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 March 31, 1997.
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
P-COM, Inc.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 77-0289371
- ------------------------------------------------------------------------------
(State or other jurisdiction of (IRS 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 May 5, 1997, there were 19,899,627 shares of the Registrant's Common
Stock outstanding, par value $0.0001.
This quarterly report on Form 10-Q Consists of 23 pages which this is page 1.
The Exhibit Index appears on page 23.
P-Com, Inc.
TABLE OF CONTENTS
PART I. Financial Information Page Number
--------------------- -----------
Item 1. Financial Statements (unaudited)
Consolidated Condensed Balance Sheets as of March 31,
1997 and December 31, 1996............................. 3
Consolidated Condensed Statements of Operations for the
three-month periods ended March 31, 1997 and 1996...... 4
Consolidated Condensed Statements of Cash Flows for the
three-month periods ended March 31, 1997 and 1996...... 5
Notes to Consolidated Condensed Financial Statements... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 8
PART II. Other Information
Item 1. Legal Proceedings.................................. 21
Item 2. Changes in Securities.............................. 21
Item 3. Defaults Upon Senior Securities.................... 21
Item 4. Submission of Matters to a Vote of
Security Holders................................... 21
Item 5. Other Information.................................. 21
Item 6. Exhibits and Reports on Form 8-K................... 21
Signatures.................................................... 22
PART I.FINANCIAL INFORMATION
------------------------------
ITEM 1.
<TABLE>
P-COM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, December 31,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 21,489 $ 41,857
Accounts receivable, net 44,275 39,672
Notes receivable 2,078 2,513
Inventory 40,645 28,921
Prepaid expenses 7,449 5,806
--------- ---------
Total current assets 115,936 118,769
Property and equipment, net 21,235 18,969
Goodwill and other assets 40,388 2,505
--------- ---------
$ 177,559 $ 140,243
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 28,872 $ 21,667
Accrued employee benefits 2,098 1,378
Other accrued liabilities 3,413 1,391
Income taxes payable 3,831 2,494
Notes payable 6,348 504
--------- ---------
Total current liabilities 44,562 27,434
--------- ---------
Long-term debt 1,505 --
--------- ---------
Minority interest 598 619
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common Stock 2 2
Additional paid-in capital 126,902 110,984
Retained earnings 4,145 1,131
Cumulative translation adjustment (155) 73
--------- ---------
Total stockholders' equity 130,894 112,190
--------- ---------
$ 177,559 $ 140,243
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
<TABLE>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Net sales $ 38,144 $ 17,552
Cost of sales 22,736 10,425
---------- ----------
Gross profit 15,408 7,127
---------- ----------
Operating expenses:
Research and development 6,014 3,599
Selling and marketing 2,556 1,185
General and administrative 2,261 839
---------- ----------
Total operating expenses 10,831 5,623
---------- ----------
Income from operations 4,577 1,504
Interest and other income 365 5
Interest expense (375) --
---------- ----------
Income before income taxes 4,567 1,509
Provision for income taxes 1,553 151
---------- ----------
Net income $ 3,014 $ 1,358
========== ==========
Net income per share $ 0.15 $ 0.08
========== ==========
Weighted average common and common
equivalent shares 20,393 17,56
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Net income $ 3,014 $ 1,358
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,312 284
Change in minority interest (21) --
Change in assets and liabilities (net of
acquisition balances):
Accounts receivable (1,899) 1,688
Inventory (7,475) (941)
Prepaid expenses 227 (7,415)
Notes receivable 435 --
Other assets (104) (1,564)
Accounts payable 1,238 5,006
Accrued employee benefits 135 (126)
Income taxes payable 1,337 --
Other accrued liabilities (1,159) 775
--------- ---------
Net cash used in operating activities (2,960) (935)
--------- ---------
Cash flows from investing activities:
- ------------------------------------
Acquisition of property and equipment (2,401) (1,763)
Acquisition of Technosystem S.p.A., net (3,057) --
Acquisition of Columbia Spectrum
Management, L.P., net (7,798) --
--------- ---------
Net cash used in investing activities (13,256) (1,763)
--------- ---------
Cash flows from financing activities:
- ------------------------------------
Payment of notes payable (5,342) --
Proceeds from stock issuances, net of expense 1,418 476
--------- ---------
Net cash provided by (used in)
financing activities (3,924) 476
--------- ---------
Effect of exchange rate changes on cash (228) --
Net decrease in cash and cash equivalents (20,368) (2,222)
Cash and cash equivalents at the beginning
of the period 41,857 7,655
--------- ---------
Cash and cash equivalents at the end of the
period $ 21,489 $ 5,433
========= =========
Supplemental cash flow disclosures:
Cash paid for income taxes $ 200 $ --
========= =========
Stock issued in connection with the
acquisition of CSM $ 14,500 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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 P-Com, Inc.'s (referred to
herein, together with its wholly-owned and partially-owned
subsidiaries, as "P-Com" or the "Company") financial condition as
of March 31, 1997, and the results of its operations, and its
cash flows for the three month periods ended March 31, 1997 and
1996. These financial statements should be read in conjunction
with the Company's audited 1996 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). Operating results for the three month period ended March
31, 1997 are not necessarily indicative of the operating results
that may be expected for the year ending December 31, 1997. The
following discussion may contain forward looking statements which
are subject to the risk factors set forth in "Certain Factors
Affecting Operating Results" contained in Item 2.
