<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File Number: 0-25356
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P-COM, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 77-0289371
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3175 S. Winchester Boulevard, Campbell, California 95008
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (408) 866-3666
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____.
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As of June 30, 1996, there were 18,999,579 shares of the Registrant's Common
----------
Stock outstanding, par value $0.0001.
<PAGE>
P-COM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets as of June 30, 1996
and December 31, 1995........................................ 3
Consolidated Condensed Statements of Operations for the three
and six month periods ended June 30, 1996 and 1995........... 4
Consolidated Condensed Statements of Cash Flows for the six
month period ended June 30, 1996 and 1995.................... 5
Notes to Consolidated Condensed Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 8
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings.............................................. 21
Item 2. Changes in Securities.......................................... 21
Item 3. Defaults Upon Senior Securities................................ 21
Item 4. Submission of Matters to a Vote of Security Holders............ 21
Item 5. Other Information.............................................. 22
Item 6. Exhibits and Reports on Form 8-K............................... 22
SIGNATURES................................................................... 23
EXHIBIT INDEX................................................................ 24
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
P-COM, INC.
Consolidated Condensed Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 44,582 $ 7,655
Accounts receivable, net 28,292 19,896
Inventories 23,582 15,363
Prepaid expenses 6,767 3,690
-------- --------
Total current assets 103,223 46,604
Property and equipment, net 15,035 7,304
Goodwill 1,074 ---
Other assets 584 112
-------- --------
$119,916 $ 54,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 15,594 $ 10,689
Notes payable 2,429 ---
Accrued employee benefits 1,096 760
Other accrued liabilities 1,613 821
-------- --------
Total current liabilities 20,732 12,270
-------- --------
Stockholders' equity:
Common stock 2 2
Additional paid-in capital 108,416 54,685
Accumulated deficit (9,194) (12,937)
Cumulative translation adjustment (40) ---
-------- --------
Total stockholders' equity 99,184 41,750
-------- --------
$119,916 $ 54,020
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
3
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P-COM, INC.
Consolidated Condensed Statements of Operations
(in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $19,788 $ 8,551 $37,340 $12,897
Cost of sales 11,388 4,919 21,813 7,511
------- ------- ------- -------
Gross profit 8,400 3,632 15,527 5,386
------- ------- ------- -------
Operating expenses:
Research and development 3,836 2,603 7,434 4,624
Selling and marketing 1,187 734 2,372 1,371
General and administrative 932 492 1,771 843
------- ------- ------- -------
Total operating expenses 5,955 3,829 11,577 6,838
------- ------- ------- -------
Income (loss) from operations 2,445 (197) 3,950 (1,452)
Interest and other income, net 180 248 186 339
Interest expense (35) (51) (36) (199)
------- ------- ------- -------
Income (loss) before income taxes 2,590 - 4,100 (1,312)
Provision for income taxes 206 - 357 -
------- ------- ------- -------
Net income (loss) $ 2,384 $ - $ 3,743 $(1,312)
======= ======= ======= =======
Net income (loss) per share $ 0.13 $ - $ 0.21 $ (0.09)
======= ======= ======= =======
Weighted average common and
common equivalent shares 18,719 16,552 18,157 13,986
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
4
<PAGE>
P-COM, INC.
Consolidated Condensed Statements of Cash Flows
(in thousands, unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Net income (loss) $ 3,743 $(1,312)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 1,136 452
Amortization 26 ---
Non-cash charges --- 284
Changes (net of acquistion balances) in:
Accounts receivable (7,798) (4,924)
Inventories (7,059) (4,323)
Prepaid expenses (3,022) (107)
Other assets (38) (4)
Accounts payable 3,850 4,280
Accrued employee benefits 199 (42)
Other accrued liabilities 452 72
------- -------
Net cash used in operating activities (8,511) (5,624)
------- -------
Cash flows from investing activities:
- ------------------------------------
Acquisition of property and equipment (5,701) (2,266)
Cash paid for acquisition of Geritel S.p.A., net (2,714) ---
------- -------
Net cash used for investing activities (8,415) (2,266)
------- -------
Cash flows from financing activity:
- ----------------------------------
Payment of capital lease obligations --- (1,336)
Proceeds (payment) of notes payable 162 (2,610)
Proceeds from stock issuances, net of expense 53,731 26,132
Proceeds from sale leasebacks --- 112
------- -------
Net cash provided from financing activities 53,893 22,298
------- -------
Effect of exchange rate changes on cash (40) ---
Net increase (decrease) in cash and cash equivalents 36,927 14,408
Cash and cash equivalents at the beginning of the period 7,655 1,294
------- -------
------- -------
Cash and cash equivalents at the end of the period $44,582 $15,702
======= =======
Supplemental disclosure of cash flow information:
- ------------------------------------------------
Cash paid for interest $ 36 $ 68
======= =======
Supplemental disclosure of non-cash financing activities
- --------------------------------------------------------
Stock options issued for services $ --- $ 284
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
5
<PAGE>
P-COM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying unaudited
consolidated condensed financial statements reflect all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation of the Company's financial condition as of June 30, 1996, and the
results of its operations for the three and six month periods ended June 30,
1996, and its cash flows for the six month periods ended June 30, 1996 and 1995.
These financial statements should be read in conjunction with the Company's
audited 1995 financial statements, including the notes thereto, and the other
information set forth therein included in the Company's Annual Report on Form
10-K (File No. 0-25356) and the Company's Registration Statement on Form S-3
(File No. 333-3558), which was filed with the Securities and Exchange Commission
(the "SEC") on April 16, 1996. The following discussion may contain forward
looking statements which are subject to the risk factors set forth in "Future
Operating Results" contained in Item 2.
Operating results for the six month period ended June 30, 1996 are not
necessarily indicative of the operating results that may be expected for the
year ending December 31, 1996.
2. 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 (using the treasury stock method). Common equivalent
shares from stock options are excluded from the computation if their effect 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 SEC 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.
3. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 121 requires recognition of impairment of long-lived assets in the
event the net book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. The adoption of SFAS 121 is not expected to
have a material impact on the Company's financial position or results of
operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which establishes a
fair value method of accounting for stock based compensation plans, and requires
additional disclosures for those companies who elect not to adopt the new method
of accounting. While the Company is still evaluating the effects of SFAS 123,
it currently expects to elect to continue to measure compensation costs using
the intrinsic value method prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and to comply with the pro forma disclosure
requirements of SFAS 123. If the Company makes this election, SFAS 123 will
have no impact on the Company's financial statements.
6
<PAGE>
4. ACQUISITION
Effective April 30, 1996 the Company completed its acquisition of Geritel S.p.A.
("Geritel"), a manufacturer of telecommunications equipment, with operations in
Italy and France, by purchasing 51% of the outstanding shares of Geritel, and
accruing for an option the company has to exercise up to an additional 16% of
the outstanding shares of Geritel, for a total of $3,086,000. The transaction
was accounted for using the purchase method; accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair market values at the date of acquisition. This purchase price
allocation resulted in the recording of goodwill totalling $1,100,000 which is
being amortized over a period of seven years. The allocation of the purchase
price is as follows (in thousands):
<TABLE>
<S> <C>
Goodwill 1,100
Current assets 1,845
Non current assets 435
Property and equipment 3,166
Current liabilities assumed 3,460
Other liabilities assumed ---
------
$3,086
</TABLE>
The total purchase price is derived as follows:
<TABLE>
<S> <C>
Cash payment 2,300
Additional cash committed 340
Expenses 446
------
$3,086
</TABLE>
5. 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
bank's prime rate. The agreement requires the Company to comply with certain
financial covenants, including the maintenance of specified minimum rations. In
addition, the Company's line of credit agreement prohibits the payment of
dividends without the prior approval of the bank. The Company was in compliance
with respect to these covenants through June 30, 1996. The line expires on
October 24, 1996.
6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1996 1995
----------- --------
(unaudited)
<S> <C> <C>
Raw materials $ 7,077 $ 6,613
Work-in-process 11,640 6,418
Finished goods 4,865 2,332
------- -------
$23,582 $15,363
======= =======
</TABLE>
7
<PAGE>
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1996 1995
----------- ---------
(unaudited)
<S> <C> <C>
Tooling and test equipment........ $13,146 $ 5,818
Computer equipment................ 1,523 1,266
Furniture and fixtures............ 1,523 979
Construction-in-process (1)....... 385 1,068
Land & Building................... 1,421 --
------- -------
17,998 9,131
Less accumulated depreciation
and amortization................. (2,963) (1,827)
------- -------
$15,035 $ 7,304
======= =======
</TABLE>
(1) Capitalized interest is immaterial in amount.
ITEM 2. 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 may contain forward-looking statements which involve
numerous risks and uncertainties. The Company's actual results could differ
materially from those anticipated in any such forward-looking statements as a
result of certain factors, including those set forth under Future Operating
Results.
The following table sets forth items from the Consolidated Condensed Income
Statements as a percentage of sales for the periods indicated. The operating
results presented in this table are not necessarily indicative of the results
for any future period.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.5 57.5 58.4 58.2
----- ----- ----- ------
Gross margin 42.5 42.5 41.6 41.8
----- ----- ----- ------
Operating expenses:
Research and development 19.4 30.4 19.9 35.9
Selling and marketing 6.0 8.6 6.4 10.6
General and administrative 4.6 5.8 4.7 6.5
----- ----- ----- ------
Total operating expenses 30.0 44.8 31.0 53.0
----- ----- ----- ------
Income (loss) from operations 12.5 (2.3) 10.6 (11.2)
Interest and other income (expense), net 0.7 2.3 0.4 1.1
----- ----- ----- ------
Income (loss) before income taxes 13.2 --- 11.0 (10.1)
----- ----- ----- ------
Provision for income taxes 1.1 --- 1.0 ---
----- ----- ----- ------
Net income (loss) 12.1% ---% 10.0% (10.1)%
===== ===== ===== ======
</TABLE>
8
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Sales.
For the three months ended June 30, 1996 and 1995, sales were approximately
$19.8 million and $8.6 million, respectively. Sales for the six months ended
June 30, 1996 and 1995 were $37.3 million and $12.9 million, respectively. The
increase was primarily due to increased unit sales of 38 GHz and of 23 GHz radio
systems to new and existing customers. For the six months ended June 30, 1996,
five customers accounted for 74% of the Company's sales, and as of June 30,
1996, five customers accounted for a substantial majority of the Company's
backlog scheduled for shipment in the twelve months subsequent to June 30, 1996.
Gross Profit.
For the three months ended June 30, 1996 and 1995, gross profit was
approximately $8.4 million, or 42.5% of sales, and approximately $3.6 million,
or 42.5% of sales, respectively. Gross profit for the six months ended June 30,
1996 and 1995, was approximately $15.5 million, or 41.6% of sales, and
approximately $5.4 million, or 41.8% of sales, respectively.
Research and Development.
For the three months ended June 30, 1996 and 1995, research and development
expenses were approximately $3.8 million and $2.6 million, respectively. The
increase in absolute dollars spent on research and development during the three
months ended June 30, 1996, as compared to the corresponding period in 1995 was
due primarily to increased staffing. As a percentage of sales, research and
development expenses decreased from 30.4% in the three months ended June 30,
1995 to 19.4% in the corresponding period in 1996. The decrease in research and
development expenses as a percentage of sales in 1996 as compared to 1995 was
primarily due to a higher level of sales in the three months ended June 30,
1996, as compared to the corresponding period in 1995.
Research and development expenses for the six months ended June 30, 1996 and
1995 were approximately $7.4 million and $4.6 million, respectively. The
increase in absolute dollars spent on research and development during the six
months ended June 30, 1996, as compared to the corresponding period in 1995 was
due primarily to increased staffing. As a percentage of sales, research and
development expenses decreased from 35.9% in the six months ended June 30, 1995
to 19.9% in the corresponding period in 1996. The decrease in research and
development expenses as a percentage of sales during the six months ended June
30, 1996 as compared to the corresponding period in 1995 was primarily due to a
higher level of sales in the six months ended June 30, 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. Research and development expenses are higher than expected
due in part to external engineering charges (including Geritel, S.p.A.) and
earlier than expected project material charges for high capacity radio
development.
Selling and Marketing.
For the three months ended June 30, 1996 and 1995, sales and marketing
expenses were $1.2 million and $734,000, respectively. The increase in sales and
marketing expenses in the three months ended June 30, 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 8.6% during the three month period ended June 30, 1995 as compared
to 6.0% in the corresponding period in 1996. This decrease was due primarily to
a higher level of sales in the three months ended June 30, 1996 as compared to
the corresponding period in 1995.
9
<PAGE>
Sales and marketing expenses for the six months ended June 30, 1996 and 1995
were $2.4 million and $1.4 million, respectively. The increase in sales and
marketing expenses in the six months ended June 30, 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 6.4% during the six-month period ended June 30, 1996 as compared
to 10.6% in the corresponding period in 1995. This decrease was due primarily to
a higher level of sales in the six months ended June 30, 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.
General and Administrative.
For three months ended June 30, 1996 and 1995, general and administrative
expenses were $932,000 and $492,000, respectively. This increase was principally
due to increases in headcount and other costs resulting from the Company's
acquisition of Geritel S.p.A. As a percentage of sales, general and
administrative expenses were 4.6% in the three months ended June 30, 1996, as
compared to 5.8% in the corresponding period in 1995. 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 June 30, 1996 as compared to the
corresponding period in 1995.
General and administrative expenses for the six months ended June 30, 1996 and
1995, were $1.8 million and $843,000, respectively. This increase was
principally due to increases in headcount and other costs resulting from the
Company's acquisition of Geritel, S.p.A. As a percentage of sales, general and
administrative expenses were 4.7% in the six months ended June 30, 1996, as
compared to 6.5% in the corresponding period in 1995. This decrease in general
and administrative expenses as a percentage of sales was due primarily to a
higher level of sales in the six months ended June 30, 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.
Interest and Other Income (Expense), Net.
Interest and other expense, net, consists primarily of interest income
generated from the investment of cash received from financing activities in
1996.
For three months ended June 30, 1996, the Company generated net interest
income of $145,000, or 0.7% of sales, as compared to $197,000 of net interest
income, or 2.3% of sales, during the corresponding period in 1995. During the
six months ended June 30, 1996, the Company generated net interest income of
$150,000, or 0.4% of sales, as compared to $140,000 of net interest income, or
1.1% of sales, during the corresponding period in 1995. These decreases as a
percentage of sales were primarily due to higher levels of sales during these
periods. The Company anticipates that it will generate net interest income
during the remainder of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $8.5 million for operating activities during the six months
ended June 30, 1996, as compared to $5.6 million during the corresponding period
in 1995. This increase was due primarily to increases in accounts receivable,
inventory and prepaid expenses of $7.8 million, $7.1 million, and $3.0 million,
respectively, due to greater sales, inventory requirements for new products, and
inventory advances (prepaids) to suppliers as compared to the corresponding
period in 1995. These increases were partially offset by net income of $3.7
million and an increase in accounts payable of $3.9 million.
The Company used net cash of $8.4 million for investment activities during the
six months ended June 30, 1996. These funds were used for the acquisition of
Geritel S.p.A. and capital equipment purchases, consisting primarily of tooling,
test and computer equipment used in engineering and manufacturing, and office
equipment.
10
<PAGE>
Financing activities for the six months ended June 30, 1996, generated net
cash of $53.9 million. On May 17, 1996, the Company consummated a follow-on
public offering (the "Offering") and raised net proceeds of $53.2 million. Since
the Offering, the Company has used approximately $4.3 million to retire all
existing bank debt under the line of credit with the Silicon Valley Bank,
approximately $3.1 million to acquire a majority ownership of the Capital stock
in Geritel S.p.A., and $4.1 million for general working capital purposes.
At June 30, 1996, the Company had working capital of approximately $82.5
million, including cash and cash equivalents of $44.6 million, $28.3 million of
accounts receivable and $23.6 million of inventories, partially offset by
accounts payable of $15.6 million. In recent quarters, at least a majority of
the Company's sales have been realized near the end of each quarter, resulting
in a significant investment in accounts receivable. The Company expects that its
investments in accounts receivable and inventories will be significant and will
continue to represent a significant portion of the Company's 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 source of liquidity as of June 30, 1996 consists of
approximately $44.6 million of cash and cash equivalents, and a $10 million line
of credit obtained via a line of credit agreement with Silicon Valley Bank dated
October 23, 1995.
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, 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, net proceeds received by
the Company's recent public offering 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.
11
<PAGE>
FUTURE OPERATING RESULTS
- ------------------------
LIMITED OPERATING HISTORY
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 second quarter of fiscal 1996, the Company generated
a cumulative net loss of approximately $9.2 million. From October 1993 through
June 30, 1996, the Company generated sales of approximately $90.1 million, of
which $80.2 million, or 89% of such amount, was generated in the year ended
December 31, 1995 and the first half 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
half 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 half 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
and second quarters 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.
SIGNIFICANT CUSTOMER CONCENTRATION
To date, approximately thirty-three 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 half of 1996, five customers accounted for
74% of the Company's sales, and as of June 30, 1996, five customers accounted
for a substantial majority of the Company's backlog scheduled for shipment in
the twelve months subsequent to June 30, 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
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.
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
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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 June 30, 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 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.
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.
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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.
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 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 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.
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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.
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, Personal Communications Services ("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 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 acquired a
51% 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
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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.
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 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.
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
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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.
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 acquired a 51%
interest in 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,
the burden of complying with a wide variety of 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.
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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.
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,
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.
ACQUISITIONS
On April 30, 1996, the Company acquired at 51% interest in Geritel, a
manufacturer of telecommunications equipment, with operations in Italy and
France, and on August 2, 1996, the Company entered an agreement, containing
certain specified conditions to closing, to acquire substantially all of the
assets and assume certain enumerated liabilities of Atlantic Communication
Sciences, Inc. ("ACS"), a manufacturer of telecommunications equipment, with
operations in Florida and customers worldwide. Disclosure of the Geritel
financial position is presented in Note 4 of the Notes to Consolidated Condensed
Financial Statements. There can be no assurance that either Geritel's or ACS'
operations will be profitable after the acquisitions. Moreover, there can be no
assurance that the anticipated benefits of the Geritel and ACS acquisitions will
be realized. The process of integrating Geritel's and ACS' business into the
Companys 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 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 and ACS, 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 an 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.
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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 subsequent to June 30, 1996. 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.
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 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.
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
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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.
VOLATILITY OF STOCK PRICE
The Company's initial public offering was completed in March 1995, its
secondary offering was completed in August 1995, and a third offering was
completed in May 1996. 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 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 into the market could materially adversely
affect the market price of the Company's Common Stock. Shares of Common Stock
sold in the initial public offering in March 1995 and secondary offerings in
August 1995 and May 1996 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 at
any time. 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 10% of the
outstanding shares of Common Stock of the Company. Accordingly, these
stockholders may be 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.
20
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 1. 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.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The following proposals were voted upon by the Company's stockholders at
the Annual Meeting of Stockholders held on May 20, 1996.
1. The following persons were elected as directors of the Company to serve for
a term ending upon the Annual Stockholders' Meeting indicated beside their
respective names and until their successors are elected and qualified:
<TABLE>
<CAPTION>
Term Ending Upon the
Annual Stockholders'
Meeting Votes for Votes Withheld
-------------------- ---------- --------------
<S> <C> <C> <C>
John A. Hawkins 1997 11,842,396 15,550
M. Bernard Puckett 1998 11,842,396 15,550
George P. Roberts 1999 11,842,396 15,550
Gill Cogan 1999 11,842,396 15,550
</TABLE>
2. A proposal to approve an amendment to the Company's 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan") to (i) increase the number of shares of
Common Stock authorized for issuance over the term of the 1995 Plan from
1,967,944 to 2,767,944 shares and (ii) enhance the benefit and eligibility
provisions of the Automatic Option Grant Program in effect under the 1995
Plan, including increases to the number of shares of Common Stock subject
to the automatic option grants to be made to both new and continuing non-
employee directors, was approved by the vote of 5,303,072 shares, 4,228,583
shares voted against the proposal and 24,906 votes were withheld.
3. A proposal to approve an amendment to the Company's Employee Stock Purchase
Plan (the "Purchase Plan") to increase the number of shares of Common Stock
authorized for issuance over the term of the Purchase Plan from 200,000 to
300,000 shares was approved by the vote of 9,417,012 shares, 109,182 shares
voted against the proposal and 22,367 votes were withheld.
4. A proposal to ratify the appointment of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1996 was
approved by the vote of 11,850,269 shares, 3,180 shares voted against the
proposal and 4,497 votes were withheld.
21
<PAGE>
ITEM 5. OTHER INFORMATION. On August 2, 1996, the Company entered into an
agreement, containing certain specified conditions to closing, to acquire
substantially all of the assets and to assume certain enumerated
liabilities of Atlantic Communication Sciences, Inc. ("ACS"), a Melbourne,
Florida based manufacturer of telecommunications equipment. Pursuant to
the agreement, the Company will issue a total of 111,500 shares of its
common stock to ACS upon the closing of the transaction, with 41,500 of
such shares to be held in an escrow account and released upon the terms of
specified in an escrow agreement. In addition, the Company may issue an
additional 33,000 shares of its Common Stock to ACS in the future based
upon the satisfaction of certain conditions set forth in the asset purchase
agreement. ACS manufactures, sells and services radio systems, subsystems
and components thereof. The Company will account for the acquisition
through the purchase method of accounting and the results of operations of
ACS 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 each
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. The closing is subject to regulatory approval
and is expected to occur in the third fiscal quarter of 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
+2.1 Agreement dated April 15, 1996, by and among the Company,
Mr. Giovanni Marciano and certain other parties named
thereunder.
2.2 Asset Purchase Agreement dated as of August 2, 1996, by and
between the Company, Atlantic Communication Sciences, Inc. and
Edward C. Gerhardt, L. Roger Sanders, Charles W. Richards, IV,
Grover W. Brower, William M. Koos, Jr., Larry W. Koos, Koos
Technical Services, Inc., the Edward C. Gerhardt Trust, U/A
dated June 22, 1988 and the L. Roger Sanders Revocable Trust,
U/A dated June 18, 1991.
10.16A 1995 Stock Option/Stock Issuance Plan, including forms of
Notices of Grant of Automatic Stock Option for initial grant
and annual grants and Automatic Stock Option Agreement, as
amended.
10.17A Employee Stock Purchase Plan, as amended.
27 Financial Data Schedule
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K
during the three-month period ended June 30, 1996.
- --------------------
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 dated April 16, 1996, as amended (File No. 333-3558)
22
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
P-COM, INC.
(Registrant)
Date: August 13, 1996 By: /s/ George Roberts
--------------------------------------------
George Roberts
Chairman of the Board of Directors, President
and Chief Executive Officer
Date: August 13, 1996 By: /s/ Michael Sophie
--------------------------------------------
Michael Sophie
Chief Financial Officer,
Vice President Finance and Administration and
Controller
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No.
