manually tuned and require numerous mechanical adjustments. The Company's
systems are smaller and lighter than most conventional systems, and are
software-configurable, requiring minimal manual tuning and mechanical
adjustments during installation.
High Level of Software Functionality. The Tel-Link architecture is designed
to provide the Company's customers with a high level of functionality to
facilitate operation of the systems. The configuration of the Company's
systems, including setting the system's power and frequency and upgrading its
capacity, can be performed via the keypad located on the IDU. The Company also
offers proprietary Windows-based software tools that permit a user to perform
system configuration from a personal computer attached directly to the IDU or
from any remote location accessed through a network management system. The
capacity of the Company's systems can be upgraded through software, providing
a greater degree of flexibility for customers. In contrast, conventional
millimeter wave systems typically require mechanical adjustments and manual
tuning on both the IDU and ODU, and their capacities cannot be upgraded using
software.
Cost-effective Maintenance. The ease of maintenance of the Tel-Link systems
is primarily due to the software embedded in the system and its software
tools. The Company includes a significant amount of the system's circuitry in
the IDU where system reliability is increased due to less demanding
temperature extremes and maintenance is easier to perform. Most conventional
systems contain more circuitry in the ODU, which exposes the circuitry to a
wider temperature range. This may require that more maintenance take place in
the ODU, which is typically more difficult to access. Use of the Company's
proprietary maintenance software tools can be on-site at the IDU or from any
remote location through a network management system. These tools allow the
user to read the status of numerous radio parameters and to change settings
and configurations if desired. Maintenance tools offered with the Tel-Link
systems include in-service performance monitoring and analysis, system alarm
reporting and IDU and ODU temperature readings.
THE P-COM STRATEGY
The Company's goal is to become a leading supplier of high performance,
short-haul radio systems operating in millimeter wave frequency bands. The
following are the key elements of its strategy to achieve this objective:
Focus on Millimeter Wave Market. The Company designed its products
specifically for the millimeter wave frequency band, as compared to many
competing suppliers that transferred existing technology from lower frequency
systems to the millimeter wave frequency bands. The Company's core
architecture was
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designed to optimize its systems for operation at millimeter wave frequencies.
The Company currently ships 23 GHz, 38 GHz and 50 GHz systems, and has
developed prototypes of a 15 GHz system. The Company is selling its systems
primarily to cellular and PCN/PCS service providers implementing microcellular
networks (Code Division Multiple Access (CDMA), Time Division Multiple Access
(TDMA) and Extended Time Division Multiple Access (E-TDMA)), PTO companies
offering local loop services and service companies providing alternative
access. The Company is developing systems which operate at additional
millimeter wave frequencies.
Expand Worldwide Presence. The Company is focused on expanding its presence
internationally and further establishing its market position in the United
States. To date, the market opportunities for the Company's systems have been
greater abroad, as the markets for PCN/PCS and microcellular networks and
local loop access have developed at a faster rate than in the United States.
The Company intends to continue its international focus by meeting
international telecommunications standards where appropriate and using
strategic alliances to penetrate international markets. The Company has met
the standards established by the European Telecommunications Standards
Institute ("ETSI") and achieved regulatory approval for its 38 GHz systems in
Australia, the Czech Republic, France, Germany, Greece, Hungary, Italy,
Mexico, Spain, the United Kingdom and the United States. In addition, the
Company has met ETSI standards and received regulatory approval for its 23 GHz
systems in Australia, France, Germany, Hungary, Mexico, the United Kingdom and
the United States. The process for additional regulatory approvals for these
systems is underway in numerous other countries including Belgium and
Switzerland. The Company's management team consists of a group of highly-
experienced telecommunications executives from Italy, the United Kingdom and
the United States. The Company has established and staffed a sales and
customer support facility in the United Kingdom that serves as a base for the
European market, and a customer support facility in Germany. The Company
recently entered into a definitive agreement to acquire a 51% interest in
Geritel, which has operations in Italy and France.
Build and Sustain Manufacturing Cost Advantage. The Company has designed its
system architecture to reduce the number of components incorporated in each
system and to permit the use of common components across the range of the
Company's products. The Company believes this will assist in the reduction of
its manufacturing costs by permitting volume component purchases and enabling
a standardized manufacturing process. The Company utilizes contract
manufacturers to service its volume requirements, reserving its internal
manufacturing capabilities to produce initial quantities of new products prior
to commencement of volume shipments and to respond to special customer
requirements regarding specifications or delivery.
Leverage and Maintain Software Leadership. The Company seeks to
differentiate its systems through the proprietary software embedded in the IDU
and ODU and its Windows-based software tools. This software is designed to
allow the Company to deliver to customers a high level of functionality in a
system that can be easily configured by the user to meet particular needs. In
addition, the embedded software enables the capacity of the Company's systems
to be easily upgraded. Software tools are also offered to facilitate network
management of the system. The Company intends to continue its focus on
software development in order to support increasing levels of functionality
and ease of configuration and use of the Company's systems.
Position P-COM for Emerging Applications and Markets. The Company intends to
market its systems for applications other than microcellular, PCN/PCS and
local loop services and to explore emerging geographic markets. Many growing
businesses and local government organizations are choosing to install,
maintain and manage their own telecommunications infrastructures and only
interface with a PTO where a connection to the public network is required. As
the voice, data and video traffic within an organization increases, this
approach becomes more cost-effective than leasing these intracompany services
from a PTO. The Company believes that additional markets may develop abroad,
as the implementation of the communications infrastructure upgrades in
emerging countries increasingly bypasses traditional wired networks and moves
directly to a cost-effective wireless network.
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TECHNOLOGY AND PRODUCTS
The Company believes its approach to millimeter wave radio systems is
significantly different from most conventional approaches. Through the use of
its proprietary digital signal processing, frequency converter and antenna
interface technology, and its proprietary software and custom application-
specific integrated circuits, the Company offers a highly-integrated, feature-
rich system. This integration is designed to result in reliability and cost
advantages. The microprocessors and embedded software in both the IDU and ODU
enclosures enable flexible customization to the user's specific
telecommunications network requirements.
Millimeter Wave Technology
Wireless transmission of voice, data and video traffic has become a
desirable alternative to wired solutions due to its advantages in the ease and
cost of implementation and maintenance. Since high frequency transmissions are
best suited for shorter distances, microwave radio frequencies are typically
used for communications links of 15 to 35 miles and millimeter wave radio
frequencies for transmissions of up to 15 miles. In addition, the cost of
millimeter wave radio systems is generally less than that of microwave radio
systems.
Most conventional millimeter wave radio systems use technology that is very
similar to microwave radio technology, except that a millimeter wave frequency
source is used at the final stage instead of a lower frequency microwave
source. When transmitting, the IDU, which is the radio system's interface to
the end-user's equipment, sends an unmodulated digital transmit signal to the
ODU. In the ODU, this signal directly modulates a transmit Gunn oscillator
which has its final frequency controlled by a synthesizer. The signal, now at
the desired millimeter wave frequency, is then routed to the antenna for
transmission to the millimeter wave radio system at the receiving end. At the
receiving end, the incoming signal is mixed in a receive converter with a
receive millimeter wave frequency source, typically a Gunn oscillator which
has its frequency controlled by a synthesizer. The signal is then routed
through an intermediate frequency (IF) converter, demodulated, and the
resultant signal is then sent to the IDU where it is directed to the end-
user's equipment.
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P-COM believes that its technology is currently significantly different from
that contained in most conventional systems. When transmitting, the Company's
IDU sends an already-modulated, IF transmit signal to the ODU where it is
received by the IF processor, routed to the transmit converter and mixed with
a synthesized frequency source. This signal is then amplified and passed
through to the Company's proprietary frequency converter to establish the
appropriate millimeter wave frequency. The signal is then routed to the
antenna for transmission to the millimeter wave radio system at the receiving
end. At the receiving end, the incoming signal is routed to the frequency
converter and mixed in the downconverter with the same frequency source that
was used when transmitting. The signal is passed through the same IF processor
to the IDU where it is demodulated and sent to the end-user's equipment.
ARCHITECTURE COMPARISON
CHART
P-COM's architecture is designed to achieve reliability, cost, installation
and maintenance benefits over conventional approaches. First, the Company
incorporates the modulator and demodulator into the IDU rather than leaving
these functions to be performed in the ODU. The Company believes this results
in improved reliability over conventional approaches where the
modulator/demodulator circuits are subject to more demanding environmental
extremes. This also reduces required maintenance of the ODU, which is
typically more difficult to access. Second, the Company employs a common
architecture in the ODU for all stages of the system other than the frequency
converter used to establish the millimeter wave frequency at which the system
operates. In contrast, conventional millimeter wave systems often use
different designs for several components of the ODU for each different
frequency band. Third, the final transmit and receive frequencies are
electronically tuneable either from the IDU or from a remote location using a
network management system. In contrast, most conventional approaches employ a
Gunn oscillator to generate the transmit millimeter wave frequency source and
a second Gunn oscillator to receive the millimeter wave
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transmission from the remote end. These devices must be manually tuned and
adjusted to achieve proper operation. The Gunn oscillator technology that is
typically used in conventional approaches is inherently less reliable than P-
COM's proprietary frequency converter technology. Finally, in P-COM's systems,
the IDU and ODU are connected with a single coaxial cable, in contrast to many
conventional systems that require multiple cable connections.
P-COM System Architecture
The Company's millimeter wave radios are comprised of three primary
assemblies: the IDU, the ODU and the antenna. The IDU houses the digital
signal processing and the modem functions, and interfaces to the ODU via a
single coaxial cable. The ODU, a radio frequency (RF) enclosure, establishes
the specific transmit and receive frequencies and houses the proprietary P-COM
frequency converter. The antenna interfaces directly to the ODU via a
proprietary P-COM waveguide transition technology. The following diagram
illustrates a P-COM radio system:
DIAGRAM OF RADIO SYSTEM
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Indoor Unit (IDU) and Software. The IDU is the interface to the user's
network. It is an indoor mounted assembly that contains baseband electronics,
including the functions of line interface, digital signal processing,
modulation/demodulation and intermediate frequency generation. The IDU also
includes the alarm and diagnostic, service channel and telecommunications
network management interfaces. Finally, the IDU contains the capability to set
the system capacity, frequency synthesizer and power output of the radio; no
access to the ODU is required.
The configuration of the Company's systems, including the setting of the
system's power, frequency and capacity, is performed via the keypad located on
the IDU. The Company also offers proprietary Windows-based software tools that
permit a user to perform system configuration from a personal computer
attached directly to the IDU or from any remote location accessed through a
network management system. In contrast, conventional millimeter wave systems
typically require mechanical adjustments and manual tuning, which involves
sending maintenance personnel to the radio location. The software embedded in
the Company's systems also allows the easy upgrade of system capacity; no
hardware changes are required.
Outdoor Unit (ODU). The ODU consists of a lightweight, compact, integrated
RF electronics enclosure which attaches to an antenna. The RF enclosure
contains the electronics that convert and amplify the modulated signal
received from the IDU. Typically, the ODU is installed outdoors on a tower or
rooftop. The RF enclosure is connected to the antenna with the Company's
proprietary waveguide transition that requires no alignment, tools or special
techniques. It is secured to the antenna with quick release clips that
typically allow an installer to replace the complete unit in less than five
minutes. In addition, since the antenna mount is independent of the RF
enclosure, replacement of the RF enclosure requires no realignment of the
antenna.