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 stock options
(using the treasury stock method). Common equivalent shares from
stock options are excluded from the computation if their effect
is antidilutive. In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128,
which is effective for the Company's fiscal year ending December
31, 1997, redefines earning per share under generally accepted
accounting principles. Under the new standard, primary earnings
per share is replaced by basic earnings per share, and fully
diluted earnings per share is replaced by diluted earnings per
share, The adoption of SFAS 128 is not expected to have a
material impact on the Company since earnings per share reported
under Accounting Principles Board Opinion No. 15 approximates
diluted earnings per share, which will be reported under SFAS
128.
3.Acquisitions
On February 24, 1997, the Company acquired 100% of the
outstanding stock of Technosystem S.p.A. ("Technosystem"), a
Rome, Italy-based company, with additional operations in Poland,
for aggregate proceeds of $3.3 million. The Company has made a
cash payment of $2.6 million and an additional payment of $0.7
million will be due on March 31, 1998, subject to certain
indemnification obligations of the former Technosystem
securityholders, as set forth in the securities purchase
agreement. Technosystem designs, manufactures and markets
equipment for transmitters and transponders for television and
radio broadcasting. The range of products include audio/video
modulators, converters, amplifiers, transponders, transmitters
and microwave links.
On March 7, 1997, the Company acquired substantially all of the
assets of Columbia Spectrum Management, L.P. ("CSM"), a Vienna,
Virginia-based company, for $8.0 million in cash and 398,306
shares of Common Stock valued at $14.5 million. The former
partners of CSM may receive up to $1,500,000 in cash (as part of
such $8.0 million cash amount) over the next two years, subject
to the satisfaction of certain indemnification obligations, and
the 398,306 shares issued to the former partners may either
increase or decrease in an amount of up to 15%, as determined
pursuant to the terms of the asset purchase agreement. CSM
provides turnkey relocation services for microwave paths over
spectrum allocated by the Federal Communications Commission for
Personal Communications Services and other emerging technologies.
The Company accounted for both of these acquisitions based on
the purchase method of accounting. The results of these acquired
entities are included from the date of acquisition and were not
material to the Company's results of operations.
The total purchase price of these acquisitions is as follows (in
thousands):
<TABLE>
Technosystem CSM Total
<S> <C> <C> <C>
Cash payment $ 2,600 $ 8,000 $ 10,600
Contingent consideration 700 -- 700
Issuance of common stock $ -- $ 14,500 $ 14,500
Expenses 471 128 599
--------- --------- ---------
Total $ 3,771 $ 22,628 $ 26,399
========= ========= =========
The allocation of the purchse price was as follows (in thousands):
Technosystem CSM Total
Cash and cash equivalents $ 14 $ 330 $ 334
Accounts receivable 2,704 -- --
Inventory 4,196 -- --
Other current assets 1,870 53 1,923
Property and equipment 597 222 819
Non-current assets 129 5 134
Intangible assets 15,775 22,228 38,003
Current liabilities assumed (8,824) (210) (9,034)
Long-term debt (12,690) -- (12,690)
--------- --------- ---------
Total $ 3,771 $ 22,628 $ 26,399
========= ========= =========
</TABLE>
4.Borrowing Arrangements
The Company entered into a new revolving line of credit
agreement on March 3, 1997 (as amended on May 7, 1997) that
provides for borrowings of up to $17,500,000. The line of credit
expires on March 31, 1998. Borrowings under the line are
unsecured and bear interest at either a base interest rate or a
variable interest rate. The agreement requires the Company to
comply with certain financial covenants including the maintenance
of specified minimum ratios. The Company was not in compliance
with such covenants as of March 31, 1997, although Union Bank of
California has granted a waiver with respect to such covenants.
5.Inventories
Inventories consist of the following (in thousands):
<TABLE>
March 31, Dec. 31,
1997 1996
--------- ---------
<S> <C> <C>
Raw materials $ 6,816 $ 6,286
Work-in-process 22,825 15,670
Finished goods 11,004 6,965
--------- ---------
$ 40,645 $ 28,921
========= =========
</TABLE>
6.Property and equipment
Property and equipment consist of the following (in thousands):
<TABLE>
March 31, Dec. 31,
1997 1996
--------- ---------
<S> <C> <C>
Tooling and test equipment $ 20,352 $ 18,784
Computer equipment 2,562 2,014
Furniture and fixtures 1,973 1,749
Land and buildings 1,373 1,167
Construction-in-process 1,164 1,794
--------- ---------
27,424 25,508
Less-accumulated depreciation
and amortization (6,189) (6,539)
--------- ---------
$ 21,235 $ 18,969
========= =========
</TABLE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table sets forth items from the Consolidated
Condensed Income Statements as a percentage of net sales for the
periods indicated. In addition, the discussion and analysis
contained in this Item 2 may contain forward looking statements
which are subject to the risk factors set forth in "Certain
Factors Affecting Operating Results".
