<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 September 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.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 77-0289371
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3175 S. Winchester Boulevard, Campbell, California 95008
- -----------------------------------------------------------------------------
(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 .
------------ -----------
As of September 30, 1996, there were 19,183,895 shares of the Registrant's
----------
Common Stock outstanding, par value $0.0001.
This quarterly report on Form 10-Q Consists of 24 pages which this is page 1.
The Exhibit Index appears on page 24.
<PAGE>
P-COM, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NUMBER
--------------------- -----------
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets as of September 30,
1996 and December 31, 1995................................. 3
Consolidated Condensed Statements of Operations for the
three and nine month periods ended September 30, 1996
and 1995................................................... 4
Consolidated Condensed Statements of Cash Flows for the
nine month period ended September 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................... 9
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..................................... 21
Item 6. Exhibits and Reports on Form 8-K...................... 22
SIGNATURES........................................................ 23
2
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
P-COM, INC.
Consolidated Condensed
Balance Sheets
(in thousands)
September 30, December 31,
1996 1995
------------- -----------
(unaudited)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 36,388 $ 7,655
Accounts receivable, net 34,146 19,896
Inventories 27,592 15,363
Prepaid expenses 4,064 3,690
-------- --------
Total current assets 102,190 46,604
Property and equipment, net 16,120 7,304
Goodwill 2,382 ---
Other assets 161 112
-------- --------
$120,853 $ 54,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 11,234 $ 10,689
Notes payable 999 ---
Accrued employee benefits 906 760
Other accrued liabilities 1,818 821
-------- --------
Total current liabilities 14,957 12,270
-------- --------
Minority interest 591 ---
-------- --------
Stockholders' equity:
Common stock 2 2
Additional paid-in capital 110,269 54,685
Accumulated deficit (5,046) (12,937)
Cumulative translation adjustment 80 ---
-------- --------
Total stockholders' equity 105,305 41,750
-------- --------
$120,853 $ 54,020
======== ========
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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $26,432 $13,489 $63,772 $26,386
Cost of sales 15,288 7,687 37,101 15,198
------- ------- ------- -------
Gross profit 11,144 5,802 26,671 11,188
------- ------- ------- -------
Operating expenses:
Research and development 4,632 3,009 12,066 7,633
Selling and marketing 1,362 752 3,734 2,123
General and administrative 1,153 496 2,924 1,339
------- ------- ------- -------
Total operating expenses 7,147 4,257 18,724 11,095
------- ------- ------- -------
Income from operations 3,997 1,545 7,947 93
Interest and other income, net 392 167 542 307
Income before income taxes 4,389 1,712 8,489 400
Provision for income taxes 240 20 598 20
------- ------- ------- -------
Net income $ 4,149 $ 1,692 $ 7,891 $ 380
======= ======= ======= =======
Net income per share $ 0.21 $ 0.10 $ 0.42 $ 0.02
======= ======= ======= =======
Weighted average common and common equivalent
shares 19,942 17,091 18,756 15,824
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
unaudited consolidated condensed financial statements.
4
<PAGE>
P-COM, INC.
Consolidated Condensed Statements of Cash Flows
(in thousands, unaudited)
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- ---------
Cash flows from operating activities:
- -------------------------------------
Net income $ 7,891 $ 380
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 2,940 711
Amortization 65 ---
Change in minority interest 591 ---
Non-cash charges --- 284
Changes (net of acquisition balances) in:
Accounts receivable (13,652) (10,896)
Inventories (10,926) (7,788)
Prepaid expenses (319) (243)
Other assets 430 (2)
Accounts payable (510) 6,628
Accrued employee benefits 146 (309)
Other accrued liabilities 735 354
-------- --------
Net cash used in operating activities (12,746) (10,881)
-------- --------
Cash flows from investing activities:
- -------------------------------------
Acquisition of property and equipment (8,504) (4,996)
Cash paid for acquisition of Geritel
S.p.A., net (2,714) ---
-------- --------
Net cash used for investing activities (11,218) (4,996)
-------- --------
Cash flows from financing activity:
- -----------------------------------
Payment of capital lease obligations --- (1,341)
Payment of notes payable (1,269) (2,610)
Proceeds from stock issuances, net of expense 53,886 37,183
Proceeds from sale leasebacks --- 112
-------- --------
Net cash provided from financing
activities 52,617 33,344
-------- --------
Effect of exchange rate changes on cash 80 ---
Net increase in cash and cash equivalents 28,733 17,467
Cash and cash equivalents at the beginning of
the period 7,655 1,294
-------- --------
Cash and cash equivalents at the end of the
period $ 36,388 $ 18,761
======== ========
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
======== ========
The accompanying notes are an integral part of these
unaudited 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 September 30, 1996, and
the results of its operations for the three and nine month periods ended
September 30, 1996, and 1995 and its cash flows for the nine month periods ended
September 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 nine month period ended September 30, 1996 are not
necessarily indicative of the operating results that may be expected for the
year ending December 31, 1996.
2. NET INCOME PER SHARE
Net income 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. ACQUISITION
Effective August 23, 1996 the Company completed its acquisition of Atlantic
Communication Sciences, Inc. ("ACS"), a manufacturer of telecommunications
equipment, with domestic operations in Florida, by purchasing 100% of the
company's assets in exchange for 70,000 shares of P-COM common stock valued at
$1,698,000. 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 totaling $1,347,000 which is being amortized over a period of five
years. The purchase price is subject to increase through the issuance of up to
74,500 number of shares in the event that ACS achieves certain technical
milestones and are subject to certain indemnification obligations. In the event
the shares are issued for these technical milestones, the goodwill balance will
be increased accordingly.
6
<PAGE>
The allocation of the ACS purchase price is as follows (in thousands):
Goodwill 1,347
Current assets 243
Non current assets 22
Property and equipment 86
------
$1,698
======
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 totaling $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>
<CAPTION>
<S> <C>
Goodwill 1,100
Current assets 1,845
Non current assets 435
Property and equipment 3,166
Current liabilities assumed 3,460
------
$3,086
======
</TABLE>
The total purchase price is derived as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash payment 2,300
Additional cash committed 340
Expenses 446
------
$3,086
======
</TABLE>
4. 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 ratios. 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 September 30, 1996. The line expires on
October 24, 1996. As of November 5, 1996, the company is in the process of
completing a $12 million line-of-credit with Silicon Valley Bank.