IDU-ODU Interconnection. The single coaxial cable connecting the Company's
IDU and ODU carries transmit and receive signals as well as DC power. This
cable can reach up to 1,000 feet without requiring additional amplification or
a setting for a specific length. No specific matching is required between the
ODU and IDU: any IDU within a particular capacity range (1, 2 or 4 lines; 8 or
16 lines) will operate to full specification with any ODU within that capacity
range, irrespective of the frequency band in which the ODU operates. Many
conventional systems require multiple cable connections, distance-specific
settings and specific matching between the IDU and the ODU.
Products
The Company's products are based on a common system architecture and are
designed to carry various combinations of voice, data and video traffic and to
be easily configurable based on the needs of its customers. The Tel-Link
systems operate at both E1 and T1/T3 data rates, as well as lower data rates.
E1 is an international standard data rate operating at 2.048 megabits per
second that carries 30 duplex voice circuits and T1 is a U.S. standard data
rate operating at 1.544 megabits per second that carries 24 duplex voice
circuits. T3 is a U.S. standard data rate operating at 44.736 megabits per
second that carries 672 duplex voice circuits. The Company is also developing
prototypes for Tel-Link systems that operate at E3 data rates. E3 is an
international standard data rate operating at 34.368 megabits per second that
carries 480 duplex voice circuits. Typical transmission distances for the
Company's systems range from one to 15 miles, depending on the specific
frequency at which the system operates, antenna size and local climate
conditions.
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All of the Company's systems currently being shipped are designed to operate
in millimeter wave frequency bands. The Company's systems have been shipped
for network use or use in system trials in Australia, Belgium, Bulgaria,
Canada, Chile, China, Columbia, the Czech Republic, England, France, Germany,
Hong Kong, India, Ireland, Israel, Italy, Japan, Malaysia, Mexico, Saudi
Arabia, Scotland, South Africa, Spain, Switzerland, Thailand, Turkey, the
United States and Venezuela. The following table provides certain information
about the 15 GHz, 23 GHz, 38 GHz and 50 GHz systems currently being marketed
by the Company, the list price range of such systems, their transmission
distances, the number of lines each system is designed to offer and the
maximum number of voice channels each system is designed to support. List
prices for each system are single quantity prices for one radio link
consisting of two radios. The Company typically offers substantial volume
price discounts. The higher end of the list prices represent prices for higher
capacity radios. Except for the 15 GHz radio system and as otherwise noted,
these configurations are currently being shipped to customers.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FREQUENCY STANDARD NUMBER OF LINES NUMBER OF VOICE CHANNELS
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
15 GHZ SYSTEMS E1* 1, 2, 4, 8, 16 30, 60, 120, 240, 480
Distance: Up to 15 E3* 1 480
miles T1+ 1, 4, 8, 16 24, 96, 192, 384
List Price: T3+ 1 672
$30,000-$93,000 Data* Various Data Rates N/A
- -------------------------------------------------------------------------------
23 GHZ SYSTEMS E1 1, 2, 4, 8, 16 30, 60, 120, 240, 480
Distance: Up to 10 E3* 1 480
miles T1+ 1, 4, 8, 16 24, 96, 192, 384
List Price: T3* 1 672
$27,000-$82,000 Data++ Various Data Rates N/A
- -------------------------------------------------------------------------------
38 GHZ SYSTEMS E1 1, 2, 4, 8, 16 30, 60, 120, 240, 480
Distance: Up to 6 E3* 1 480
miles T1 1, 4, 8, 16* 24, 96, 192, 384
List Price: T3 1 672
$24,000-$73,000 Data Various Data Rates N/A
- -------------------------------------------------------------------------------
50 GHZ SYSTEMS E1 1, 2, 4, 8*, 16* 30, 60, 120, 240, 480
Distance: Up to 3 Data++ Various Data Rates N/A
miles
List Price:
$30,000-$75,000
</TABLE>
- -------------------------------------------------------------------------------
*Not currently available for shipment; prototypes under development.
+Not currently available for shipment; prototypes to be developed based on
customer demand, if any.
++Currently available for shipment; no orders yet received.
SALES AND MARKETING
The Company's sales and marketing efforts are headquartered in the Company's
executive offices in Campbell, California. The Company has established and
staffed a sales and customer support facility in the United Kingdom that
serves as a base for the European market, and a customer support facility in
Germany. The Company recently entered into a definitive agreement to acquire
51% of Geritel, which has operations in Italy and France. Internationally, the
Company uses a variety of sales channels, including system providers, OEMs,
dealers and local agents, as well as selling directly to its customers. The
Company has sales offices or
38
<PAGE>
personnel located in England, France, Germany, Italy and Mexico, and has
worldwide OEM agreements with Lucent Technologies, Inc. (formerly known as
AT&T and referred to herein as "AT&T"), and Siemens. In addition, the Company
has established agent relationships in numerous other countries in the
Asia/Pacific region and in South America and Europe. In the United States, the
Company utilizes both direct sales and OEM channels.
The Company's current sales process is a typically lengthy one that
commences with the solicitation of bids by prospective customers. If the
Company is selected to proceed further, the Company may provide systems for
incorporation into system trials or may proceed directly to contract
negotiations. If system trials are required and successfully completed, the
Company then negotiates a contract with the customer to set technical and
commercial terms of sale. These terms of sale govern the purchase orders
issued by the customer as the network is deployed. The Company anticipates
that it will increasingly rely upon OEMs and system providers during the sales
process, and will therefore have less direct contact during this process with
end-users.
The Company believes that due to the complexity of millimeter wave radio
systems, a high level of technical sophistication is required on the part of
the Company's sales and marketing personnel. In addition, the Company believes
that customer service is fundamental to its success and potential for follow-
on business. New customers are provided engineering assistance for
installation of the first units as well as varying degrees of field training
depending upon the customer's technical aptitude. All customers are provided
telephone support via a 24-hour customer service help desk. The Company's
customer service efforts are supplemented by its system providers.
The Company believes that it must continue to expand its sales and marketing
organization worldwide. Any significant sales growth will be dependent in part
upon the Company's expansion of its marketing, sales and customer support
capabilities, which will require significant expenditures to build the
necessary infrastructure.
CUSTOMERS
The Company's customers currently are grouped within two general categories:
end-users, which incorporate the Company's systems into networks to deliver
communications services directly to consumers; and system providers, which
incorporate P-COM systems into networks to be sold to end-users, that in turn
provide communications services directly to consumers. Certain customers may
act as both end-users and system providers depending on the circumstances.
End-users
These users include regulated and non-regulated providers of wireless voice,
data and video services to corporate and individual customers. Current and
potential applications include cellular and PCN/PCS networks (CDMA, TDMA and
E-TDMA), PTO/local loop service, network interconnections and access to long
distance networks. For cellular and PCN/PCS applications, users of P-COM's
systems in a single cellular service area may include multiple PCN/PCS
providers, wireline cellular service operators, non-wireline cellular service
operators and alternate service providers.
System Providers
These customers provide engineering and installation services for their
customers, which consist of cellular service providers, private corporations,
utilities and local government entities. Current and potential applications
include supervisory control systems for water, electric and gas companies,
local area networks for private corporations and educational institutions, and
voice/data/video networks for government users (police, fire, safety). These
in-country system providers accomplish the network design and provide the
field effort necessary to install, commission and maintain the Company's
millimeter wave systems. System providers are also extensively used by PTOs
and cellular and PCN companies in China, Eastern Europe, India, Russia and
other developing countries.
39
<PAGE>
As of March 31, 1996, the Company has shipped its millimeter wave systems
primarily to the following end-users and system providers:
<TABLE>
<CAPTION>
END-USERS SYSTEM PROVIDERS
--------- ----------------
<S> <C>
Advanced Radio Technologies Bosch Telecom GmbH
Corporation (now known as Elettronica Industriale S.p.A.
Advanced Radio Telecom Corp.) International Communication Technologies, Inc.
China Magnetic Recording Lucent Technologies, Inc.
Corporation (including the entities formerly known as
Grupo Iusacell S.A. de C.V. AT&T Network Systems Deutschland GmbH
Mercury Communications Ltd. and AT&T Network Systems Nederland BV)
Mercury Personal Communications Siemens Telecommunicazioni S.p.A.
Norweb plc (now known as Italtel)
Orange Personal Communications
Ltd.
Pacific Bell Mobile Services
Southwestern Bell Technology
Resources, Inc.
WinStar Wireless, Inc.
</TABLE>
To date, approximately 30 customers have accounted for all of the Company's
sales. Sales to Alcatel and Elettronica Industriale S.p.A. accounted for 66%
and 25%, respectively, of total sales for the year ended December 31, 1993.
Sales to Grupo Iusacell S.A. de C.V., Orange Personal Communications Ltd.,
Mercury Communications Ltd., and Elettronica Industriale S.p.A. accounted for
24%, 15%, 12% and 11% of the Company's sales, respectively, in 1994. Sales to
AT&T, Orange Personal Communications Ltd., Siemens and WinStar accounted for
approximately 24%, 22%, 12% and 22% of the Company's sales, respectively, in
1995. For the three months ended March 31, 1996, sales to AT&T, Orange
Personal Communications Ltd, Siemens and ART accounted for approximately 10%,
15%, 26% and 17% of the Company's sales, respectively. For the year ended
December 31, 1995, five customers accounted for 89% of the Company's sales,
and as of December 31, 1995, seven customers accounted for a substantial
majority of the Company's backlog scheduled for shipment in the twelve months
subsequent to December 31, 1995. During the first quarter of 1996, four
customers accounted for 68% of the Company's sales. The Company anticipates
that, at least for the near term, it will continue to sell its radio systems
to a changing, but still relatively small, group of customers. Some of the
Company's customers that are implementing new networks are at early stages of
development and may require additional capital to implement fully their
planned networks. The Company's ability to achieve or increase its sales in
the future will depend in significant part upon its ability to obtain and
fulfill orders from existing and new customers and maintain relationships with
and provide support to existing and new customers, its ability to manufacture
systems on a timely and cost-effective basis and to meet stringent customer
performance and other requirements and shipment delivery dates, as well as the
condition and success of its customers. As a result, any cancellation,
reduction or delay in orders by or shipments to any customer, as a result of
manufacturing difficulties or otherwise, or the inability of any customer to
finance its purchases of the Company's radio systems may have a material
adverse effect upon the Company's business, financial condition and results of
operations. There can be no assurance that the Company's sales will increase
in the future or that the Company will be able to retain and support existing
customers or to attract new customers.
The Company's backlog was approximately $27.2 million as of December 31,
1994, as compared to approximately $42.4 million as of December 31, 1995. The
change is primarily due to increased domestic orders from two customers. As of
March 31, 1996, four customers accounted for 97% of the Company's backlog
scheduled for shipment in the twelve months subsequent to March 31, 1996. The
Company includes in backlog only those firm customer commitments to be shipped
within the following twelve months. Backlog is not necessarily indicative of
future sales for any particular period. Moreover, at least a majority of the
Company's backlog scheduled for shipment in the twelve months subsequent to
March 31, 1996 can be canceled since orders are often made substantially in
advance of shipment, and the Company's contracts typically provide that orders
may be canceled with limited or no penalties up to a specified period
(typically 30 to 90 days) before shipment, and in some cases at any time.