Three Months Ended
March 31,
1997 1996
<TABLE>
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 59.6 59.4
------ ------
Gross profit margin 40.4 40.6
Operating expenses
Research and development 15.8 20.5
Selling and marketing 6.7 6.7
General and administrative 5.9 4.8
------ ------
Total operating expenses 28.4 32.0
------ ------
Income from operations 12.0 8.6
Interest and other income
(expense),net 0.0 0.0
------ ------
Income before income taxes 12.0 8.6
Provision for income taxes 4.1 0.9
------ ------
Net income 7.9% 7.7%
====== ======
</TABLE>
Results of Operations for the Three Months Ended March 31, 1997
and 1996
Net Sales. Net sales for the three months ended March 31,
1997 and 1996 were approximately $38.1 million and $17.6 million,
respectively. The increase was primarily due to increased unit
sales of 38 GHz and 15 GHz radio systems to new and existing
customers. For the three months ended March 31, 1997, five
customers accounted for 64% of the sales of the Company. For the
three months ended March 31, 1996, four customers accounted for
68% of the sales of the Company.
Gross Profit. For the three months ended March 31, 1997 and
1996, gross profit was approximately $15.4 million, or 40.4% of
net sales, and approximately $7.1 million, or 40.6% of net sales,
respectively. The gross profit as a percentage of net sales
remained approximately the same in the three months ended March
31, 1997, as compared to the corresponding period in 1996.
Research and Development. For the three months ended March
31, 1997 and 1996, research and development expenses were
approximately $6.0 million and $3.6 million, respectively. The
increase in absolute dollars in research and development expenses
during the three months ended March 31, 1997 as compared to the
corresponding period in 1996 was due primarily to expenses
associated with increased staffing. As a percentage of net sales,
research and development expenses decreased from 21% in the three
months ended March 31, 1996 to 16% in the corresponding period in
1997. The decrease in research and development expenses as a
percentage of net sales was primarily due to a higher level of
sales in the three months ended March 31, 1997, as compared to
the corresponding period in 1996. The Company expects that
research and development expenses will continue to increase
significantly in absolute dollars during the remainder of 1997.
Selling and Marketing. For the three months ended March 31,
1997 and 1996, selling and marketing expenses were approximately
$2.6 million and $1.2 million, respectively. The increase in
selling and marketing expenses in the three months ended March
31, 1997 as compared to the corresponding period in 1996 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 net sales, selling
and marketing expenses were 7% during both the three months ended
March 31, 1997 and 1996. The Company expects that such expenses
will increase significantly in absolute dollars during the
remainder of 1997 as compared to 1996.
General and Administrative. For the three months ended March
31, 1997 and 1996, general and administrative expenses were $2.2
million and $839,000, respectively. This increase was principally
due to increases in headcount and other costs resulting from the
Company's expansion of its operations and goodwill amortization
associated with the Company's acquisitions of Technosystem and
CSM. As a percentage of net sales, general and administrative
expenses were 6% for the three months ended March 31, 1997 as
compared to 5% in the corresponding period in 1996. This increase
in general and administrative expenses as a percentage of net
sales was due primarily to goodwill amortization associated with
the Company's acquistions of Technosystem and CSM. The Company
expects that such expenses will continue to increase
significantly in absolute dollars during the remainder of 1997 as
compared to 1996, as the Company continues to expand its
operations.
Interest and Other Income (Expense), Net. The Company
incurred net interest and other expense of $10,000 during the
three months ended March 31, 1997, as compared to $5,000 of net
interest and other income during the corresponding period in
1996. The increase in net interest and other expense was
primarily due to interest expense incurred on the debt of
Geritel, S.p.A. ("Geritel"), the Company's Tortona, Italy-based
manufacturer of telecommunications equipment, and Technosystem,
and patially due to exchange rate losses generated by collections
of foreign accounts receivable offset by investment of excess
cash.
Liquidity and Capital Resources
The Company used approximately $3.0 million in operating
activities during the three months ended March 31, 1997,
primarily due to an increase in accounts receivable and inventory
of $1.9 million and $7.5 million, respectively. This was
partially offset by net income of $3.0 million, depreciation and
amortization expense of $1.3 million, and increases in accounts
payable and income taxes payable of $1.2 million and $1.3
million, respectively.
The Company used approximately $13.2 million in investing
activities during the three months ended March 31, 1997. The
Company used approximately $10.8 million to purchase Technosystem
and CSM, and $2.4 million to acquire capital equipment.
The Company used approximately $3.9 million in financing
activities during the three months ended March 31, 1997.
Approximately $5.3 million was used to pay down notes payable for
Technosystem, partially offset by the issuance of the Company's
Common Stock pursuant to the Company's stock option and employee
stock purchase plan valued at approximately $1.4 million.