The Company further amended the line-of-credit agreement on September 26, 1996
to reflect a Non-Recourse Accounts Receivable Purchase Agreement which allows
for the sale of up to $10 million of certain accounts and which correspondingly
reduces the original line of credit borrowing base of $10 million on a dollar-
for-dollar basis. As of September 30, 1996, the company had utilized $4.0
million of the subject Purchase Agreement. As of November 14, 1996, all amounts
owed to Silicon Valley Bank have been paid.
7
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5. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DEC. 31,
1996 1995
------------- --------
(unaudited)
<S> <C> <C>
Raw materials $ 4,678 $ 6,613
Work-in-process 17,261 6,418
Finished goods 5,653 2,332
-------- -------
$ 27,592 $15,363
======== =======
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DEC. 31,
1996 1995
------------- --------
(unaudited)
<S> <C> <C>
Tooling and test equipment $14,795 $ 5,818
Computer equipment 1,723 1,266
Furniture and fixtures 1,732 979
Construction-in-process (1) 1,043 1,068
Land and Building 1,594 ---
------- -------
20,887 9,131
Less -- accumulated depreciation and amortization (4,767) (1,827)
------- -------
$16,120 $ 7,304
======= =======
</TABLE>
(1) Capitalized interest is immaterial in amount.
8
<PAGE>
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 September 30, Nine Months Ended September 30,
1996 1995 1996 1995
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.8 57.0 58.2 57.6
---------- ---------- --------- ----------
Gross margin 42.2 43.0 41.8 42.4
---------- ---------- --------- ----------
Operating expenses:
Research and development 17.5 22.3 18.9 28.9
Selling and marketing 5.2 5.6 5.9 8.0
General and administrative 4.4 3.7 4.6 5.1
---------- ---------- --------- ----------
Total operating expenses 27.1 31.6 29.4 42.0
---------- ---------- --------- ----------
Income from operations 15.1 11.4 12.4 0.4
Interest and other income net 1.5 1.2 0.9 1.1
---------- ---------- --------- ----------
Income before income taxes 16.6 12.6 13.3 1.5
Provision for income taxes 0.9 0.1 0.9 0.1
---------- ---------- --------- ----------
Net income 15.7% 12.5% 12.4% 1.4%
========== ========== ========= ==========
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Sales.
- -----
For the three months ended September 30, 1996 and 1995, sales were
approximately $26.4 million and $13.5 million, respectively. Sales for the nine
months ended September 30, 1996 and 1995 were $63.8 million and $26.4 million,
respectively. The increases for the three and nine month periods were primarily
due to increased unit sales of 38 GHz and of 23 GHz radio systems to new and
existing customers. For the nine months ended September 30, 1996, six customers
accounted for 73% of the Company's sales, and as of September 30, 1996, five
customers accounted for a substantial majority of the Company's backlog
scheduled for shipment in the twelve months subsequent to September 30, 1996.
Gross Profit.
- ------------
For the three months ended September 30, 1996 and 1995, gross profit was
approximately $11.1 million, or 42.2% of sales, and approximately $5.8 million,
or 43.0% of sales, respectively. Gross profit for the nine months ended
September 30, 1996 and 1995, was approximately $26.7 million, or 41.8% of sales,
and approximately $11.2 million, or 42.4% of sales, respectively. The decrease
in gross margin as a percent of sales is not considered to be significant.
9
<PAGE>
Research and Development.
- ------------------------
Research and development expenses totaled approximately $4.6 million
for the three months ended September 30, 1996, compared to $3.0 million for the
three months ended September 30, 1995. Research and development expenses
totaled approximately $12.1 million for the nine months ended September 30,
1996, compared to $7.6 million for the nine months ended September 30, 1995.
The increase in absolute dollars in for both comparative periods was due
primarily to increased staffing, and the acquisitions of Geritel S.p.A.
("Geritel") in the second quarter of 1996, and the acquisition of ACS during the
third quarter of 1996. In addition, research and development expenses have been
higher than anticipated due to earlier than expected project material charges
for high capacity radio development.
The Company expects that research and development expenses will
continue to increase significantly in absolute dollars during the remainder of
1996.
As a percentage of sales, research and development expenses decreased
from 22.3% during the three months ended September 30, 1995 to 17.5% during the
three months ended September 30, 1996. For the nine months ended September 30,
1996, research and development expenses were 18.9% of revenues, a decrease from
28.9% for the nine months ended September 30, 1995. In both comparative
periods, the decrease in research and development expenses as a percentage of
sales was attributable to the significant increase in sales in 1996.
Selling and Marketing.
- ---------------------
For the three months ended September 30, 1996 and 1995, selling and
marketing expenses were $1.4 million and $752,000, respectively. The increase in
selling and marketing expenses in the three months ended September 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,
selling and marketing expenses were 5.6% during the three month period ended
September 30, 1995 as compared to 5.2% in the corresponding period in 1996. This
decrease was due primarily to a higher level of sales in the three months ended
September 30, 1996 as compared to the corresponding period in 1995.
Sales and marketing expenses for the nine months ended September 30,
1996 and 1995 were $3.7 million and $2.1 million, respectively. The increase in
sales and marketing expenses in the nine months ended September 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 5.9% during the nine-month period ended September
30, 1996 as compared to 8.0% in the corresponding period in 1995. This decrease
was due primarily to a higher level of sales in the nine months ended September
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 September 30, 1996 and 1995, general and
administrative expenses were $1.2 million and $496,000, respectively. This
increase was principally due to increases in headcount and costs associated with
the Company's acquisitions of Geritel and ACS. As a percentage of sales, general
and administrative expenses were 4.4% in the three months ended September 30,
1996, as compared to 3.7% in the corresponding period in 1995. This increase in
general and administrative expenses as a percentage of sales was due primarily
to increases in staff in the three months ended September 30, 1996 as compared
to the corresponding period in 1995.