40
<PAGE>
MANUFACTURING
The Company's manufacturing objective is to produce systems that conform to
P-COM's specifications at the lowest possible manufacturing cost. The Company
has designed its system architecture to reduce the number of components
incorporated in each system and to permit the use of common components across
the range of the Company's products. P-COM believes this will assist in the
reduction of its manufacturing costs, permitting volume component purchases
and enabling a standardized manufacturing process. Where appropriate, the
Company has developed component designs internally to seek to obtain higher
performance from its systems at a lower cost. The Company is engaged in an
effort to increase the standardization of its manufacturing process in order
to permit it to more fully utilize contract manufacturers.
As part of its program to reduce the cost of its radio systems and to
support an increase in the volume of orders, the Company first began to
utilize contract manufacturers to produce its systems, components and
subassemblies in the fourth quarter of 1994, and expects to rely increasingly
on such manufacturers in the future. Currently, these contract manufacturers
are Celeritek, Remec, Inc., Sanmina Corporation, SPC Electronics Corp. and
Senior Systems Technology, Inc.
The Company also relies on outside vendors to manufacture certain components
and subassemblies used in the production of the Company's radio systems.
Certain components, subassemblies and services necessary for the manufacture
of the Company's systems are obtained from a sole supplier or a limited group
of suppliers. In particular, Aethera, Inc., Celeritek, MilliWave, MIZAR,
S.p.A. and Xilinx, Inc. each are sole or limited source suppliers for critical
components used in the Company's radio systems. The Company intends to reserve
its internal manufacturing capacity for new products and products manufactured
in accordance with a customer's custom specifications or expedited delivery
schedule. Therefore, the Company's internal manufacturing capability for
standard products is very limited, and the Company intends to rely on contract
manufacturers for large scale manufacturing. There can be no assurance that
the Company's internal manufacturing capacity and that of its contract
manufacturers will be sufficient to fulfill the Company's orders. Failure to
manufacture, assemble and ship systems and meet customer demands on a timely
and cost effective basis could damage relationships with customers and have a
material adverse effect on the Company's business, financial condition and
operating results.
The Company's reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers and the Company's increasing reliance on
subcontractors involves several risks, including a potential inability to
obtain an adequate supply of finished radio systems and required components
and subassemblies, and reduced control over the price, timely delivery,
reliability and quality of finished radio systems, components and
subassemblies. The Company does not have long-term supply agreements with most
of its manufacturers or suppliers. In addition, the Company has from time to
time experienced and may in the future continue to experience delays in the
delivery of and quality problems with radio systems and certain components and
subassemblies from vendors. Manufacture of the Company's radio systems and
certain of these components and subassemblies is an extremely complex process,
and there can be no assurance that delays caused by contract manufacturers and
suppliers will not occur in the future. Certain of the Company's suppliers
have relatively limited financial and other resources. Although the Company
intends to qualify alternative sources and has the ability to manufacture its
finished radio systems in limited quantities and certain of such components
internally, any inability to obtain timely deliveries of components and
subassemblies of acceptable quality or any other circumstance that would
require the Company to seek alternative sources of supply, or to manufacture
its finished radio systems or such components and subassemblies internally
could delay the Company's ability to ship its systems. Any such delay could
damage relationships with current or prospective customers and could therefore
have a material adverse effect on the Company's business, financial condition
and operating results.
COMPETITION
The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications
41
<PAGE>
transmission media, including copper and fiber optic cable. The Company
experiences intense competition worldwide from a number of leading
telecommunications companies that offer a variety of competitive products and
broader telecommunications product lines, including Alcatel Network Systems,
California Microwave, Inc., Digital Microwave Corporation, Ericsson Limited,
Harris Corporation --Farinon Division and Nokia Telecommunications, most of
which have substantially greater installed bases, financial resources and
production, marketing, manufacturing, engineering and other capabilities than
the Company. The Company faces actual and potential competition not only from
these established companies, but also from startup companies that are
developing and marketing new commercial products and services. The Company may
also face competition in the future from new market entrants offering
competing technologies. In addition, the Company's current and prospective
customers and partners, certain of which have access to the Company's
technology or under some circumstances have been granted the right to use the
technology for purposes of manufacturing, have developed, are currently
developing or could develop the capability to develop or manufacture products
competitive with those that have been or may be developed or manufactured by
the Company. The Company's future results of operations may depend in part
upon the extent to which these customers elect to purchase from outside
sources rather than develop and manufacture their own radio systems. There can
be no assurance that such customers will rely on or expand their reliance on
the Company as an external source of supply for their radio systems. The
principal elements of competition in the Company's market and the basis upon
which customers may select the Company's systems include price, performance,
software functionality, ability to meet delivery requirements and customer
service and support. There can be no assurance that the Company will be able
to compete effectively with respect to such elements. Recently, certain of the
Company's competitors have announced the introduction of competitive products,
including related software tools, and the acquisition of other competitors and
competitive technologies. Within the near future, the Company expects its
competitors to continue to improve the performance and lower the price of
their current products and to introduce new products or new technologies that
provide added functionality and other features that may or may not be
comparable to the Company's products. New product introductions and
enhancements by the Company's competitors could cause a significant decline in
sales or loss of market acceptance of the Company's systems or intense price
competition, or make the Company's systems or technologies obsolete or
noncompetitive. The Company expects to continue to experience significant
price competition that may materially adversely affect its gross margins and
its results of operations. The Company believes that to be competitive, it
will continue to be required to expend significant resources on, among other
items, new product development and enhancements and to reduce the costs of its
systems. In marketing its systems, the Company will face competition from
vendors employing other technologies that may extend the capabilities of their
competitive products beyond their current limits, increase their productivity
or add other features. There can be no assurance that the Company will be able
to compete successfully in the future.
GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by the United
States and foreign laws and international treaties. The Company's systems must
conform to a variety of domestic and international requirements established
to, among other things, avoid interference among users of radio frequencies
and to permit interconnection of equipment. Each country has a different
regulatory process. In order for the Company to operate in a jurisdiction, it
must obtain regulatory approval for its systems and comply with such
regulations. Regulatory bodies worldwide are continuing the process of
adopting new standards for wireless communication products. The delays
inherent in this governmental approval process may cause the cancellation,
postponement or rescheduling of the installation of communications systems by
the Company and its customers, which in turn may have a material adverse
effect on the sale of systems by the Company to such customers. The failure to
comply with current or future regulations could result in suspension or
cessation of operations. Such regulations could require the Company to change
the features of its radio systems and incur substantial costs to comply with
such time-consuming regulations. In addition, the Company is also affected to
the extent that domestic and international authorities regulate the allocation
and auction of the radio frequency spectrum. Equipment to support new services
can be marketed only if permitted by suitable frequency allocations, auctions
and regulations, and the process of establishing new regulations is
42
<PAGE>
complex and lengthy. To the extent PCS operators and others are delayed in
deploying these systems, the Company could experience delays in orders.
Failure by the regulatory authorities to allocate suitable frequency spectrum
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, delays in the radio
frequency spectrum auction process in the United States could delay the
Company's ability to develop and market equipment to support new services.
These delays could have a material adverse effect on the Company's business,
financial condition and results of operations.
The regulatory environment in which the Company operates is subject to
change. Regulatory changes, which are affected by political, economic and
technical factors, could significantly impact the Company's operations by
restricting development efforts by the Company's customers, making current
systems obsolete or increasing the opportunity for additional competition. Any
such regulatory changes, including changes in the allocation of available
spectrum, could have a material adverse effect on the Company's business and
results of operations. The Company might deem it necessary or advisable to
modify its systems to operate in compliance with such regulations. Such
modifications could be extremely expensive and time-consuming.
RESEARCH AND DEVELOPMENT
The Company has a continuing research and development program in order to
enhance its existing systems and related software tools and to introduce new
systems. The Company invested approximately $4.8 million, $6.9 million, $10.6
million and $3.6 million in 1993, 1994, 1995 and the first quarter of 1996,
respectively, and expects to continue to invest significant resources in
research and development, including new product development.
The wireless communications market is subject to rapid technological change,
frequent new product introductions and enhancements, product obsolescence,
changes in end-user requirements and evolving industry standards. The
Company's ability to be competitive in this market will depend in significant
part upon its ability to develop successfully, introduce and sell new systems
and enhancements and related software tools on a timely and cost-effective
basis that respond to changing customer requirements. The Company has
experienced and may in the future experience delays from time to time in
completing development and introduction of new systems, enhancements or
related software tools. There can be no assurance that errors will not be
found in the Company's systems after commencement of commercial shipments,
which could result in the loss of or delay in market acceptance. The inability
of the Company to introduce in a timely manner new systems, enhancements or
related software tools that contribute to sales could have a material adverse
effect on the Company's business, financial condition and results of
operations.
INTELLECTUAL PROPERTY
The Company believes that any success of its business will depend more on
the technical competence, creativity and marketing abilities of its employees
than on patents, trademarks and other intellectual property rights.
Nevertheless, the Company has a policy of seeking patents when appropriate on
inventions resulting from its ongoing research and development and
manufacturing activities. The Company currently holds one U.S. patent and has
three patent applications on file at the U.S. Patent and Trademark Office. The
Company's patent expires in 2010.
The Company attempts to protect its intellectual property rights through
patents, trademarks, trade secrets and other measures. The Company generally
enters into confidentiality and nondisclosure agreements with its service
providers, customers and others, and attempts to limit access to and
distribution of its proprietary rights. The Company also enters into software
license agreements with its customers and others. However, there can be no
assurance that such measures will provide adequate protection for the
Company's trade secrets or other proprietary information, that disputes with
respect to the ownership of its intellectual property rights will not arise,
that the Company's trade secrets or proprietary technology will not otherwise
become known or be independently developed by competitors or that the Company
can otherwise meaningfully protect its intellectual property rights. There can
be no assurance that any patent owned by the
43
<PAGE>
Company will not be invalidated, circumvented or challenged, that the rights
granted thereunder will provide competitive advantages to the Company or that
any of the Company's pending or future patent applications will be issued with
the scope of the claims sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop similar products or software,
duplicate the Company's products or software or design around the patents
owned by the Company or that third parties will not assert intellectual
property infringement claims against the Company. In addition, there can be no
assurance that foreign intellectual property laws will adequately protect the
Company's intellectual property rights abroad. The failure of the Company to
protect its proprietary rights could have a material adverse effect on its
business, financial condition and results of operations.
Litigation may be necessary to enforce the Company's patents, copyrights and
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that infringement or
invalidity claims by third parties or claims for indemnification resulting
from infringement claims will not be asserted in the future or that such
assertions will not materially adversely affect the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license under a
third party's intellectual property rights. There can be no assurance,
however, that a license will be available under reasonable terms or at all. In
addition, should the Company decide to litigate such claims, such litigation
could be extremely expensive and time consuming and could materially adversely
affect the Company's business, financial condition and results of operations,
regardless of the outcome of the litigation.
EMPLOYEES
As of March 31, 1996, the Company had a total of 178 employees, including 63
in operations, 51 in research and development, 28 in sales and marketing, 19
in quality assurance and 17 in administration. The Company believes its future
results of operations will depend in large part on its ability to attract and
retain highly skilled employees. None of the Company's employees are
represented by a labor union, and the Company has not experienced any work
stoppages. The Company considers its employee relations to be good.
FACILITIES
The Company maintains its corporate headquarters in Campbell, California.
This leased facility, totaling approximately 61,000 square feet, contains
corporate administration, sales and customer support, engineering and
manufacturing functions. The lease agreement for this headquarters facility
expires in November 2000.