At March 31, 1997 and December 31, 1996, accounts receivable
was approximately $44 million and $40 million, respectively. Of
the increase that occurred in the period between December 31,
1996 and March 31, 1997, $3.8 million was due to the acquisition
of both Technosystem and CSM. At March 31, 1997 and December 31,
1996, inventory was approximately $41 million and $29 million,
respectively. Of the increase that occurred in the period between
December 31, 1996 and March 31, 1997, $4.8 million was due to the
acquisition of Technosystem. At March 31, 1997 and December 31,
1996, notes payable was approximately $6.3 million and $.5
million, respectively. Of the increase that occurred in the
period between December 31, 1996 and March 31, 1997, $5.7 million
was due to the acquisition of Technosystem.
At March 31, 1997, the Company had working capital of
approximately $71.4 million. In recent quarters, most of the
Company's sales have been realized near the end of each quarter,
resulting in a significant investment in accounts receivable at
the end of the quarter. In addition, the Company expects that its
investments in accounts receivable and inventories will be
significant and will continue to represent a significant portion
of working capital. Significant investments in accounts
receivable and inventories may subject the Company to increased
risks which could materially adversely affect the Company's
business, financial condition and results of operations.
The Company's principal sources of liquidity as of March 31,
1997 consisted of approximately $21.4 million of cash and cash
equivalents. In addition, the Company has a $17.5 million line of
credit with Union Bank of California which expires in March 1998.
Borrowings under the line are unsecured and bear interest at
either a base interest rate or a variable interest rate. The
agreement requires the Company to comply with certain financial
covenants including the maintenance of specified minimum ratios.
The Company was not in compliance with such covenants as of March
31, 1997, although Union Bank of California has granted a waiver
with respect to such covenants. As of March 31, 1997, the Company
did not have any borrowings outstanding under such line.
On February 24, 1997, the Company acquired 100% of the equity
of Technosystem S.p.A., a Rome, Italy-based company, with
additional operations in Poland for $3.3 million. The Company has
made a cash payment of $2.6 million and an additional payment of
$0.7 million will be due on March 31, 1998, subject to certain
indemnification obligations of the former Technosystem
securityholders as set forth in the securities purchase
agreement. Technosystem designs, manufactures and markets
equipment for transmitters and amplifiers, transponders for
television and radio broadcasting. The range of products include
audio/video modulators, converters, amplifiers, transponders,
transmitters and microwave links.
On March 7, 1997, the Company acquired substantially all of the
assets of Columbia Spectrum Management, L.P., a Vienna, Virginia-
based company, for $8.0 million in cash and 398,306 shares of
Common Stock valued at $14.5 million. The former partners of CSM
may receive up to $1,500,000 in cash (as part of such $8.0
million amount) over the next two years, subject to the
satisfaction of certain indemnification obligations, and the
398,306 shares issued to the former partners may either increase
or decrease in an amount of up to 15%, as determined pursuant to
the terms of the asset purchase agreement. CSM provides turnkey
relocation services for microwave paths over spectrum allocated
by the Federal Communications Commission for Personal
Communications Services and other emerging technologies.
Subsequent to March 31, 1997, the Company entered into an
agreement to acquire all of the outstanding shares of capital
stock of Control Resources Corporation ("CRC"), a provider of
integrated network access devices to network service providers,
in a stock-for-stock merger. CRC, located in Fair Lawn, New
Jersey, manufactures products used by the communications industry
to connect end user sites to a range of communications services.
CRC's NetPath product line enables network service providers to
offer their customers a migration path from entry-level data
services to cost-effective integrated delivery of voice, video
and Internet access. The NetPath product line also supports the
network service provider's introduction of new technologies
including asynchronous transfer mode and frame relay.
At present, the Company does not have any material commitments
for capital equipment purchases. However, the Company's future
capital requirements will depend upon many factors, including the
development of new radio systems and related software tools,
potential acquisitions, the extent and timing of acceptance of
the Company's radio systems in the market, requirements to
maintain adequate manufacturing facilities, working capital
requirements for Geritel, Atlantic Communication Sciences, Inc.
("ACS"), Technosystem, CRC and CSM, 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 ordinary 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. The Company may in the
future pursue acquisitions of complementary product lines,
technologies, or businesses. Future 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. For risk factors associated with the Company's
future capital requirements, please see "Certain Factors
Affecting Operating Results -- Future Capital Requirements."
There can be no assurance that any operations of ACS,
Technosystem, CRC or CSM will be profitable after the
acquisitions. Moreover, there can be no assurance that the
anticipated benefits of the ACS, Technosystem, CRC and CSM
acquisitions will be realized. The process of integrating the
operations of ACS, Technosystem, CRC and CSM 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.
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Very Limited Operating History
The Company was founded in August 1991 and was in the
development stage until October 1993 when it began commercial
shipments of its first product. From inception to the end of the
first quarter of fiscal 1997, the Company generated a cumulative
net profit of approximately $4.1 million. From October 1993
through March 31, 1997, the Company generated sales of
approximately $188.3 million, of which $135.6 million, or 72% of
such amount, was generated in the year ended December 31, 1996
and the first quarter of 1997. The Company does not believe
recent growth rates are indicative of future operating results.