---
<S> <C>
2.2 Asset Purchase Agreement dated as of August 2, 1996,
by and between the Company, Atlantic Communication
Sciences, Inc. and Edward C. Gerhardt, L. Roger Sanders,
Charles W. Richards, IV, Grover W. Brower, William M.
Koos, Jr., Larry W. Koos, Koos Technical Services, Inc.,
the Edward C. Gerhardt Trust, U/A dated June 22, 1988
and the L. Roger Sanders Revocable Trust, U/A dated
June 18, 1991.
10.16A 1995 Stock Option/Stock Issuance Plan, including forms
of Notices of Grant of Automatic Stock Option for
initial grant and annual grants and Automatic Stock
Option Agreement, as amended.
10.17A Employee Stock Purchase Plan, as amended.
27 Financial Data Schedule
</TABLE>
24
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
by and among
P-COM, Inc., a Delaware corporation,
Atlantic Communication Sciences, Inc., a Florida corporation,
and
Edward C. Gerhardt, L. Roger Sanders, Charles W. Richards, IV, Grover W. Brower,
William M. Koos, Jr., Larry W. Koos, Koos Technical Services, Inc.,
the Edward C. Gerhardt Trust, U/A, dated June 22, 1988, and the L. Roger
Sanders Revocable Trust, U/A, dated June 18, 1991
Dated as of August 2, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS..................................... 1
Section 1.1 Description of Assets to be Acquired..................... 1
Section 1.2 Excluded Assets.......................................... 2
ARTICLE II LIABILITIES.................................................... 2
Section 2.1 Liabilities Not Assumed.................................. 2
ARTICLE III PURCHASE PRICE................................................ 3
Section 3.1 Consideration............................................ 3
Section 3.2 Amount................................................... 3
ARTICLE IV REPRESENTATIONS AND WARRANTIES................................. 4
Section 4.1 Representations and Warranties of Seller and each
Securityholder........................................... 4
(a) Organization of Seller................................... 4
(b) Capital Structure........................................ 4
(c) Authorization of Seller.................................. 5
(d) Affiliates Agreements.................................... 5
(e) Financial Information.................................... 6
(f) Absence of Certain Changes and Events.................... 6
(g) Conduct of Business...................................... 8
(h) Undisclosed Liabilities.................................. 8
(i) Inventory................................................ 8
(j) Taxes.................................................... 8
(k) Employee Matters......................................... 9
(l) Compliance With Law...................................... 10
(m) Governmental Consents.................................... 10
(n) Intellectual Property Rights............................. 10
(o) Restrictive Documents or Orders.......................... 12
(p) Contracts and Commitments................................ 12
(q) Assets................................................... 13
(r) Title to the Property.................................... 13
(s) Litigation............................................... 13
(t) No Conflict or Default................................... 13
(u) Consents................................................. 14
(v) Labor Relations.......................................... 14
(w) Pension, Profit Sharing, etc............................. 15
(x) Brokers' and Finders' Fees/Contractual Limitations....... 15
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(y) Interested Party Relationships........................... 15
(z) Certain Payments......................................... 15
(aa) Products Liability....................................... 15
(ab) Product Warranties....................................... 15
(ac) Returns.................................................. 15
(ad) Customers................................................ 15
(ae) Suppliers................................................ 16
(af) Books and Records........................................ 16
(ag) Complete Disclosure...................................... 16
(ah) Performance of Agreement................................. 16
(ai) Absence of Governmental or Other Objection............... 16
(aj) Insurance................................................ 17
(ak) Environmental Matters.................................... 17
(al) Backlog.................................................. 20
(am) Accounts Receivable...................................... 20
Section 4.2 Representations and Warranties of Purchaser.............. 20
ARTICLE V COVENANTS....................................................... 22
Section 5.1 Covenants Against Disclosure............................. 22
Section 5.2 Net Asset Determination.................................. 22
Section 5.3 Non-Competition.......................................... 23
Section 5.4 Maintenance of Business.................................. 25
Section 5.5 Access to Information.................................... 27
Section 5.6 Other Discussions........................................ 28
Section 5.7 Assignment of Contracts.................................. 28
Section 5.8 Relocation of Seller's Facilities........................ 28
Section 5.9 Liquidation of Seller.................................... 28
Section 5.10 Fairness Hearing and Permit.............................. 28
Section 5.11 Reorganization........................................... 29
Section 5.12 Termination of Employment Agreements..................... 29
ARTICLE VI CLOSING........................................................ 29
Section 6.1 Time of Closing.......................................... 29
Section 6.2 Deliveries by Seller..................................... 29
Section 6.3 Deliveries by Purchaser.................................. 30
Section 6.4 Further Assurances....................................... 30
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS........................... 31
Section 7.1 Conditions to Obligations of Purchaser................... 31
(a) Representations and Warranties........................... 31
(b) Performance of Agreement................................. 31
(c) No Material Adverse Change............................... 31
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
(d) Absence of Governmental or Other Objection............... 31
(e) Due Diligence Review..................................... 31
(f) Evidence of Title........................................ 31
(g) Certificate of President and Securityholders............. 31
(h) Approval of Documentation................................ 32
(i) Execution of Escrow Agreement............................ 32
(j) Licenses................................................. 32
(k) Third Party Consents..................................... 32
(l) Proprietary Agreements................................... 32
Section 7.2 Conditions to Obligations of Seller...................... 32
(a) Performance of Agreement................................. 32
(b) Issuance of Permit....................................... 32
(c) Execution of Escrow Agreement............................ 32
(d) Absence of Governmental or Other Objection............... 32
(e) Third Party Consents..................................... 33
ARTICLE VIII INDEMNIFICATION.............................................. 33
Section 8.1 Survival of Representations, Warranties, Covenants and
Agreements............................................... 33
Section 8.2 Seller and Securityholder Indemnification................ 33
Section 8.3 Procedure for Indemnification with Respect to
Third-Party Claims....................................... 34
Section 8.4 Procedure For Indemnification with Respect to
Non-Third Party Claims................................... 35
ARTICLE IX MISCELLANEOUS PROVISIONS....................................... 36
Section 9.1 Notice................................................... 36
Section 9.2 Entire Agreement......................................... 37
Section 9.3 Binding Effect; Assignment............................... 37
Section 9.4 Expenses of Transaction; Taxes........................... 37
Section 9.5 Waiver; Consent.......................................... 37
Section 9.6 Third-Party Beneficiaries................................ 38
Section 9.7 Counterparts............................................. 38
Section 9.8 Severability............................................. 38
Section 9.9 Remedies of Purchaser.................................... 38
Section 9.10 Governing Law............................................ 38
Section 9.11 Arbitration; Attorneys' Fees............................. 38
Section 9.12 Cooperation and Records Retention........................ 39
</TABLE>
iii
<PAGE>
Exhibits
3.2(b) Escrow Agreement
4.1(d) Form of Affiliate's Agreement
6.2(a) Bill of Sale
6.2(b) Opinion of Frese, Nash & Torpy, P.A., counsel to Seller
6.2(d) Form of Offer Letter for Key Employees and Other Employees and
Consultants
6.2(e) Form of Proprietary Information and Inventions Agreement
6.2(g) Assignment and Assumption of the Contracts
Schedules
1.1(a) List of Related Property
1.1(b) List of Inventory
1.1(c) List of Contracts
1.1(d) List of Governmental Permits
1.1(e) List of Intellectual Property Rights
1.1(f) List of Accounts Receivable
1.1(j) List of Leasehold Interests
1.2 List of Excluded Assets
2.1 List of Assumed Liabilities
3.2(b) Description of Milestones
4.1 Disclosure Letter
4.1(b) List of Holders of Outstanding Seller Common Stock
4.1(d) List of Affiliates
4.1(v) List of Employees
4.1(ad) List of Material Customers
4.1(ae) List of Suppliers
4.1(aj) List of Insurance Policies
4.1(ak) List of Environmental Matters
4.1(al) Backlog of Orders
iv
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
THIS AGREEMENT is dated as of August 2, 1996 by and among P-COM, Inc.,
a Delaware corporation ("Purchaser"), Atlantic Communication Sciences, Inc., a
Florida corporation ("Seller"), and the individuals and other entities listed on
the signature pages hereto (collectively, the "Securityholders").
WHEREAS, Seller is engaged in, among other things, the business of
manufacturing, selling and servicing radio systems or sub-systems or components
thereof (the "Business"), which Business is located primarily at 4300-B Fortune
Place, West Melbourne, Florida (the "Business Premises");
WHEREAS, Purchaser desires to acquire from Seller and Seller desires
to transfer to Purchaser, the assets, properties, and rights of Seller, upon the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF ASSETS
---------------------------
Section I.1 Description of Assets to be Acquired. Upon the terms and
------------------------------------
subject to the conditions set forth in this Agreement, at the Time of Closing
(as defined in Section 6.1), Seller agrees to convey, sell, transfer, assign,
and deliver to Purchaser, and Purchaser shall purchase from Seller, all right,
title, and interest of Seller at the Time of Closing in and to the assets,
personal properties, and rights of the Business of every kind, nature, and
description, personal, tangible, and intangible, known or unknown, wherever
located, including, without limitation, the following:
(a) The machinery, equipment, computer hardware, peripherals,
software, quality assurance equipment and furniture and fixtures (the "Related
Property"), including those listed on Schedule 1.1(a) hereto;
(b) The inventory owned by Seller (whether located on the premises of
the facilities owned by Seller in West Melbourne, Florida, in transit to or from
such premises, in other storage or warehouse facilities, or otherwise)
including, without limitation, finished goods and components, including those
listed on Schedule 1.1(b) hereto (the "Inventory");
<PAGE>
(c) All rights under all agreements, contracts, contract rights,
licenses, purchase and sale orders, quotations, and other executory commitments
relating to the Business (collectively, the "Contracts"), including, without
limitation, those listed on Schedule 1.1(c) hereto;
(d) All franchises, licenses, permits, consents, authorizations, and
approvals of any foreign, federal, state or local regulatory, administrative or
other governmental agency or body, relating to the Business, including those
listed on Schedule 1.1(d);
(e) All rights to, all patents, trademarks, trade names, service
marks, copyrights, trade secret rights and other intellectual property rights,
and any applications or registrations therefor, and all net lists, schematics,
technology, source code, know-how, computer software programs and all other
tangible and intangible information or material used, usable or proposed to be
used in the Business, including, without limitation, those listed on Schedule
1.1(e) hereto (collectively, the "Intellectual Property Rights");
(f) All accounts receivable of Seller relating to the Business,
including, without limitation, those listed on Schedule 1.1(f) (collectively,
the "Accounts Receivable");
(g) All rights under express or implied warranties from suppliers
and vendors to Seller relating to the Business;
(h) All of Seller's causes of action, judgments, and claims or
demands of whatever kind or description arising out of or relating to the
Business;
(i) All goodwill of the Business (the "Goodwill"); and
(j) All leasehold interests of Seller relating to the Business,
including, without limitation, those listed on Schedule 1.1(j).
The assets, properties, and rights to be conveyed, sold, transferred,
assigned, and delivered to Purchaser pursuant to this Section 1.1 are sometimes
hereinafter collectively referred to as the "Assets."
Section I.2 Excluded Assets. Notwithstanding the provisions of
---------------
Section 1.1 hereof, the Assets to be transferred to Purchaser pursuant to this
Agreement shall not include those assets specifically listed on Schedule 1.2
(collectively, the "Excluded Assets").
2
<PAGE>
ARTICLE II
----------
LIABILITIES
-----------
Section II.1 Liabilities Not Assumed. Except as expressly set forth
-----------------------
on Schedule 2.1 attached hereto (except as modified by Section 4.1(p) of this
Agreement) (the "Assumed Liabilities"), Purchaser shall not assume nor shall
Purchaser nor any affiliate of Purchaser be deemed to have assumed or
guaranteed, any liabilities, litigation, disputes, debts, payables (including,
without limitation, payables as of the Time of Closing to suppliers of goods
that have been sold by Seller prior to the Time of Closing) obligations,
counterclaims, rights of set-off or commitments, whether such liabilities are
contingent or otherwise or direct or indirect, of Seller or any of the
Securityholders in existence on or prior to the Time of Closing, as set forth in
the Contracts (other than the Contracts that are "Assumed Liabilities" (except
as modified by Section 4.1(p) of this Agreement)), or otherwise or based on any
events, facts, or circumstances in existence prior to or in connection with the
sale of the Assets or the Business or in connection with or arising from any
activities of Seller or any services provided by or goods or assets sold by or
products delivered to Seller or based on any obligations under the Contracts
that arise after the Time of Closing to the extent that the obligation is
imposed, asserted or incurred as a result of acts or omissions of Seller,
Securityholders, or third parties acting on behalf of, or performing any
function at the request of Seller and/or Securityholders prior to or on the
Closing (collectively, the "Liabilities"); provided, however, that supplies
ordered by Seller prior to the Time of Closing but not paid for, delivered, used
and part of a revenue generating radio system until after the Time of Closing
shall be Assumed Liabilities.
ARTICLE III
-----------
PURCHASE PRICE
--------------
Section III.1 Consideration. Upon the terms and subject to the
-------------
conditions contained in this Agreement, in consideration for the Assets and in
full payment therefore and the assumption of the Assumed Liabilities, Purchaser
will pay, or cause to be paid, the purchase price set forth in Section 3.2.
Section III.2 Amount. The purchase price ("Purchase Price") for the
------
Assets shall consist of Shares of Common Stock of Purchaser to be issued
directly from Purchaser to each of the Edward C. Gerhardt Trust, U/A dated June
22, 1988, the L. Roger Sanders Revocable Trust, U/A dated June 18, 1991, Charles
W. Richards, IV, Grover Brower, William M. Koos, Jr., Larry W. Koos and Koos
Technical Services, Inc., as assignees of Seller and in furtherance of its
complete liquidation, in accordance with their pro rata ownership interest in
the capital stock of Seller (the "Purchase Shares").
The Purchase Shares shall consist of the following:
3
<PAGE>
(i) Twenty-Five Thousand (25,000) shares of Common Stock to be
issued at the Time of Closing;
(ii) Forty-Five Thousand (45,000) shares of Common Stock to be
issued at the Time of Closing;
(iii) An aggregate of 41,500 shares of Common Stock to be issued
at the Time of Closing and held in an escrow account pursuant to the escrow
agreement, the form of which is attached hereto as Exhibit 3.2(b) (the "Escrow
Agreement"), to be released based on the achievement of milestones set forth on
the attached Schedule 3.2(b); and
(iv) An aggregate of 33,000 shares of Common Stock (as adjusted
for any stock dividends, combinations or splits with respect to such shares)
that will be contingent shares to be issued based on the achievement of
milestones set forth on the attached Schedule 3.2(b) (the "Contingent Shares").
In addition, the Contingent Shares shall be subject to the same indemnification
obligations as are set forth in the Escrow Agreement.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Section IV.1 Representations and Warranties of Seller and each
-------------------------------------------------
Securityholder. Except as set forth in a letter (Schedule 4.1) specifically
- --------------
referring to this Section 4.1 of this Agreement (the "Disclosure Letter")
delivered by Seller and the Securityholders to Purchaser and Brobeck, Phleger &
Harrison LLP, counsel to Purchaser, and provided further that each
representation and warranty made by William M. Koos, Jr., Larry W. Koos and Koos
Technical Services, Inc. is made to the best of their knowledge, after due
inquiry, Seller and each Securityholder hereby, jointly and severally, represent
and warrant to Purchaser that:
(a) Organization of Seller Seller. Seller is a corporation duly
organized and validly existing under the laws of the state of Florida and has
all requisite power and authority to own and operate the Business in the places
where the Business is now conducted and to directly own, lease, and operate the
Assets. Seller is duly qualified or licensed to do business as a corporation and
is in good standing in the state of Florida, and is not required to be qualified
in any other jurisdiction in which the nature of its business or location of its
properties requires such qualification or licensing and where the failure to be
so qualified would adversely affect the Business.
4
<PAGE>
(b) Capital Structure.
-----------------
(i) The authorized capital stock of Seller consists of One
Million (1,000,000) shares of Common Stock, par value $0.10 per share. As of
the date of this Agreement, there were issued and outstanding Ten Thousand
(10,000) shares of Seller Common Stock. As of the date of this Agreement, there
were no shares of Common Stock reserved for issuance upon the exercise of
options to purchase shares of Seller Common Stock (the "Seller Options"). There
are no outstanding shares of Seller capital stock or any other equity securities
or rights to purchase equity securities of Seller (collectively, "Seller capital
stock"), other than as described in the preceding sentence.
(ii) All outstanding shares of Seller Common Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, Seller's Articles of Incorporation or
Bylaws or any agreement to which Seller is a party or by which Seller may be
bound. To the best of Seller's and Securityholder's knowledge, after due
inquiry, all outstanding common stock or other securities have been issued in
compliance with applicable federal and state securities laws. There are no
options, warrants, calls, conversion rights, commitments or agreements of any
character to which Seller is a party or by which Seller may be bound that do or
may obligate Seller to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of Seller capital stock or that do or may obligate
Seller to grant, extend or enter into any such option, warrant, call, conversion
right, commitment or agreement, other than those described in Section 4.1(b)(i)
above.
(iii) Schedule 4.1(b) contains a complete and accurate list of,
---------------
and the number of shares owned of record by, the holders of outstanding Seller
Common Stock and their state or country of residence.
(iv) Except for any restrictions imposed by applicable state and
federal securities laws, there is no right of first refusal, co-sale right,
right of participation, right of first offer, option or other restriction on
transfer applicable to any shares of Seller capital stock.
(v) Seller is not a party or subject to any agreement or
understanding, and there is no agreement or understanding between or among any
persons that affects or relates to the voting or giving of written consent with
respect to any outstanding security of Seller.
(c) Authorization of Seller. Seller and each Securityholder has full
-----------------------
power and authority to enter into this Agreement and the Escrow Agreement, to
perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby, including, without limitation, the
execution and delivery of this Agreement and the Escrow Agreement, general
conveyances, bills of sale, assignments, and other documents and instruments
evidencing the conveyance of the Assets or delivered in accordance with Section
6.2 hereunder (the "Closing Documents") and the Escrow Agreement. Each of the
Seller and the
5
<PAGE>
Securityholders has taken all necessary and appropriate action with respect to
the execution and delivery of this Agreement, the Closing Documents, and the
Escrow Agreement. This Agreement and the Escrow Agreement constitute valid and
binding obligations of Seller and the Securityholders, enforceable in accordance
with their respective terms except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally.
(d) Affiliates Agreements. Schedule 4.1(d) sets forth those persons
---------------------
who are, in Seller's reasonable judgment, "affiliates" of Seller within the
meaning of Rule 145 (each such person, together with the persons identified
below, an "Affiliate") promulgated under the Securities Act of 1933, as amended
(the "Securities Act") ("Rule 145"). Seller shall provide Purchaser such
information and documents as Purchaser shall reasonably request for purposes of
reviewing such list. Seller shall use its best efforts to deliver or cause to be
delivered to Purchaser, concurrently with the execution of this Agreement from
each of the Affiliates of Seller identified in the foregoing list who are
directors or officers of Seller, and concurrently with or promptly following
execution of this Agreement from each other Affiliate, Affiliates Agreements in
the form attached hereto as Exhibit 4.1(d). Purchaser shall be entitled to place
appropriate legends on the certificates evidencing any Purchaser Common Stock to
be received by such Affiliates pursuant to the terms of this Agreement, and to
issue appropriate stop transfer instructions to the transfer agent for Purchaser
Common Stock, consistent with the terms of such Affiliates Agreements.
(e) Financial Information. Seller has furnished to Purchaser a
---------------------
complete and accurate copy of its balance sheet as of June 30, 1996, and its
statement of operations, cash flow and shareholders' equity for its fiscal year
ended June 30, 1996 (which, collectively with the Closing Date Balance Sheet
referred to in Section 5.2 hereof, shall be referred to herein for all purposes
as, the "Financial Statements"). The Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied and fairly present the consolidated financial position of Seller as and
at the dates thereof and Seller's consolidated results of operations and cash
flows for the periods then ended. The notes to the Financial Statements as at
and for each such period set forth in reasonable detail Seller's accounting
policies, principles and methods with respect to the calculation of its accounts
receivable (including policies for its warranty and bad debt reserves, revenue
recognition and capitalized software development costs). The projections of
Seller were prepared in good faith and are based on reasonable assumptions.
(f) Absence of Certain Changes and Events. Except as contemplated
herein, since June 30, 1996, there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities, business, or prospects of Seller or
any occurrence, circumstance, or combination thereof which reasonably could be
expected to result in any such material adverse change;
6
<PAGE>
(ii) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had a material
adverse effect on the Business or the Assets or any such event which reasonably
could be expected to have such an effect on the Business or the Assets;
(iii) Any material transaction relating to the Business (other
than the transactions contemplated herein) which was entered into or carried out
by Seller other than in the ordinary and usual course of business;
(iv) Any change made by Seller in its method of operating the
Business or its accounting practices relating thereto;
(v) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be imposed on or
with respect to the Assets other than liens arising with respect to taxes not
yet due and payable, and such minor liens and encumbrances, if any, which arise
in the ordinary course of business and are not material in nature or amount
either individually or in the aggregate, and which do not detract from the value
of the Assets or impair the operations conducted thereon or any discharge or
satisfaction thereof;
(vi) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of the Assets, other than sales, leases, or
dispositions in the usual and ordinary course of business and consistent with
prior practice;
(vii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
material term, condition, or provision of any contract, agreement, license, or
other instrument to which Seller is a party and relating to or affecting the
Business or the Assets, other than any satisfaction by performance in accordance
with the terms thereof in the usual and ordinary course of business and
consistent with prior practice;
(viii) Any labor disputes or disturbances materially affecting in
an adverse fashion the Business or the financial condition of Seller, including,
without limitation, the filing of any petition or charge of unfair labor
practices with the National Labor Relations Board;
(ix) Any notice (written or unwritten) from any employee of
Seller who provides any services to the Business that such employee has
terminated, or intends to terminate, such employee's employment with Seller;
7
<PAGE>
(x) Any notice (written or unwritten) from any of Seller's
Suppliers that any such Supplier will not continue to supply the current level
and type of goods currently being provided by such Supplier to Seller on similar
terms and conditions;
(xi) Any adverse relationships or conditions with vendors or
customers that may have a material adverse effect on the Business or the Assets;
(xii) Any waivers of any rights relating to the Business of
substantial value by Seller;
(xiii) Any other event or condition of any character which
materially adversely affects, or may reasonably be expected to so affect, the
Assets or the results of operations, prospects or financial condition of Seller;
or
(xiv) Any purchase or lease of or any agreements to purchase or
lease capital assets relating to the Business by Seller in excess of $10,000
individually, or in excess of $25,000 in the aggregate.