General and administrative expenses for the nine months ended
September 30, 1996 and 1995, were $2.9 million and $1.3 million, respectively.
This increase was principally due to increases in headcount and other costs
resulting from the Company's acquisitions of Geritel and ACS. As a percentage of
sales, general and administrative expenses were 4.6% in the nine months ended
September 30, 1996, as compared to 5.1% 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 nine months ended September
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.
10
<PAGE>
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 September 30, 1996, the Company generated net
interest income of $392,000, or 1.5% of sales, as compared to $167,000 of net
interest income, or 1.2% of sales, during the corresponding period in 1995.
During the nine months ended September 30, 1996, the Company generated net
interest income of $542,000, or 0.9% of sales, as compared to $307,000 of net
interest income, or 1.2% of sales, during the corresponding period in 1995. The
increase in net interest income as a percentage of sales was due to interest
income generated from increased cash and cash equivalent balances in the three
months ended September 30, 1996 as compared to the corresponding period in 1995.
The Company anticipates that interest income will decrease during the remainder
of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company used $12.7 million for operating activities during the nine
months ended September 30, 1996, as compared to $10.9 million during the
corresponding period in 1995. This increase was due primarily to increases in
accounts receivable, and inventory of $13.7 million and $10.9 million,
respectively. These increases were the results of the significant increase in
sales and inventory requirements for new products, as compared to the
corresponding period in 1995. These increases were partially offset by net
income of $7.9 million and depreciation of $2.9 million.
The Company used net cash of $12.9 million for investment activities
during the nine months ended September 30, 1996. These funds were primarily used
for the acquisition of Geritel and for capital equipment purchases, consisting
of tooling, test and computer equipment used in engineering and manufacturing,
and office equipment.
Financing activities for the nine months ended September 30, 1996
generated net cash of $54.3 million. On May 17, 1996, the Company completed a
follow-on public offering (the "Offering") and raised net proceeds of $53.2
million. In addition, the Company used $1.3 million of cash to reduce notes
payable.
At September 30, 1996, the Company had working capital of approximately
$87.3 million, including cash and cash equivalents of $36.4 million, $34.1
million of accounts receivable and $27.6 million of inventories, partially
offset by current liabilities of $14.9 million. In recent quarters, most of the
Company's sales have been realized near the end of each quarter, resulting in a
significant investment in accounts receivable. 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 September 30, 1996
consists of approximately $36.4 million of cash and cash equivalents, and a $12
million line of credit that the company is in the process of renewing with
Silicon Valley Bank, as of November 5, 1996.
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 and ACS, the
progress of the Company's research and development efforts, expansion of the
Company's marketing and sales efforts, the Company's results of operations and
the status of competitive products. The Company believes that cash and cash
equivalents on hand, anticipated cash flow from operations, if any and funds
available from the Company's bank line of credit will be adequate to fund its
operations for at least the next twelve months. There can be no assurance,
however, that the Company will not require additional financing prior to such
date to fund its operations. In addition, the Company may require additional
financing after such date to fund its operations. The Company may in the future
pursue acquisitions of complementary product lines, technologies, or businesses.
Future
11
<PAGE>
acquisitions by the Company may 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 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 limited or no direct prior experience;
and the potential loss of key employees of the acquired company. In the event
that such an acquisition does occur, there can be no assurance as to the effect
thereof on the Company's business or operating results. Additionally, the
Company recently formed a wholly-owned financing subsidiary for the purpose of
offering leasing options to customers. If successful, this strategy may result
in the formation of significant long-term receivables and would require the use
of substantial amounts of working capital. To the extent that the Company's
financial resources are insufficient to fund the Company's activities,
additional funds will be required. 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.
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. As of September 30, 1996, the company had an accumulated deficit of
$4.9 million. From October 1993 through the end of the third quarter of 1996,
the Company generated sales of approximately $116.5 million, of which $106.6
million, or 92% of such amount, was generated in the year ended December 31,
1995 and the first three quarters 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 three quarters
of 1996, both the Company's sales and operating expenses (particularly research
and development expenses primarily 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 three quarters 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 three 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 three quarters of 1996, six
customers accounted for 73% of the Company's sales, and as of September 30,
1996, five customers accounted for a substantial majority of the Company's
backlog scheduled for shipment in the twelve months subsequent to September 30,
1996. The Company anticipates that it will continue to sell its radio systems to
a
12
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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. For example,
the company delayed shipments to Advanced Radio Telecom Corp. ("ART") during the
third quarter due to concerns regarding such company's ability to finance its
purchases at that time. As a result of ART's initial public offering of
securities pursuant to a registration statement declared effective by the
Securities and Exchange Commission on November 5, 1996, the Company has been
paid by ART for open accounts receivable and has resumed shipments for the
fourth quarter of 1996. 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 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 September 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 been experiencing, 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
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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, GSS Array, 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, GSS Array, MilliWave, MIZAR, S.p.A. and Xilinx, Inc. each are
sole or limited source suppliers for critical components used in the Company's
radio systems. There can be no assurance that the Company's internal
manufacturing capacity and that of its contract manufacturers will be sufficient
to fulfill the Company's orders. Failure to manufacture, assemble and ship
systems and meet customer demands on a timely and cost-effective basis could
damage relationships with customers and have a material adverse effect on the
Company's business, financial condition and operating results.
The Company's reliance on contract manufacturers and on sole or a
limited group of suppliers and the Company's increasing reliance on contract
manufacturers and suppliers involves several risks, including a potential
inability to obtain an adequate supply of finished radio systems and required
components and subassemblies, and reduced control over the price, timely
delivery, reliability and quality of finished radio systems, components and
subassemblies. The Company does not have long-term supply agreements with most
of its manufacturers or suppliers. Manufacture of the Company's radio systems
and certain of these components and subassemblies is an extremely complex
process, and the Company has from time to time experienced and may in the future
continue to experience delays in the delivery of and quality problems with radio
systems and certain components and subassemblies from vendors. Certain of the
Company's suppliers have relatively limited financial and other resources. Any
inability to obtain timely deliveries of components and subassemblies of
acceptable quality or any other circumstance that would require the Company to
seek alternative sources of supply, or to manufacture its finished radio systems
or such components and subassemblies internally, could delay the Company's
ability to ship its systems, which could damage relationships with current or
prospective customers and have a material adverse effect on the Company's
business, financial condition and operating results.