Due to the Company's very 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 1996 and the first quarter
of 1997, both the Company's sales and operating expenses
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 1996 or in
the first quarter of 1997 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
full year ended December 31, 1995, profitability for the year
ended December 31, 1996 and for the first quarter of 1997, there
can be no assurance that the Company will achieve profitability
in future periods. The Company is subject to all of the risks
inherent in the operation of a new business enterprise, and there
can be no assurance that the Company will be able to successfully
address these risks. See "Results of Operations."
Significant Customer Concentration
To date, approximately forty-five customers have accounted for
all of the Company's sales. For 1996, six customers accounted for
79% of the Company's sales, and as of December 31, 1996, six
customers accounted for most of the Company's backlog scheduled
for shipment in the twelve months subsequent to December 31,
1996. During the first quarter of 1997, five customers accounted
for 64% of the Company's sales, and as of March 31, 1997, six
customers accounted for 90% of the Company's backlog scheduled
for shipment in the twelve months subsequent to March 31, 1997.
The Company anticipates that it will continue to sell its radio
systems to a changing but still relatively small group of
customers. Some companies 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, working capital availability 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 or services may materially adversely
affect the Company's business, financial condition and results of
operations. In addition, financial difficulties of any existing
or potential customers may limit the overall demand for the
Company's products and services, (for example, Pocket
Communications, Inc., a [potential] customer of the Company,
recently filed for Chapter 11 Bankruptcy protection and may
therefore limit its future orders). There can be no assurance
that the Company's sales will increase in the future or that the
Company will be able to support or attract customers. See
"Results of Operations."
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, most of the Company's
backlog scheduled for shipment in the twelve months subsequent to
March 31, 1997 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 each quarter. Accordingly, a delay in a shipment near the
end of a particular quarter, as the Company has been experiencing
recently, 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, 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; accounts
receivable collection, in particular those acquired in recent
acquisitions; changes in pricing by the Company, its customers or
suppliers; inventory obsolescence; natural disasters;
seasonality; market acceptance and the timing of availability of
new products by the Company or its customers; acquisitions,
including costs and expenses; usage of different distribution and
sales channels; fluctuations in foreign currency exchange rates;
delays or changes in regulatory approval of its systems; warranty
and customer support expenses; customization of systems; and
general economic and political conditions. In addition, the
Company's results of operations have been and will continue to be
influenced significantly by competitive factors, including the
pricing and availability of, and demand for, competitive
products. The Company expects to continue to expend significant
resources with respect to the development, 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. See "Results of
Operations."
Dependence on Contract Manufacturers; Reliance on Sole or Limited
Sources of Supply
The Company's internal manufacturing capacity is very limited.
The Company utilizes contract manufacturers such as Remec, Inc.,
Sanmina Corporation, SPC Electronics Corp., GSS Array Technology,
Celeritek, Inc. and Senior Systems Technology Inc. to produce its
systems, components and subassemblies and expects 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, ELTEL, MilliWave, Scientific
Atlanta and Xilinx, Inc. each are sole 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
suppliers 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, and the acquisitions of ACS, Technosystem and CSM,
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 "--Very Limited
Operating History." Expansion of the Company's operations has
caused and is continuing to impose a significant strain on the
Company's management, financial, manufacturing and other
resources. The Company's ability to manage the recent and any
possible future growth, should it occur, will depend upon a
significant expansion of its manufacturing, accounting and other
internal management systems and the implementation and subsequent
improvement of a variety of systems, procedures and controls. In
addition, the Company must establish and improve a variety of
systems, procedures and controls to more efficiently coordinate
its activities in its acquired or to be acquired companies in
Rome and Milan Italy, France, Poland, New Jersey, Florida and
Virginia. In addition, the Company must establish and improve a
variety of systems, procedures and controls to more effectively
coordinate its activity in acquired or to be acquired companies
(including their facilities) in Italy, France, Poland, New
Jersey, Florida and Virginia and their respective offices and
customer bases. 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
marketing, sales, manufacturing 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 marketing,
sales, manufacturing and customer support efforts will be
successful or will result in additional sales or profitability in
any future period. As a result of the expansion of its operations
and the significant increase in its operating expenses, as well
as the difficulty in forecasting revenue levels, the Company may
continue to experience significant fluctuations in its revenues,
costs, and gross margins, and therefore its results of
operations. See "Results of Operations."
The Company has pursued, and will continue to pursue, growth
opportunities through internal development and acquisitions of
complementary businesses and technologies. The Company is unable
to predict whether and when any prospective acquisition candidate
will become available or the likelihood that any acquisition will
be completed. The Company competes for acquisition and expansion
opportunities with many entities that have substantially greater
resources than the Company. In addition, acquisitions may involve
difficulties in the retention of personnel, diversion of
management's attention, unexpected legal liabilities, and tax and
accounting issues. There can be no assurance that the Company
will be able to successfully identify suitable acquisition
candidates, complete acquisitions, integrate acquired businesses
into its operations, or expand into new markets. Once integrated,
acquired businesses may not achieve comparable levels of
revenues, profitability, or productivity as the existing business
of the Company or otherwise perform as expected. The occurrence
of any of these events could have a material adverse effect on
the Company's business, financial condition and results of
operation.