(g) Conduct of Business. At all times since December 31, 1995, Seller
-------------------
has conducted the Business in the ordinary course thereof and used reasonable
commercial efforts to preserve intact the organization of the Business and the
good will of its customers, suppliers, and others having business relations with
Seller.
(h) Undisclosed Liabilities. There are no debts, liabilities, or
-----------------------
obligations with respect to Seller or to which the Assets or Business are
subject, whether liquidated, unliquidated, accrued, absolute, contingent, or
otherwise, that are not identified in the Disclosure Letter.
(i) Inventory. Schedule 1.1(b) lists all Inventory owned by Seller
---------
relating to the Business, including goods supplied to Seller by Suppliers, goods
on consignment, and all other goods customarily sold by Seller in connection
with the Business (whether located on the Business Premises of Seller, in
transit to or from such Business Premises, in other storage facilities, or
otherwise), and identifies whether such Inventory is owned by Seller or held on
consignment. The Inventories are valued at cost (determined on a first-in first-
out basis) or market, whichever is lower, with adequate allowances for excess
and obsolete materials and materials below standard quality in accordance with
GAAP consistently applied. The quality and quantity of the Inventories are such
that the Inventories are readily usable and saleable in the ordinary course of
business of Seller, except such amounts as are reserved in accordance with GAAP
consistently applied. All Inventories materially in excess of reasonable
estimated requirements for Seller based on current operations for the three (3)
months from the date hereof are set forth in Schedule 1.1(b). Except as
disclosed in Schedule 1.1(b), Seller holds no Inventories manufactured to
customer specifications effectively rendering the Inventories saleable only to
that customer. Seller has continued to replenish the Inventory in a normal and
customary
8
<PAGE>
manner consistent with past practices.
(j) Taxes.
-----
(i) Definitions. For purposes of this Agreement:
---------------------------------------------
a. the term "Taxes" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
b. the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) Seller has properly completed and filed on a timely basis
and in correct form all Returns required to be filed on or prior to the Time of
Closing. As of the time of filing, the foregoing Returns correctly reflected
the facts regarding the income, the Business, the Assets, operations,
activities, status or other matters of Seller or any other information required
to be shown thereon. In particular, the foregoing Returns are not subject to
penalties under Section 6662 of the Code, relating to accuracy-related penalties
(or any corresponding provision of state, local, federal or foreign Tax law) or
any other penalties. An extension of time within which to file any Return that
has not been filed has not been requested or granted. Seller will properly
complete and file on a timely basis and in correct form all Returns required to
be filed on or prior to the Closing. There are no liens for Taxes on the
Assets, and all Taxes due or payable, and all interest and penalties thereon,
whether disputed or not, which could result in the imposition of any Lien on the
Assets or against Purchaser, have been paid in full.
(ii) With respect to all amounts in respect of Taxes imposed upon
Seller, or for which Seller is or could be liable, whether to taxing authorities
(as, for example, under law) or to other persons or entities (as, for example,
under tax allocation agreements), with respect to all taxable periods ending on
or before the Time of Closing and portions of periods commencing before the Time
of Closing and ending after the Time of Closing, all applicable tax laws and
agreements have been fully complied with, and all such amounts required to be
paid by
9
<PAGE>
Seller to taxing authorities or others on or before the Closing have been paid,
and all such amounts required to be paid by Seller to taxing authorities or
others after the Closing which have not been paid are reflected on the Financial
Statements.
(iv) The Seller is not, and has not been, a United States real
property holding corporation (as defined in Section 897(c)(2) of the Code)
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
No Securityholder is other than a United States person within the meaning of the
Code.
(k) Employee Matters.
----------------
(i) The hours worked by and payments made to the Seller
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, state or local laws dealing with such
matters.
(ii) All payments due from the Seller on account of employee
health and welfare insurance have been paid.
(iii) All severance and vacation and similar payments by the
Seller which are or were due under the terms of any agreement or otherwise have
been paid in full.
(l) Compliance With Law. Schedule 1.1(d) sets forth all of Seller's
-------------------
franchises, licenses, permits, use permits, consents, authorizations, and
approvals of any federal, state, or local regulatory, administrative, or other
governmental or zoning agency or body (collectively referred to herein as
"Governmental Permits"). Seller has complied and is in compliance with all
applicable federal, state, and, to the best of Seller's and each
Securityholder's knowledge, local laws, statutes, licensing requirements, rules,
and regulations, and judicial or administrative or zoning decisions. To the best
of Seller's and each Securityholder's knowledge, after due inquiry, Seller has
been granted all licenses, permits (temporary and otherwise), authorizations,
and approvals from federal, state, and local government regulatory or zoning
bodies necessary to carry on the Business and maintain the Assets, all of which
are currently valid and in full force and effect. All such licenses, permits,
authorizations, and approvals shall be transferred to Purchaser as of the Time
of Closing, and shall be valid and in full force and effect to the same extent
as if Seller were continuing operation of the Business. To the best of Seller's
and each Securityholder's knowledge, after due inquiry, there is no order
issued, investigation, or proceeding pending or threatened, or notice served
with respect to any violation of any law, ordinance, order, writ, decree, rule,
or regulation issued by any federal, state, local, or foreign court or
governmental agency or instrumentality applicable to Seller. Seller has valid
use permits for its Business.
(m) Governmental Consents. To the best of Seller's and each
---------------------
Securityholder's knowledge, no consent, approval, order, or authorization of, or
registration, qualification, designation, declaration, or filing with any
federal, state, local, or provincial governmental
10
<PAGE>
authority on the part of Seller or any Securityholder is required in connection
with the consummation of the transactions contemplated hereunder.
(n) Intellectual Property Rights.
----------------------------
(i) Seller owns, or is licensed or otherwise entitled to
exercise, without restriction all Intellectual Property Rights without any
conflict or infringement of the rights of others. All of such Intellectual
Property Rights are set forth in Schedule 1.1(e).
(ii) Schedule 1.1(e) also lists (i) all patents and all
registered copyrights, trade dress, trade names, trademarks, service marks and
other company, product or service identifiers and mask work rights included in
the Intellectual Property Rights, and specifies the jurisdictions in which each
such Intellectual Property Right has been registered, including the respective
registration numbers; (ii) all licenses, sublicenses and other agreements as to
which Seller is a party and pursuant to which Seller or any other person is
authorized to use any Intellectual Property Right; and (iii) all parties to whom
Seller has delivered copies of Seller source code, whether pursuant to an escrow
arrangement or otherwise, or parties who have the right to receive such source
code. Copies of all licenses, sublicenses, and other agreements identified
pursuant to clause (ii) above have been delivered by Seller to Purchaser.
(iii) Seller is not, or as a result of the execution and
delivery of this Agreement or the performance of Seller's obligations hereunder
will not be, in violation of, or lose or in any way impair any material rights
pursuant to any license, sublicense or agreement described in Schedule 1.1(e).
(iv) Seller is the absolute owner or licensee of, with all
necessary right, title and interest in and to (free and clear of any liens,
encumbrances or security interests), the Intellectual Property Rights and has
rights to the use, sale, license or disposal thereof or the material covered
thereby in connection with the services or products in respect of which the
Intellectual Property Rights are being used. To the best of Seller's and each
Securityholder's knowledge, after due inquiry, Seller has taken all actions and
made all applications and filings pursuant to applicable laws to perfect or
protect their interests in such Intellectual Property Rights.
(v) No claims with respect to the Intellectual Property Rights
have been asserted or, to the best knowledge of Seller, after diligent
investigation, are threatened by any person, and Seller knows of no claims (i)
to the effect that the manufacture, marketing, license, sale or use of any
product as now used or offered or proposed for use or sale by Seller infringes
any copyright, patent, trade secret, or other intellectual property right of any
third party or violates any license or agreement with any third party, (ii)
contesting the right of Seller to use, sell, license or dispose of any
Intellectual Property Rights, or (iii) challenging the ownership, validity or
effectiveness of any of the Intellectual Property Rights.
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<PAGE>
(vi) All patents and registered trademarks, service marks, and
other company, product or service identifiers and registered copyrights held by
Seller are valid and subsisting.
(vii) There has not been and there is not now any unauthorized
use, infringement or misappropriation of any of the Intellectual Property Rights
by any third party, including, without limitation, any service provider of
Seller; Seller has not been sued or charged as a defendant in any claim, suit,
action or proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or other intellectual property rights and
which has not been finally terminated prior to the date hereof; there are no
such charges or claims outstanding; and Seller does not have any infringement
liability with respect to any patent, trademark, service mark, copyright or
other intellectual property right of another.
(viii) No Intellectual Property Right is subject to any
outstanding order, judgment, decree, stipulation or agreement restricting in any
manner the licensing thereof by Seller. Seller has not entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property Right. Seller has not entered into any agreement
granting any third party the right to bring infringement actions with respect
to, or otherwise to enforce rights with respect to, any Intellectual Property
Right. Seller has the exclusive right to file, prosecute and maintain all
applications and registrations with respect to the Intellectual Property Rights.
(o) Restrictive Documents or Orders. Neither Seller nor any
-------------------------------
Securityholder is a party to or bound under any agreement, contract, order,
judgment, or decree, or any similar restriction not of general application which
adversely affects, or reasonably could be expected to adversely affect (i) the
continued operation by Purchaser of the Business after the Time of Closing on
substantially the same basis as said business was theretofore operated or (ii)
the consummation of the transactions contemplated by this Agreement.
(p) Contracts and Commitments.
-------------------------
(i) There is set forth on Schedule 1.1(c) a list of all
outstanding Contracts, whether or not in writing, to which Seller or any of the
Securityholders is a party, to which any of the Assets are subject or that
relate to any aspect of the Business.
(ii) Seller and each Securityholder, as the case may be, has
performed all of its obligations under the terms of each Contract, and is not in
default thereunder. To the best of Seller's and each Securityholder's
knowledge, no event or omission has occurred which but for the giving of notice
or lapse of time or both would constitute a default by any party thereto under
any such Contract. Each such Contract is valid and binding on all parties
thereto and in full force and effect. Seller has received no written or
unwritten notice of default, cancellation, or
12
<PAGE>
termination in connection with any such Contract. Seller has paid, or will pay,
all debts and performed all obligations required as of the Time of Closing under
the terms of all Contracts which form part of the Assumed Liabilities.
(iii) There has not been any notice (written or unwritten) from
any of Seller's Suppliers that any such Supplier will not continue to supply the
current level and type of goods currently being provided by such Supplier to
Seller on the same terms and conditions.
(iv) Schedule 1.1(c) also lists all sole or limited source supply
agreements. Notwithstanding anything in this Agreement or in any Schedule,
Seller and the Securityholders shall also be responsible for all debts and
obligations arising under all Contracts that occurred on or prior to the Closing
or have their basis for liability arising on or prior to the Closing from the
actions, conduct, inactions or omissions of Seller or agents acting on Seller's
behalf.
(q) Assets. The Assets (excluding the Excluded Assets) consist of all
------
the assets necessary to operate the Business in the same manner as the Business
was operated by Seller and the Securityholders immediately prior to the Time of
Closing, and none of the Securityholders, nor any family member or entity
affiliated with any of the Securityholders or any such family member owns, or
has any interest in, any asset used in the operation of the Business. All assets
used in and necessary for the operation of the Business are located on the
Business Premises, including Uncle Bob's storage unit No. 794 in Melbourne,
Florida.
(r) Title to the Property.
---------------------
(A) Seller has good and marketable title to the Assets,
including all property listed on Schedule 1.1(a), free and clear of all Liens.
Seller has a valid leasehold interests in all leased properties, free and clear
of all Liens, listed on Schedule 1.1(j) as leased by Seller.
(B) By virtue of the deliveries made at the Closing, Purchaser
will obtain good and marketable title to all of the Assets, free and clear of
all Liens, and a valid leasehold interest in the real property described in its
lease agreement, free and clear of all Liens.
(s) Litigation. None of Seller, the Securityholders nor any of
----------
Seller's officers or directors is engaged in, or has received any threat of, any
litigation, arbitration, investigation, claim or other proceeding relating to
Seller, the Securityholders, or its officers, directors, employees, benefit
plans, properties, Intellectual Property Rights, the Business, the Assets,
licenses, permits, or goodwill; or against or affecting the actions taken or
contemplated in connection therewith, nor, to the best of each's knowledge, is
there any reasonable basis therefor. There is no action, suit, proceeding, or
investigation pending or threatened against Seller, or the Securityholders, or
the officers or directors of Seller, that questions the validity of this
13
<PAGE>
Agreement, the Escrow Agreement, or the right of Seller or the Securityholders
to enter into this Agreement, the Escrow Agreement, the Closing Documents, or to
consummate the transactions contemplated hereby or thereby, or which might
result in any material adverse change in the Assets, the Business, condition,
prospects or properties of Seller, or the financial condition of the
Securityholders. There is no action, suit, proceeding, or investigation by
Seller or the Securityholders currently pending or which any of them currently
intends to initiate. None of Seller, the Securityholders, nor any of Seller's
officers or directors is bound by any judgment, decree, injunction, ruling or
order of any court, governmental, regulatory or administrative department,
commission, agency or instrumentality, arbitrator or any other person which
would or could have a material adverse effect on the Business or the Assets.
(t) No Conflict or Default. Neither the execution and delivery of
----------------------
this Agreement or the Escrow Agreement, nor compliance with the terms and
provisions hereof and thereof, including without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
Seller's Articles of Incorporation or Bylaws, as presently in effect, or of any
agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which Seller or any of the Securityholders are a
party or by which it or they or any of the Assets are or may be bound, or
constitute a default (or an event which, with the lapse of time or the giving of
notice, or both, would constitute a default) thereunder.
(u) Consents. No consent, approval, order or authorization of, or
--------
registration, qualification, designation, declaration or filing with any
governmental, regulatory or administrative authority on the part of Seller is
required in connection with the consummation of the transactions contemplated
hereunder. No consent, approval or authorization of Seller's Board of Directors
(or any committee thereof), shareholders or of any third party (other than
Purchaser and parties related to Purchaser, such as lenders, stockholders,
shareholders and similar persons) is required in connection with Seller's
consummation of the transactions contemplated hereunder that has not been
obtained or waived by the Time of Closing.
(v) Labor Relations.
---------------
a. To the best of Seller's and each Securityholder's
knowledge, with respect to the Business, Seller has not failed to comply in any
respect with Title VII of the Civil Rights Act of 1964, as amended, the Fair
Labor Standards Act, as amended, the Occupational Safety and Health Act of 1970,
as amended, all applicable federal, state, and local laws, rules, and
regulations relating to employment, and all applicable laws, rules and
regulations governing payment of minimum wages and overtime rates, and the
withholding and payment of taxes from compensation of employees.
b. There are no labor controversies pending or threatened
14
<PAGE>
between Seller and any of its employees (the "Employees") or any labor union or
other collective bargaining unit representing any of the Employees.
c. Seller has never entered into a collective bargaining
agreement or other labor union contract relating to the Business and applicable
to the Employees.
d. There are no written employment or separation agreements,
or oral employment or separation agreements other than those establishing an
"at-will" employment relationship between Seller and any of the Employees.
e. Attached hereto as Schedule 4.1(v) is a list of all
employees of the Business.
(w) Pension, Profit Sharing, etc. Seller has no "Employer Pension
----------------------------
Benefit Plan" in effect, as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended.
(x) Brokers' and Finders' Fees/Contractual Limitations. Neither the
--------------------------------------------------
Securityholders nor Seller is obligated to pay any fees or expenses of any
broker or finder in connection with the origin, negotiation, or execution of
this Agreement or in connection with any transactions contemplated hereby.
Neither Seller nor any officer, director, employee, shareholder, agent, or
representative of Seller (collectively "Agent/Representatives") are or have been
subject to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Seller or Agent/Representatives from
negotiating, entering into and consummating this Agreement and the transactions
contemplated hereby.
(y) Interested Party Relationships. Neither the Securityholders nor
------------------------------
Seller (nor any family member of the Securityholders or any corporation,
partnership, or other entity which, directly or indirectly, alone or together
with others, controls, is controlled by, or is in common control with the
Securityholders, Seller, or any such family member) have any material financial
interest, direct or indirect, in any material supplier or customer, any party to
any contract which is material to the Business, or any competitor with the
Business.
(z) Certain Payments. In connection with the Business, Seller has not
----------------
and no person directly or indirectly on behalf of Seller has made or received
any payment that was not legal to make or receive.
(aa) Products Liability. There are no claims received by Seller or
------------------
any Securityholder against Seller, fixed or contingent, asserting (a) any
damage, loss or injury caused by any Product or (b) any breach of any express or
implied product warranty or any other similar claim with respect to any Product
other than standard warranty obligations (to replace, repair or
15
<PAGE>
refund) made by Seller in the ordinary course of business, except for those
claims that, if adversely determined against Seller, would not have a material
adverse change on the business, results of operations, financial condition or
prospects of the Business. As used herein, "Product" shall mean any products
manufactured, designed, developed, distributed, sold, re-sold, customized or
serviced by Seller in connection with the Business.
(bb) Product Warranties. Seller has provided to Purchaser copies of
------------------
its warranty policies and all outstanding warranties or guarantees relating to
any of Seller's products, if any, other than warranties or guarantees implied by
law.
(cc) Returns. There are no agreements or arrangements, written or
-------
oral, that expressly entitle any business partner of Seller to return products
sold, delivered or shipped by Seller to such business partner or any of its
successors.
(dd) Customers. Except as indicated on Schedule 4.1(ad) attached
---------
hereto, no single customer of Seller accounted for more than 5% of the net sales
of Seller during the twelve-month period ended December 31, 1995. Seller has
furnished Purchaser with complete and accurate copies or descriptions of all
current agreements (written or unwritten) with such customers. Neither Seller
nor the Securityholders is aware of any event, happening, or fact which would
lead it or him to believe that any of such customers will not continue their
current level of purchases after the Time of Closing.
(ee) Suppliers. Schedule 4.1(ae) hereto lists all Suppliers of goods
---------
to Seller during the prior three (3) years and the value of goods supplied to
Seller in each such year. Seller and the Securityholders are not aware of any
event, happening, or fact which would lead them to believe that any of such
suppliers will not continue to supply the current level and type of goods
currently being provided to Seller on similar terms and conditions.
(ff) Books and Records. The books and records of Seller to which
-----------------
Purchaser and its accountants and attorneys have been given access are the true
books and records of Seller and truly and fairly reflect the underlying facts
and transactions in all material respects.
(gg) Complete Disclosure. No representation or warranty made by
-------------------
Seller or any Securityholder in this Agreement, nor any document, written
information, statement, financial statement, certificate, schedule or exhibit
prepared and furnished or to be prepared and furnished by Seller or any
Securityholder or its respective representatives pursuant hereto or in
connection with the transactions contemplated hereby, contains or will contain
any untrue statement of a material fact, or omits or will omit to state a
material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were
furnished. All schedules and exhibits prepared by Seller and the Securityholders
shall be updated as of the Time of Closing. To the best knowledge of Seller and
any Securityholder after reasonable inquiry, there is no event, fact or
condition that has resulted in, or could reasonably be
16
<PAGE>
expected to result in any event, change or effect that is materially adverse to
the condition (financial or otherwise), properties, assets, liabilities,
businesses, operations, results of operations or prospects of Seller taken as a
whole that has not been set forth in this Agreement or in the Disclosure Letter.
(hh) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations under this Agreement which are to be performed or complied with by
Seller prior to the Time of Closing have been fully performed and complied with
at or prior to the Time of Closing, including the delivery of the instruments
and documents in accordance with Section 6.2.
(ii) Absence of Governmental or Other Objection. There is no pending
------------------------------------------
or threatened lawsuit or action or hearing challenging the transaction by any
body or agency of the federal, state, or local government or by any third party,
and the consummation of the transaction has not been enjoined by a court of
competent jurisdiction as of the Time of Closing. There is no legislation and no
rulings in effect by the Federal Communications Commission that would make
operation of Seller's radio systems inoperable in the United States.
(jj) Insurance. Schedule 4.1(aj) lists all insurance policies and
---------
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of Seller, the amounts of coverage under each
such policy and bond of Seller. Seller has not been refused any requested
coverage and no material claim made by Seller has been denied by the
underwriters of such policies or bonds. All premiums payable under all such
policies and bonds have been paid, and Seller is otherwise in full compliance
with the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Seller is in compliance with each of
such policies. Such policies of insurance and bonds are of the type and in
amounts customarily carried by persons conducting businesses similar to those of
Seller. Seller does not know of any threatened termination of, the invalidation
of any coverage of or material premium increase with respect to, any of such
policies.
(kk) Environmental Matters.
---------------------
(i) For purposes of this Section 4.1(ak), the following terms
shall have the following meanings:
"Court Order" shall mean any judgment, order, award or
decree of any foreign, federal, state, local or other court or tribunal, or any
governmental entity, and any award in any arbitration proceeding.
"Disposal Site" shall mean landfill, disposal agent, waste
hauler or recycler of Hazardous Materials.
"Environmental Encumbrance" shall mean any lien, claim,
charge, security
17
<PAGE>
interest, mortgage, pledge, easement, conditional sale or other title retention
agreement, defect in title, covenant or other restrictions of any kind in favor
of any governmental entity for (i) any liability under any Environmental Law, or
(ii) damages arising from, or costs incurred by such governmental entity in
response to, a Release or threatened Release of a Hazardous Material into the
environment.
"Environmental Laws" shall mean all Requirements of Laws
which relate to any Hazardous Material or the use, handling, transportation,
production, spill, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, Release, threatened Release, migration, emission, sale or storage of,
or the exposure of any person to, a Hazardous Material.
"Governmental Permits" shall mean all licenses, franchises,
permits, privileges, immunities, approvals and other authorizations from a
governmental entity.
"Hazardous Material" shall mean any material or substance
that is prohibited or regulated by any Requirement of Law or that is designated
by any governmental entity to be radioactive, toxic, hazardous or otherwise a
danger to health, reproduction or the environment.
"Hazardous Materials Activities" shall mean the use,
handling, transportation, distribution, sale, Release or threatened Release of,
or Remedial Action concerning any Hazardous Material, performed in connection
with the Real Property.
"Real Property" shall mean real property now or at any time
in the past owned or leased by Seller or any predecessors or affiliates.
"Release" shall mean release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching or
migration of a Hazardous Material in, on, under or through the Real Property or
the air, soil, surface water, ground water or improvements thereof.
"Remedial Action" shall mean any reporting, investigation,
characterization, feasibility study, health assessment, risk assessment,
remediation, treatment, recycling, removal, transport, monitoring, maintenance
or any other activity incident to the Release, threatened Release,
investigation, remediation or removal of a Hazardous Material existing on the
Real Property or in, on, under or through the air, soil, ground water, surface
water or improvements thereof.