The Company also maintains a sales and customer support facility in
Redditch, England. The Redditch facility is approximately 5,000 square feet
and is held under a lease agreement that expires in June 2005. In addition,
the Company leases an approximately 1,000 square foot warehouse and office
facility located in Frankfurt, Germany. The Frankfurt facility is held under a
lease agreement that expires in December 1997.
Geritel owns and maintains its corporate headquarters in Tortona, Italy.
This facility is approximately 36,000 square feet and contains design, test,
manufacturing, mechanical and warehouse functions.
The Company's facilities are fully utilized. The Company believes that these
facilities are adequate to meet its current and foreseeable requirements or
that suitable additional or substitute space will be available as needed.
LEGAL PROCEEDINGS
The Company is not subject to any legal proceedings that, if adversely
determined, would cause a material adverse effect on the Company's financial
condition, business or results of operations.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company as of April 15, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George P. Roberts....... 63 Chairman of the Board, President and Chief Executive Officer
Pier Antoniucci......... 54 Executive Vice President
Michael Sophie.......... 38 Chief Financial Officer, Vice President,
Finance and Administration and Controller
John Wood............... 40 Vice President, Engineering
Kenneth E. Bean, II..... 39 Vice President, Manufacturing
Michael C. Brooks (1)... 51 Director
Gill Cogan (1)(2)....... 44 Director
John A. Hawkins (1)..... 35 Director
M. Bernard Puckett (2).. 51 Director
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Mr. Roberts is a founder of the Company and has served as President, Chief
Executive Officer and a Director since October 1991. Since September 1993, he
has also served as Chairman of the Board of Directors. From May 1989 to August
1991, Mr. Roberts was Chief Operating Officer for Digital Microwave
Corporation, a wireless communications company. From October 1984 to May 1989,
Mr. Roberts was President of American Satellite Company, a wholly owned
subsidiary of Contel, an independent telecommunications company. Mr. Roberts
serves as a director of one private company. Mr. Roberts holds a B.S. in
Electrical Engineering from the University of Arizona and has completed
graduate business studies at the University of Arizona and the University of
California -- Los Angeles.
Mr. Antoniucci has served as Executive Vice President for the Company since
July 1995. From December 1992 to June 1995, Mr. Antoniucci served as Senior
Vice President, Marketing and Sales for the Company. From September 1992 to
November 1992, Mr. Antoniucci was Vice President, Purchasing for Alcatel-
Telettra, a manufacturer of telecommunications products. From July 1986 to
August 1992, Mr. Antoniucci was President of Granger-Telettra J.V., a provider
of digital microwave systems located in the United States that resulted from
the acquisition of Granger by Telettra. From October 1972 to June 1986, Mr.
Antoniucci served in various management positions at Telettra, including Vice
President of the E.F.I. Business Unit, Vice President of the Telecom
Infrastructure Business Unit and Project Manager at Telettra/Ford Aerospace.
Telettra was an Italian manufacturer of telecommunications products that was
subsequently acquired by Alcatel Network Systems. Mr. Antoniucci holds a
doctorate in Electrical Engineering from Bologna University in Bologna, Italy.
Mr. Sophie was appointed Chief Financial Officer of the Company in April
1996 and has served as Vice President, Finance and Administration and
Controller of the Company since September 1993. From December 1989 to August
1993, Mr. Sophie was Vice President, Finance and Administration of the Loral
Fairchild Imaging Sensors Division, a manufacturer of CCDs and cameras. From
December 1982 to December 1989, Mr. Sophie served in various financial
positions at Avantek, a telecommunications company, including Division
Controller and Group Controller. Prior to December 1982, Mr. Sophie held
various financial positions for IBM and Fairchild Semiconductor and Signetics,
two semiconductor manufacturers. Mr. Sophie holds an M.B.A. from the
University of Santa Clara and a B.S. in Business Administration from
California State University, Chico.
Mr. Wood has served as Vice President, Engineering for the Company since
April 1993. From August 1992 to March 1993, Mr. Wood served as Director of
Systems Engineering for the Company. From June 1990
45
<PAGE>
to July 1992, Mr. Wood was Manager of Transmission Engineering for Mercury
Personal Communications, a British telecommunications company. From September
1976 to May 1990, Mr. Wood held various technical and management positions at
Marconi Communications, a British telecommunications equipment manufacturing
company. Mr. Wood holds a B.Sc. in Physics and Electronics from Manchester
University in Manchester, England.
Mr. Bean has served as Vice President, Manufacturing of the Company since
August 1995. From September 1992 to June 1995, Mr. Bean was Director of
Quality Assurance of the Company. From June 1989 to March 1992, Mr. Bean was a
Senior Quality Field Engineer at TRW Space and Defense, a provider of
satellite communications equipment. From January 1989 to June 1989, Mr. Bean
was a Senior Quality Engineer at Eaton, a manufacturer of microwave components
for various telecommunications applications, and from October 1987 to January
1989, Mr. Bean was a Quality Manager at Gamma Microwave, a wireless component
manufacturer. Mr. Bean holds a B.A. in Industrial Arts with a minor in
Business from San Jose State University.
Mr. Brooks has served as a Director of the Company since November 1993. He
has been a General Partner of J.H. Whitney & Co., a venture capital
partnership, since January 1985 and currently serves as Managing Partner. Mr.
Brooks is also a director of SunGard Data Systems, Inc., a computer software
and services company, and several private companies. Mr. Brooks holds an
M.B.A. from the Harvard Graduate School of Business Administration and a B.A.
in History from Yale College.
Mr. Cogan has served as a Director of the Company since November 1993. Since
January 1994, Mr. Cogan has been a principal of Weiss, Peck & Greer, L.L.C.,
an investment company, and since 1990, he has been a general partner of Weiss,
Peck & Greer Venture Partners II, L.P., a private venture capital investment
firm. From August 1986 to November 1990, Mr. Cogan was a partner of Adler &
Company, a venture capital group specializing in technology-related
investments. From 1983 to 1985, Mr. Cogan was Chairman and Chief Executive
Officer of Formtek, an imaging and data management computer company. Mr. Cogan
serves as a director of Electronics for Imaging, Inc., an electronic imaging
company; Micro Linear Corporation, a company that develops and markets high
performance and mixed signal integrated circuits; Harmonic Lightwaves, Inc., a
company that supplies highly integrated fiber optic transmission systems;
Number Nine Visual Technology Corporation, a company that supplies high
performance visual technology solutions; Integrated Packaging Assembly
Corporation, a semiconductor packaging foundry; and several private companies.
Mr. Cogan holds a B.S. in Physics and an M.B.A. from the Graduate School of
management at the University of California -- Los Angeles.
Mr. Hawkins has served as a Director of the Company since September 1991.
Since August 1995, Mr. Hawkins has been a General Partner of Generation
Partners, a private equity firm. From May 1992 to July 1995, he was a General
Partner of certain venture capital funds associated with Burr, Egan, Deleage &
Co., a venture capital company. From November 1987 to May 1992, Mr. Hawkins
was an Associate with Burr, Egan, Deleage & Co. He is currently a limited
partner of certain venture capital funds associated with Burr, Egan, Deleage &
Co. Mr. Hawkins serves as a director of PixTech, Inc., a manufacturer of flat
panel displays, and several private companies. Mr. Hawkins holds an M.B.A.
from the Harvard Graduate School of Business Administration and a B.A. in
English Literature from Harvard University.
Mr. Puckett has served as a Director of the Company since May 1994. From
June 1995 to January 1996, he was President and Chief Executive Officer of
Mobile Telecommunication Technologies Corp. ("Mtel"), a telecommunications
corporation. From January 1994 to May 1995, Mr. Puckett was President and
Chief Operating Officer of Mtel. From June 1993 to December 1993, Mr. Puckett
was Senior Vice President, Corporate Strategy and Development for IBM. Between
September 1967 and June 1993, Mr. Puckett served
in various management and marketing positions at IBM. Mr. Puckett served as a
director of Mtel from January 1994 to January 1996 and currently serves as a
director of Dun & Bradstreet and R.R. Donnelley. Mr. Puckett holds a B.S. in
Mathematics from the University of Mississippi.
46
<PAGE>
TECHNICAL AND EXECUTIVE ADVISORY BOARD
In November 1991, the Company established a Technical and Executive Advisory
Board (the "Advisory Board"). The Advisory Board consists of individuals with
expertise in the cellular/wireless telecommunications industry and in the
international telecommunications market who advise the Company on strategic
issues.
The members of the Advisory Board are:
Charlie Bass has been the General Partner of Bass Associates, a venture
capital firm, since September 1989. Dr. Bass has also been a Consulting
Professor of Electrical Engineering at Stanford University since September
1985. Dr. Bass is currently a director of Parallan Computers, a company that
manufactures CD-Rom Servers, and of several private communications companies.
Dr. Bass also served as Chairman of the Board of Directors of the Company from
September 1991 to September 1993. Dr. Bass holds a Ph.D. in Electrical
Engineering from the University of Hawaii and a B.S. in Physics from the
University of Florida.
Neil E. Cox has been Vice President of Operations for Ameritech
International, Inc. ("Ameritech"), a global telecommunications company, since
January 1992. From September 1987 to January 1992, Mr. Cox was Director of
Engineering for Ameritech's Cellular Communications Business. From June 1972
to September 1987, Mr. Cox held various engineering and management positions
with Bell Communications and Research and Indiana Bell, two telecommunications
companies. Mr. Cox currently serves as a director for several
telecommunications companies. Mr. Cox holds a B.S. in Electrical Engineering
from Purdue University.
Robert C. Hawk has been President of the Carrier Division of U.S. West, Inc.
("U.S. West"), a telecommunications company, since January 1988. From April
1986 to December 1988, Mr. Hawk served as Vice President, Marketing for U.S.
West. From August 1983 to March 1986, Mr. Hawk was Vice President, Marketing
and Sales for CXC Corporation, a manufacture of PBXs. Mr. Hawk currently
serves as a director of Octel Communications Corporation, a telecommunications
company, Hello Direct, a telephone equipment manufacturing and distribution
company, Teleos Communications, Inc., a company that manufactures, distributes
and services network access equipment, and PairGain Technologies, Inc., a
telecommunications company. Mr. Hawk holds an M.B.A. from the University of
San Francisco and a B.A. in Business Administration from the University of
Iowa.
Ben Jarvis has been the Chief Executive Officer of PTN Hungary, a Hungarian-
based telecommunications company, since 1993. From 1989 to 1993, Mr. Jarvis
served as Vice President, Technology for U.S. Intelco Networks, Inc., a U.S.
telecommunications company. From 1986 to 1989, Mr. Jarvis was the Senior Vice
President of Engineering and Field Services at Contel ASC, a
telecommunications company.
Guido Vannucchi has been Vice-Chairman of Olivetti Telemedia, a multimedia
service company, since December 1994. From November 1993 to October 1994, Dr.
Vannucchi was Director of Technological Management and Planning at RAI, the
Italian broadcasting service company. From January 1991 to October 1993, Dr.
Vannucchi was a Professor of Economics and Industrial Organization at the
Politecnico of Milano in Milan, Italy and also founded M&IP, a
telecommunications management consulting company. From 1960 to October 1990,
Dr. Vannucchi served in various positions at Telettra S.p.A., a
telecommunications company, including Chief Operating Officer. Dr. Vannucchi
holds a doctorate in Industrial Engineering from the University of Bologna in
Bologna, Italy, and an M.S. in Electrical Engineering from Stanford
University.