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 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 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 will decline, and such decline will
have a material adverse effect on the Company's business,
financial condition and results of operations. See "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, 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 continue to
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 or spread spectrum microwave
wireless radio market and related services 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 generally be competitive with rates charged
by wireline companies. If wireless access rates are not
competitive, consumer demand for wireless access will be
materially adversely affected. If the Company allocates its
resources to any market segment that does not grow, it may be
unable to reallocate its resources to other market segments in a
timely manner, which may curtail or eliminate its ability to
enter such market segments.
To date, most of the Company's sales have been to customers
located outside the United States. In addition, in 1996, the
Company acquired a 51% interest in Geritel and in February 1997,
a 100% interest in Technosystem. Both companies are located in
Europe and sell products primarily 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
Digital Microwave Corporation, California Microwave, Inc.,
Alcatel Network Systems, 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 are 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 expend significant resources on, among
other items, new product development and enhancements. 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 continue to 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, in
1996, the Company acquired a 51% interest in Geritel and in
February 1997, a 100% interest in Technosystem which are located
in Europe and will sell their products primarily 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. 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. Although the
Company seeks to mitigate its currency exposure through hedging
measures, these measures have been and in the future may be
limited in their effectiveness. 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 and Technosystem, difficulties in
managing distributors, potentially adverse tax consequences,
foreign currency exchange fluctuations, the burden of complying
with a wide variety of complex foreign laws and treaties and the
possibility of difficulty in accounts receivable collections.
Many of the Company's customer purchase agreements are governed
by foreign laws, which may differ significantly from U.S. laws.
Therefore, the Company may be limited in its ability to enforce
its rights under such agreements and to collect damages, if
awarded. There can be no assurance that any of these factors will
not have a material adverse effect on the Company's business,
financial condition and results of operations.
Some of the Company's potential markets consist of developing
countries that may deploy wireless communications networks as an
alternative to the construction of a limited wired
infrastructure. These countries may decline to construct wireless
telecommunications systems or construction of such systems may be
delayed for a variety of reasons, in which event any demand for
the Company's systems in those countries will be similarly
limited or delayed. In doing business in developing markets, the
Company may also face economic, political and foreign currency
fluctuations that are more volatile than those commonly
experienced in the United States and other areas.
Extensive Government Regulation
Radio communications are subject to extensive regulation by
the United States and foreign laws and international treaties.
The Company's equipment must conform to a variety of domestic and
international requirements. Historically, in many developed
countries, the unavailability of frequency spectrum has inhibited
the growth of wireless telecommunications networks. 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. Geritel 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 registration
will be achieved.
Acquisitions
In the future, the Company will 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, ACS, Technosystem, CRC and CSM
involve numerous risks, including difficulties in the
assimilation of the operations, technologies and products of the
acquired companies, the diversion of management's attention from
other business concerns, risks of entering markets in which the
Company has no or limited direct prior experience, operating
companies in different geographical locations with different
cultures, and the potential loss of key employees of the acquired
company. 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. There can
be no assurance that 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, acquisition or
manufacturing programs or obtain funds through arrangements with
partners or others that may require the Company to relinquish
rights to certain of its technologies or potential products or
other assets. Accordingly, the inability to obtain such financing
could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Results of
Operations."
Uncertainty Regarding Protection of Proprietary Rights
The Company attempts to protect its intellectual property
rights through patents, trademarks, trade secrets and a variety
of other measures. However, there can be no assurance that such
measures will provide adequate protection for the Company's trade
secrets or other proprietary information, that disputes with
respect to the ownership of its intellectual property rights will
not arise, that the Company's trade secrets or proprietary
technology will not otherwise become known or be independently
developed by competitors or that the Company can otherwise
meaningfully protect its intellectual property rights. There can
be no assurance that any patent owned by the Company will not be
invalidated, circumvented or challenged, that the rights granted
thereunder will provide competitive advantages to the Company or
that any of the Company's pending or future patent applications
will be issued with the scope of the claims sought by the
Company, if at all. Furthermore, there can be no assurance that
others will not develop similar products or software, duplicate
the Company's products or software or design around the patents
owned by the Company or that third parties will not assert
intellectual property infringement claims against the Company. In
addition, there can be no assurance that foreign intellectual
property laws will adequately protect the Company's intellectual
property rights abroad. The failure of the Company to protect its
proprietary rights could have a material adverse effect on its
business, financial condition and results of operations.
Litigation may be necessary to protect the Company's
intellectual property rights and trade secrets, to determine the
validity of and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the
Company's business, financial condition and results of
operations. There can be no assurance that infringement,
invalidity, right to use or ownership claims by third parties or
claims for indemnification resulting from infringement claims
will not be asserted in the future. If any claims or actions are
asserted against the Company, the Company may seek to obtain a
license under a third party's intellectual property rights. There
can be no assurance, however, that a license will be available
under reasonable terms or at all. In addition, should the Company
decide to litigate such claims, such litigation could be
extremely expensive and time consuming and could materially
adversely affect the Company's business, financial condition and
results of operations, regardless of the outcome of the
litigation.