"Requirements of Laws" shall mean any foreign, federal,
state and local laws, statutes, regulations, rules, guidelines, codes,
ordinances, judgments, injunctions, decrees, orders, permits, approvals,
treaties or protocols enacted, adopted, issued or promulgated by any
governmental entity (including, without limitation, those pertaining to
electrical, building, zoning,
18
<PAGE>
environmental and occupational safety and health requirements) or common law in
effect on the date hereof.
(ii) Except as set forth in Schedule 4.1(ak), to the best of
Seller's and each Securityholder's knowledge, after due inquiry,
a. Seller complies in all material respects with all
applicable Environmental Laws;
b. Seller has obtained all environmental, health and
safety Governmental Permits necessary for its operation or required by any
Environmental Laws, all such Governmental Permits are in good standing, and
Seller is in compliance in all material respects with all terms and conditions
of such permits;
c. none of Seller nor any of the Real Property or present
or past Seller operations is subject to any pending or ongoing investigation by,
notice or order from or agreement with any person (including, without
limitation, any prior owner or operator of the Real Property) with respect to
(A) any claim of Environmental Law, (B) any Remedial Action, or (C) any claim of
losses and expenses arising from the Release or threatened Release of a
Hazardous Material;
d. Seller is not subject to any pending or existing
judicial or administrative proceeding, Court Order or settlement alleging or
addressing a violation of or liability under any Environmental Law;
e. Seller has not filed, and Seller does not intend to file
any notice or report under any Environmental Law reporting a violation of any
Environmental Law;
f. there is not now, and to the best knowledge of Seller,
there has never been, in any Seller Real Property (A) any underground storage
tank or surface impoundment; (B) any landfill or waste pile which either is or
was used in the frequent manner to dispose or store any Hazardous Material or
contains or contained a substantial volume of Hazardous Material; or (C) any
polychlorinated biphenyls;
g. Seller has not received any notice of claim to the effect
that it is or may be liable to any person as a result of the Release or
threatened Release of a Hazardous Material into the environment from or on any
Real Property;
h. Seller is not aware of any Environmental Encumbrance on
any Real Property;
i. any asbestos-containing material which is on or part of
any
19
<PAGE>
Real Property is in good repair according to the current standards and practices
governing such material, and its presence or condition does not violate any
currently applicable Environmental Law;
j. none of the products Seller manufactures, distributes or
sells or has manufactured, distributed or sold in the past, contains substantial
amounts of asbestos-containing material;
k. other than Hazardous Materials reasonably necessary for
the conduct of Seller's operations which are properly stored in accordance with
applicable Environmental Laws, no Hazardous Material is present on Real
Property, and no reasonable likelihood exists that any Hazardous Material
present on other property will come to be present on the Real Property;
l. Hazardous Materials Activities (A) have been conducted in
compliance with applicable Environmental Laws, and (B) have not resulted in the
exposure of any person to a Hazardous Material in a manner which has or will
cause an adverse health effect to such person;
m. no court order, action, proceeding, liability or claim
exists or, to the best knowledge of Seller is threatened, against any Disposal
Site or against Seller with respect to any transfer or release of Hazardous
Materials by Seller to a Disposal Site, and there is no valid basis for such
claim;
n. Seller is not aware of any fact or circumstance which is
reasonably expected to involve Seller in any environmental litigation or impose
upon Seller any environmental liability which would have a material and adverse
effect on the business condition of Seller; and
o. Seller has no records pertaining to environmental
audits or environmental assessments of any Real Property.
(ll) Backlog. Schedule 4.1(al) hereto sets forth the backlog of
-------
orders relating to the Business that Seller is to ship and contract work to be
performed as of the Time of Closing. Seller either possesses sufficient
inventory of parts, materials and personnel to produce the same within their
scheduled delivery dates or such parts or materials have lead times such that
Seller can acquire such parts and materials in time to produce and ship such
backlog in accordance with its scheduled shipping date.
(mm) Accounts Receivable. The amount of all Accounts Receivable
-------------------
purchased by Purchaser will be good and collectible in full in the ordinary
course of business within 90 days of closing; all Accounts Receivable arise from
bona fide transactions in the ordinary course of
20
<PAGE>
business; no contest with respect to the amount or validity of any amount is
pending; and none of such Accounts Receivable is or will at the Closing be
subject to any counterclaim or setoff. The value at which Accounts Receivable
are carried reflect the accounts receivable valuation policy of Seller. As of
June 30, 1996 and as of the Closing, except as set forth in Schedule 1.1(f),
there is and will be (i) no account debtor or note debtor delinquent in its
payment by more than 30 days, (ii) no account debtor or note debtor that has
refused (or threatened to refuse) to pay its obligation for any reason, (iii) no
account debtor or note debtor that is insolvent or bankrupt, and (iv) no account
receivable or note receivable which is pledged to any third party by Seller.
Seller holds no deposits from customers and has received no prepaid service
contract revenue or other prepaid revenue.
Section IV.2 Representations and Warranties of Purchaser. Purchaser
hereby represents and warrants that:
(a) Organization. Purchaser is a corporation duly organized and
------------
validly existing under the laws of the State of Delaware, and has all corporate
power and authority to lease, own, and operate its properties and carry on its
business and operations and to directly own, lease, and operate the assets of
Purchaser. Purchaser is duly qualified or licensed to do business as a
corporation, and is in good standing in each jurisdiction where the failure to
qualify would have a material adverse effect on its business and operations.
Purchaser has made available to Seller complete and accurate copies of its
Articles of Incorporation and Bylaws and all amendments thereto, and minutes and
actions of all of its Board of Directors and its shareholders. No corporate
actions have been approved or taken by Purchaser's Board of Directors or the
shareholders that are not reflected in such minutes and actions.
(b) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
--------------------------------------------------
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Escrow
Agreement, or in connection with any transactions contemplated hereby that
Seller, or the Securityholders would be required or obligated to make or pay.
Neither Purchaser nor any officer, director, employee, agent, or representative
of Purchaser (collectively, the "Purchaser's Representatives") is or has been
subject to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or Purchaser's Representatives from
negotiating, entering into, and consummating this Agreement, the Escrow
Agreement, and the transactions contemplated hereby and thereby.
(c) Valid Issuance of Purchase Shares. The Purchase Shares, when
---------------------------------
issued and delivered in accordance with the terms hereof and for the
consideration expressed herein, will be duly and validly issued, fully paid and
nonassessable and will be issued in compliance with all applicable federal and
state securities laws.
(d) SEC Filings. Purchaser has filed all forms, reports and documents
-----------
required to be filed with the Securities and Exchange Commission ("SEC") since
March 2, 1995,
21
<PAGE>
and has provided to Seller and the Securityholders (i) its Annual Report on Form
10-K for the fiscal year ended December 31, 1995, (ii) its Quarterly Reports on
Form 10-Q for the period ended March 31, 1996, (iii) the proxy statement
relating to Purchaser's 1996 annual meeting of shareholders, (iv) the two
prospectuses which form part of the two registration statements on Form S-1
declared effective by the SEC on March 2, 1995 and August 17, 1995,
respectively, and (v) the prospectus which forms part of the registration
statement on Form S-3 declared effective by the SEC on May 16, 1996
(collectively, the "Purchaser SEC Reports"). The Purchaser SEC reports were
prepared in accordance with the requirements of the Securities Act of 1933, as
amended or the Securities Exchange Act of 1934, as amended, as the case may be,
and did not at the time they were filed or declared effective, as the case may
be, contain any untrue statement of a material fact or omit to state a material
fact required or be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE V
---------
COVENANTS
---------
Section V.1 Covenants Against Disclosure. The parties agree to
----------------------------------------
maintain the confidentiality of the terms and conditions of this Agreement,
except to the extent required by law and pursuant to the public reporting
obligations of Purchaser. No party shall disseminate (except to the parties to
this Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Escrow Agreement or the parties hereto or
thereto without the prior written consent of Seller and Purchaser, except as
required under the public reporting obligations of Purchaser or as may be
required to obtain consents necessary pursuant to Sections 7.1(k) and 7.2(e)
hereof to consummate the transactions contemplated herein; provided that
Purchaser shall issue a press release acceptable to Seller describing the
transaction contemplated herein at any time within ten (10) days after the Time
of Closing.
Section V.2 Net Asset Determination.
----------- -----------------------
(a) As used in this Section 5.2, the "Net Assets" of Seller shall
mean: Inventory plus Accounts Receivable (less allowance for doubtful accounts),
and cash on hand at the Time of Closing, plus the property, plant and equipment
included in Schedule 1.1(a) hereto, at their net book value at the Time of
Closing.
(b) As soon as reasonably practicable after the Time of Closing, but
in no event later than five (5) business days thereafter, Seller shall deliver
to Purchaser an unaudited balance sheet (the "Closing Date Balance Sheet") of
Seller dated as of the Time of Closing. The Closing Date Balance Sheet shall
fairly present the Net Assets of Seller as of the Time of Closing in accordance
with the tax basis of accounting applied on a basis consistent with previous
periods.
22
<PAGE>
(c) Upon receipt of the Closing Date Balance Sheet by Seller (the
"Post-Time of Closing"), if the Net Assets as of the Time of Closing are at any
time after the Closing in the sole but reasonable opinion of the Purchaser less
than $350,000, with at least $100,000 of such Net Assets being comprised of
property, plant and equipment and at least $250,000 of such Net Assets being
comprised of Inventory, Accounts Receivable and cash on hand (the "Minimum Net
Assets"), then Seller and the Securityholders shall immediately pay Purchaser in
cash the amount by which the Net Assets as of the Time of Closing are less than
the Minimum Net Assets; provided, however that Seller represents that the
Inventory consists of parts, supplies and equipment used by Seller for the
production of existing products or products currently under development and
Seller and Purchaser agree that the property, plant and equipment and Inventory
of Seller shall be valued at the actual price paid by Seller and that such
valuation shall take account of any defined depreciation schedules, if
applicable. Notwithstanding the foregoing, in the event that Seller and the
Securityholders do not make the payment in cash within the time set forth in
this Section 5.2, Purchaser shall be entitled to deduct from the shares of
Common Stock held pursuant to the Escrow Agreement that number of shares with a
fair market value equal to the closing sales price of the Common Stock of
Purchaser as reported on the Nasdaq/NMS on the execution date of this Agreement
sufficient to cover the payment owed by Seller and the Securityholders.
Section V.3 Non-Competition.
----------- ----------------
V.3.1 Commencing on the Time of Closing and continuing for four (4)
-----
years thereafter, Seller and each of the Securityholders other than William M.
Koos, Jr., Larry W. Koos, and Koos Technical Services, Inc. (collectively, the
"Consultants"), agree individually, that it, he, or she shall not engage (except
in his or her capacity as an officer, director, and/or employee of Purchaser),
directly or indirectly, whether on its, his, or her own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held company
(other than Purchaser)), partner, joint venturer, employee, consultant, advisor,
and/or agent, of any person, firm, corporation, or other entity, in any or all
of the following activities worldwide:
(a) Enter into or engage in the business of manufacturing, selling or
servicing radio systems or sub-systems or components thereof of the type
produced by Seller or by Purchaser, either presently or during the term of this
Section 5.3, or radio antennas of a type which is competitive with the type
produced by Seller or by Purchaser, either presently or during the term of this
Section 5.3;
(b) Solicit customers, suppliers, or business patronage which results
in competition with Purchaser or any of its affiliates, in the business of
producing or selling radio systems or sub-systems or components thereof or radio
antennas;
(c) Encourage or solicit any employees of Purchaser or any of its
affiliates to leave the employment of Purchaser or any of its affiliates for any
reason; or
23
<PAGE>
(d) Promote or assist, financially or otherwise, any person, firm,
association, corporation, or other entity engaged in the business of producing
or selling radios or radio antennas.
V.3.2 Commencing on the Time of Closing and continuing for four (4)
-----
years thereafter, each Consultant agrees individually, that he or it shall not
engage (except in his or its capacity as an officer, director, and/or employee
of Purchaser), directly or indirectly, whether on his or its own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held company
(other than Purchaser)), partner, joint venturer, employee, consultant, advisor,
and/or agent, of any person, firm, corporation, or other entity, in any or all
of the following activities worldwide:
(a) Enter into or engage in the business of manufacturing, selling or
servicing terrestrial microwave radio systems or sub-systems or components
thereof of the type presently produced by Seller, or radio antennas of a type
which is competitive with the type presently produced by Seller;
(b) Solicit customers, suppliers, or business patronage which results
in competition with Purchaser or any of its affiliates, in the business of
producing or selling terrestrial microwave radio systems or sub-systems or
components thereof or radio antennas;
(c) Encourage or solicit any employees of Purchaser or any of its
affiliates to leave the employment of Purchaser or any of its affiliates for any
reason; or
(d) Promote or assist, financially or otherwise, in the design,
production, or sales of terrestrial microwave radios or terrestrial microwave
radio antennas for any person, firm, association or corporation.
V.3.3 Without limitation, the parties agree and intend that the
-----
covenants contained in this Section 5.3 shall be deemed to be a series of
separate covenants and agreements, one for each and every county of each state
and political subdivision worldwide. If, in any judicial proceeding, a court
shall refuse to enforce in such action any of the separate covenants deemed
included herein, then at the option of Purchaser, wholly-unenforceable covenants
shall be deemed eliminated from the provisions hereof for the purpose of such
proceeding to the extent necessary to permit the remaining separate covenants to
be enforced in such a proceeding.
V.3.4 The parties agree that due to the unique nature of the services
-----
and capabilities of Seller and the Securityholders, there can be no adequate
remedy at law for any breach of their obligations hereunder, that any such
breach may allow Seller or any of the Securityholders and/or third parties to
unfairly compete with Purchaser resulting in irreparable harm to Purchaser, and
therefore, that upon any such breach or any threat thereof, Purchaser shall
24
<PAGE>
be entitled to appropriate equitable relief in addition to whatever remedies it
might have at law. Further, Purchaser shall be entitled to indemnification by
Seller and each Securityholder from any loss or harm, including, without
limitation, attorney's fees, in connection with any breach, or any enforcement,
of Seller's or such Securityholder's obligations hereunder.
V.3.5 Seller and the Securityholders represent and warrant to
-----
Purchaser that the covenants of Seller and each of the Securityholders in this
Section 5.3 are reasonably necessary for the protection of Purchaser's interests
under this Agreement and are not unduly restrictive upon Seller or any of the
Securityholders.
V.3.6 The parties agree that the covenants of Seller and each of the
-----
Securityholders in this Section 5.3 shall not apply to a specific Securityholder
in the event that and after such Securityholder's employment with Purchaser is
terminated by Purchaser without just cause.
Section V.4 Maintenance of Business. During the period from the date
----------- -----------------------
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Time of Closing, Seller shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to the date of this Agreement and, to the extent consistent with such
business, use its best efforts to preserve intact its present business
organizations, keep available the services of its present service providers and
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, to the end that its
goodwill and ongoing businesses shall be unimpaired at the Time of Closing.
Seller shall promptly notify Purchaser of any event or occurrence not in the
ordinary course of business of Seller, and any event which could have a material
and adverse effect on the business condition of Seller. Except as expressly
contemplated by this Agreement, Seller, without the prior written consent of
Purchaser shall not:
(a) Accelerate, amend or change the period of exercisability of
---
options, warrants, stock or purchase rights or authorize cash payments in
exchange therefor or perform any actions that would prohibit the pooling of
interests accounting treatment;
(b) Enter into any commitment or transaction not in the ordinary
---
course of business to be performed over a period longer than six (6) months in
duration, or, except as in accordance with its existing capital budget
previously disclosed to Purchaser, to purchase fixed assets with an aggregate
purchase price exceeding $5,000;
(c) Grant any severance or termination pay to any service provider;
---
(d) Transfer to any person or entity any rights to the Seller's
---
Intellectual Property Rights, except licenses of Intellectual Property Rights in
connection with the sale of Seller's products in the ordinary course of business
consistent with past practice;
25
<PAGE>
(e) Enter into or amend any agreements pursuant to which any other
---
party is granted marketing or other similar rights of any type or scope with
respect to any products of Seller;
(f) Violate, amend or otherwise modify the terms of any contract;
---
(g) Except with prior consultation with Purchaser, commence a lawsuit
---
other than for the routine collection of bills;
(h) Declare or pay any dividends on or make any other distributions
---
(whether in cash, stock or property) in respect of any Seller Common Stock or
otherwise, or split, combine or reclassify any of its Common Stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Seller Common Stock, or repurchase or otherwise
acquire, directly or indirectly, any shares of Seller Common Stock except
repurchases of Common Stock at cost from former service providers in accordance
with the terms of agreements providing for the repurchase of shares in
connection with any termination of service to Seller;
(i) Issue, deliver or sell or authorize or propose the issuance,
---
delivery or sale of or authorization of, the purchase of any shares of Seller
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the issuance of shares of Seller Common Stock upon the exercise of
previously outstanding options and warrants to purchase Seller's capital stock;
(j) Cause or permit any amendments to Seller's Articles of
---
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
---
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business
condition of Seller;
(l) Sell, lease, license or otherwise dispose of any of its
---
properties or assets except in the ordinary course of business;
(m) Incur any indebtedness for borrowed money or guarantee any such
---
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(n) Adopt or amend any employee benefit plans, or enter into any
---
26
<PAGE>
employment contract, pay any bonus or remuneration to any service provider, or
increase the salaries or wage rates of its employees other than pursuant to
scheduled employee reviews under Seller's normal employee review cycle or in
connection with the hiring of employees other than officers in the ordinary
course of business, in all cases consistent with past practice, or otherwise
increase or modify the compensation or benefits payable or to become payable by
Seller to any of its service providers;
(o) Revalue any of its assets, including, without limitation, writing
---
down the value of inventory or accounts receivable;
(p) Liquidate or discount any Account Receivable or subject any
---
Account Receivable to a claim or setoff;
(q) Pay, discharge or satisfy in an amount in excess of $5,000 in any
---
one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business consistent with past practice of
liabilities reflected or reserved against in the Financial Statements;
(r) Make any material Tax election other than in the ordinary course
---
of business and consistent with past practice, change any material tax election,
adopt any material Tax accounting method other than in the ordinary course of
business and consistent with past practice, change any material Tax accounting
method, file any material Tax return (other than any estimated tax returns,
payroll tax returns or sales tax returns) or any amendment to a material Tax
return other than in the ordinary course of business, enter into any closing
agreement, settle any Tax claim or assessment or consent to any Tax claim or
assessment;
(s) Engage in any activities or transactions that are outside the
---
ordinary course of its business consistent with past practice;
(t) Fail to pay or otherwise satisfy its material monetary
---
obligations as they become due or consistent with past practice, except such as
are being contested in good faith;
(u) Waive or commit to waive any rights of substantial value;
---
(v) Cancel, amend or, other than in the ordinary course upon
---
expiration of a policy term, renew any material insurance policy;
(w) Alter, or enter into any commitment to materially alter, its
---
interest in any corporation, association, joint venture, partnership or business
entity in which Seller directly or indirectly holds any interest on the date
hereof;
27
<PAGE>
(x) Take, or agree (in writing or otherwise) to take, any of the
---
actions described in this Section 5.4 or any action which would make any of the
representations or warranties or covenants of Seller contained in this Agreement
materially untrue or incorrect; or
(y) Hire, or enter into any commitment to hire, any additional
---
employees or service providers of Seller.
Section V.5 Access to Information. Seller will give Purchaser and
----------- ---------------------
their respective accountants, legal counsel and other representatives full
access, during normal business hours, to all of the properties, books,
contracts, commitments, and records relating to the Business and the Assets, and
Seller will furnish to Purchaser, their respective accountants, legal counsel,
and other representatives during such period all such information concerning the
Business or the Assets as Purchaser may reasonably request; provided, that any
furnishing of such information pursuant hereto or any investigation by Purchaser
shall not affect Purchaser's right to rely on the representations, warranties,
agreements and covenants made by Seller and the Securityholders in this
Agreement. Seller and the Securityholders shall cooperate with the Purchaser in
auditing the financial statements of Seller, including, but not limited to,
executing any and all written representations reasonably required by Purchaser's
accountants.
Section V.6 Other Discussions. From the date hereof until the
----------- -----------------
earlier of the Time of Closing or the termination of this Agreement, neither
Seller, nor any officer, director, employee, shareholder, agent, or
representative of Seller (collectively, "Agent/Representatives") shall discuss
or negotiate on its or their behalf, with any other party, concerning the
possible disposition of the Business or the Assets. If Seller or any of the
Agent/Representatives receives any inquiries from another party relating to any
proposed disposition of the Business or the Assets following the date hereof,
Seller shall promptly (a) advise such party that Seller is not entitled to enter
into any such discussions or negotiations and (b) notify Purchaser of such
inquiry.
Section V.7 Assignment of Contracts. Seller and the Securityholders
----------- -----------------------
shall use their best efforts to assist Purchaser in obtaining good and
sufficient assignments to Purchaser of the Contracts and Seller's rights
thereunder.
Section V.8 Relocation of Seller's Facilities. From the Time of
----------- ---------------------------------
Closing until four years after the Time of Closing, Purchaser will not relocate
the Business Premises (outside of Brevard County, Florida) without the prior
written consent of a majority in interest of the Securityholders then providing
services to Purchaser or cause any Securityholder to be transferred to a
principal place of employment outside of Brevard County, Florida without such
Securityholder's prior written consent.
Section V.9 Liquidation of Seller. As soon as practicable after the
----------- ---------------------
Time of Closing, and in any event within twelve (12) months thereafter, Seller
and the Securityholders shall cause Seller to be completely liquidated and
dissolved under Florida law and all of Seller's
28
<PAGE>
remaining assets, if any, to be distributed to the Securityholders. The
Securityholders shall be responsible for all liabilities of the Business, not
assumed by Purchaser pursuant to this Agreement, that may arise after the
liquidation of the Seller.
Section V.10 Fairness Hearing and Permit. Purchaser and Seller and
------------ ---------------------------
the Securityholders shall prepare an Application for Qualification of Securities
by Permit under Section 25121 of the California Corporate Securities Law of
1968, as amended, a related Notice of Hearing and other disclosure materials
(the "Disclosure Document") to be supplied to the Securityholders of Seller in
connection with the transactions contemplated hereby (collectively, the "Hearing
Documents"). Purchaser and Seller will file the Disclosure Document and the
Hearing Documents as promptly as practicable with the California Department of
Corporations and request a hearing on the fairness of the issuance of the
Purchase Shares pursuant to Section 25142 of such California Corporate
Securities Law. Purchaser and Seller will thereafter endeavor in good faith to
obtain a finding of fairness and the issuance of a permit to such effect by the
California Department of Corporations as result of such hearing, but they shall
in no event be required to alter the terms of the issuance of the Purchase
Shares in order to obtain such finding and issuance. Seller and the
Securityholders further agree to pay up to $25,000 towards the costs and
expenses that Purchaser incurs with respect to the fairness hearing and the
preparation of the Hearing Documents.