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, Germany, and Singapore, the acquisition of a majority interest in
Geritel, the acquisition of the assets of ACS, 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
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controls. In addition, the company must establish and improve a variety of
system procedures and controls to more effectively coordinate its activity in
its acquired companies in Italy and Florida. 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.
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
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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 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 results of operations. The Company believes that to be
competitive, it will continue to be required to
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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 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.
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EXTENSIVE GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by the United
States and foreign laws and international treaties. The Company's equipment must
conform to a variety of domestic and international requirements. In order for
the Company to operate in a jurisdiction, it must obtain regulatory approval for
its systems and comply with different regulations in each jurisdiction. The
delays inherent in this governmental approval process may cause the
cancellation, postponement or rescheduling of the installation of communications
systems by the Company's customers, which in turn may have a material adverse
effect on the sale of systems by the Company to such customers. The failure to
comply with current or future regulations or changes in the interpretation of
existing regulations could result in the suspension or cessation of operations.
Such regulations or such changes in interpretation could require the Company to
modify its radio systems and incur substantial costs to comply with such time-
consuming regulations and changes. In addition, the Company is also affected to
the extent that domestic and international authorities regulate the allocation
and auction of the radio frequency spectrum. Equipment to support new services
can be marketed only if permitted by suitable frequency allocations, auctions
and regulations, and the process of establishing new regulations is complex and
lengthy. To the extent PCS operators and others are delayed in deploying these
systems, the Company could experience delays in orders. Failure by the
regulatory authorities to allocate suitable frequency spectrum could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, delays in the radio frequency spectrum
auction process in the United States could delay the Company's ability to
develop and market equipment to support new services. These delays could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting development efforts by the Company and its customers,
making current systems obsolete or increasing the opportunity for additional
competition. Any such regulatory changes could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company might deem it necessary or advisable to modify its systems to operate in
compliance with such regulations. Such modifications could be extremely
expensive and time-consuming.
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
very 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 has been
approved for ISO 9001 registration 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 23, 1996, the Company acquired substantially all of the
assets and assumed certain enumerated liabilities of ACS, a manufacturer of
telecommunications equipment, with operations in Florida and customers
worldwide. See 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
Company's operations may result in unforeseen operating difficulties and could
absorb significant management attention, expenditures and reserves that would
otherwise be available for the ongoing development of the Company's business.
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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.
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 September 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
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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 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, a
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,
including those shares issued in connection with the acquisition of the assets
of ACS, 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.
20
<PAGE>
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.
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. None.
ITEM 5. OTHER INFORMATION. None.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
(a) Exhibits.
<S> <C>
*2.2 Asset Purchase Agreement dated as of August 2, 1996 by and between the Company,
Atlantic Communications 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.
2.2A Asset Purchase Agreement revised as of August 23, 1996 by and between the Company,
Atlantic Communications 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.
+10.15A Commitment Letter dated August 1, 1995, by and between Silicon Valley Bank and the Company.
++10.15B Commitment Letter dated October 20, 1995, by and between Silicon Valley Bank and the Company.
+++10.15C Loan Modification Agreement dated February 27, 1996 by and between Silicon Valley
Bank and the Company.
10.15D Accounts Receivable Purchase Agreement dated September 26, 1996 by and between the
Company and Silicon Valley Bank.
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 exhibit to the Company's Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-25356).
+ Previously filed as exhibit to the Company's Registration Statement on Form S-1 dated
August 3, 1995, as amended (File No. 33-95392).
++ Previously filed as exhibit to the Company's Form 10-Q for the quarterly period ended
September 30, 1995 (File No. 0-25356).
+++ Previously filed as exhibit to the Company's Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-25356).
</TABLE>
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: November 14, 1996 By: /s/ George Roberts
---------------------------------------------
George Roberts
Chairman of the Board of Directors, President
and Chief Executive Officer
Date: November 14, 1996 By: /s/ Michael Sophie
-----------------------------------------
Michael Sophie
Chief Financial Officer,
Vice President Finance and
Administration and Controller
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
No. Page
- ------- ------------
<S> <C>
*2.2 Asset Purchase Agreement dated as of August 2, 1996 by and between the Company,
Atlantic Communications 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.
2.2A Asset Purchase Agreement revised as of August 23, 1996 by and between the Company,
Atlantic Communications 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.
+10.15A Commitment Letter dated August 1, 1995, by and between Silicon Valley Bank and the Company.
++10.15B Commitment Letter dated October 20, 1995, by and between Silicon Valley Bank and the Company.
+++10.15C Loan Modification Agreement dated February 27, 1996 by and between Silicon Valley
Bank and the Company.
10.15D Accounts Receivable Purchase Agreement dated September 26, 1996 by and between the
Company and Silicon Valley Bank.
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 exhibit to the Company's Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-25356).
+ Previously filed as an exhibit to the Company's Registration Statement on Form S-1 dated
August 3, 1995, as amended (File No. 33-95392).
++ Previously filed as exhibit to the Company's Form 10-Q for the quarterly period ended
September 30, 1995 (File No. 0-25356).
+++ Previously filed as exhibit to the Company's Form 10-Q for the quarterly period ended
June 30, 1996 (File No. 0-25356).
</TABLE>
24
<PAGE>
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
(y) Interested Party Relationships....................................... 15
</TABLE>
i.
<PAGE>
<TABLE>
<C> <S> <C>
(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
(d) Absence of Governmental or Other Objection........................... 31
(e) Due Diligence Review................................................. 31
(f) Evidence of Title.................................................... 31
</TABLE>
ii.