47
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to beneficial ownership of the Company's Common Stock as of April 2,
1996 and as adjusted to reflect the sale of 1,830,000 shares of Common Stock
being offered hereby, by (i) each person (or group of affiliated persons) who
is known by the Company to beneficially own more than five percent of the
Company's Common Stock, (ii) the Selling Stockholders, (iii) each of the
Company's Directors, (iv) the Company's Chief Executive Officer and each of
the other executive officers and (v) the Company's Directors and executive
officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING OWNED AFTER OFFERING
--------------------- --------------------
SHARES TO
BE SOLD IN
BENEFICIAL OWNER NUMBER(1) PERCENT(2) OFFERING(3) NUMBER(1) PERCENT(4)
---------------- --------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
George P. Roberts (5)... 661,118 3.9% 87,634 573,484 3.1%
Pier Antoniucci (6)..... 229,728 1.4% 66,666 163,062 *
Kenneth E. Bean, II (7). 41,185 * 1,200 39,985 *
Michael Sophie (8)...... 85,512 * 2,500 83,012 *
John R. Wood (9)........ 90,843 * 12,000 78,843 *
Michael C. Brooks (10).. 576,626 3.4% -- 576,626 3.1%
Gill Cogan (11)......... 456,319 2.7% -- 456,319 2.5%
John A. Hawkins......... 7,600 * -- 7,600 *
M. Bernard Puckett (12). 26,666 * -- 26,666 *
Putnam Investment, Inc.
(13).................... 2,007,453 12.0% -- 2,007,453 10.8%
One Post Office Square
Boston, Massachusetts
02109
Weiss, Peck & Greer
Venture Capital Funds
(14)................... 447,030 2.7% -- 447,030 2.4%
c/o Weiss, Peck & Greer
555 California Street
San Francisco, CA 94104
All current directors
and executive officers
as a group (9 persons)
(15)................... 2,175,597 12.6% 170,000 2,005,597 10.5%
</TABLE>
- --------
* Less than 1%.
(1) Except as indicated in the other footnotes to this table, based on
information provided by such persons and subject to applicable community
property laws, the persons named in the table above have sole voting and
investment power with respect to all of the shares of Common Stock shown
as beneficially owned by them.
(2) Percentage of ownership is based on 16,791,129 shares of Common Stock
outstanding on March 31, 1996. Shares of Common Stock subject to stock
options that are exercisable within 60 days of April 2, 1996 are deemed
outstanding for computing the percentage of the person or group holding
such options, but are not deemed outstanding for computing the percentage
of any other person or group.
(3) In the event the Underwriters' over-allotment option is exercised in
full, Mr. Roberts would sell an additional 36,625 shares of Common Stock
and will own 548,109 shares, representing 2.9% of the shares of Common
Stock to be outstanding after giving effect to the sale of shares to the
public offered by the Company hereby and assuming no exercise of
outstanding options or other shares issued after March 31, 1996.
(4) Percentage of ownership is based on the 18,621,129 shares of Common Stock
to be outstanding after giving effect to the sale of the shares of Common
Stock to the public offered by the Company hereby and assuming no
exercise of outstanding options or other shares issued after March 31,
1996. Shares of Common Stock subject to stock options that are
exercisable within 60 days of April 2, 1996 are deemed outstanding for
computing the percentage of the person or group holding such options, but
are not deemed outstanding for computing the percentage of any other
person or group.
48
<PAGE>
(5) Includes 146,666 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
(6) Includes 163,062 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996. Subsequent to April 2, 1996, 66,666 shares were gifted by
Mr. Antoniucci to the Pier G. and Ann Antoniucci Charitable Remainder
Unitrust (the "Trust"). The shares to be sold in the offering consist
entirely of shares held by the Trust.
(7) Includes 41,112 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
(8) Includes 78,292 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
(9) Includes 61,332 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
(10) Includes 103,594 shares held by J.H. Whitney & Co. ("JHW&Co.") and
414,524 shares held by Whitney 1990 Equity Fund, L.P. ("Whitney Equity
Fund"). Mr. Brooks, a Director of the Company, is a General Partner of
each of JHW&Co. and Whitney Equity Fund. As such, Mr. Brooks may be
deemed to share voting and investment power with respect to these shares.
Mr. Brooks disclaims beneficial ownership of the shares held by JHW&Co.
and Whitney Equity Fund except to the extent of his pecuniary interest in
the shares held by JHW&Co. and Whitney Equity Fund. Does not include an
aggregate of 1,200 shares held by Mr. Brooks' children, with respect to
which Mr. Brooks disclaims beneficial ownership. In addition, in
connection with the retirement of a general partner of JHW&Co. and
Whitney Equity Fund, such retired partner has the right to receive a
portion of any increase in the value of the Company's stock held by
JHW&Co. and Whitney Equity Fund above such firms' valuation per share on
December 31, 1993. Amounts payable to such retired partner will be
determined upon any sale or deemed sale of the Company's stock by JHW&Co.
or Whitney Equity Fund.
(11) Includes 171,774 shares owned by Weiss, Peck & Greer Venture Associates
II, L.P. ("WPGVAII"), 37,606 shares owned by Weiss, Peck & Greer Venture
Associates II (Overseas), Ltd. ("WPGVAII Overseas"), and 237,650 shares
owned by WPG Enterprise Fund, L.P. ("WPGEF"). Mr. Cogan, a Director of
the Company, is a general partner of Weiss, Peck & Greer Venture Partners
II, L.P., the general partner of WPGVAII and WPGEF, and general partner
of WPG Venture Advisers, L.P., the advisor to WPGVAII Overseas. As such,
Mr. Cogan may be deemed to share voting and investment power with respect
to such shares. Mr. Cogan disclaims beneficial ownership of such shares
except to the extent of his interest in such shares arising from his
interests in the entities referred to herein.
(12) Includes 16,666 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
(13) Pursuant to an Amendment No. 1 to Schedule 13G, dated January 15, 1996,
certain Putnam investment managers (together with their parent
corporations, Putnam Investments, Inc. and Marsh & McLennan Companies,
Inc.) have reported beneficial ownership of an aggregate of 2,007,453
shares of the Company's voting stock, which shares were acquired for
investment purposes by such investment managers for certain of their
advisory clients. Such entities have reported shared power to dispose of
or direct the disposition of all such shares, and shared power to vote or
direct the vote of 197,800 of the shares.
(14) Includes 171,774 shares owned by WPGVAII, 37,606 shares owned by WPGVAII
Overseas, and 237,650 shares owned by WPGEF. Mr. Cogan, a Director of the
Company, is a general partner of Weiss, Peck & Greer Venture Partners II,
L.P., the general partner of WPGVAII and WPGEF, and general partner of
WPG Venture Advisers, L.P., the advisor to WPGVAII Overseas. As such, Mr.
Cogan may be deemed to share voting and investment power with respect to
such shares. Mr. Cogan disclaims beneficial ownership of such shares
except to the extent of his interest in such shares arising from his
interests in the entities referred to herein.
(15) Includes 507,130 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
April 2, 1996.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
common stock, $0.0001 par value (the "Common Stock"), and 2,000,000 shares of
undesignated preferred stock, $0.0001 par value (the "Preferred Stock").
COMMON STOCK
As of March 31, 1996, there were 16,791,129 shares of Common Stock
outstanding which were held of record by approximately 179 stockholders. There
will be 18,621,129 shares of Common Stock outstanding after giving effect to
the sale of the shares of Common Stock to the public offered by the Company
hereby and assuming no exercise of outstanding options or other shares issued
after March 31, 1996.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of 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.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are fully paid and
nonassessable, and the shares of Common Stock to be issued upon completion of
this offering will be fully paid and nonassessable.
UNDESIGNATED PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
2,000,000 shares of Preferred Stock. The Board of Directors has the authority
to issue the Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
vote or action by the stockholders. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders and may adversely affect
the voting and other rights of the holders of Common Stock. The issuance of
Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. At present, the Company has no plans to issue any of the
Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (for the purposes of
determining the number of shares outstanding, under Delaware law, those shares
owned (x) by persons who are directors and also officers and (y) by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer are excluded from the calculation); or (iii) on or
subsequent to such date, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder.
50
<PAGE>
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
Certain provisions of the Company's Certificate of Incorporation, equity
incentive plans, Bylaws and Delaware law may have a significant effect in
delaying, deferring or preventing a change in control of the Company and may
adversely affect the voting and other rights of other holders of Common Stock.
In particular, the existence of the Company's classified Board of Directors
and the ability of the Board of Directors to issue blank check Preferred Stock
without further stockholder approval may have the effect of delaying,
deferring or preventing a change in control of the Company and may adversely
affect the voting and other rights of other holders of Common Stock.
REGISTRATION RIGHTS
After this offering, certain holders of shares of Common Stock will be
entitled to certain rights with respect to the registration of such shares
under the Act. Under the terms of the agreements between the Company and the
holders of such registrable securities, if the Company proposes to register
any of its securities under the Act, either for its own account or for the
account of other security holders exercising registration rights, such holders
are entitled to notice of such registration and are entitled to include shares
of such Common Stock therein. The stockholders benefiting from these rights
may also require the Company on two separate occasions to file a registration
statement under the Act at its expense with respect to their shares of Common
Stock, and the Company is required to use its diligent reasonable efforts to
effect such registration. Further, such holders may require the Company to
file additional registration statements on Form S-3. These rights are subject
to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and the right of the Company not to effect a requested
registration within six months following an offering of the Company's
securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, 2nd Floor, Glendale, California 91201. Its
telephone number is (818) 502-1404.
51
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, PaineWebber Incorporated and Prudential
Securities Incorporated (the "Representatives"), have severally agreed with
the Company and the Selling Stockholders, subject to the terms and conditions
of the Underwriting Agreement, to purchase the number of shares of Common
Stock set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC..................................
PaineWebber Incorporated...........................................
Prudential Securities Incorporated.................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction shall change the amount of proceeds to be received by the Company or
the Selling Stockholders as set forth on the cover page of this Prospectus.
The Company and a Selling Stockholder have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 300,000 additional shares of Common Stock in the
aggregate, at the same price per share as the Company and the Selling
Stockholders will receive for the 2,000,000 shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of the 2,000,000 shares offered hereby. If purchased, the
additional shares will be sold by the Underwriters on the same terms as those
on which the 2,000,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Act").
Robertson, Stephens & Company LLC and PaineWebber Incorporated acted as co-
managers for the IPO in March 1995 and for the Secondary Offering in August
1995.