Section V.11 Reorganization. Purchaser, Seller and Securityholders
------------ --------------
hereby agree to treat and report the transaction contemplated by this Agreement
as a "reorganization" within the meaning of Section 368(a)(1)(C) of the Internal
Revenue Code of 1986 for federal income tax purposes (and as a reorganization
under corresponding provisions of state tax laws). Each Securityholder has
received its own advice, including tax advice, with respect to all matters set
forth in this Agreement.
Section V.12 Termination of Employment Agreements. Seller agrees to
------------ ------------------------------------
terminate all employment agreements between Seller and its officers and
employees prior to the Time of Closing.
ARTICLE VI
----------
CLOSING
-------
Section VI.1 Time of Closing. The transactions contemplated by this
------------ ---------------
Agreement shall be completed (the "Closing") on the first business day on which
the last of the conditions contained in Article VII hereof is fulfilled or
waived (the "Time of Closing"), with the expectation that the Closing shall
occur on or about August 21, 1996 unless otherwise agreed to in writing by
Seller. The Closing shall take place at the offices of Brobeck, Phleger &
Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo Alto, California,
94303 or at such other place or date as may be agreed to in writing by Purchaser
and Seller. The "Closing" shall mean the deliveries to
29
<PAGE>
be made by the parties hereto at the Time of Closing in accordance with this
Agreement.
Section VI.2 Deliveries by Seller. At the Closing, the
------------ --------------------
Securityholders and Seller, as applicable, shall deliver to Purchaser, all duly
and properly executed, the following:
(a) A good and sufficient Bill of Sale for the Assets, in the form
attached hereto as Exhibit 6.2(a), selling, delivering, transferring, and
assigning to Purchaser title to all of Seller's right, title, and interest to
the Assets, free and clear of all mortgages, pledges, liens, encumbrances,
security interests, equities, charges, and restrictions of any nature
whatsoever.
(b) An opinion of Frese, Nash & Torpy, P.A., counsel to Seller,
dated the date of the Closing, in the form attached hereto as Exhibit 6.2(b).
(c) The Escrow Agreement.
(d) Executed offer letters offering employment to certain
individuals and offering options to certain consultants listed on Schedule
4.1(c) in the form attached hereto as Exhibit 6.2(d).
(e) Executed Proprietary Information and Inventions Agreement from
each service provider in the form attached hereto as Exhibit 6.2(e).
(f) An affidavit of Seller, stating, under penalty of perjury,
Seller's United States taxpayer identification number and that Seller is not a
foreign person, pursuant to Section 1445(b)(2) of the Code.
(g) A good and sufficient Assignment of the Contracts and an
Assumption of the Contracts that are Assumed Liabilities, in the form attached
hereto as Exhibit 6.2(g) (the "Assignment").
(h) A good and sufficient Assignment of the trade names and other
intellectual property rights, selling, delivering, transferring, and assigning
to Purchaser title to all of Seller's right, title, and interest to such trade
names and other intellectual property rights.
(i) An affiliate's agreement signed by each affiliate of Seller.
Section VI.3 Deliveries by Purchaser. At the Closing, Purchaser
------------ -----------------------
shall deliver, or cause to be delivered, to Seller and/or the Securityholders,
as applicable, all duly and properly executed, the following:
(a) The payment set forth in Section 3.2.
30
<PAGE>
(b) The Assignment.
Section VI.4 Further Assurances. At or after the Time of Closing,
------------ ------------------
each party shall prepare, execute, and deliver, at the preparer's expense, such
further instruments of conveyance, sale, assignment, or transfer, and shall take
or cause to be taken such other or further action, as any party shall reasonably
request of any other party at any time or from time to time in order to perfect,
confirm, or evidence in Purchaser title to all or any part of the Assets or to
consummate, in any other manner, the terms and provisions of this Agreement.
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
Section VII.1 Conditions to Obligations of Purchaser. Each and
------------- --------------------------------------
every obligation of Purchaser to be performed at the Closing shall be subject to
the satisfaction as of or before the Time of Closing of the following conditions
(unless waived in writing by Purchaser):
(a) Representations and Warranties. The representations and
------------------------------
warranties of Seller and the Securityholders set forth in Section 4.1 of this
Agreement shall have been true and correct when made and shall be true and
correct at and as of the Time of Closing as if such representations and
warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations under this Agreement which are to be performed or complied with by
the Securityholders and Seller, as the case may be, including Board of Directors
and shareholder approval, shall have been fully performed and complied with at
or prior to the Time of Closing, including the delivery of the instruments and
documents in accordance with Section 6.2 hereof.
(c) No Material Adverse Change. There shall have been no material
--------------------------
adverse change in the financial condition, prospects business, or properties of
Seller which materially adversely affects the conduct of the Business as
presently being conducted or the financial condition, business, or properties of
Seller since June 30, 1996.
(d) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Time of Closing and any applicable waiting
period under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
--------------------
sole satisfaction its due diligence review of Seller and its operations,
business, and financial condition, and Purchaser shall have received favorable
reviews from their advisors of the results of their final
31
<PAGE>
due diligence review of the Business and Assets.
(f) Evidence of Title. Purchaser shall have received evidence, at
-----------------
or prior to the Time of Closing, satisfactory to Purchaser of Seller's title to
all of the Assets and right to fully convey all Assets free and clear of any
lien, encumbrances or restrictions on transfer.
(g) Certificate of President and Securityholders. Seller shall have
--------------------------------------------
delivered to Purchaser a certificate executed by its President and the
Securityholders, dated the date of the Closing, to the effect that the
conditions set forth in subsections (a), (b), (c) and (d) of this Section 7.1,
have been satisfied.
(h) Approval of Documentation. The form and substance of all
-------------------------
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be satisfactory to Purchaser
and their counsel in all reasonable respects.
(i) Execution of Escrow Agreement. Purchaser shall have received
-----------------------------
fully executed copies of the Escrow Agreement.
(j) Licenses. Purchaser shall have received all licenses from
--------
all the appropriate governmental agencies necessary to operate the Business in
the same manner as Seller operated the Business prior to the Time of Closing.
(k) Third Party Consents. Seller and each Securityholder shall have
--------------------
obtained all third party consents and approvals and assignments to all Contracts
and all other instruments required to consummate the transactions contemplated
by this Agreement or as reasonably requested by counsel to Purchaser.
(l) Proprietary Agreements. All employees and consultants shall
----------------------
have entered into the Proprietary Information and Inventions Agreement in the
form attached hereto as Exhibit 6.2(e).
Section VII.2 Conditions to Obligations of Seller. Each and every
------------- -----------------------------------
obligation of Seller to be performed at the Time of Closing shall be subject to
the satisfaction as of or before such time of the following conditions (unless
waived in writing by Seller):
(a) Performance of Agreement. All covenants, conditions, and other
------------------------
obligations under this Agreement which are to be performed or complied with by
Purchaser shall have been fully performed and complied with at or prior to the
Time of Closing.
(b) Issuance of Permit. The California Department of Corporations
------------------
shall have issued a permit under Section 25121 of the California Corporate
Securities Law of 1968, as amended, covering the issuance of the Purchase Shares
following a fairness hearing conducted
32
<PAGE>
pursuant to Section 25142 of the California Corporate Securities Law.
(c) Execution of Escrow Agreement. Purchaser shall have received
-----------------------------
fully executed copies of the Escrow Agreement.
(d) Absence of Governmental or Other Objection. There shall be no
------------------------------------------
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Time of Closing.
(e) Third Party Consents. Seller and each Securityholder shall have
--------------------
obtained all third party consents and approvals and assignments to all Contracts
and all other instruments required to consummate the transactions contemplated
by this Agreement and the Escrow Agreement or as reasonably requested by counsel
to Purchaser.
ARTICLE VIII
------------
INDEMNIFICATION
---------------
Section VIII.1 Survival of Representations, Warranties, Covenants and
-------------- ------------------------------------------------------
Agreements.
- ----------
(a) Notwithstanding any investigation conducted at any time with
regard thereto by or on behalf of any party, all representations, warranties,
covenants, and agreements of Seller and Securityholder shall survive the
execution, delivery, and performance of this Agreement. All representations and
warranties of Seller and Securityholder set forth in this Agreement shall be
deemed to have been made again by Seller and Securityholder at and as of the
Closing.
(b) As used in this Article VIII, except as otherwise indicated in
this Article VIII, any reference to a representation, warranty, agreement, or
covenant contained in any section of this Agreement shall include the schedule
relating to such section.
Section VIII.2 Seller and Securityholder Indemnification.
-------------- -----------------------------------------
(a) Seller and each of the Securityholders hereby agree, jointly and
severally, to indemnify and hold harmless Purchaser and its officers, directors
and other affiliates against any and all losses, liabilities, damages, demands,
claims, suits, actions, judgments, and causes of action, assessments, costs, and
expenses, including, without limitation, interest, penalties, attorneys' fees,
any and all expenses incurred in investigating, preparing, and defending against
any litigation, commenced or threatened, and any claim whatsoever, and any and
all amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against,
33
<PAGE>
resulting from, imposed upon, or incurred or suffered by Purchaser or its
officers, directors and other affiliates, directly or indirectly, as a result of
or arising from (1) any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by any of the
Securityholders or Seller in this Agreement or the Escrow Agreement or any facts
or circumstances constituting such an inaccuracy, breach, or nonfulfillment (all
of which, including those set forth in clause (2) below, shall be referred to as
"Seller and Securityholder Identifiable Claims"), or (2) any of the following
(without giving effect to any of the disclosures or qualifications set forth in
this Agreement, any accompanying schedule, exhibit, certificate or the
Disclosure Letter):
(i) Any handling, discharge, disposal, release, or storage of any
hazardous or toxic substances, wastes or materials by Seller, any
Securityholder, any predecessor of Seller or such Securityholder or any other
third party with respect to any of the properties owned, occupied or leased by
Seller or either Securityholder occurring prior to the Closing;
(ii) Any litigation or claim arising from actions or inactions
of Seller prior to the Time of Closing;
(iii) Any Damages incurred by Seller or the Business, or
arising out of or related to the activities of Seller or services or assets
provided by or products delivered to or by Seller, prior to the Closing;
(iv) Taxes imposed on Purchaser or its affiliates for periods
ending on or prior to the Closing and for portions through the Closing of
periods beginning prior to the Closing and ending after the Closing (including,
without limitation, any deferred Tax liability, any Tax liability arising from
the transactions contemplated in this Agreement and the Escrow Agreement, or any
other transaction entered into or consummated prior to the Closing), including,
without limitation, any liability arising out of or related to any returns filed
prior to the Time of Closing;
(v) Any Liabilities of the Securityholders or Seller imposed
upon Purchaser as transferee of the Assets or otherwise, including, without
limitation, any liability arising out of any Lien or any obligation or claim
brought by creditors of Seller or claims based on the premise that the sale of
the Assets did not comply with any bulk sales provisions and any liability
arising out of obligations to Seller's employees (including, without limitation,
any obligations under any employee benefit, profit sharing, or pension or
welfare plan) or out of Seller's status as employer of its employees;
(vi) Any amounts paid or payable by Purchaser after the Time of
Closing with respect to any Liabilities of Seller, which have not been paid in
full by Seller following twenty (20) days' notice from Purchaser to Seller of
the existence of such Liability and Purchaser's intention to pay in full such
Liability on behalf of Seller; and
34
<PAGE>
(b) Without limiting the foregoing, any amounts paid or payable by
Purchaser pursuant to this Agreement, the employee offer letters or the Escrow
Agreement shall be subject to a right of setoff by Purchaser or its affiliates
for any Damages incurred by Purchaser or its officers, directors or other
affiliates in connection with this Agreement or the Escrow Agreement.
Section VIII.3 Procedure for Indemnification with Respect to
-------------- ---------------------------------------------
Third-Party Claims.
- ------------------
(a) If the Purchaser or any affiliate of Purchaser determines to seek
indemnification (such party shall be referred to herein as an "Indemnified
Party") under this Article VIII with respect to Seller and Securityholder
Identifiable Claims (such Claims shall be referred to herein as "Identifiable
Claims") resulting from the assertion of liability by third parties, such
Indemnified Party shall give notice to the parties from which indemnification is
sought (such parties shall be referred to herein as "Indemnifying Parties")
within 60 days of such Indemnified Party becoming aware of any such Identifiable
Claim or of facts upon which any such Identifiable Claim will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to such Indemnified Party. In case any such liability is
asserted against any Indemnified Party, and such Indemnified Party notifies the
Indemnifying Parties thereof, the Indemnifying Parties will be entitled, if such
Indemnifying Parties so elect by written notice delivered to such Indemnified
Party within 20 days after receiving such Indemnified Party's notice, to assume
the defense thereof with counsel selected by the Indemnifying Party, which
counsel shall be reasonably satisfactory to such Indemnified Party.
Notwithstanding the foregoing, (i) such Indemnified Party shall also have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless such
Indemnified Party shall reasonably determine that there is a conflict of
interest between or among such Indemnified Party and any Indemnifying Party with
respect to such Identifiable Claim, in which case the fees and expenses of such
counsel will be borne by such Indemnifying Parties, (ii) none of the Indemnified
Parties shall have any obligation to give any notice of any assertion of
liability by a third party unless such assertion is in writing, and (iii) the
rights of the Indemnified Parties to be indemnified hereunder in respect of
Identifiable Claims resulting from the assertion of liability by third parties
shall not be adversely affected by their failure to give notice pursuant to the
foregoing unless, and, if so, only to the extent that, such Indemnifying Parties
are materially prejudiced thereby. With respect to any assertion of liability by
a third party that results in an Identifiable Claim, the parties hereto shall
make available to each other all relevant information in their possession
material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Identifiable Claim, fail to assume
the defense of such Indemnified Party against such Identifiable Claim, such
Indemnified Party shall have the right to undertake the defense, compromise, or
settlement of such action on behalf of and for the account, expense, and risk of
such Indemnifying Parties.
35
<PAGE>
(c) Notwithstanding anything in this Article VIII to the contrary,
(i) if there is a reasonable probability that an Identifiable Claim may
materially adversely affect such Indemnified Party, such Indemnified Party shall
have the right to participate in such defense, compromise, or settlement and
such Indemnifying Parties shall not, without such Indemnified Party's written
consent (which consent shall not be unreasonably withheld), settle or compromise
any Identifiable Claim or consent to entry of any judgment in respect thereof
unless such settlement, compromise, or consent includes as an unconditional term
thereof the giving by the claimant or the plaintiff to such Indemnified Party a
release from all liability in respect of such Identifiable Claim.
Section VIII.4 Procedure For Indemnification with Respect to
-------------- ---------------------------------------------
Non-Third Party Claims. In the event that any Indemnified Party asserts the
- ----------------------
existence of a claim giving rise to Damages (but excluding claims resulting from
the assertion of liability by third parties), it shall give written notice to
the Indemnifying Parties. Such written notice shall state that it is being given
pursuant to this Section 8.4, specify the nature and amount of the claim
asserted and indicate the date on which such assertion shall be deemed accepted
and the amount of the claim deemed a valid claim (such date to be established in
accordance with the next sentence). If such Indemnifying Parties, within 60 days
after the mailing of notice by such Indemnified Party, shall not give written
notice to such Indemnified Party announcing its intent to contest such assertion
of such Indemnified Party, such assertion shall be deemed accepted and the
amount of claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to such Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
by arbitration pursuant to Section 9.11 hereof.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
Section IX.1 Notice. All notices and other communications required
------------ ------
or permitted under this Agreement shall be delivered to the parties at the
address set forth below their respective signature blocks, or at such other
address that they designate by notice to all other parties in accordance with
this Section 9.1:
36
<PAGE>
If to Seller or
Securityholders: Atlantic Communication Sciences, Inc.
4300-B Fortune Place
West Melbourne, Florida 32904
Attention: Ed Gerhardt
Telecopy No.: (407) 726-9610
with a copy to: Frese, Nash & Torpy P.A.
930 S. Harbor City Boulevard, Suite 505
Melbourne, Florida 33901
Attn.: Gary B. Frese
Telecopy No.: (407) 951-3741
If to Purchaser: P-COM, Inc.
3175 S. Winchester Boulevard
Campbell, California 95008
Attn: Michael Sophie
Telecopy No.: (408) 866-3678
with a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Warren T. Lazarow, Esq.
Telecopy No.: (415) 496-2733
All notices and communications shall be deemed to have been received: (i) in the
case of personal delivery, on the date of such delivery; (ii) in the case of
telex or facsimile transmission, on the date on which the sender receives
confirmation by telex or facsimile transmission that such notice was received by
the addressee, provided that a copy of such transmission is additionally sent by
mail as set forth in (iv) below; (iii) in the case of overnight air courier, on
the second business day following the day sent, with receipt confirmed by the
courier; and (iv) in the case of mailing by first class certified or registered
mail, postage prepaid, return receipt requested, on the fifth business day
following such mailing.
Section IX.2 Entire Agreement. This Agreement, the exhibits and
------------ ----------------
schedules hereto, and the documents referred to herein embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, oral or written, relative to said subject matter.
Section IX.3 Binding Effect; Assignment. This Agreement and the
------------ --------------------------
various rights and obligations arising hereunder shall inure to the benefit of
and be binding upon Seller, its
37
<PAGE>
successors and permitted assigns, and Purchaser and their successors and
permitted assigns. Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be transferred or assigned (by operation of law or
otherwise) by any of the parties hereto without the prior written consent of the
other party.
Section IX.4 Expenses of Transaction; Taxes. P-Com shall bear its
------------ ------------------------------
own costs and expenses in connection with this Agreement and the transactions
contemplated hereby for its own account and the Securityholders shall bear their
and the Seller's own costs and expenses in connection with this Agreement and
the transactions contemplated hereby. Seller shall pay all applicable sales,
use, transfer, documentary and other taxes arising out of the purchase and sale
of the Assets.
Section IX.5 Waiver; Consent. This Agreement may not be changed,
------------ ---------------
amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Agreement
or any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent that a party hereto may have otherwise
agreed in writing, no waiver by that party of any condition of this Agreement or
breach by the other party of any of its obligations or representations hereunder
or thereunder shall be deemed to be a waiver of any other condition or
subsequent or prior breach of the same or any other obligation or representation
by the other party, nor shall any forbearance by the first party to seek a
remedy for any noncompliance or breach by the other party be deemed to be a
waiver by the first party of its rights and remedies with respect to such
noncompliance or breach.
Section IX.6 Third-Party Beneficiaries. Except as otherwise
------------ -------------------------
expressly provided for in this Agreement, nothing herein, expressed or implied,
is intended or shall be construed to confer upon or give to any person, firm,
corporation, or legal entity, other than the parties hereto, any rights,
remedies, or other benefits under or by reason of this Agreement.
Section IX.7 Counterparts. This Agreement may be executed
------------ ------------
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
Section IX.8 Severability. If one or more provisions of this
------------ ------------
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
Section IX.9 Remedies of Purchaser. Each of the Seller and the
------------ ---------------------
Securityholders agree that the Assets are unique and not otherwise readily
available to Purchaser. Accordingly, Seller acknowledges that, in addition to
all other remedies to which Purchaser is entitled,
38
<PAGE>
Purchaser shall have the right to enforce the terms of this Agreement by a
decree of specific performance, provided Purchaser is not in material default
hereunder.
Section IX.10 Governing Law. This Agreement shall in all respects
------------- -------------
be construed in accordance with and governed by the laws of the State of
California without regard to the conflicts or choice of law provisions thereof.
Section IX.11 Arbitration; Attorneys' Fees.
------------- ----------------------------
(a) Any controversy between the parties hereto involving the
construction or application of any terms, covenants or conditions of this
Agreement or the Escrow Agreement, or any claims arising out of or relating to
this Agreement or the Escrow Agreement or the breach thereof will be settled by
arbitration in New York, New York, in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. Such arbitration shall be conducted by
three (3) arbitrators chosen by mutual agreement of the parties hereto, or
failing such agreement, an arbitrator appointed by the AAA. There shall be
limited discovery prior to the arbitration hearing as follows: (a) exchange of
witness lists and copies of documentary evidence and documents related to or
arising out of the issues to be arbitrated, (b) depositions of all party
witnesses, and (c) such other depositions as may be allowed by the arbitrators
upon a showing of good cause. Depositions shall be conducted in accordance with
the New York Code of Civil Procedure, the arbitrator(s) shall be required to
provide in writing to the parties the basis for the award or order of such
arbitrator(s), and a court reporter shall record all hearings, with such record
constituting the official transcript of such proceedings.
(b) In the event of arbitration filed or instituted between the
parties with respect to this Agreement or the Escrow Agreement, the prevailing
party will be entitled to receive from the other party all costs, damages and
expenses, including reasonable attorney's fees, incurred by the prevailing party
in connection with that action or proceeding whether or not the controversy is
reduced to judgment or award. The prevailing party will be that party who may be
fairly said by the arbitrator(s) to have prevailed on the major disputed issues.
Section IX.12 Cooperation and Records Retention. Seller,
------------- ---------------------------------
Securityholder and Purchaser shall (i) each provide the other with such
assistance as may reasonably be requested by them in connection with the
preparation of any Tax return, statement, report, form or other document
(hereinafter collectively a "Tax Return"), or in connection with any audit or
other examination by any taxing authority or any judicial or administrative
proceedings relating to liability for Taxes, (ii) each retain and provide the
other, with any records or other information which may be relevant to any such
Tax Return, audit or examination, proceeding or determination, and (iii) each
provide the other with any final determination of any such audit or examination,
proceeding or determination that affects any amount required to be shown on any
39
<PAGE>
Tax Return of the other for any period. Without limiting the generality of the
foregoing, Seller (and, after Seller's dissolution, Securityholders) and
Purchaser shall retain, until the applicable statute of limitations (including
any extensions) have expired, copies of all Tax Returns, supporting work
schedules and other records or information which may be relevant to such Tax
Returns for all tax periods or portions thereof ending before or including the
Time of Closing and shall not destroy or otherwise dispose of any such records
without first providing the other party with a reasonable opportunity to review
and copy the same. Seller (and, after Seller's dissolution, Securityholders)
shall keep the original copies of such records, as well as all books of
accounts, general ledgers, sales invoices, accounts payable and payroll records,
drawings, files, papers, and all other records (the "Records") at its facility
in Florida and, at Seller's (and, after Seller's dissolution, Securityholders)
expense, shall promptly provide complete copies of the Records to Purchaser upon
Purchaser's request and shall make all Records available for inspection at any
time upon Purchaser's request.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
P-COM, INC.,
a Delaware corporation
By: /s/ Michael Sophie
---------------------------------
Michael Sophie
Vice President, Finance and Administration
and Chief Financial Officer
ATLANTIC COMMUNICATION SCIENCES, INC.,
a Florida corporation
By: /s/ Edward C. Gerhardt
---------------------------------
Edward C. Gerhardt, President
41
<PAGE>
SIGNATORIES
/s/ Edward Gerhardt
-------------------------------
Edward Gerhardt
/s/ L. Roger Sanders
-------------------------------
L. Roger Sanders
/s/ Charles W. Richards, IV
-------------------------------
Charles W. Richards, IV
/s/ Grover W. Brower
-------------------------------
Grover W. Brower
KOOS TECHNICAL SERVICES, INC.