<PAGE>
<TABLE>
<C> <S> <C>
(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 1.1 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");
1.
<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 1.2 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 2.1 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 3.1 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 3.2 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 4.1 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 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
5.
<PAGE>
Assets or delivered in accordance with Section 6.2 hereunder (the "Closing
Documents") and the Escrow Agreement. Each of the Seller and the
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:
6.
<PAGE>
(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;
(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;
7.
<PAGE>
(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;
(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
8.
<PAGE>
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 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.
9.
<PAGE>
(iii) 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 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,
10.
<PAGE>
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 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.
11.
<PAGE>
(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.
(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.
12.
<PAGE>
(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 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.
13.
<PAGE>
(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, arbitra tion, 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
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
14.
<PAGE>
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
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.
15.
<PAGE>
(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 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.
(ab) 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.
(ac) 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.
(ad) 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.
(ae) 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
16.
<PAGE>
the current level and type of goods currently being provided to Seller on
similar terms and conditions.
(af) 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.
(ag) 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 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.
(ah) 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.
(ai) 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.
(aj) 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
17.
<PAGE>
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.
(ak) 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 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.
18.
<PAGE>
"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, 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;
19.
<PAGE>
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 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
20.
<PAGE>
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.
(al) 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.
(am) 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 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 4.2 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.
21.
<PAGE>
(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, 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 5.1 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
22.
<PAGE>
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 5.2 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.
(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.
23.
<PAGE>
Section 5.3 Non-Competition.
----------- ---------------
5.3.1 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
(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.
5.3.2 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
24.
<PAGE>
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.
5.3.3 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 sub division 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.
5.3.4 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
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.
5.3.5 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.
5.3.6 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 5.4 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
25.
<PAGE>
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;
(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
26.
<PAGE>
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
---
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
27.
<PAGE>
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;
(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 5.5 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
28.
<PAGE>
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 5.6 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 5.7 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 5.8 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 5.9 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 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 5.10 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
29.
<PAGE>
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 5.11 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 5.12 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 6.1 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 be made by the parties
hereto at the Time of Closing in accordance with this Agreement.
Section 6.2 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.
30.
<PAGE>
(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 6.3 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.
(b) The Assignment.
Section 6.4 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.
31.
<PAGE>
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO OBLIGATIONS
-----------------------------------
Section 7.1 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 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 restric tions on transfer.
32.
<PAGE>
(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 7.2 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 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.
33.
<PAGE>
(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 8.1 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 8.2 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, 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
34.
<PAGE>
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
35.
<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 8.3 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
36.
<PAGE>
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.
(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 8.4 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 9.1 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:
37.
<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 9.2 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 9.3 Binding Effect; Assignment. This Agreement and the
----------- --------------------------
various rights and obligations arising hereunder shall inure to the benefit of
and be binding upon
38.
<PAGE>
Seller, its 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 9.4 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 9.5 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 9.6 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 9.7 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 9.8 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 9.9 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
39.
<PAGE>
which Purchaser is entitled, 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 9.10 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 9.11 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 9.12 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
40.
<PAGE>
other with any final determination of any such audit or examination, proceeding
or determination that affects any amount required to be shown on any 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.
41.
<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 Sohpie
------------------
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
42.
<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.
------------------------
William M. Koos, Jr.
Title: President
/s/ William M. Koos, Jr.
------------------------
William M. Koos, Jr.
/s/ Larry W. Koos
-----------------
Larry W. Koos
43.
<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
44.
<PAGE>
EXHIBIT 3.2(b)
ESCROW AGREEMENT
<PAGE>
ESCROW AGREEMENT
----------------
This Agreement is made and entered into on this 26th day of August,
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 "Shareholders"). Capitalized terms used herein that are not
otherwise defined shall have the meanings set forth in the Asset 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 "Asset 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 Assets 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 Asset Purchase Agreement and herein, the parties agree as
follows:
ARTICLE I
Escrow and Escrow Shares
------------------------
1.1 Delivery. Pursuant to the Asset 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.
<PAGE>
ARTICLE II
Escrow Agreement
----------------
2.1 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:
(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.
2.2 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 as well as to the issuance of Contingent Shares pursuant to the
Asset Purchase Agreement. 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 closing bid price of the Common Stock of Purchaser as reported by the Nasdaq
NMS or any similar exchange on the date such written notice is provided to the
Escrow Agent (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 Date or contingency date, if any, in accordance
with the terms of this Agreement and the Asset Purchase Agreement. Purchaser
shall use its best efforts to notify Seller of any anticipated Indemnifiable
Amounts known to Purchaser at least ten (10) days prior to the relevant Release
Date; however, Purchaser's right to the Indemnifiable Amounts shall not be
invalidated by failure to so notify Seller.
(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
<PAGE>
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 Asset
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;
(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.
- ----------
<PAGE>
ARTICLE III
Indemnification
---------------
3.1 Indemnification. The Escrow Shares shall serve as collateral in
---------------
part for the indemnity obligations of Seller and the Shareholders set forth in
the Asset 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 Asset Purchase
Agreement (collectively, "Indemnifiable Amounts").
3.2 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 distribu tions 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.
3.3 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.
<PAGE>
ARTICLE IV
Authority and Indemnification
-----------------------------
4.1 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.
4.2 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.
4.3 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.
4.4 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,
<PAGE>
determination, award, judgment or decree may be subsequently revised, modified,
annulled, set aside or vacated.
ARTICLE V
Miscellaneous
-------------
5.1 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
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
5.2 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.
<PAGE>
5.3 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 Agree ment or the
applicability of such provision, as the case may be. All provisions of the
Asset Purchase Agreement shall be incorporated herein by reference as if set
forth in their entirety herein.
5.4 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.
5.5 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 Asset 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.
5.6 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.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement on the day
and year first above written.
P-COM, INC.