Pursuant to the terms of lock-up agreements, all executive officers,
directors, Selling Stockholders and certain holders of the Company's Common
Stock have agreed with the Representatives that, until 90 days after the date
of this Prospectus, they will not offer to sell, contract to sell or otherwise
sell, dispose of or grant any rights with respect to any shares of Common
Stock, any options pursuant to the Company's stock plans to purchase shares of
Common Stock or any securities convertible or exchangeable for shares of
Common Stock, now owned or hereafter acquired directly by such holders or with
respect to which they have
52
<PAGE>
the power of disposition, other than with the prior written consent of
Robertson, Stephens & Company LLC, which may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject
to lock-up agreements. The Company has also agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
or any options to purchase Common Stock other than options issued under the
Company's stock plans until 90 days after the date of this Prospectus, except
with the prior written consent of Robertson, Stephens & Company LLC.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group, if any, from making a market in the Company's
Common Stock during the "cooling-off" period immediately preceding the
commencement of sales in the offering. The Commission has, however, adopted
exemptions from these rules that permit passive market making under certain
conditions. These rules permit an underwriter or other members of the selling
group, if any, to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters and other members of the selling group, if any, may engage in
passive market making in the Company's Common Stock during the cooling-off
period.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Brobeck, Phleger & Harrison LLP, Palo
Alto, California. Certain legal matters in connection with the offering will
be passed upon for the Underwriters by Wilson, Sonsini, Goodrich & Rosati,
P.C., Palo Alto, California. As of the date of this Prospectus, a member of
Brobeck, Phleger & Harrison LLP, and family members thereof beneficially owned
an aggregate of approximately 25,000 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of P-COM, Inc. 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 have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
Additional information regarding the Company and the shares offered hereby
are contained in the Registration Statement on Form S-3 and the exhibits
thereto (the "Registration Statement") filed with the Commission under the
Act. Statements made in this Prospectus as to the contents of any referenced
contract, agreement or other document are not necessarily complete, and each
such statement shall be deemed qualified in its entirety by reference thereto.
Copies of the Registration Statement may be obtained, upon payment of the fee
prescribed by the Commission, or may be examined without charge, at the office
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549.
53
<PAGE>
P-COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................................ F-2
Consolidated Balance Sheets at December 31, 1994 and 1995 and March 31,
1996 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 (unaudited)........................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the three months ended March
31, 1995 and 1996 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the three months ended March 31, 1995 and
1996 (unaudited)........................................................ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of P-COM, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of P-
COM, Inc. and its subsidiary 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. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 25, 1996
F-2
<PAGE>
P-COM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1994 1995 1996
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 1,294 $ 7,655 $ 5,433
Accounts receivable, net of allowance for
doubtful
accounts of $25, $35 and $75.............. 4,569 19,896 18,208
Inventory.................................... 1,894 15,363 16,304
Prepaid expenses............................. 47 3,690 11,105
-------- -------- --------
Total current assets....................... 7,804 46,604 51,050
Property and equipment, net.................... 1,600 7,304 8,783
Other assets................................... 81 112 1,676
-------- -------- --------
$ 9,485 $ 54,020 $ 61,509
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $ 2,573 $ 10,689 $ 15,695
Accrued employee benefits.................... 748 760 634
Other accrued liabilities.................... 631 821 1,596
Notes payable to bank........................ 2,610 -- --
Current portion of capital lease obligations. 486 -- --
-------- -------- --------
Total current liabilities.................. 7,048 12,270 17,925
Capital lease obligations, less current
portion........................................ 743 -- --
-------- -------- --------
Total liabilities.......................... 7,791 12,270 17,925
-------- -------- --------
Commitments (Note 7)
Stockholders' equity:
Preferred stock, $0.0001 par value, 2,000,000
shares authorized, no shares outstanding..
Series A Convertible Preferred Stock, $.0001
par value; 12,400,000 shares authorized,
4,000,010 shares issued and outstanding at
December 31, 1994; no shares authorized,
issued and outstanding at December 31,
1995...................................... 1 -- --
Series B Convertible Preferred Stock, $.0001
par value; 12,000,000 shares authorized,
3,936,448 shares issued and outstanding at
December 31, 1994; no shares authorized,
issued and outstanding at December 31,
1995...................................... * -- --
Series C Convertible Preferred Stock, $.0001
par value; 5,100,000 shares authorized,
1,666,714 shares issued and outstanding at
December 31, 1994; no shares authorized,
issued and outstanding at December 31,
1995...................................... * -- --
Common Stock, $.0001 par value; 30,000,000
shares authorized; 1,742,436 and
16,582,924 shares issued and outstanding
at December 31, 1994 and 1995,
respectively, and 16,791,129 at March 31,
1996...................................... * 2 2
Additional paid-in capital................... 17,215 54,685 55,161
Accumulated deficit.......................... (15,522) (12,937) (11,579)
-------- -------- --------
Total stockholders' equity................. 1,694 41,750 43,584
-------- -------- --------
$ 9,485 $ 54,020 $61,509
======== ======== ========
</TABLE>
- --------
* Appears as zero due to rounding.
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
P-COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- -----------------------
1993 1994 1995 1995 1996
------- ------- ------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales....................... $ 738 $ 9,238 $42,805 $ 4,346 $17,552
Cost of sales............... 730 5,509 24,573 2,592 10,425
------- ------- ------- ------- -------
8 3,729 18,232 1,754 7,127
------- ------- ------- ------- -------
Operating expenses:
Research and development.. 4,782 6,872 10,645 2,021 3,599
Selling and marketing..... 906 1,947 3,321 637 1,185
General and
administrative.............. 718 1,483 1,856 351 839
------- ------- ------- ------- -------
Total operating
expenses.................... 6,406 10,302 15,822 3,009 5,623
------- ------- ------- ------- -------
Income (loss) from
operations.................. (6,398) (6,573) 2,410 (1,255) 1,504
Interest and other income,
net......................... 36 62 614 91 5
Interest expense............ (24) (169) (301) (148) --
------- ------- ------- ------- -------
Income (loss) before income
taxes....................... (6,386) (6,680) 2,723 (1,312) 1,509
Provision for income taxes.. -- -- 138 -- 151
------- ------- ------- ------- -------
Net income (loss)........... $(6,386) $(6,680) $ 2,585 $(1,312) $ 1,358
======= ======= ======= ======= =======
Net income (loss) per share. $ (0.59) $ 0.16 $ (0.10) $ 0.08
======= ======= ======= =======
Weighted average common and
common
equivalent shares (Note 1). 11,376 16,246 12,618 17,567
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
P-COM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
SERIES A, B AND C
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ----------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
---------- ------ ---------- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................... 4,000,010 $ 1 1,359,988 $-- $ 4,504 $ (2,456)
Issuance of Common Stock
upon exercise of stock
options................ -- -- 210,012 -- 11 --
Issuance of Common Stock
in exchange for
services............... -- -- 10,002 -- 8 --
Issuance of Series B
Preferred Stock at
$1.95 per share for
cash................... 3,936,448 -- -- -- 7,676 --
Net loss................ -- -- -- -- -- (6,386)
---------- ---- ---------- ---- ------- --------
Balance at December 31,
1993.................... 7,936,485 1 1,580,002 -- 12,199 (8,842)
Issuance of Common Stock
upon exercise of stock
options, net of
repurchases............ -- -- 145,378 -- 23 --
Issuance of Common Stock
in exchange for
services............... -- -- 17,056 -- 26 --
Issuance of Series C
Preferred Stock at
$3.00 per share for
cash, net of issuance
costs.................. 1,666,714 -- -- -- 4,967 --
Net loss................ -- -- -- -- -- (6,680)
---------- ---- ---------- ---- ------- --------
Balance at December 31,
1994.................... 9,603,172 1 1,742,436 -- 17,215 (15,522)
Issuance of Common Stock
in public stock
offerings, net of
issuance cost.......... -- -- 4,630,000 1 36,950 --
Conversion of Preferred
Stock into Common Stock
upon initial public
offering............... (9,603,172) (1) 9,603,172 1 -- --
Issuance of Common Stock
upon exercise of stock
options and warrants,
net of repurchases..... -- -- 472,730 -- 71 --
Issuance of Common Stock
upon exercise of
warrants............... -- -- 108,652 -- -- --
Issuance of options and
warrants in exchange
for services........... -- -- -- -- 284 --
Issuance of Common Stock
under employee stock
purchase plan.......... -- -- 25,934 -- 165 --
Net income.............. -- -- -- -- -- 2,585
---------- ---- ---------- ---- ------- --------
Balance at December 31,
1995.................... -- -- 16,582,924 2 54,685 (12,937)
Issuance of Common Stock
upon exercise of stock
options (unaudited).... -- -- 167,078 -- 181 --
Issuance of Common Stock
under employee stock
purchase plan
(unaudited)............ -- -- 41,127 -- 295 --
Net income (unaudited).. -- -- -- -- -- 1,358
---------- ---- ---------- ---- ------- --------
Balance at March 31,
1996 (unaudited)........ -- $-- 16,791,129 $ 2 $55,161 $(11,579)
========== ==== ========== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
P-COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- -----------------------
1993 1994 1995 1995 1996
------- ------- -------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)........ $(6,386) $(6,680) $ 2,585 $(1,312) $1,358
Adjustments to reconcile
net income (loss) to
net cash used in
operating activities..
Depreciation........... 234 510 1,081 198 284
Non-cash charges....... 8 26 284 284 --
Change in assets and
liabilities:
Accounts receivable.. (690) (3,879) (15,327) (519) 1,688
Inventory............ (196) (1,662) (13,469) (1,736) (941)
Prepaid expenses..... (7) (33) (3,643) (155) (7,415)
Other assets......... (64) (11) (31) 36 (1,564)
Accounts payable..... 836 1,619 8,116 1,154 5,006
Accrued employee
benefits................... 150 430 12 (163) (126)
Other accrued
liabilities................ 111 520 190 386 775
------- ------- -------- ------- ------
Net cash used in
operating
activities.. (6,004) (9,160) (20,202) (1,827) (935)
------- ------- -------- ------- ------
Cash flows from investing
activities:
Acquisition of property
and equipment.............. (167) (209) (6,785) (840) (1,763)
Short-term investments
proceeds................... 1,000 -- -- -- --
------- ------- -------- ------- ------
Net cash (used in)
provided by
investing
activities.. 833 (209) (6,785) (840) (1,763)
------- ------- -------- ------- ------
Cash flows from financing
activities:
Payments on capitalized
lease obligations.......... (114) (497) (1,341) (1,315) --
Proceeds from notes
payable.................... -- 2,610 -- -- --
Payments of notes
payable.................... -- -- (2,610) (2,610) --
Net proceeds from
issuance of stock.......... 7,687 4,990 37,187 25,987 476
Proceeds from sale-lease
back....................... 148 -- 112 112 --
------- ------- -------- ------- ------
Net cash provided
by financing
activities.. 7,721 7,103 33,348 22,174 476
------- ------- -------- ------- ------
Net increase (decrease) in
cash and cash equivalents. 2,550 (2,266) 6,361 19,507 (2,222)
Cash and cash equivalents
at the beginning of the
period.................... 1,010 3,560 1,294 1,294 7,655
------- ------- -------- ------- ------
Cash and cash equivalents
at the end of the period... $ 3,560 $ 1,294 $ 7,655 $20,801 $5,433
======= ======= ======== ======= ======
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid for interest... $ 24 $ 69 $ 101 $ 68 $ 1
======= ======= ======== ======= ======
Equipment acquired under
capital lease
obligations........... $ 675 $ 932 $ -- $ -- $ --
======= ======= ======== ======= ======
Stock issued in exchange
for services............... $ 8 $ 26 $ -- $ -- $ --
======= ======= ======== ======= ======
Stock options and
warrants issued for
services................... $ -- $ -- $ 284 $ 284 $ --
======= ======= ======== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
P-COM, Inc. (the Company), incorporated in Delaware on August 23, 1991,
designs, manufactures and markets short-haul millimeter wave radio systems for
use in the worldwide wireless telecommunications market. The Company also
markets diagnostic, maintenance and system configuration software tools that
are complementary to its radio systems. The Company's systems are sold
internationally through strategic partners, system providers, OEMs, and
distributors as well as directly to end users, and domestically primarily
through its direct sales force. Until the quarter ended December 1993, the
Company was in the development stage and devoted substantially all its efforts
to raising capital, recruiting personnel and developing a market for its
products.