By: /s/ William M. Koos, Jr.
----------------------------
Title: President
/s/ William M. Koos, Jr.
-------------------------------
William M. Koos, Jr.
/s/ Larry W. Koos
-------------------------------
Larry W. Koos
42
<PAGE>
EDWARD C. GERHARDT TRUST, U/A DATED
JUNE 22, 1988
By: /s/ Edward C. Gerhardt
------------------------------------------
Edward C. Gerhardt, as Grantee and Trustee
L. ROGERS SANDERS REVOCABLE TRUST,
U/A DATED JUNE 18, 1991
By: /s/ L. Roger Sanders
------------------------------------------
L. Roger Sanders, Trustee
By: /s/ Patricia A. Sanders
------------------------------------------
Patricia A. Sanders, Trustee
43
<PAGE>
EXHIBIT 3.2(b)
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
----------------
This Agreement is made and entered into on this ___ day of August, 1996, by
and among P-COM, Inc., a Delaware corporation ("Purchaser"), Atlantic
Communications Services, Inc., a Florida corporation ("Seller") and the
individuals and other entities listed on the signature pages hereto
(collectively, the "Shareholders"). Capitalized terms used herein that are not
otherwise defined shall have the meanings set forth in the Purchase Agreement
(as defined below).
WITNESSETH:
WHEREAS, the parties have entered into that certain Asset Purchase Agreement
dated as of August 2, 1996 (collectively, with all schedules, letters, exhibits
and certificates referred to therein, the "Purchase Agreement") pursuant to
which Seller will sell and Purchaser will purchase the Assets relating to the
Business of Seller (the "Asset Purchase"); and
WHEREAS, the Purchase Agreement provides that at the Closing, certain shares
of Purchaser's Common Stock to be issued as part of the Purchase Price paid to
the Seller or the Shareholders in the Asset Purchase will be deposited in escrow
with Purchaser pursuant to this Agreement;
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained in the Purchase Agreement and herein, the parties agree as follows:
ARTICLE I
Escrow and Escrow Shares
------------------------
I.1 Delivery. Pursuant to the Purchase Agreement, the Secretary of
--------
Purchaser (the "Escrow Agent") shall hold in escrow upon the Closing of the
Asset Purchase, stock certificates representing an aggregate of 41,500 shares of
Purchaser's Common Stock (the "Escrow Shares"). Concurrently herewith, each of
the Shareholders shall execute and deliver to the Escrow Agent one (1) blank
stock power with respect to the Escrow Shares.
ARTICLE II
Escrow Agreement
----------------
II.1 Duties of Escrow Agent; Distribution of Escrow Shares. The Escrow
-----------------------------------------------------
Agent is hereby authorized and directed to hold the Escrow Shares as agent for
Purchaser and the Shareholders and to distribute the Shares, subject to Section
2.2 of this Agreement, upon receipt of notice and instructions from Purchaser,
in accordance with the following provision:
<PAGE>
(i) Subject to the satisfaction of certain milestones set forth in
Schedule A, the Escrow Shares shall be delivered to the Shareholders in the
- ----------
amounts and upon the dates set forth in Schedule A. Any Escrow Shares delivered
----------
to the Shareholders pursuant to this Section 2.1(i) shall be delivered within
twenty (20) days following the date upon which the completion of the relevant
milestone is determined.
II.2 Release of Escrow Shares.
-------------------------
(i) Notwithstanding any section of this Agreement, the provisions set
forth in this Section 2.2 shall apply with respect to the release of the Escrow
Shares. If there are existing on any date on which Escrow Shares are to be
released to the Shareholders hereunder (a "Release Date"), any Indemnifiable
Amounts (as defined herein) due and owing to Purchaser and/or its affiliates,
the Escrow Agent shall upon five (5) days' prior notice from the Purchaser,
cause that number of Escrow Shares with a fair market value equal to the actual
per share price calculated by the formula set forth in Section 3.2(ii) of the
Purchase Agreement (the "Share Value") sufficient to fully cover such
Indemnifiable Amounts (the "Excluded Shares") to be deducted from the amount of
Escrow Shares otherwise transferrable to the Shareholders on such Release Date
and instead transfer such Excluded Shares to Purchaser to be cancelled, and all
right, title, and interest of the Shareholders in and to such Excluded Shares
shall immediately terminate. In the event that the Indemnifiable Amount is
greater than the Share Value of the Excluded Shares, all excess and unsatisfied
Indemnifiable Amount shall be applied against any shares of Common Stock to be
released on any future Release Dates or contingency dates, if any, in accordance
with the terms of this Agreement and the Purchase Agreement.
(ii) If, on a Release Date, (a) there are Escrow Shares remaining in
escrow, (b) there are Damages suffered or to be suffered by Purchaser and/or its
affiliates and (c) such Damages may be equal to or greater than the aggregate
Share Value of the then existing Escrow Shares, then such Escrow Shares shall
not be released until a determination is made as to whether such Damages are
Indemnifiable Amounts. Upon such determination, the Escrow Agent shall release
the Escrow Shares that were to be released on such date to the parties in
accordance with such determination, pursuant to subsections (iii), (iv), (v) and
(vi) hereof. In the event that the amount of Damages determined to be an
Indemnifiable Amount is greater than the Share Value of the total number of
shares of Common Stock otherwise transferrable on such Release Date, all excess
and unsatisfied Indemnifiable Amount shall be applied against any shares of
Common Stock to be released on any future Release Dates or contingency dates, if
any, in accordance with the terms of this Agreement and the Purchase Agreement;
(iii) If, following such Release Date, any Damages are determined not
to be Indemnifiable Amounts, the Escrow Agent shall release all Escrow Shares
transferrable on such Release Date to the Shareholders as soon as possible after
such determination is made;
2.
<PAGE>
(iv) If, following such Release Date, any Damages are determined to
be Indemnifiable Amounts, the Escrow Agent shall cause the requisite number of
Excluded Shares to be deducted from the amount of Escrow Shares otherwise
transferrable to the Shareholders and instead transfer such Excluded Shares to
Purchaser to be cancelled, and all right, title, and interest of the
Shareholders in and to such Excluded Shares shall immediately terminate. The
remaining Escrow Shares to be released on such Release Date, if any, as so
reduced by the number of the Excluded Shares, shall then be released to the
Shareholders as soon as possible after such determination is made; and
(v) If, following such Release Date, there are Damages that have not
been determined in good faith to be Indemnifiable Amounts and such Damages
claimed to be suffered by Purchaser and/or its affiliates are less than the
aggregate Share Value of the Escrow Shares to be released on such Release Date,
the Escrow Agent shall release the Escrow Shares reduced by such number of
shares with an aggregate Share Value sufficient to cover the claimed Damages, to
the Shareholders.
(vi) Unless otherwise directed, the use of Escrow Shares for
indemnification hereunder shall be in proportion to the respective interests
therein among the registered holders of the Escrow Shares as set forth in
Schedule A hereto.
- ----------
ARTICLE III
Indemnification
---------------
III.1 Indemnification. The Escrow Shares shall serve as collateral in part
---------------
for the indemnity obligations of Seller and the Shareholders set forth in the
Purchase Agreement for any and all amounts determined by a court, by arbitration
or otherwise to be payable or owing to Purchaser and/or its affiliates for
Damages under the provisions and procedures of the Purchase Agreement
(collectively, "Indemnifiable Amounts").
III.2 Ownership of Escrow Shares; Voting Rights. The Shareholders shall
-----------------------------------------
have all indicia of ownership of the Escrow Shares while they are held in
escrow, including, without limitation, the right to vote the Escrow Shares and
receive distributions thereon and the obligations to pay all taxes, assessments,
and charges with respect thereto, but excluding the right to sell any Escrow
Shares or transfer any rights or interests in the Escrow Shares; provided that
any distribution, other than cash and taxable stock dividends (which dividends
shall be paid to the Shareholders), on or with respect to the Escrow Shares and
any other shares or securities into which such Escrow Shares may be changed or
for which they may be exchanged pursuant to corporate action of Purchaser
affecting holders of Purchaser's Common Stock generally shall be delivered to
and held by the Escrow Agent and treated as included within the term "Escrow
Shares," and shall be subject to the indemnity and escrow provisions of this
Agreement.
3.
<PAGE>
III.3 Arbitration. Any controversy involving an Identifiable Claim by
-----------
Purchaser and/or its affiliates pursuant to this Article III shall be finally
settled by arbitration in New York, New York in accordance with the then current
Commercial Arbitration Rules of the American Arbitration Association (the
"AAA"), and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. Such arbitration shall be conducted by
three (3) arbitrators chosen by mutual agreement of the parties hereto, or
failing such agreement, an arbitrator appointed by the AAA. There shall be
limited discovery prior to the arbitration hearing as follows: (a) exchange of
witness lists and copies of documentary evidence and documents related to or
arising out of the issues to be arbitrated, (b) depositions of all party
witnesses, and (c) such other depositions as may be allowed by the arbitrators
upon a showing of good cause. Depositions shall be conducted in accordance with
the New York Code of Civil Procedure, the arbitrator(s) shall be required to
provide in writing to the parties the basis for the award or order of such
arbitrator(s), and a court reporter shall record all hearings, with such record
constituting the official transcript of such proceedings.
ARTICLE IV
Authority and Indemnification
-----------------------------
IV.1 Authority. Upon consummation of the Asset Purchase and in
---------
consideration of the issuance of the Escrow Shares, the Shareholders and
Purchaser shall be deemed to have irrevocably appointed the Secretary of
Purchaser as the Escrow Agent to hold all of the Escrow Shares until their
release in accordance with this Agreement. If the current Secretary no longer
holds such office, the Shareholders and Purchaser by executing this Agreement
shall be deemed to have irrevocably appointed a new secretary as the successor
escrow agent.
IV.2 Indemnity. The Escrow Agent shall not be liable to anyone whatsoever
---------
by reason of the release of Escrow Shares to Purchaser at any time or failure to
release Escrow Shares to the Shareholders on the Release Date, where such
release or failure to release resulted from (i) a final determination by a court
or by arbitration, which determination is not appealed, or (ii) joint written
instructions from both the Shareholders and Purchaser. The Shareholders and
Purchaser shall, jointly and severally, indemnify and hold the Escrow Agent
harmless from any and all liability and expense (including, without limitation,
counsel fees) which may arise out of any action taken or omitted by him as an
Escrow Agent in accordance with this Agreement, as the same may be amended,
modified or supplemented.
IV.3 Reliance. The Escrow Agent shall be entitled to treat as genuine, and
--------
as the document it purports to be, any letter, paper, facsimile, telex, or other
document furnished or caused to be furnished to it by any party to this
Agreement and believed by it to be genuine and to have been telexed,
telegraphed, faxed, or cabled or signed and presented by any party to this
Agreement. The Escrow Agent may consult with independent counsel with respect
to the Escrow Agent's duties hereunder, and shall be fully protected in respect
to any action taken or suffered by the Escrow Agent.
4.
<PAGE>
IV.4 Legal Compliance. The Escrow Agent is hereby authorized and directed
----------------
to disregard any and all notices and warnings that may be given by any person,
firm or corporation except (a) a final order, determination, or award of an
arbitrator pursuant to Section 3.3 hereof or (b) a final order, judgment or
decree of any court made, filed, entered or issued, whether with or without
jurisdiction, from which no further appeal may be taken, and the Escrow Agent is
hereby authorized to comply with and obey any and all such final orders,
determinations, awards, judgments and decrees of any such arbitrator or court.
If the Escrow Agent shall comply with or obey any such order, determination,
award, judgment or decree of any such arbitrator or court, he shall not be
liable to any of the parties hereto, or to any other person, firm, association
or corporation, by reason of any such compliance or obedience even if any such
order, determination, award, judgment or decree may be subsequently revised,
modified, annulled, set aside or vacated.
ARTICLE V
Miscellaneous
-------------
V.1 Notices. Any notice or other communication required or permitted to be
-------
given to the parties hereto shall be deemed to have been given if personally
delivered (including personal delivery by facsimile), or two days after mailing
by certified or registered mail, return receipt requested, first class postage
prepaid, addressed as follows (or at such other address as the addressed party
may have substituted by notice pursuant to this Section 5.1):
If to Seller or
Shareholders: Atlantic Communication Sciences, Inc.
4300-B Fortune Place
W. Melbourne, Florida 32904
Attention: Ed Gerhardt
Telephone: (407) 728-1080
with a copy to: Frese, Nash & Torpy, R.A.
930 S. Harbor City Blvd., Suite 505
Melbourne, FL 32901
Attn: Gary B. Frese
Telecopy No.: (407) 951-3741
If to Purchaser: P-COM, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
Attn: George P. Roberts
Telecopy No. (408) 866-3678
5.
<PAGE>
with a copy to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Warren T. Lazarow, Esq.
Telecopy No.: (415) 496-2885
V.2 Termination. This Agreement shall terminate upon the earlier of (a) the
-----------
mutual written express agreement of Purchaser and the Shareholders or (b) when
all of the Escrow Shares (together with any applicable stock power(s)) have been
distributed according to its terms.
V.3 Interpretation. The validity, construction, interpretation and
--------------
enforcement of this Agreement shall be determined and governed by the laws of
the State of California without regard to the conflicts or choice of law
provisions thereof. The invalidity or unenforceability of any provision of this
Agreement or the invalidity or unenforceability of any provision as applied to a
particular occurrence or circumstance shall not affect the validity or
enforceability of any of the other provisions of this Agreement or the
applicability of such provision, as the case may be. All provisions of the
Purchase Agreement shall be incorporated herein by reference as if set forth in
their entirety herein.
V.4 Waiver; Amendment. This Agreement or any provision herein may not be
-----------------
changed, amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by the parties
hereto, and no waiver of any of the provisions or conditions of this Agreement
or any of the rights of a party hereto shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given or
consented thereto. Except to the extent that a party hereto may have otherwise
agreed in writing, no waiver by that party of any condition of this Agreement or
breach by the other party of any of its obligations or representations hereunder
or thereunder shall be deemed to be a waiver of any other condition or
subsequent or prior breach of the same or any other obligation or representation
by the other party, nor shall any forbearance by the first party to seek a
remedy for any noncompliance or breach by the other party be deemed to be a
waiver by the first party of its rights and remedies with respect to such
noncompliance or breach.
V.5 Attorneys' Fees; Remedies. If any action at law or in equity (including
-------------------------
arbitration as required pursuant to Section 3.3 hereof) is necessary to enforce
or interpret the terms of this Agreement or to protect the rights obtained
hereunder, the prevailing party shall be entitled to its reasonable attorneys'
fees, costs, and disbursements in addition to any other relief to which it may
be entitled. The rights and remedies of the parties under this Agreement, the
6.
<PAGE>
Purchase Agreement and the other Related Agreements and all other letters,
certificates or documents executed in connection herewith and therewith are
cumulative and not exclusive of any rights, remedies, powers and privileges that
may otherwise be available to the parties hereto.
V.6 Counterparts. This Agreement may be signed in one or more counterparts,
------------
each of which shall be deemed an original and all of which shall constitute one
agreement.
7.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the day and
year first above written.
P-COM, INC.
By:_________________________________________________
Michael Sophie
Vice President, Finance and Administration and
Chief Financial Officer
ATLANTIC COMMUNICATIONS SCIENCES, INC.,
a Florida corporation
By:____________________________________________
Edward C. Gerhardt, President
SIGNATORIES
_______________________________________________
Edward Gerhardt
_______________________________________________
L. Roger Sanders
_______________________________________________
Charles W. Richards, IV
<PAGE>
_______________________________________________
Grover W. Brower
KOOS TECHNICAL SERVICES, INC.
By:____________________________________________
Title:
_______________________________________________
William M. Koos, Jr.
_______________________________________________
Larry W. Koos
EDWARD C. GERHARDT TRUST, U/A DATED
JUNE 22, 1988
By:____________________________________________
Edward C. Gerhardt, as Grantee and Trustee
L. ROGERS SANDERS REVOCABLE TRUST,
U/A DATED JUNE 18, 1991
By:____________________________________________
L. Roger Sanders, Trustee
By:____________________________________________
Patricia A. Sanders, Trustee
<PAGE>
SCHEDULE A
<PAGE>
ACS STOCKHOLDER OBJECTIVES
<TABLE>
<CAPTION>
FIRST YEAR OBJECTIVES:
- ----------------------
STOCKHOLDER'S PAYMENT COMPLETION PROVISOS
MILESTONES (ESCROWED DATE
SHARES)
<S> <C> <C> <C>
$5.25M of Sales 36,000 First 12-Mo period Pro-rated
of ACS Products following Closing
date
Completion of the Model 5,500 By May 1, 1997 50% for Modem
500 Modem and 5.7 GHz RF Unit 50% for RF Unit
</TABLE>
NOTES:
1. Milestones can be changed subject to mutual consent by P-COM and the majority
of the ACS stockholders. Completion refers to release to production
manufacturing.
<PAGE>
EXHIBIT 4.1(d)
FORM OF AFFILIATES AGREEMENT
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 6.2(a)
BILL OF SALE
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 6.2(b)
OPINION OF FRESE, NASH & TORPY, P.A., COUNSEL TO SELLER
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 6.2(d)
FORM OF OFFER LETTER
FOR KEY EMPLOYEES AND OTHER EMPLOYEES AND CONSULTANTS
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 6.2(e)
FORM OF PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 6.2(g)
ASSIGNMENT AND ASSUMPTION OF THE CONTRACTS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(a)
LIST OF RELATED PROPERTY
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(b)
LIST OF INVENTORY
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(c)
LIST OF CONTRACTS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(d)
LIST OF GOVERNMENTAL PERMITS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(e)
LIST OF INTELLECTUAL PROPERTY RIGHTS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(f)
LIST OF ACCOUNTS RECEIVABLE
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.1(j)
LIST OF LEASEHOLD INTERESTS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 1.2
LIST OF EXCLUDED ASSETS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 2.1
LIST OF ASSUMED LIABILITIES
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 3.2(b)
DESCRIPTION OF MILESTONES
<PAGE>
ACS STOCKHOLDER OBJECTIVES
FIRST YEAR OBJECTIVES:
- ----------------------
STOCKHOLDER'S MILESTONES PAYMENT COMPLETION PROVISOS
(ESCROWED DATE
SHARES)
$5.25m of Sales of ACS 36,000 First 12-Mo Pro-rated
Products period
following
Closing date
Completion of the Model 500 5,500 By May 1, 1997 50% for Modem
Modem and 5.7 GHz RF Unit 50% for RF Unit
SECOND YEAR OBJECTIVES:
- -----------------------
STOCKHOLDER'S MILESTONE (1) PAYMENT COMPLETION DATE
(ESCROWED
SHARES)
Completion of the Model 16,500 Second 12-mo
1000 Modem period following
(Non-Spread, QAM, Closing Date
P-COM RFU Interface)
THIRD YEAR OBJECTIVES:
- ----------------------
STOCKHOLDER'S MILESTONE (1) PAYMENT COMPLETION DATE
(ESCROWED
SHARES)
Completion of a 16,500 Third 12-mo
Point-to-Multipoint Modem period following
for operation with a 28 GHz Closing Date
RF Unit
NOTES:
1. Milestones can be changed subject to mutual consent by P-COM and the
majority of the ACS stockholders. Completion refers to release to
production manufacturing.
<PAGE>
SCHEDULE 4.1
DISCLOSURE LETTER
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(b)
LIST OF STOCKHOLDERS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(d)
LIST OF AFFILIATES
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(v)
LIST OF EMPLOYEES
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(ad)
LIST OF CUSTOMERS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(ae)
LIST OF SUPPLIERS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(aj)
LIST OF INSURANCE POLICIES
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(ak)
LIST OF ENVIRONMENTAL MATTERS
AVAILABLE UPON REQUEST
<PAGE>
SCHEDULE 4.1(al)
BACKLOG OF ORDERS
AVAILABLE UPON REQUEST
<PAGE>
EXHIBIT 10.16A
P-COM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(As Amended and Restated Effective February 1, 1996)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to promote the
interests of P-COM, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons may, at
the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary),
and
(iii) the Automatic Option Grant Program under which Eligible Directors
shall automatically receive option grants at periodic intervals to purchase
shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. No non-employee Board member shall be eligible
to serve on the Primary Committee if such individual has, during the twelve
(12)-month period immediately preceding the date of his or her appointment to
the Committee or (if shorter) the period commencing with the Section 12(g)
Registration Date and ending with the date of his or her appointment to the
Primary Committee, received an option grant or direct stock issuance under the
Plan or any stock option, stock appreciation, stock bonus or other stock plan of
the Corporation (or any Parent or Subsidiary), other than pursuant to the
Automatic Option Grant Program.
B. Administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in these
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer these
programs with respect to all such persons. The members of the Secondary
Committee may be individuals who are Employees eligible to receive discretionary
option grants or direct stock issuances under the Plan or any stock option,
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
D. The Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary
2.
<PAGE>
Committee shall be liable for any act or omission made in good faith with
respect to the Plan or any option grants or stock issuances under the Plan.
F. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees, and
(ii) consultants or other independent advisors who provide services to
the Corporation (or any Parent or Subsidiary).
B. Non-employee members of the Board shall not be eligible to participate
---
in the Discretionary Option Grant and Stock Issuance Programs or in any other
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).
C. The Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid by the Participant for such shares.
D. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be limited to (i) those individuals who are serving
as non-employee Board members on February 1, 1996, (ii) those individuals who
first become non-employee Board members after February 1, 1996, whether through
appointment by the Board or election by the Corporation's stockholders, and
(iii) those individuals who continue
3.
<PAGE>
to serve as non-employee Board members at one or more Annual Stockholders
Meetings held after February 1, 1996. A non-employee Board member who has
previously been in the employ of the Corporation (or any Parent or Subsidiary)
shall not be eligible to receive an initial 20,000-share option grant under the
Automatic Option Grant Program at the time he or she first becomes a non-
employee Board member, but such individual shall be eligible to receive periodic
option grants under the Automatic Option Grant Program upon his or her continued
service as a non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 2,767,944
shares.* Such authorized share reserve is comprised of (i) the number of
shares which remained available for issuance, as of the Plan Effective Date,
under the Predecessor Plan as last approved by the Corporation's stockholders
prior to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been available
for future option grants under the Predecessor Plan, plus (ii) an additional
increase of 480,000* shares of Common Stock previously authorized by the
Board and approved by the Corporation's stockholders prior to the Plan Effective
Date, plus (iii) a further increase of 800,000 shares of Common Stock authorized
by the Board on February 1, 1996 and approved by the Corporation's stockholders
at the 1996 Annual Meeting.
B. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
800,000* shares of Common Stock in the aggregate over the term of the Plan.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article Two.