By:/s/ Michael Sophie
------------------
Michael Sophie
Chief Financial Officer,
Vice President, Finance and
Administration and Controller
ATLANTIC COMMUNICATION SCIENCES, INC.,
a Florida corporation
By:/s/ Edward C. Gerhardt
----------------------
Edward C. Gerhardt, President
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
<PAGE>
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
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
<PAGE>
SCHEDULE A
<PAGE>
ACS STOCKHOLDER OBJECTIVES
<TABLE>
<CAPTION>
FIRST YEAR OBJECTIVES:
- ---------------------
<S> <C> <C> <C>
STOCKHOLDER'S PAYMENT COMPLETION PROVISOS
MILESTONES (ESCROWED DATE
SHARES)
$5.25M of Sales 36,000 First 12-Mo Pro-rated
of ACS Products period following
Closing date
Completion of the Model 5,500 By May 1, 1997 50% for Modem
500 Modem and 5.7 GHz 50% for RF Unit
RF Unit
</TABLE>
<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
<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
<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 Pro-rated
of ACS Products period
following Closing
date
Completion of the Model 5,500 By May 1, 1997 50% for Modem
500 Modem and 5.7 GHz 50% for RF Unit
RF Unit
SECOND YEAR OBJECTIVES:
- --------------------------
STOCKHOLDER'S PAYMENT COMPLETION DATE
MILESTONES (1) (ESCROWED
SHARES)
Completion of the Model 16,500 Second 12-mo period
1000 Modem following Closing Date
(Non-Spread, QAM,
P-COM RFU Interface)
THIRD YEAR OBJECTIVES:
- ---------------------
STOCKHOLDER'S PAYMENT COMPLETION DATE
MILESTONES (1) (ESCROWED
SHARES)
Completion of a 16,500 Third 12-mo period
Point-to-Multipoint Modem following Closing Date
for operation with a 28 GHz
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>
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>
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of the ____ day of September, 1996 between P-COM,
INC. ("Seller"), and SILICON VALLEY BANK, ("Buyer").
------ -----
RECITALS
--------
Seller owns certain payment obligations arising out of the sale of its
products and services. Seller desires to sell and the Buyer is willing to
purchase from Seller such obligations on the terms set forth in this Agreement.
AGREEMENT
---------
1. Sale and Purchase. Subject to the terms and conditions of this
-----------------
Agreement, Seller shall sell to Buyer and Buyer shall purchase from Seller all
right, title and interest of the Seller in and to (but none of the obligations
of the Seller under) the payment of all monies due and to become due and payable
from the account debtors in respect of the transactions evidenced by the
purchase orders and invoice numbers listed on Exhibit A attached hereto, as
---------
supplemented from time to time (the "Assignment") (the right of Seller to the
----------
payment of such amounts is hereinafter called the "Obligations").
-----------
Buyer shall also purchase from Seller such other Obligations as Buyer and
Seller, in the sole discretion of each, shall determine; provided that Buyer
shall not in any case make payments to Seller under this Agreement in an
aggregate amount exceeding Ten Million Dollars ($10,000,000). Each such
subsequent Obligation shall be evidenced by a supplement to Exhibit A in a form
---------
acceptable to Bank.
_1.1 Purchase Price. The purchase price for the Obligations of
--------------
$____________ (the "Purchase Price"), shall be paid by the Buyer on the date
--------------
hereof (the "Closing Date") in lawful money of the United States by the deposit
------------
of such sum in the demand deposit account maintained by the Seller at Bank.
_1.2 No Recourse. Except for a breach by Seller of its
-----------
representations and warranties and covenants contained in this Agreement, the
purchase of the Obligations hereunder is made by Buyer without recourse to
Seller and Seller shall have no liability, obligation, responsibility or
accountability to Buyer for any failure by any account debtor (an "Obligor") to
-------
pay the Obligations when the same are due and payable under the terms of the
Obligations Documentation (as defined in Section 2.2).
-----------
_1.3 Use of Proceeds. Seller covenants that the proceeds of the
---------------
sale of the Obligations will be used for general corporate purposes.
_1.4 Aggregate Borrowing Limit. Until payment in full of the
-------------------------
Obligations, the aggregate obligations of Seller to Buyer, including without
limitation any obligations under the Business Loan Agreement between Seller and
the Buyer (the "Loan Agreement") and any potential obligations of Seller for
--------------
breaches of representations and warranties or covenants hereunder, shall not
exceed ______________ Million Dollars ($____________).
_1.5 Prepayment. If Buyer receives payment in full of one or
----------
more Obligations prior to the due date specified on Exhibit A, Buyer shall pay
Seller an additional amount calculated by multiplying the product of the
Discount Rate and such Obligations by a fraction, the numerator of which is the
number of days from the date of prepayment up to the original due date of the
Obligations and the denominator of which is 360. For purposes of this Section,
"Discount Rate" is equal to one percent (1%) plus the prime rate announced from
time to time by Bank, which rate shall be fixed on the date an Obligation is
purchased under this Agreement.
1
<PAGE>
Notwithstanding the foregoing, Buyer shall in all cases retain an amount equal
to interest accruing on an Obligation at the Discount Rate for fifteen (15)
days.
_1.5
_1.6 Overdue Payments. Buyer shall have the option of charging
----------------
Seller interest on account of any portion of the Obligations that is not paid in
accordance with the terms of such Obligations. Interest shall accrue on such
overdue amount at the Discount Rate and shall be payable on the first day of
each month following the original due date of such Obligations. Seller shall
continue to make such interest payments for up to ninety (90) days following the
original due date of such Obligations, during which period Buyer and Seller
shall determine the cause of the non-payment of the Obligations. If Buyer
determines that the cause is related to a circumstance that constitutes a breach
of Seller's representations under Section 2 of this Agreement, Buyer shall
retain such interest payments in addition to any other amounts owing to Buyer as
a result of such breach. If Buyer determines that such non-payment is for a
circumstance that does not constitute a breach of Seller's representations,
Buyer shall return such interest payments to Seller promptly upon such
determination.