On January 11, 1995, the Company effected a 1-for-3 reverse stock split. On
October 27, 1995, the Company effected a 2-for-1 forward stock split. All
shares and per share amounts have been adjusted retroactively to reflect these
stock splits. All outstanding shares of Preferred Stock were converted into
Common Stock at the closing of the Company's initial public offering of Common
Stock (the "Offering") on March 9, 1995.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the Company's significant accounting policies:
Management's Use of Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Cash, cash equivalents
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
Revenue recognition
Revenue from product sales is recognized upon shipment of the product
provided no significant obligations remain and collectibility is probable.
Provisions for estimated warranty repairs, returns and allowances are recorded
at the time products are shipped.
Inventory
Inventory is stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.
F-7
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based upon the useful lives of the assets ranging
from three to seven years. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated useful lives or
the lease term of the respective assets.
Software development costs
Software development costs incurred prior to the establishment of
technological feasibility are expensed as incurred. Software development costs
incurred subsequent to the establishment of technological feasibility are
capitalized, if material. To date, all software development costs incurred
subsequent to the establishment of technological feasibility have been
immaterial.
Income taxes
The Company accounts for income taxes under the liability method, which
recognizes deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
and trade accounts receivable. The Company places its cash and cash
equivalents in a variety of financial instruments such as market rate accounts
and U.S. Government agency debt securities. The Company, by policy, limits the
amount of credit exposure to any one financial institution or commercial
issuer.
To date, the Company has sold most of its products in international markets.
Sales to three customers have been denominated in British pounds and at
December 31, 1994 and 1995 amounts due from these customers represented 48%
and 35%, respectively, of accounts receivable. Any gains and/or losses
incurred on the settlement of these receivables are included in the financial
statements as they occur and have been immaterial to date. As of December 31,
1994 and 1995, the balance due in British pounds was (Pounds)1,404,000 and
(Pounds)4,300,000, respectively, and was translated at $1.57 per British
pound. The Company intends to bill its customers in U.S. dollars whenever
possible. The Company has not entered into any currency hedging transactions
to date, however, in the future, the Company may hedge these transactions.
The Company extends credit terms to international customers of up to 120
days, which is consistent with local business practices. The Company performs
on-going credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers.
At December 31, 1994 and 1995, approximately 77% and 62%, respectively, of
trade accounts receivable represents amounts due from four customers.
Net income (loss) per share
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during the period. Common
equivalent shares consist of Convertible Preferred Stock (using the if
converted method) and stock options and warrants (using the treasury stock
method). Common equivalent shares from stock options and warrants are excluded
from the computation if their effect
F-8
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
is antidilutive, except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin, common and common equivalent shares
issued from January 1, 1994 through the closing of the Company's initial
public offering on March 9, 1995 have been included in the computation using
the treasury stock method as if they were outstanding for all periods prior to
the initial public offering. Furthermore, in accordance with staff policy,
common equivalent shares from Convertible Preferred Stock that converted into
Common Stock upon the closing of the initial public offering are included
using the if converted method.
Interim Results (Unaudited)
The accompanying balance sheet at March 31, 1996 and the statements of
operations and of cash flows for the three months ended March 31, 1995 and
1996 and the statement of stockholders' equity for the three months ended
March 31, 1996 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of only normal recurring adjustments,
necessary for the fair presentation of the results of the interim periods. The
data disclosed in these Notes to the Financial Statements for these periods is
unaudited.
NOTE 2 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------ ------- ---------
(In thousands)
<S> <C> <C> <C>
Inventory:
Raw materials......... $ 851 $ 6,613 $ 3,820
Work-in-process....... 710 6,418 8,892
Finished goods........ 333 2,332 3,592
------ ------- -------
$1,894 $15,363 $16,304
====== ======= =======
Property and equipment:
Tooling and test
equipment............... $1,685 $ 5,818 $ 7,906
Computer equipment.... 440 1,266 1,408
Furniture and
fixtures................ 221 979 1,383
Construction-in-
process................. -- 1,068 197
------ ------- -------
2,346 9,131 10,894
Less -- accumulated
depreciation and
amortization............ (746) (1,827) (2,111)
------ ------- -------
$1,600 $ 7,304 $ 8,783
====== ======= =======
</TABLE>
NOTE 3 -- CAPITAL STOCK:
Preferred Stock
Under the Company's Restated Certificate of Incorporation, the Company is
authorized to issue 2,000,000 shares of Preferred Stock, par value $0.0001 per
share. The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences
and restrictions of each series.
Common Stock
During 1993 and 1994, the Company issued 10,002 and 17,056 shares,
respectively, of Common Stock with fair market values ranging from $0.11 to
$1.88 per share to certain vendors in exchange for services rendered. The fair
value of the shares issued has been recorded in the Company's financial
statements.
F-9
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1995, the Company received net proceeds of $26.1 million from the
sale of 3,910,000 shares of Common Stock in the Offering, which was declared
effective by the SEC on March 2, 1995. In September 1995, the Company received
net proceeds of $10.8 million from the sale of 720,000 shares of Common Stock
in a follow-on public offering. Earnings per share for the year ended December
31, 1995 reflects the shares issued on a weighted average computation from the
date of their issuance and therefore does not include the full dilutive effect
of these shares.
NOTE 4 -- EMPLOYEE BENEFIT PLANS:
Stock Option Plans
On January 11, 1995, the Company's Board of Directors adopted the 1995 Stock
Option/Stock Issuance Plan (the "1995 Plan") as a successor to its 1992 Stock
Option Plan (the "1992 Plan"). The 1995 Plan was approved by stockholders in
February 1995. In addition to the 2,000,000 shares of Common Stock authorized
for issuance under the 1992 Plan, the 1995 Plan authorizes the Board of
Directors to issue an additional 320,000 shares of Common Stock. As of January
11, 1995, no further option grants or stock issuances may be made under the
1992 Plan, and all option grants and stock issuances made during the remainder
of 1995 were made under the 1995 Plan. All outstanding options under the 1992
Plan were incorporated into the 1995 Plan.
Options granted under the 1992 plan are generally exercisable for a period
not to exceed ten years, and generally must be issued with exercise prices not
less than 100% and 85%, for incentive and non-qualified stock options,
respectively, of the estimated fair market value of the Common Stock as
determined by the Board of Directors on the date of grant. Options granted
under the 1992 Plan are exercisable immediately upon grant. Options granted
under the 1992 Plan generally vest 25% on the first anniversary from the date
of grant, and ratably each month over the remaining thirty-six month period.
Unvested shares purchased through the exercise of stock options are subject to
repurchase by the Company.
The 1995 Plan contains three equity incentive programs: a Discretionary
Option Grant Program, a Stock Issuance Program for officers and employees of
the Company and independent consultants and advisors to the Company and an
Automatic Option Grant Program for non-employee members of the Company's Board
of Directors.
Options under the Discretionary Option Grant Program may be granted at not
less than 85% of the fair market value per share of Common Stock on the grant
date with exercise periods not to exceed ten years. The Plan Administrator is
authorized to issue tandem stock appreciation rights and limited stock
appreciation rights in connection with the option grants.
The Stock Issuance Program provides for the sale of Common Stock at a price
not less than 85% of fair market value. Shares may also be issued solely for
services. The administrator has discretion as to vesting provisions, including
accelerations, and may institute a loan program to assist participants with
financing stock purchases. The program also provides certain alternatives to
satisfy tax liabilities incurred by participants in connection with the
program.
Under the Automatic Option Grant Program, participants will automatically
receive an option to purchase 16,666 shares of Common Stock upon initially
joining the Board of Directors and will receive an additional automatic grant
each year at each annual stockholders' meeting for 1,332 shares. Each option
will have an exercise price per share equal to 100% of the fair market value
of the Common Stock on the grant date. The shares subject to the initial
16,666 share option will vest in three equal annual installments over the
optionee's period of Board service, with the first such installment to vest
upon the completion of one year of Board service measured from the option
grant date. The shares subject to each annual 1,332 share option will vest
upon the optionee's completion of one year of Board service from the date of
grant.
F-10
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity under the Company's
1992 and 1995 Plans.
<TABLE>
<CAPTION>
OPTIONS OPTION
OUTSTANDING PRICE ($)
----------- --------------
<S> <C> <C>
Balance at December 31, 1992................... 510,666 .015 - .105
Options granted................................ 601,112 .105 - .450
Options exercised.............................. (210,012) .015 - .105
Options canceled............................... (39,000) .015 - .450
--------- --------------
Balance at December 31, 1993................... 862,766 .015 - .450
Options exercised.............................. (143,336) .015 - .195
Options granted................................ 316,366 .900 - 2.775
Options canceled............................... (18,334) .195 - 2.775
--------- --------------
Balance at December 31, 1994................... 1,017,462 .015 - 1.875
Options exercised.............................. (316,292) .105 - 1.875
Options granted................................ 871,022 3.600 - 19.500
Options canceled............................... (132,738) .105 - 13.125
Options expired................................ (21,355) .105 - 13.125
--------- --------------
Balance at December 31, 1995................... 1,418,099 .015 - 19.500
Options exercised (unaudited).................. (155,080) .105 - 8.625
Options granted (unaudited).................... 306,900 14.00 - 20.25
Options canceled (unaudited)................... (8,595) 3.60 - 17.25
--------- --------------
Balance at March 31, 1996 (unaudited).......... 1,561,324 .015 - 20.25
========= ==============
</TABLE>
Employee Stock Purchase Plan
On January 11, 1995 the Company's Board of Directors adopted the Employee
Stock Purchase Plan (the "Purchase Plan"), which was approved by stockholders
in February 1995. The Purchase Plan permits eligible employees to purchase
Common Stock at a discount through payroll deductions during successive
offering periods with a maximum duration of 24 months. Each offering period
shall be divided into consecutive semi-annual purchase periods. The price at
which the Common Stock is purchased under the Purchase Plan is equal to 85% of
the fair market value of the Common Stock on the first day of the offering
period or the last day of the purchase period, whichever is lower. The initial
offering period commenced on the effectiveness of the Offering. A total of
200,000 shares of Common Stock has been reserved for issuance under the
Purchase Plan. Awards and terms are established by the Company's Board of
Directors. The Purchase Plan may be canceled at any time at the discretion of
the Company's Board of Directors prior to its expiration in December 2004.
Through December 31, 1995, employees have purchased 25,934 shares of Common
Stock under the Purchase Plan.
NOTE 5 -- INCOME TAXES:
The provision for income taxes for the year ended December 31, 1995 and the
three months ended March 31, 1996 consists principally of currently payable
federal income taxes due to alternative minimum tax requirements and state
income taxes.
No provision for income taxes was recorded in 1994 or 1993 as the Company
incurred net losses in those periods.
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $9,160,000 which may be utilized to reduce
future taxable income through the year 2010, subject to certain limitations.
Under the Tax Reform Act of 1986, the amounts of and benefit from net
operating losses that can be carried forward may be impaired or limited in
certain circumstances. Events which may cause changes in
F-11
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the amounts of net operating losses that the Company may utilize in any one
year include, but are not limited to, a cumulative stock ownership change of
more than 50% over a three-year period. In April 1992, an ownership change
occurred, but did not affect the loss carryforwards as the annual limitation
exceeded the carryforward as of the date of change.