Dependence on Key Personnel
The Company's future operating results depend in significant
part upon the continued contributions of its key technical and
senior management personnel, many of whom would be difficult to
replace. 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 ("IPO") was completed in
March 1995, and its follow-on offerings were completed in August
1995 and May 1996. The market price of the Company's Common Stock
has fluctuated significantly since the Company's IPO. 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,
lenders, 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.
Control by Existing Stockholders; Effects of Certain Anti-
Takeover Provisions
Members of the Board of Directors and the executive 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 are able to influence the election of the
members of the Company's Board of Directors and 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.
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 follow-on offerings in August 1995 and
May 1996, shares to be registered in connection with the
acquisitions of CRC and CSM, and shares of unregistered stock,
including those shares issued in connection with the acquisition
of ACS, and option shares registered on the Company's
registration statements covering employee compensation plans are
also, or will be in the near future, 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.
Part II. Other Information
- ----------------------------------
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Securityholders. None.
Item 5. Other Information. On April 15, 1997, the Company entered
into an agreement to acquire all of the outstanding shares
of capital stock of Control Resources Corporation ("CRC"),
a provider of integrated network access devices to network
service providers, in a stock-for-stock merger. CRC, located
in Fair Lawn, New Jersey, manufactures products used by the
communications industry to connect end user sites to a range
of communications services. CRC's NetPath product line
enables network service providers to offer their
customers a migration path from entry-level data services to
cost-effective integrated delivery of voice, video and
Internet access. The NetPath product line also supports the
network service provider's introduction of new technologies
including asynchronous transfer mode and frame relay.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
2.3(1) Securities Purchase Agreement, dated February 5,
1997, by and among P-Com, Inc. and all
securityholders of Technosystem S.p.A.
2.4(2) Asset Purchase Agreement, dated February 12, 1997,
by and among P-Com, Inc., Columbia Spectrum
Management, L.P., and all partners of Columbia
Spectrum Management, L.P..
10.30A Loan Agreement dated March 3, 1997 by and between
the Company and Union Bank of California, N.A.
10.30B Amendment dated May 7, 1997 to the Loan Agreement
dated March 3, 1997 by and between the Company and
Union Bank of California, N.A.
27 Financial Data Schedule
(b) Reports on Form 8-K.
Report on Form 8-K dated February 24, 1997,
regarding the Company's acquisition of Technosystem
S.p.A., as filed with the Securities and Exchange
Commission on March 10, 1997.
Report on Form 8-K dated March 7, 1997, regarding
the Company's acquisition of Columbia Spectrum
Management, L.P., as filed with the Securities and
Exchange Commission on March 21, 1997.
_____________________________________
(1) Previously filed as exhibit to the Company's Current
Report on Form 8-K dated February 24, 1997, as filed with
the Securities and Exchange Commission on March 10, 1997
(File No. 0-25356).
(2) Previously filed as exhibit to the Company's Current
Report on Form 8-K dated March 7, 1997, as filed with the
Securities and Exchange Commission on March 21, 1997 (File
No. 0-25356).
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: May 15, 1997 By: /s/ George Roberts
------------------------
George Roberts
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 15, 1996 By: /s/ Michael Sophie
------------------------
Michael Sophie
Chief Financial Officer and
Vice President Finance and Administration
EXHIBIT INDEX
Exhibit
No.
10.30A Loan Agreement dated March 3, 1997 by and between the Company
and Union Bank of California, N.A.
10.30B Amendment dated May 7, 1997 to the Loan Agreement dated March
3, 1997 by and between the Company and Union Bank of California,
N.A.
27 Financial Data Schedule
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into
as of March 3, 1997 by and between P-Com, Inc. a Delaware
Corporation ("Borrower") and UNION BANK OF CALIFORNIA, N.A.
("Bank").
SECTION 1. THE LOAN
1.1.1 The Revolving Loan. Bank will loan to
Borrower an amount not to exceed Seventeen Million Five Hundred
Thousand Dollars ($17,500,000) outstanding in the aggregate at
any one time (the "Revolving Loan"). Borrower may borrow, repay
and reborrow all or part of the Revolving Loan in accordance with
the terms of the Revolving Note. All borrowing's of the
Revolving Loan must be made before March 31, 1998 at which time
all unpaid principal and interest of the Revolving Loan shall be
due and payable. The Revolving Loan shall be evidenced by a
promissory note (the "Revolving Note") on the standard form used
by Bank for commercial loans. Bank shall enter each amount
borrowed and repaid in Bank's records, and such entries shall be
deemed to accurately reflect both principal outstanding and
payments made. Omission of Bank to make any such entries shall
not discharge Borrower of its obligation to repay in full with
interest all amounts borrowed.