2. Representations and Warranties. In order to induce the Buyer to
------------------------------
enter into this Agreement, Seller hereby represents and warrants that:
_2.1 The Obligations. Exhibit A attached hereto contains a true
--------------- ---------
and correct list of the Obligors, the purchase order number, the invoice number
(the purchase order, invoice and all documentation relating to the Obligations
is herein called the "Obligations Documentation"), and the unpaid amounts due in
-------------------------
respect thereof which comprise the Obligations. True and correct original
copies of all the Obligations Documentation relating to each of the Obligations
has heretofore been delivered to Buyer. None of the Obligations are currently
evidenced by chattel paper or instruments. Each of the Obligations is in full
force and effect and is the valid and binding obligation of the parties thereto,
enforceable in accordance with its terms, and, without limiting the generality
of the foregoing, constitutes the legal, valid and binding obligation of the
Obligor to pay to Seller the Obligations, subject to no set-off or counterclaim
or discounts or deductions. Neither Seller nor any of the Obligors is in
default in the performance of any of the provisions of the documentation
applicable to its transactions included within the Obligations. Seller hereby
further represents and warrants to the Buyer as follows:
(a) As of the date hereof, the aggregate amount of the
Obligations is equal to the Aggregate Obligations Amount.
(b) The Seller has heretofore delivered to the Obligors and all
equipment and related materials and performed all services required to be so
delivered or performed by the terms of the Obligations Documentation for the
Obligations in question to be due and payable as indicated on Exhibit A.
---------
_2.2 The Assignment; No Offset; No Liens. When executed and
-----------------------------------
delivered pursuant hereto, the Assignment will vest in the Buyer all the right,
title and interest of Seller in and to the Obligations, provided that the
Assignment will not impose upon Buyer any liability or obligation for the
performance of any obligation on the part of Seller under the Obligations
Documentation. The Obligations are not subject to any offset, counterclaim or
other defense, whether arising out of the transactions contemplated by the
Obligations Documentation or independently thereof. The Obligations are owned
by Seller free and clear of all security interests, liens, charges or
encumbrances.
_2.3 Loan Agreement. The representations and warranties
--------------
contained in the Loan Agreement are true and correct as of the Closing Date and
as of the date of each Assignment.
3. Performance under Obligations Documentation. Seller shall
-------------------------------------------
promptly and faithfully perform or cause to be performed all of its obligations
under the Obligations Documentation, and shall not do or omit to do anything as
a result of which the obligation of the Obligors to make payment of the
Obligations under the Obligations Documentation might be reduced or released.
Seller will not permit the Obligations to become
2
<PAGE>
subject to any offset, counterclaim or other defense, whether arising out of the
transactions contemplated by the Obligations Documentation or independently
thereof, and Seller will not agree to any amendment of or modification to or
waiver of any of the provisions of the Obligations Documentation without the
prior written consent of Buyer.
4. Indemnification.
---------------
(a) If any Obligor is released from all or part of its
Obligations under the relevant Obligations Documentation to pay the Obligations
by reason of:
(i) any act or omission of Seller; or
(ii) the operation of any of the provisions of the
Obligations Documentation that result in the termination of the Obligor's
obligation to pay all or any part of the Obligations, then upon the happening of
any such event, Seller shall thereafter pay to Buyer on the date when the
Obligor would otherwise have paid the Obligations to the Buyer an amount equal
to the amount of the Obligations not payable by the Obligor as a result of such
event. Seller shall pay, and indemnify and hold Buyer harmless from and against,
any taxes that may at any time be asserted in respect of this transaction
(including, without limitation, any sales, occupational excise, gross receipts,
general corporation, personal property, privilege or license taxes, but not
including taxes imposed upon Buyer with respect to its income arising out of
this transaction) and costs, expenses and reasonable counsel fees in defending
against the same, whether arising by reason of the acts to be performed by
Seller hereunder or otherwise.
5. Collection.
----------
_5.1 Collection by Seller. In order to facilitate the collection
--------------------
of the Obligations in the ordinary course of business, Seller shall act as
Buyer's agent for collection. Accordingly, Buyer appoints Seller its attorney-
in-fact to ask for, demand, take, collect, sue for and receive all payments made
in respect of the Obligations and to enforce all rights and remedies thereunder,
provided; however, that Buyer may revoke such appointment at any time. Seller
- -------- -------
shall use due diligence and reasonable lawful means to collect all amounts owned
by the Obligors on each Obligation when the same become due. In the enforcement
or the collection of the Obligations, Seller shall commence any legal
proceedings only in its own name as an assignee for collection or enforcement of
Buyer or, with Buyer's prior written consent, in the Buyer's name. In no event
shall Seller take any action that would make Buyer a party to any litigation or
arbitration proceeding without Buyer's prior written consent.
_5.2 Collection by Buyer. Upon the purchase of the Obligations,
-------------------
Buyer shall have full power and authority to ask for, demand, take, collect, sue
for and receive all payments in respect of the Obligations. Without limiting
the foregoing, Buyer may enforce the payment of each of the Obligations in its
own name or in the name of Seller, and may endorse the name of Seller on all
checks, drafts, money orders and other instruments tendered to or received in
payment of any such Obligations. Seller authorizes Buyer to notify any and all
Obligors with respect to such Obligations of the purchase and sale contemplated
hereby, and to cause all payments in respect thereof to be made directly to
Buyer and render all reasonable assistance to Buyer in collecting such items and
in enforcing claims thereof. All sums collected or received and all property
recovered and possessed by Buyer in connection with the Obligations shall belong
to Buyer absolutely. All sums collected or received and all property recovered
or possessed by Seller in connection with Obligations shall be received and held
by Seller in trust for and on Buyer's behalf; and upon receipt of any such sum
or property, Seller shall forthwith deliver the same to Buyer, or upon its
order.
_5.3 No Obligation to Take Action. Buyer shall have no
----------------------------
obligation to perform any of Seller's obligations under any Obligations
Documentation or to take any action or commence any proceedings to
3
<PAGE>
realize upon any Obligations (including without limitation any defaulted
Obligations), or to enforce any of its rights or remedies with respect thereto.
_5.3
6. Events of Default. The occurrence of any of the following events
-----------------
shall constitute an Event of Default hereunder:
(a) An Event of Default occurs under the Loan Agreement.