All shares issued under the Plan (including shares issued upon exercise of
options incorporated from the Predecessor Plan), whether or not those shares are
subsequently repurchased by the Corporation pursuant to its repurchase rights
under the Plan, shall reduce on a share-for-share basis the number of shares of
Common Stock available for subsequent issuance under the Plan. In addition,
should the exercise price of an option under the Plan (including any option
incorporated from the Predecessor Plan) be paid with shares of Common Stock or
should shares of Common Stock otherwise
- -----------------------
* This number reflects (i) the 1-for-3 reverse split of the Common Stock
effected after the Board's adoption of the Plan but prior to the Plan Effective
Date and (ii) the 2-for-1 split of the Common Stock effected October 27, 1995.
4.
<PAGE>
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
D. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be subsequently
made per Eligible Director under the Automatic Option Grant Program and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
5.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each granted option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
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document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
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1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five and
the documents evidencing the option grant, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (A)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable Federal,
state and local income and employment taxes required to be withheld by the
Corporation by reason of such exercise and (B) the Corporation to deliver
the certificates for the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
6.
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B. Exercise and Term of Options. Each option shall be exercisable at
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such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
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1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the Optionee
at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable for vested shares on
the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the
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Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no
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stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator and set forth in the document evidencing
such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
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A. Eligibility. Incentive Options may only be granted to Employees.
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8.
<PAGE>
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value (determined
-----------------
as of the respective date or dates of grant) of the Common Stock for which one
or more options granted to any Employee under the Plan (or any other option plan
of the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of
such options as Incentive Options shall be applied on the basis of the order in
which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for all of the shares of Common Stock at the time subject to
such option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall NOT so accelerate
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation (or parent
thereof) or to be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof), (ii) such option
is to be replaced with a cash incentive program of the successor corporation
which preserves the spread existing on the unvested option shares at the time of
the Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration of
such option is subject to other limitations imposed by the Plan Administrator at
the time of the option grant. The determination of option comparability under
clause (i) above shall be made by the Plan Administrator, and its determination
shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such
9.
<PAGE>
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed by the Plan Administrator at the time the repurchase right
is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Corporate Transaction, whether
or not those options are to be assumed or replaced (or those repurchase rights
are to be assigned) in the Corporate Transaction.
D. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
--------
payable for such securities shall remain the same. In addition, appropriate
adjustments to reflect the Corporate Transaction shall be made to (i) the class
and number of securities available for issuance over the remaining term of the
Plan and (ii) the maximum number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the remaining term of
the Plan.
F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or (ii)
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the expiration of the one (1)-year period measured from the effective date of
the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a
10.
<PAGE>
Change in Control or (ii) condition any such option acceleration (and the
termination of any outstanding repurchase rights) upon the subsequent
Involuntary Termination of the Optionee's Service within a specified period
following the effective date of such Change in Control. Any options accelerated
in connection with a Change in Control shall remain fully exercisable until the
expiration of the option term.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a Non-
Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.
11.
<PAGE>
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business days after the receipt of the rejection
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notice or (B) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right in effect for at least six (6) months shall have the
unconditional right (exercisable for a thirty (30)-day period following
such Hostile Take-Over) to surrender each such option to the Corporation,
to the extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to the
excess of (A) the Take-Over Price of the shares of Common Stock which are
at the time vested under each surrendered option (or surrendered portion
thereof) over (B) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
option surrender date.
(iii) Neither the approval of the Plan Administrator nor the
consent of the Board shall be required in connection with such option
surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
12.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
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1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of the Fair
Market Value per share of Common Stock on the stock issuance date.
2. Subject to the provisions of Section I of Article Five,
shares of Common Stock may be issued under the Stock Issuance Program for one or
both of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
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1. Shares of Common Stock issued under the Stock Issuance Program may,
in the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or the
performance objectives to be attained,
(ii) the number of installments in which the shares are to vest,
13.
<PAGE>
(iii) the interval or intervals (if any) which are to lapse
between installments, and
(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated into the
Stock Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to him or her under the Stock Issuance
Program, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
14.
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II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase/cancellation
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase/cancellation right remains outstanding, to provide for
the automatic termination of one or more of those outstanding rights and the
immediate vesting of the shares of Common Stock subject to such rights upon the
occurrence of a Corporate Transaction.
C. Any repurchase/cancellation rights that are assigned in the
Corporate Transaction shall automatically terminate, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event the Optionee's Service should subsequently terminate by reason of
an Involuntary Termination within eighteen (18) months following the effective
date of such Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase/cancellation right remains outstanding, to (i) provide
for the automatic termination of one or more of those outstanding rights and the
immediate vesting of the shares subject to such rights upon the occurrence of a
Change in Control or (ii) condition any such accelerated vesting upon the
subsequent Involuntary Termination of the Participant's Service within a
specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
15.
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ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
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I. OPTION TERMS
A. Grant Dates. Pursuant to the provisions of the February 1, 1996
-----------
restatement of this Article Four, option grants shall be made to Eligible
Directors in accordance with the grant date provisions specified below:
1. Each individual serving as an Eligible Director on February 1,
1996 shall automatically be granted on such date a Non-Statutory Option to
purchase 20,000** shares of Common Stock.
2. Each individual who first becomes an Eligible Director after
February 1, 1996 shall automatically be granted, on the date such individual is
first elected or appointed as a non-employee Board member, a Non-Statutory
Option to purchase 20,000*** shares of Common Stock.
3. On the date of each Annual Stockholders Meeting, beginning with
the 1996 Annual Meeting, each individual who is to continue as an Eligible
Director shall automatically be granted, whether or not he or she is standing
for re-election as a Board member at that Annual Meeting, a Non-Statutory Option
to purchase an additional 2,000** shares of Common Stock, provided such
individual has not received an option grant pursuant to this Automatic Option
Grant Program within six (6) months prior to the date of such Annual Meeting.
There shall be no limit on the number of such 2,000-share option
grants any one Eligible Director may receive over his or her period of Board
service. The number of shares for which the automatic option grants are to be
made to each newly-elected or continuing Eligible Director shall be subject to
periodic adjustment pursuant to the applicable provisions of Section V.D. of
Article One.
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** This number reflects (i) the 1-for-3 reverse split of the Common Stock
effected after the Board's adoption of the Plan but prior to the Plan Effective
Date and (ii) the 2-for-1 split of the Common Stock effected October 27, 1995.
*** This number reflects (i) the 1-for-3 reverse split of the Common Stock
effected after the adoption of the Plan by the Board but prior to the Plan
Effective Date and (ii) the 2-for-1 stock split effected October 27, 1995.
16.
<PAGE>
B. Exercise Price.
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1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
-----------
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each option, whether the
initial 20,000-share grant or any annual 2,000-share grant, shall vest, and the
Corporation's repurchase right with respect to those shares shall lapse, in a
series of eight (8) successive equal quarterly installments upon the Optionee's
completion of each three (3) months of continued service as a Board member over
the twenty-four (24)-month period measured from the option grant date.
E. Effect of Termination of Board Service. The following provisions
--------------------------------------
shall govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of vested shares
of Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
17.
<PAGE>
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of such shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Board service,
terminate and cease to be outstanding to the extent it is not exercisable
for vested shares at that time.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for the fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her for a period of at least six (6) months.
The Optionee shall in return be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Take-Over Price of the
shares of Common Stock at the time subject to the surrendered option (whether or
not the Optionee is otherwise at the time vested in those shares) over (ii) the
aggregate exercise price payable for such shares. Such cash distribution shall
be paid within five (5) days following the surrender of the option to the
Corporation. No approval or consent of the Board shall be required in
connection with such option surrender and cash distribution.
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D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. AMENDMENT OF THE AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Automatic Option Grant Program, together with
the option grants outstanding thereunder, may not be amended at intervals more
frequently than once every six (6) months, other than to the extent necessary to
comply with applicable Federal income tax laws and regulations.
IV. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
19.
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ARTICLE FIVE
MISCELLANEOUS
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I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights or upon the issuance
or vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
20.
<PAGE>
(ii) Stock Delivery: The election to deliver to the Corporation,
--------------
at the time the Non-Statutory Option is exercised or the shares vest, one
or more shares of Common Stock previously acquired by such holder (other
than in connection with the option exercise or share vesting triggering the
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the date on which the Underwriting
Agreement was executed and the initial public offering price of the Common Stock
was established. The Plan serves as the successor to the Predecessor Plan, and
no further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan on the Plan
Effective Date have been incorporated into the Plan and treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
B. The Plan was amended and restated by the Board, effective
February 1, 1996 (the "February 1996 Restatement") to effect the following
revisions: (i) increase the maximum number of shares of Common Stock authorized
for issuance over the term of the Plan from by an additional 800,000 shares to
2,767,944 shares and (ii) enhance the benefit and eligibility provisions of the
Automatic Option Grant Program in order to effect an automatic option grant for
20,000 shares of Common Stock on February 1, 1996 to each individual serving as
a non-employee Board member at that time, increase the number of shares for
which an initial option grant is to be made under the Automatic Option Grant
Program to each newly-elected non-employee Board member to 20,000 shares,
authorize a series of automatic option grants to be made annually to each non-
employee Board member, in the amount of 2,000 shares per annual grant, over that
individual's period of continued service as a Board member and allow non-
employee Board members who joined the Board prior to the implementation of the
Plan to qualify for such annual option grants. The February 1996 Restatement
became effective immediately upon adoption by the Board and was approved by the
Corporation's stockholders at the 1996 Annual Meeting. All option grants made
under the Plan prior to the February 1996 Restatement shall remain outstanding
in accordance with the terms and conditions of the respective instruments
evidencing those options, and nothing in the February 1996 Restatement shall be
deemed to modify or in any way affect those outstanding options.
C. The option/vesting acceleration provisions of Article Two
relating to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion,
21.
<PAGE>
be extended to one or more options incorporated from the Predecessor Plan which
do not otherwise provide for such acceleration.
D. The Plan shall terminate upon the earliest of (i) January 10, 2005,
--------
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise of the options or the issuance of
shares (whether vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Upon such
Plan termination, all options and unvested stock issuances outstanding on such
date shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, (i) no such
amendment or modification shall adversely affect the rights and obligations with
respect to options, stock appreciation rights or unvested stock issuances at the
time outstanding under the Plan unless the Optionee or the Participant consents
to such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitations of that program. In addition, the Board shall
not, without the approval of the Corporation's stockholders, (i) materially
increase the maximum number of shares issuable under the Plan, increase the
number of shares for which options may be granted under the Automatic Option
Grant Program to newly-elected or continuing non-employee Board members,
increase the number of shares for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock issuances in
the aggregate over the term of the Plan or increase the maximum number of shares
which may be issued under the Plan prior to the required cessation of further
Incentive Option grants, except for permissible adjustments in the event of
certain changes in the Corporation's capitalization, (ii) materially modify the
eligibility requirements for Plan participation or (iii) materially increase the
benefits accruing to Plan participants.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were
22.
<PAGE>
held in escrow, and such shares shall thereupon be automatically cancelled and
cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
23.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
------------------------------
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board does not recommend such
stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was approved
by the Board.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. COMMON STOCK shall mean the Corporation's common stock.
------------
F. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
A-1.
<PAGE>
different from the persons holding those securities immediately prior to
such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. CORPORATION shall mean P-COM, Inc., a Delaware corporation.
-----------
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
----------------------------------
grant program in effect under the Plan.
I. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
provisions of Section IV.E of Article One.
K. EMPLOYEE shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
A-2.
<PAGE>
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
N. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept, and
---
(ii) more than fifty percent (50%) of the securities so acquired
are accepted from persons other than Section 16 Insiders.
O. INCENTIVE OPTION shall mean an option which satisfies the requirements
----------------
of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-
discretionary and objective-standard incentive payment or bonus award) by
more than fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation without
the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or
A-3.
<PAGE>
Subsidiary) or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant or Automatic Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common Stock
-----------
under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
--------------------------------------------
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
X. PLAN shall mean the Corporation's 1995 Stock Option/Stock Issuance
----
Plan, as set forth in this document and as amended from time to time.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date on which the Underwriting
-------------------
Agreement was executed and the initial public offering price was established.
AA. PREDECESSOR PLAN shall mean the Corporation's 1992 Stock Option Plan.
----------------
A-4.
<PAGE>
AB. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
AC. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
AD. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
AE. SECTION 16 INSIDER shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AF. SECTION 12(G) REGISTRATION DATE shall mean the first date on which the
-------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act.
AG. SERVICE shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
AH. STOCK EXCHANGE shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
AI. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the
------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
AJ. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect
----------------------
under the Plan.
AK. SUBSIDIARY shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation in the unbroken chain (other than the last corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AL. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
--------------- -------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid
A-5.
<PAGE>
by the tender offeror in effecting such Hostile Take-Over. However, if the
surrendered option is an Incentive Option, the Take-Over Price shall not exceed
the clause (i) price per share.
AM. 10% STOCKHOLDER shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing ten percent (10%) or more of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
AN. TAXES shall mean the Federal, state and local income and employment
-----
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of such holder's options
or the vesting of his or her shares.
AO. UNDERWRITING AGREEMENT shall mean the agreement executed between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-6.
<PAGE>
INITIAL GRANT
-------------
P-COM, INC.
NOTICE OF GRANT OF
AUTOMATIC STOCK OPTION
----------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of P-COM, Inc. (the "Corporation"):
Optionee: ___________________________________________________________
--------
Grant Date: _________________________________________________________
----------
Exercise Price: $__________________________________________ per share
--------------
Number of Option Shares: 20,000 shares
-----------------------
Expiration Date:_____________________________________________________
---------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be unvested and
----------------
subject to repurchase by the Corporation, at the Exercise Price paid per
share. Optionee shall acquire a vested interest in, and the Corporation's
repurchase right shall accordingly lapse with respect to, the Option Shares
in a series of eight (8) successive equal quarterly installments upon the
Optionee's completion of each successive three (3) month period of service
as a Board member over the twenty-four (24)-month period measured from the
Grant Date. In no event shall any additional Option Shares vest following
Optionee's cessation of service as a Board member for any reason other than
death or Permanent Disability.
Optionee understands and agrees that the Option is granted subject to and
in accordance with the terms of the P-COM, Inc. 1995 Stock Option/Stock Issuance
Plan (the "Plan"). Optionee further agrees to be bound by the terms of the Plan
and the terms of the Option as set forth in the Automatic Stock Option Agreement
attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official Plan Summary
and Prospectus in the form attached hereto as Exhibit B. A copy of the Plan is
available upon request made to the Corporate Secretary at Corporation's
principal offices.
<PAGE>
REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED
-----------------
UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE RIGHT
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL BE
SPECIFIED IN A STOCK PURCHASE AGREEMENT, IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the attached
-----------------------
Automatic Stock Option Agreement shall in any way be construed or interpreted so
as to affect adversely or otherwise impair the right of the Corporation or the
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
________________________, 199__
Date
P-COM, INC.
By: ___________________________
Title: ___________________________
__________________________________
OPTIONEE
Address: _________________________
__________________________________
ATTACHMENTS
___________
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
<PAGE>
EXHIBIT A
---------
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
(AVAILABLE UPON REQUEST)
<PAGE>
ANNUAL GRANT
------------
P-COM, INC.
NOTICE OF GRANT OF
AUTOMATIC STOCK OPTION
----------------------
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of P-COM, Inc. (the "Corporation"):
Optionee:_______________________________________________________
--------
Grant Date: ___________________________________________________
----------
Exercise Price: ___________________________________ $ per share
--------------
Number of Option Shares: 2,000 shares
-----------------------
Expiration Date:________________________________________________
---------------
Type of Option: Non-Statutory Stock Option
--------------
Date Exercisable: Immediately Exercisable
----------------
Vesting Schedule: The Option Shares shall initially be unvested and
----------------
subject to repurchase by the Corporation, at the Exercise Price paid
per share. Optionee shall acquire a vested interest in, and the
Corporation's repurchase right shall accordingly lapse with respect
to, the Option Shares in a series of eight (8) successive equal
quarterly installments upon the Optionee's completion of each
successive three (3) month period of service as a Board member over
the twenty-four (24)-month period measured from the Grant Date. In no
event shall any additional Option Shares vest following Optionee's
cessation of service as a Board member for any reason other than death
or Permanent Disability.
Optionee understands and agrees that the Option is granted subject to
and in accordance with the terms of the P-COM, Inc. 1995 Stock Option/Stock
Issuance Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Automatic Stock Option
Agreement attached hereto as Exhibit A.
Optionee hereby acknowledges receipt of a copy of the official Plan
Summary and Prospectus in the form attached hereto as Exhibit B. A copy of the
Plan is available upon request made to the Corporate Secretary at the
Corporation's principal offices.
<PAGE>
REPURCHASE RIGHT. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES
----------------
ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO A REPURCHASE RIGHT
EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHT SHALL
BE SPECIFIED IN A STOCK PURCHASE AGREEMENT IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION, EXECUTED BY OPTIONEE AT THE TIME OF THE OPTION EXERCISE.
No Impairment of Rights. Nothing in this Notice or in the attached
-----------------------
Automatic Stock Option Agreement shall in any way be construed or interpreted so
as to affect adversely or otherwise impair the right of the Corporation or the
stockholders to remove Optionee from the Board at any time in accordance with
the provisions of applicable law.
Definitions. All capitalized terms in this Notice shall have the
-----------
meaning assigned to them in this Notice or in the attached Automatic Stock
Option Agreement.
________________________, 199__
Date
P-COM, INC.
By: __________________________________
Title: _______________________________
_______________________________________
OPTIONEE
Address: _____________________________
_______________________________________
ATTACHMENTS
- -----------
EXHIBIT A - AUTOMATIC STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS FOR NON-EMPLOYEE DIRECTORS
<PAGE>
EXHIBIT A
---------
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
<PAGE>
EXHIBIT B
---------
PLAN SUMMARY AND PROSPECTUS
---------------------------
(AVAILABLE UPON REQUEST)
<PAGE>
P-COM, INC.
AUTOMATIC STOCK OPTION AGREEMENT
--------------------------------
RECITALS
- --------
A. The Corporation has implemented an automatic option grant program
under the Corporation's 1995 Stock Option/Stock Issuance Plan (the "Plan")
pursuant to which eligible non-employee members of the Corporation's Board of
Directors (the "Board") will automatically receive special option grants at
periodic intervals over their period of Board service in order to provide such
individuals with a meaningful incentive to continue to serve as a member of the
Board.
B. Optionee is an eligible non-employee Board member, and this
Agreement is executed pursuant to, and is intended to carry out the purposes of,
the Plan in connection with the automatic grant of a stock option to purchase
shares of the Corporation's common stock ("Common Stock") under the Plan.
C. The granted option is intended to be a non-statutory option which
does not meet the requirements of Section 422 of the Internal Revenue Code.
D. All capitalized terms in this Agreement, to the extent not
otherwise defined in the Agreement, shall have the meaning assigned to them in
the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as
---------------
of the Grant Date, a Non-Statutory Option to purchase up to the number of
Option Shares specified in the Grant Notice. The Option Shares shall be
purchasable from time to time during the option term specified in Paragraph 2 at
the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10)
-----------
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5, 6 or 7.
3. LIMITED TRANSFERABILITY. This option, together with the special
-----------------------
stock appreciation right provided under Paragraph 7.B, shall be neither
transferable nor assignable by Optionee, other than a transfer of this option
effected by will or by the laws of descent and distribution following Optionee's
death, and may be exercised, during Optionee's lifetime, only by Optionee.
However, this option may also be assigned in accordance with the terms of a
Qualified Domestic Relations Order. To the extent the option is so assigned,
the option shall be exercisable only by the person or persons who acquire a
proprietary interest in the option pursuant to such Qualified Domestic Relations
Order. The terms
<PAGE>
applicable to the assigned option (or portion thereof) shall be the same as
those in effect for this option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Board may deem
appropriate.
4. EXERCISABILITY/VESTING.
----------------------
A. This option shall be immediately exercisable for any or all of
the Option Shares, whether or not the Option Shares are vested in accordance
with the Vesting Schedule set forth in the Grant Notice, and shall remain so
exercisable until the expiration or sooner termination of the option term.
B. Optionee shall, in accordance with the Vesting Schedule set forth
in the Grant Notice, vest in the Option Shares in one or more installments over
his or her period of Board service. Vesting in the Option Shares may be
accelerated pursuant to the provisions of Paragraph 5, 6 or 7. In no event,
however, shall any additional Option Shares vest following Optionee's cessation
of service as a Board member.
5. CESSATION OF BOARD SERVICE. Should Optionee's service as a Board
--------------------------
member cease while this option remains outstanding, then the option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
outstanding) prior to the Expiration Date in accordance with the following
provisions:
- Should Optionee cease to serve as a Board member for any reason
while holding this option, then the period for exercising this option shall
be reduced to a twelve (12)-month period commencing with the date of such
cessation of Board service, but in no event shall this option be
exercisable at any time after the Expiration Date. During such limited
period of exercisability, this option may not be exercised for more than
the number of Option Shares (if any) in which the Optionee is vested on the
date Optionee ceases service as a Board member. Upon the earlier of (i)
-------
the expiration of such twelve (12)-month period or (ii) the specified
Expiration Date, the option shall terminate and cease to be exercisable
with respect to any vested Option Shares for which the option has not been
exercised.
- Should Optionee die during the twelve (12)-month period following
his or her cessation of Board service, then the personal representative of
Optionee's estate or the person or persons to whom the option is
transferred pursuant to Optionee's will or in accordance with the laws of
descent and distribution shall have the right to exercise this option for
any or all of the Option Shares in which the Optionee is vested at the time
of Optionee's cessation of Board service (less any Option Shares purchased
by Optionee after such cessation of Board service but prior to death).
Such right of exercise shall terminate, and this option shall accordingly
cease to be exercisable for such vested Option Shares, upon the earlier of
-------
(A) the
2.
<PAGE>
expiration of the twelve (12)-month period measured from the date of
Optionee's cessation of Board service or (B) the specified Expiration Date
of the option term.
- Should Optionee cease service as a Board member by reason of death
or Permanent Disability, then all Option Shares at the time subject to this
option but not otherwise vested shall vest in full so that the Optionee (or
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred upon the Optionee's death) shall
have the right to exercise this option for any or all of the Option Shares
as fully-vested shares of Common Stock at any time prior to the earlier of
-------
(A) the expiration of the twelve (12)-month period measured from the date
of the Optionee's cessation of Board service or (B) the specified
Expiration Date of the option term.
- Upon Optionee's cessation of Board service for any reason other
than death or Permanent Disability, this option shall immediately terminate
and cease to be outstanding with respect to any and all Option Shares in
which the Optionee is not otherwise at that time vested in accordance with
the normal Vesting Schedule set forth in the Grant Notice or the special
vesting acceleration provisions of Paragraph 7 or 8 below.