Deferred income taxes reflect the tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting and
income tax purposes. Significant components of the Company's deferred tax
assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Net operating loss carryforwards.......................... $4,280 $3,146
Credit carryforwards...................................... 1,250 1,364
Research and development expenses
capitalized for tax purposes............................. 615 482
Organization costs........................................ 609 429
Reserves and other........................................ 187 494
------ ------
6,941 5,915
Valuation allowance....................................... (6,941) (5,915)
------ ------
$ -- $ --
====== ======
</TABLE>
A valuation allowance has been established for the Company's deferred tax
assets since realization of such assets is uncertain.
NOTE 6 -- COMMITMENTS:
Lease obligations
The Company leases its facilities under non-cancelable operating leases. The
leases require the Company to pay taxes, maintenance and repair costs. Future
minimum lease payments under the Company's operating leases at December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
ENDING
DECEMBER
31,
--------
<S> <C>
1996.................................. $ 796
1997.................................. 798
1998.................................. 802
1999.................................. 840
Thereafter............................ 1,106
------
Total minimum payments................ $4,342
======
</TABLE>
Rent expense for all operating leases was approximately $93,000, $222,000
and $467,000 in 1993, 1994, and 1995, respectively.
NOTE 7 -- BORROWING ARRANGEMENTS:
The Company's line of credit agreement with a bank as amended on October 23,
1995, provides for borrowings up to $10,000,000. Borrowings are based on 80%
of eligible domestic accounts receivable and on 75% of eligible foreign
accounts receivable. Borrowings under the line are unsecured and bear interest
at the
F-12
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bank's prime rate. The agreement requires the Company to comply with certain
financial covenants, including the maintenance of specified minimum ratios.
The Company was in compliance with respect to these covenants through December
31, 1995. The line expires in October, 1996.
NOTE 8 -- GEOGRAPHIC SALES AND MAJOR CUSTOMERS:
The following is a summary of the Company's sales by geographic area:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- THREE MONTHS ENDED
1993 1994 1995 MARCH 31, 1996
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Europe...................... 100% 60% 70% 64%
Central and South America... -- 24 1 --
North America............... -- 16 29 28%
Pacific Rim................. -- -- -- 8%
------- ------- ------- ---
100% 100% 100% 100%
======= ======= ======= ===
</TABLE>
The following table summarizes the percentage of sales accounted for by the
Company's significant customers with sales of 10% or more:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------- THREE MONTHS ENDED
1993 1994 1995 MARCH 31, 1996
------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Customer A 66% -- -- --
Customer B -- -- 24% 10%
Customer C 25% 11% -- --
Customer D -- 24% -- --
Customer E -- 12% -- --
Customer F -- 15% 22% 15%
Customer G -- -- 12% 26%
Customer H -- -- 22% --
Customer I -- -- -- 17%
</TABLE>
NOTE 9 -- SUBSEQUENT EVENT (UNAUDITED):
On April 30, 1996, the Company acquired a 51% interest in Geritel S.p.A
("Geritel") a Tortona, Italy based manufacturer of telecommunications
equipment, with additional operations in France. Pursuant to the acquisition
agreement, the Company made an initial cash payment of $1.0 million at the
closing, and will pay an additional $1.3 million over the four quarters
following the acquisition. In connection with this transaction, the Company
was also granted a two-year option to acquire an additional 16% of Geritel on
terms specified in the acquisition agreement. Geritel develops, sells and
installs microwave transmission systems and owns mountain top sites for
antenna locations. The Company will account for the stock acquisition through
the purchase method of accounting and the results of operations of Geritel
will be included in the Company's consolidated results for all periods
subsequent to the date of acquisition. The Company does not expect to incur a
significant non-recurring charge in connection with such acquisition and
therefore does not expect the acquisition to have a material adverse effect
upon the Company's results of operations for fiscal 1996.
F-13
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates,
except the SEC registration fee, the Nasdaq National Market Listing fee and
the NASD Filing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
SEC Registration fee............................................ $ 18,737
Nasdaq National Market Listing fee.............................. 17,500
NASD Filing fee................................................. 5,273
Printing and engraving.......................................... 100,000
Legal fees and expenses......................................... 250,000
Accounting fees and expenses.................................... 40,000
Blue sky fees and expenses...................................... 10,000
Registrar and transfer agent fees............................... 5,000
Officers and Directors liability insurance...................... 250,000
Miscellaneous................................................... 28,489
--------
Total....................................................... $725,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). Article VII of the Registrant's Bylaws provides for
mandatory indemnification of its directors and permissible indemnification of
its officers, employees and other agents to the maximum extent permitted by
the Delaware General Corporation Law. The Registrant has entered into
Indemnification Agreements with its officers and directors which are intended
to provide the Registrant's officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is also made to Section 8 of the Underwriting
Agreement contained in Exhibit 1.1 hereto, and Section 1.10 of the Restated
Investor Rights Agreement contained in Exhibit 4.3 incorporated by reference
herein, each of which contain provisions indemnifying officers and directors
of the Registrant against certain liabilities. Reference is also made to the
Underwriting Agreements entered into in connection with the Company's first
two public offerings indemnifying officers and directors of the Company and
other persons against certain liabilities, including those arising under the
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S>
+1.1 Form of Underwriting Agreement (draft subject to negotiation).
+2.1 Agreement dated April 15, 1996, by and among the Company, Mr.
Giovanni Marciano and certain other parties named thereunder.
4.1(1) Form of Common Stock Certificate.
4.3(1) Restated Investor Rights Agreement dated January 11, 1995, by and
among the Company and the parties thereto.
4.4(1) Form of Warrant to Purchase Common Stock of the Company, forms of
Letter Agreements amending Warrant to Purchase Common Stock and list
of holders thereof.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S>
4.5(1) Warrant Purchase Agreement dated November 9, 1992, by and between the
Company and Dominion Ventures, Inc. ("Dominion"); Series A Preferred
Stock Warrant dated January 8, 1992 issued to Dominion.
4.6(1) Warrant Purchase Agreement dated June 23, 1993 by and between the
Company and Dominion; Series B Preferred Stock Warrant dated June 23,
1993 issued to Dominion.
4.7(1) Letter Agreement dated June 23, 1993, by and between the Company and
Dominion.
4.8(1) Series C Preferred Stock Warrant dated January 10, 1995, issued to
Applied Telecommunication Technologies, Inc.
4.9(2) Amendment and Consent dated as of July 28, 1995, by and among the
Company and the parties thereto.
+4.10 Second Amendment and Consent dated as of April 15, 1996 by and among
the Company and the parties thereto.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
+24.1 Power of Attorney (see page II-3).
</TABLE>
- --------
+ Previously filed.
(1) Incorporated by reference to identically numbered exhibits included in the
Company's Registration Statement on Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
(2) Incorporated by reference to an identically numbered exhibit included in
the Company's Registration Statement on Form S-1 (File No. 33-95392)
declared effective with the Securities and Exchange Commission on August
17, 1995.
ITEM 17. UNDERTAKING
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, Indemnification Agreements
entered into between the Registrant and its officers and directors, the
Underwriting Agreements, or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered 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 Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or section 15(d)
of the Securities Exchange act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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
Campbell, State of California on this 16th day of May, 1996.
P-COM, Inc.
/s/ Michael Sophie
By: _________________________________
(Michael Sophie)
Chief Financial Officer, Vice
President, Financeand Administration
and Controller
Pursuant to the requirements of the Securities Act of 1933, 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
--------- ----- ----
<S> <C> <C>
/s/ George P. Roberts* Chairman of the Board, President, May 16, 1996
----------------------- Chief Executive Officer and Director
(Principal Executive Officer)
(George P. Roberts)
/s/ Michael Sophie Chief Financial Officer, May 16, 1996
----------------------- Vice President, Finance and
Administration and Controller
(Principal Accounting and
Financial Officer)
(Michael Sophie)
/s/ Gill Cogan* Director May 16, 1996
-----------------------
(Gill Cogan)
Director May 16, 1996
-----------------------
(John A. Hawkins)
/s/ M. Bernard Puckett* Director May 16, 1996
-----------------------
(M. Bernard Puckett)
/s/ Michael C. Brooks* Director May 16, 1996
-----------------------
(Michael C. Brooks)
</TABLE>
/s/ Michael Sophie
*By:____________________________
Michael Sophie
Attorney-in-Fact
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
-------- -----------
<C> <S>
+1.1 Form of Underwriting Agreement (draft subject to negotiation).
+2.1 Agreement dated April 15, 1996, by and among the Company, Mr.
Giovanni Marciano and certain other parties named thereunder.
4.1(1) Form of Common Stock Certificate.
4.3(1) Restated Investor Rights Agreement dated January 11, 1995, by and
among the Company and the parties thereto.
4.4(1) Form of Warrant to Purchase Common Stock of the Company, forms of
Letter Agreements amending Warrant to Purchase Common Stock and list
of holders thereof.
4.5(1) Warrant Purchase Agreement dated November 9, 1992, by and between the
Company and Dominion Ventures, Inc. ("Dominion"); Series A Preferred
Stock Warrant dated January 8, 1992 issued to Dominion.
4.6(1) Warrant Purchase Agreement dated June 23, 1993 by and between the
Company and Dominion; Series B Preferred Stock Warrant dated June 23,
1993 issued to Dominion.
4.7(1) Letter Agreement dated June 23, 1993, by and between the Company and
Dominion.
4.8(1) Series C Preferred Stock Warrant dated January 10, 1995, issued to
Applied Telecommunication Technologies, Inc.
4.9(2) Amendment and Consent dated as of July 28, 1995, by and among the
Company and the parties thereto.
+4.10 Second Amendment and Consent dated as of April 15, 1996 by and among
the Company and the parties thereto.
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
23.1 Consent of Price Waterhouse LLP, Independent Accountants.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
+24.1 Power of Attorney (see page II-3).
</TABLE>
+ Previously filed.
(1) Incorporated by reference to identically numbered exhibits included in the
Company's Registration Statement on Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
(2) Incorporated by reference to an identically numbered exhibit included in
the Company's Registration Statement on Form S-1 (File No. 33-95392)
declared effective with the Securities and Exchange Commission on August 17,
1995.
<PAGE>
EXHIBIT 5.1
May 16, 1996
P-COM Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
Re: Registration Statement on Form S-3 for P-COM, Inc.
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by P-COM Inc.
(the "Company") with the Securities and Exchange Commission (the "Commission")
on even date herewith, as thereafter amended or supplemented (the
"Registration Statement"), in connection with the registration under the
Securities Act of 1933, as amended, of shares of the Company's Common Stock
(the "Shares"). The Shares include an over-allotment option to the
Underwriters to purchase additional shares of the Company's Common Stock and
are to be sold to the Underwriters as described in the Registration Statement
for resale to the public. As your counsel in connection with this transaction,
we have examined the proceedings taken and are familiar with the proceedings
proposed to be taken by you in connection with the sale and issuance of the
Shares.
It is our opinion that, upon conclusion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued and sold in the
manner described in the Registration Statement, will be legally and validly
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement, including the prospectus constituting a part thereof, and in any
amendment thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated January 25, 1996,
relating to the consolidated financial statements of P-COM, Inc., which appears
in such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
May 15, 1996