(b) Seller shall fail to perform any obligation under this
Agreement.
7. Further Assurances. Seller shall, from time to time, to do and
------------------
perform any and all acts and to execute any and all further instruments required
or reasonably requested by Buyer more fully to effect the purposes of this
Agreement and the sale of the Obligations hereunder, including, without
limitation, the execution of any financing statements or continuation statements
relating to the Obligations for filing under the provisions of the California
Uniform Commercial Code of any applicable jurisdiction.
8. Fees. On the date of this Agreement, Seller shall pay Buyer a
----
fee equal to the sum of (i) $5,000, plus (ii) 0.15% on the undisbursed portion
of the facility, up to $5,000,000, plus (iii) 0.10% on the undisbursed portion
of the facility, from $5,000,000 to $10,000,000.
9. Notices. Unless otherwise provided in this Agreement, all
-------
notices or demands by any party relating to this Agreement or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, certified mail, postage prepaid, return
receipt requested, or by telefacsimile to Seller or to Buyer, as the case may
be, at its addresses set forth below:
If to Seller: P-Com, Inc.
3175 South Winchester Boulevard
Campbell, CA 95008
Attn: Michael J. Sophie
FAX: (408) 866-3655
If to Buyer: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Peter Kidder
FAX: (408) 748-9478
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
4
<PAGE>
Choice of Law and Venue; Jury Trial Waiver. This Agreement shall be
------------------------------------------
governed by, and construed in accordance with, the internal laws of the State of
California, without regard to principles of conflicts of law. Each of Seller
and Buyer hereby submits to the exclusive jurisdiction of the state and Federal
courts located in the County of Santa Clara, State of California. Seller AND
Buyer EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
General Provisions.
------------------
Successors and Assigns. This Agreement shall bind and inure to the
----------------------
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Seller without Buyer's prior written consent, which consent
may be granted or withheld in Buyer's sole discretion. Buyer shall have the
right without the consent of or notice to Seller to sell, transfer, negotiate,
or grant participation in all or any part of, or any interest in, Buyer's
obligations, rights and benefits hereunder.
Indemnification. Seller shall defend, indemnify and hold harmless
---------------
Buyer and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement; and (b) all
losses or Bank Expenses in any way suffered, incurred, or paid by Buyer as a
result of or in any way arising out of, following, or consequential to
transactions between Buyer and Seller whether under this Agreement, or otherwise
(including without limitation reasonable attorneys fees and expenses), except
for losses caused by Buyer's gross negligence or willful misconduct.
Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
Severability of Provisions. Each provision of this Agreement shall be
--------------------------
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
Amendments in Writing, Integration. This Agreement cannot be amended
----------------------------------
or terminated orally. All prior agreements, understandings, representations,
warranties, and negotiations between the parties hereto with respect to the
subject matter of this Agreement, if any, are merged into this Agreement.
Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
Survival. All covenants, representations and warranties made in this
--------
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Seller to indemnify Buyer with respect
to the expenses, damages, losses, costs and liabilities shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Buyer have run.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
P-COM, INC.
By: ___________________________________
Title: ________________________________
SILICON VALLEY BANK
By: ___________________________________
Title: ________________________________
6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
--------------
List of Accounts Receivable to Factor _________
<S> <C> <C> <C> <C> <C> <C>
Customer Invoice Number Invoice Amount Purchase Price Shipment Date Customer P.O.# Due Date
</TABLE>
7
<PAGE>
CORPORATE RESOLUTIONS TO PURCHASE
================================================================================
BORROWER: P-COM, INC.
================================================================================
I, the undersigned Secretary or Assistant Secretary of P-Com, Inc. (the
"Corporation"), HEREBY CERTIFY that the Corporation is organized and existing
under and by virtue of the laws of the State of ______________.
I FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation and Bylaws of the
Corporation, each of which is in full force and effect on the date hereof.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation,
duly called and held, at which a quorum was present and voting (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
-----------------------------------------------------------
_______________________ ____________________ ___________________________
_______________________ ____________________ ___________________________
_______________________ ____________________ ___________________________
_______________________ ____________________ ___________________________
_______________________ ____________________ ___________________________
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To enter into a Purchase Agreement with Silicon Valley Bank
("Bank") on such terms as may be agreed upon between the officers, employees, or
agents and Bank, for the purchase of certain of Corporation's accounts
receivable (the "Purchase Agreement"), and also to execute and deliver to Bank
one or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, or any portion of the notes.
FURTHER ACTS. To designate additional or alternate individuals as being
authorized to request that Bank purchase additional Obligations under the
Purchase Agreement advances thereunder, and in all cases, to do and perform such
other acts and things, to pay any and all fees and costs, and to execute and
deliver such other documents and agreements as they may in their discretion deem
reasonably necessary or proper in order to carry into effect the provisions of
these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
1
<PAGE>
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
IN WITNESS WHEREOF, I have hereunto set my hand on _____________, 19____
and attest that the signatures set opposite the names listed above are their
genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
================================================================================
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 36,388 0
<SECURITIES> 0 0
<RECEIVABLES> 34,146 0
<ALLOWANCES> 0 0
<INVENTORY> 27,592 0
<CURRENT-ASSETS> 102,190 0
<PP&E> 20,887 0
<DEPRECIATION> (4,767) 0
<TOTAL-ASSETS> 120,853 0
<CURRENT-LIABILITIES> 14,957 0
<BONDS> 0 0
0 0
0 0
<COMMON> 2 0
<OTHER-SE> 105,303 0
<TOTAL-LIABILITY-AND-EQUITY> 120,853 0
<SALES> 26,432 63,772
<TOTAL-REVENUES> 26,432 63,772
<CGS> 15,288 37,101
<TOTAL-COSTS> 22,435 55,825
<OTHER-EXPENSES> (392) (542)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 36
<INCOME-PRETAX> 4,389 8,489
<INCOME-TAX> 240 598
<INCOME-CONTINUING> 4,149 7,891
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,149 7,891
<EPS-PRIMARY> .21 .42
<EPS-DILUTED> .21 .42
</TABLE>