6. CORPORATE TRANSACTION.
---------------------
A. In the event of a Corporate Transaction, all Option Shares at the
time subject to this option but not otherwise vested shall automatically vest so
that this option shall, immediately prior to the specified effective date for
the Corporate Transaction, become fully exercisable for all of the Option Shares
at the time subject to this option and may be exercised for all or any portion
of such shares as fully-vested shares of Common Stock. Immediately following
the consummation of the Corporate Transaction, this option shall terminate and
cease to be outstanding, except to the extent assumed by the successor
corporation or its parent company.
B. If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
--------
7. CHANGE IN CONTROL/HOSTILE TAKE-OVER.
-----------------------------------
A. All Option Shares subject to this option at the time of a Change
in Control but not otherwise vested shall automatically vest so that this option
shall,
3.
<PAGE>
immediately prior to the effective date of such Change in Control, become fully
exercisable for all of the Option Shares at the time subject to this option and
may be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. This option shall remain exercisable for such fully-vested Option
Shares until the earliest to occur of (i) the specified Expiration Date of the
--------
option term, (ii) the sooner termination of this option in accordance with
Paragraph 5 or 6 or (iii) the surrender of this option under Paragraph 7.B.
B. Provided this option has been outstanding for at least six (6)
months prior to the occurrence of a Hostile Take-Over, Optionee shall have an
unconditional right (exercisable during the thirty (30)-day period immediately
following the consummation of such Hostile Take-Over) to surrender this option
to the Corporation in exchange for a cash distribution from the Corporation in
an amount equal to the excess of (i) the Take-Over Price of the Option Shares at
the time subject to the surrendered option (whether or not those Option Shares
are otherwise at the time vested) over (ii) the aggregate Exercise Price payable
for such shares. This Paragraph 7.B limited stock appreciation right shall in
all events terminate upon the expiration or sooner termination of the option
term and may not be assigned or transferred by Optionee.
C. To exercise the Paragraph 7.B limited stock appreciation right,
Optionee must, during the applicable thirty (30)-day exercise period, provide
the Corporation with written notice of the option surrender in which there is
specified the number of Option Shares as to which the Option is being
surrendered. Such notice must be accompanied by the return of Optionee's copy
of this Agreement, together with any written amendments to such Agreement. The
cash distribution shall be paid to Optionee within five (5) days following such
delivery date, and no approval or consent of the Board shall be required in
connection with such option surrender and cash distribution. Upon receipt of
such cash distribution, this option shall be cancelled with respect to the
shares subject to the surrendered option (or the surrendered portion), and
Optionee shall cease to have any further right to acquire those Option Shares
under this Agreement. The option shall, however, remain outstanding for the
balance of the Option Shares (if any) in accordance with the terms and
provisions of this Agreement, and the Corporation shall accordingly issue a new
stock option agreement (substantially in the same form as this Agreement) for
those remaining Option Shares.
8. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
---------------------------
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder; provided, however, that the aggregate Exercise Price shall
--------
remain the same.
4.
<PAGE>
9. STOCKHOLDER RIGHTS. The holder of this option shall not have any
------------------
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
10. MANNER OF EXERCISING OPTION.
---------------------------
A. In order to exercise this option for all or any part of the
Option Shares for which the option is at the time exercisable, Optionee (or in
the case of exercise after Optionee's death, Optionee's executor, administrator,
heir or legatee, as the case may be) must take the following actions:
(i) To the extent the option is exercised for vested Option
Shares, the Secretary of the Corporation shall be provided with written
notice of the option exercise (the "Exercise Notice"), in substantially the
form of Exhibit I attached hereto, in which there is specified the number
of vested Option Shares which are to be purchased under the exercised
option. To the extent the option is exercised for one or more unvested
Option Shares, the Optionee (or other person exercising the option) shall
deliver to the Secretary of the Corporation a stock purchase agreement in
form and substance satisfactory to the Corporation (the "Purchase
Agreement") which grants the Corporation the right to repurchase, at the
Exercise Price, any and all unvested Option Shares held by the Optionee at
the time of his or her cessation of Board service and which precludes the
sale, transfer or other disposition of any purchased Option Shares while
they remain subject to such repurchase right.
(ii) The aggregate Exercise Price for the purchased shares shall
be paid in one of the following alternative forms:
- full payment in cash or check made payable to the
Corporation's order; or
- full payment in shares of Common Stock held by Optionee for
the requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date; or
- full payment in a combination of shares of Common Stock held
for the requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes and valued at
Fair Market Value on the Exercise Date and cash or check made payable
to the Corporation's order; or
5.
<PAGE>
- to the extent the option is exercised for vested Option
Shares, full payment effected through a broker-dealer sale and
remittance procedure pursuant to which Optionee shall provide
irrevocable written instructions (A) to a Corporation-designated
brokerage firm to effect the immediate sale of the vested shares
purchased under the option and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate Exercise Price payable for those shares and (B) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
(iii) Appropriate documentation evidencing the right to exercise
this option shall be furnished the Corporation if the person or persons
exercising the option is other than the Optionee.
B. Except to the extent the sale and remittance procedure specified
above is utilized in connection with the exercise of the option for vested
shares, payment of the Exercise Price for the purchased shares must accompany
the Exercise Notice or Purchase Agreement delivered to the Corporation in
connection with the option exercise.
C. As soon as practical after the Exercise Date, the Corporation
shall issue to or on behalf of Optionee (or any other person or persons
exercising this option) a certificate or certificates representing the purchased
Option Shares. To the extent any such Option Shares are unvested, the
certificates for those Option Shares shall be endorsed with an appropriate
legend evidencing the Corporation's repurchase rights and may be held in escrow
with the Corporation until such shares vest.
D. In no event may this option be exercised for any fractional
shares.
11. NO IMPAIRMENT OF RIGHTS. This Agreement shall not in any way
-----------------------
affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise make changes in its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets. Nor shall this Agreement in any way be construed or
interpreted so as to affect adversely or otherwise impair the right of the
Corporation or the stockholders to remove Optionee from the Board at any time in
accordance with the provisions of applicable law.
12. COMPLIANCE WITH LAWS AND REGULATIONS. The exercise of this
------------------------------------
option and the issuance of the Option Shares upon such exercise shall be subject
to compliance by the Corporation and Optionee with all applicable requirements
of law relating thereto and with all applicable regulations of any stock
exchange (or the Nasdaq National Market if applicable) on which the Common Stock
may be listed for trading at the time of such exercise and issuance.
6.
<PAGE>
13. DISCHARGE OF LIABILITY. The inability of the Corporation to
----------------------
obtain approval from any regulatory body having authority deemed by the
Corporation to be necessary to the lawful issuance and sale of any Common Stock
pursuant to this option shall relieve the Corporation of any liability with
respect to the non-issuance or sale of the Common Stock as to which such
approval shall not have been obtained. However, the Corporation shall use its
best efforts to obtain all such applicable approvals.
14. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
----------------------
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the Corporation and its successors and assigns and
Optionee, Optionee's assigns and the legal representatives, heirs and legatees
of Optionee's estate.
15. CONSTRUCTION/GOVERNING LAW. This Agreement and the option
--------------------------
evidenced hereby are made and granted pursuant to the Automatic Option Grant
Program in effect under the Plan and are in all respects limited by and subject
to the express terms and provisions of that Program. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
16. NOTICES. Any notice required to be given or delivered to the
-------
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to
be given or delivered to Optionee shall be in writing and addressed to Optionee
at the address indicated below Optionee's signature line on the Grant Notice.
All notices shall be deemed effective upon personal delivery or upon deposit in
the U.S. mail, postage prepaid and properly addressed to the party to be
notified.
7.
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
------------------
I hereby notify P-COM, Inc. (the "Corporation") that I elect to
purchase __________ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $___________ per share (the "Exercise
Price") pursuant to that certain option (the "Option") granted to me under the
Corporation's 1995 Stock Option/Stock Issuance Plan on ____________________,
199___.
Concurrently with the delivery of this Exercise Notice to the
Secretary of the Corporation, I shall hereby pay to the Corporation the Exercise
Price for the Purchased Shares in accordance with the provisions of my agreement
with the Corporation evidencing the Option and shall deliver whatever additional
documents may be required by such agreement as a condition for exercise.
Alternatively, I may utilize the special broker/dealer sale and remittance
procedure specified in my agreement to effect payment of the Exercise Price for
any Purchased Shares in which I am vested at the time of exercise.
________________________ _______________________________________________
Date Optionee
Address: _______________________________________________
_______________________________________________
Print name in exact manner
it is to appear on the
stock certificate: _______________________________________________
Address to which certificate
is to be sent, if different
from address above: _______________________________________________
_______________________________________________
Social Security Number:
_______________________________________________
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Automatic Stock Option Agreement.
---------
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
- the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, or
- a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time the Board approved such election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
E. COMMON STOCK shall mean the Corporation's common stock.
------------
F. CORPORATE TRANSACTION shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
- a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
A-1
<PAGE>
- the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution of the
Corporation.
G. CORPORATION shall mean P-COM, Inc., a California corporation.
-----------
H. DOMESTIC RELATIONS ORDER shall mean any judgment, decree or order
------------------------
(including approval of a property settlement agreement) which provides or
otherwise conveys, pursuant to applicable State domestic relations laws
(including community property laws), marital property rights to any spouse or
former spouse of the Optionee.
I. EXERCISE DATE shall mean the date on which the option shall have been
-------------
exercised in accordance with Paragraph 10 of the Agreement.
J. EXERCISE PRICE shall mean the exercise price payable per share as
--------------
specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option term expires
---------------
as specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as the price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.
M. GRANT DATE shall mean the date of grant of the option as specified in
----------
the Grant Notice.
A-2
<PAGE>
N. GRANT NOTICE shall mean the Notice of Grant of Automatic Stock Option
------------
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. HOSTILE TAKE-OVER shall mean a change in ownership of the Corporation
-----------------
effected through the following transaction:
- the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders which the Board does not recommend such stockholders to
accept, and
---
- more than fifty percent (50%) of the acquired securities are accepted
from holders other than the officers and directors of the Corporation
subject to the short-swing profit restrictions of Section 16 of the 1934
Act.
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
--------
Q. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
R. OPTION SHARES shall mean the number of shares of Common Stock subject
-------------
to the option.
S. OPTIONEE shall mean the person to whom the option is granted as
--------
specified in the Grant Notice.
T. PERMANENT DISABILITY shall mean the inability of Optionee to engage in
--------------------
any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has lasted
or can be expected to last for a continuous period of twelve (12) months or
more.
U. PLAN shall mean the Corporation's 1995 Stock Option/Stock Issuance
----
Plan.
V. QUALIFIED DOMESTIC RELATIONS ORDER shall mean a Domestic Relations
----------------------------------
Order which substantially complies with the requirements of Code Section 414(p).
The Plan Administrator shall have the sole discretion to determine whether a
Domestic Relations Order is a Qualified Domestic Relations Order.
A-3
<PAGE>
W. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
--------------
Stock Exchange.
X. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value
--------------- -------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting the
Hostile Take-Over.
A-4
<PAGE>
EXHIBIT 10.17A
P-COM, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(As Amended and Restated Effective February 1, 1996)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
P-COM, Inc. by providing eligible employees with the opportunity to acquire a
proprietary interest in the Corporation through participation in a payroll-
deduction based employee stock purchase plan designed to qualify under Section
423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed Three
Hundred Thousand (300,000) shares. Such authorized share reserve is comprised
of (i) the Two Hundred Thousand (200,000) shares/*/ initially authorized for
issuance under the Plan plus (ii) an additional increase of One Hundred
Thousand (100,000) shares/*/ of Common Stock authorized for issuance by the
Board on February 1, 1996 and approved by the Corporation's stockholders at the
1996 Annual Meeting.
- ---------------------------
/*/ All share numbers in this document reflect (i) the 1-for-3 reverse split of
the Common Stock effected after the Board's adoption of the Plan but prior to
the Effective Time and (ii) the 2-for-1 split of the Common Stock effected
October 27, 1995.
<PAGE>
B. In the event any change is made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Semi-Annual Purchase Date and (iii) the number and class
of securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall have a maximum duration of twenty-
four (24) months. The duration of each offering period shall be designated by
the Plan Administrator prior to its start date. The initial offering period
commenced at the Effective Time and shall terminate on the last business day
in January 1997. The next offering period shall commence on the first
business day in February 1997, and subsequent offering periods shall commence
as designated by the Plan Administrator.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to participate in the
Plan in accordance with the following provisions:
(i) An individual who is an Eligible Employee on the start date
of any offering period shall be eligible to commence participation in that
offering period on such start date or on any subsequent Semi-Annual Entry
Date within that offering period on which he/she remains an Eligible
Employee.
(ii) An individual who first becomes an Eligible Employee after
the start date of any offering period may enter that offering period on the
first Semi-Annual Entry Date on which he/she is an Eligible Employee or on
any subsequent Semi-Annual Entry Date within that offering period on which
he/she remains an Eligible Employee.
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Semi-Annual
Period of Participation within the offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect for
the remainder of the offering period, except to the extent such rate is changed
in accordance with the following guidelines:
(i) The Participant may, at any time during a Semi-Annual Period
of Participation, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Semi-Annual Period of Participation.
(ii) The Participant may, prior to the commencement of any new
Semi-Annual Period of Participation within the offering period, increase
the rate of his or her payroll deduction by filing the appropriate form
with the Plan Administrator. The new rate (which may not exceed the
fifteen percent (15%) maximum) shall become effective as of the first day
of the first Semi-Annual Period of Participation following the filing of
such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of Section
VII below.
D. The Participant's acquisition of Common Stock under the Plan on
any Semi-Annual Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Semi-Annual Purchase Date, whether
within the same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
-----------------------
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide
3.
<PAGE>
the Participant with the right to purchase shares of Common Stock, in a series
of successive semi-annual installments over the remainder of such offering
period, upon the terms set forth below. The Participant shall execute a stock
purchase agreement embodying such terms and such other provisions (not
inconsistent with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
------------------------------
automatically exercised in successive semi-annual installments on each Semi-
Annual Purchase Date in an offering period, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than Participants
whose payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such date. The purchase
shall be effected by applying the Participant's payroll deductions for the Semi-
Annual Period of Participation ending on such Semi-Annual Purchase Date
(together with any carryover deductions from the preceding Semi-Annual Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of shares purchasable per Participant on any
one Semi-Annual Purchase Date) at the purchase price in effect for the
Participant for that Semi-Annual Purchase Date.
C. PURCHASE PRICE. The purchase price per share at which Common
--------------
Stock will be purchased on the Participant's behalf on each Semi-Annual Purchase
Date within the offering period shall be equal to eighty-five percent (85%) of
the lower of (i) the Fair Market Value per share of Common Stock on the
-----
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Semi-Annual Purchase Date. However, for each
Participant whose Entry Date is other than the start date of the offering
period, the clause (i) amount shall in no event be less than the Fair Market
Value per share of Common Stock on the start date of that offering period.
D. NUMBER OF PURCHASABLE SHARES. The number of shares purchasable
----------------------------
by a Participant on each Semi-Annual Purchase Date during the offering period
shall be the number of whole shares obtained by dividing the amount collected
from the Participant through payroll deductions during the Semi-Annual Period of
Participation ending with that Semi-Annual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation) by
the purchase price in effect for that Semi-Annual Purchase Date. However, the
maximum number of shares of Common Stock purchasable
4.
<PAGE>
per Participant on any one Semi-Annual Purchase Date shall not exceed Two
Thousand (2,000)* shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
-------------------------
to the purchase of shares of Common Stock on any Semi-Annual Purchase Date
because they are not sufficient to purchase a whole share of Common Stock shall
be held for the purchase of Common Stock on the next Semi-Annual Purchase Date.
However, any payroll deductions not applied to the purchase of Common Stock by
reason of the limitation on the maximum number of shares purchasable by the
Participant on the Semi-Annual Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
-----------------------------
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next Semi-
Annual Purchase Date in an offering period, terminate his or her
outstanding purchase right under the offering period by filing the
appropriate form with the Plan Administrator (or its designate), and no
further payroll deductions shall be collected from the Participant with
respect to the terminated purchase right. Any payroll deductions
collected during the Semi-Annual Period of Participation in which such
termination occurs shall at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Semi-Annual
Purchase Date. If no such election is made at the time such purchase
right is terminated, then the payroll deductions collected with respect
to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the offering
period for which the terminated purchase right was granted. To resume
participation in any subsequent offering period, such individual must
re-enroll in the Plan (by making a timely filing of the prescribed
enrollment forms) on or before the date he or she is first eligible to
join the new offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in status)
while his or her purchase right remains outstanding, then that purchase
right shall
- ------------------------------
* All share numbers in this document reflect (i) the 1-for-3 reverse split of
the Common Stock effected after the Board's adoption of the Plan but prior to
the Effective Time and (ii) the 2-for-1 split of the Common Stock effected
October 27, 1995.
5.
<PAGE>
immediately terminate, and all of the Participant's payroll deductions for
the Semi-Annual Period of Participation in which such cessation of Eligible
Employee status occurs shall be immediately refunded.
G. CORPORATE TRANSACTION. In the event of a Corporate Transaction
---------------------
during the offering period, each outstanding purchase right shall automatically
be exercised, immediately prior to the effective date of such Corporate
Transaction, by applying the payroll deductions of each Participant for the
Semi-Annual Period of Participation in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
-----
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable share limitations per Participant shall
continue to apply to any such purchase, and the clause (i) amount above shall
not, for any Participant whose Entry Date for the offering period is other than
the start date of that offering period, be less than the Fair Market Value per
share of Common Stock on such start date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of shares
----------------------------
of Common Stock which are to be purchased pursuant to outstanding purchase
rights on any particular date exceed the number of shares then available for
issuance under the Plan, the Plan Administrator shall make a pro-rata allocation
of the available shares on a uniform and nondiscriminatory basis, and the
payroll deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. During the Participant's lifetime, the purchase
-------------
right shall be exercisable only by the Participant and shall not be assignable
or transferable by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
------------------
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
6.
<PAGE>
VIII. ACCRUAL LIMITATION
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i) The right to acquire Common Stock under each purchase right
shall accrue on each Semi-Annual Purchase Date for which the right remains
outstanding.
(ii) No right to acquire Common Stock under any outstanding
purchase right shall accrue to the extent the Participant has already
accrued in the same calendar year the right to acquire Common Stock under
one (1) or more other purchase rights at a rate equal to Twenty-Five
Thousand Dollars ($25,000) worth of Common Stock (determined on the basis
of the Fair Market Value of such stock on the date or dates of grant) for
each calendar year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Semi-Annual Period of
Participation, then the payroll deductions which the Participant made during
that Semi-Annual Period of Participation with respect to such purchase right
shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board in January 1995 and approved by
the stockholders in February 1995, and the Plan became effective at the
Effective Time. The 100,000-share increase to the share reserve available for
issuance under the Plan was authorized by the Board on February 1, 1996 and
approved by the Corporation's stockholders at the 1996 Annual Meeting.
7.
<PAGE>
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in January 2005, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Semi-Annual Period of Participation. However, the
Board may not, without the approval of the Corporation's stockholders, (i)
materially increase the number of shares issuable under the Plan or the maximum
number of shares purchasable per Participant on any one Semi-Annual Purchase
Date, except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares purchasable under the Plan, or
(iii) materially increase the benefits accruing to Participants under the Plan
or materially modify the requirements for eligibility to participate in the
Plan.
B. The Corporation shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Semi-Annual Period
of Participation. Should the Corporation elect to exercise such right, then the
Plan shall terminate in its entirety. No further purchase rights shall
thereafter be granted or exercised, and no further payroll deductions shall
thereafter be collected, under the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the
State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
------------------------
P-COM, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
-----------
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate. The following items of compensation shall NOT be
included in Base Salary: (i) all overtime payments, bonuses, commissions (other
than those functioning as base salary equivalents), profit-sharing distributions
and other incentive-type payments and (ii) any and all contributions (other than
Code Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.
B. BOARD shall mean the Corporation's Board of Directors.
-----
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
----
D. COMMON STOCK shall mean the Corporation's common stock.
------------
E. CORPORATE AFFILIATE shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation
or dissolution of the Corporation.
G. CORPORATION shall mean P-COM, Inc., a Delaware corporation, and
-----------
any corporate successor to all or substantially all of the assets or voting
stock of P-COM, Inc. which shall by appropriate action adopt the Plan.
A-1
<PAGE>
H. EFFECTIVE TIME shall mean the time at which the Underwriting
--------------
Agreement was executed and finally priced. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is engaged, on a
-----------------
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Section 3401(a) of the Code.
J. ENTRY DATE shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time, and subsequent
Entry Dates shall correspond with the Semi-Annual Entry Dates permitted under
the Plan.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of the initial offering period which began at
the Effective Time, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock was sold in the initial
public offering pursuant to the Underwriting Agreement.
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
A-2
<PAGE>
M. 1934 ACT shall mean the Securities Exchange Act of 1934, as
--------
amended.
N. PARTICIPANT shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
O. PARTICIPATING CORPORATION shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
P. PLAN shall mean the Corporation's Employee Stock Purchase Plan, as
----
set forth in this document.
Q. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
R. SEMI-ANNUAL ENTRY DATE shall mean the first business day of
----------------------
February and August each calendar year within an offering period in effect under
the Plan. However, the earliest Semi-Annual Entry Date for the initial offering
period under the Plan shall be the Effective Time.
S. SEMI-ANNUAL PERIOD OF PARTICIPATION shall mean each semi-annual
-----------------------------------
period for which the Participant participates in an offering period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. The first such semi-annual period
(which may be less than six (6) months for the initial offering period) extended
from the Effective Time through the last business day in July 1995. Subsequent
semi-annual periods shall be measured from the first business day of August in
each calendar year to the last business day of January in the succeeding
calendar year and from the first business day of February in each calendar year
to the last business day of July in that calendar year.
T. SEMI-ANNUAL PURCHASE DATE shall mean the last business day of each
-------------------------
Semi-Annual Period of Participation. The initial Semi-Annual Purchase Date was
July 31, 1995.
U. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
V. UNDERWRITING AGREEMENT shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AND CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 44,582
<SECURITIES> 0
<RECEIVABLES> 28,292
<ALLOWANCES> 0
<INVENTORY> 23,582
<CURRENT-ASSETS> 103,223
<PP&E> 17,998
<DEPRECIATION> (2,963)
<TOTAL-ASSETS> 119,916
<CURRENT-LIABILITIES> 20,732
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 99,182
<TOTAL-LIABILITY-AND-EQUITY> 119,916
<SALES> 37,340
<TOTAL-REVENUES> 37,340
<CGS> 21,813
<TOTAL-COSTS> 33,390
<OTHER-EXPENSES> 186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 4,100
<INCOME-TAX> 357
<INCOME-CONTINUING> 3,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,743
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