1.1.2 The Standby L/C Sublimit. As a sublimit to
the Revolving Loan, Bank shall issue, for the account of
Borrower, one or more irrevocable, standby letters of credit
(individually, an "L/C" and collectively, the "L/Cs"). All such
standby L/Cs shall be drawn on such terms and conditions as are
acceptable to Bank. The aggregate amount available to be drawn
under all outstanding L/Cs and the aggregate amount of unpaid
reimbursement obligations under drawn L/Cs shall not exceed Two
Million Dollars ($2,000,000) and shall reduce, dollar for dollar,
the maximum amount available under the Revolving Loan. No
standby L/C shall have an expiry date more than twelve months
from its date of issuance and each L/C shall be governed by the
terms of (and Borrower agrees to execute) Bank's standard form
for standby L/C applications and reimbursement agreements. No
L/C shall expire after June 30, 1998.
1.2 Terminology.
As used herein the following words shall have the following
definitions:
"Loan" shall mean, collectively, all the credit
facilities described above.
"Note" shall mean, collectively, all the
promissory notes described above.
"Loan Documents" shall mean all documents executed
in connection with this Agreement.
"Guarantor" or "Guarantors" shall mean Geritel,
Inc. and each and every entity in which Borrower now or hereafter
owns a majority interest, each Guarantor to execute a continuing
Guaranty of all Borrower's obligations to Bank and each such
Guaranty being in form and substance satisfactory to Bank.
1.3 Purpose of Loan. The proceeds of the Revolving
Loan shall be used for general short term working capital
purposes and issuance of performance Standby L/C's.
1.4 Interest. The unpaid principal balance of the
Loan shall bear interest at the rate or rates provided in the
Note and selected by Borrower. The Loan may be prepaid in full
or in part only in accordance with the terms of the Note and any
such prepayment shall be subject to the prepayment fee provided
for therein.
1.5 Fees. All fees in connection with the Loan are as
follows:
(a) On the last calendar day of the third month
following the execution of this Agreement and on the last
calendar day of each three-month period thereafter until March
31, 1998, or the earlier termination of the Loan, Borrower shall
pay to Bank a fee of One Hundred Eighty Five Thousandths of One
percent (0.185%) per year on the average unused portion of the
Loan for the preceding quarter computed on the basis of actual
days elapsed of a year of 360 days;
(b) Standby L/C Issuance Fee shall be at One and
One-half of One Percent (1.50%) per annum.
1.6 Balances. Borrower shall maintain its major
depository accounts with Bank until the Note and all sums payable
pursuant to this Agreement have been paid in full and Banks
commitment to lend has been canceled.
1.7 Disbursement. Upon execution hereof, Bank shall
disburse the proceeds of the Loan as provided in Bank's standard
form Authorization executed by Borrower.
1.8 Controlling Document. In the event of any
inconsistency between the terms of this Agreement and any Note or
any of the other Loan Documents, the terms of such Note or other
Loan Documents will prevail over the terms of this Agreement.
1.9 Further Definition. As used throughout this
Agreement, "material", "material adverse change," and/or
"material adverse effect," as each of these terms may appear in
this Agreement and any of the Loan Documents, shall mean, each in
context, a negative result or potential result arising directly
or indirectly from facts that, in the totality of the
circumstances, Bank considers substantive and germane to (a) the
business, assets, operations, or financial or other condition or
Borrower or any existing or future guarantor ("guarantor"); (b)
the ability of Borrower or any guarantor to pay or perform n
accordance with the terms of this Agreement and any Loan Document
to which either or any are a party; or c the rights and remedies
of Bank under this Agreement or any Loan Documents.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion
of the proceeds of the Loan or issue any L/C unless at or prior
to the time for the making of such disbursement, the following
conditions have been fulfilled to Bank's satisfaction:
2.1 Compliance. Borrower shall have performed and
complied with all terms and conditions required by this Agreement
to be performed or complied with by it prior to or at the date of
the making of such disbursement and shall have executed and
delivered to Bank the Note and other documents deemed necessary
by Bank.
2.2 Guaranties. Borrower shall ensure Bank is
provided the Continuing Guaranties from the Guarantors.
2.3 Borrowing Resolution. Borrower shall have
provided Bank with certified copies of resolutions duly adopted
by the Board of Directors of Borrower, authorizing this Agreement
and the Loan Documents. Such resolutions shall also designate
the persons who are authorized to act on Borrower's behalf in
connection with this Agreement and to do the things required of
Borrower pursuant to this Agreement.
2.4 Continuing Compliance. At the time any
disbursement is to be made, there shall not exist any event,
condition or act which constitutes an event of default under
Section 6 hereof or any event, condition or act which with
notice, lapse of time or both would constitute such event of
default; nor shall there be any such event, condition, or act
immediately after the disbursement were it to be made.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
3.1 Business Activity. The principal business of
Borrower is the design, development, and marketing of short-haul
microwave radio systems for use in the telecommunications
marketplace.
3.2 Authority to Borrow. The execution, delivery and
performance of this Agreement, the Note and all other agreements
and instruments required by Bank in connection with the Loan are
not in contravention of any of the terms of any indenture,
agreement or undertaking to which Borrower is a party or by which
it or any of its property is bound or affected.
3.3 Financial Statements. The financial statements of
Borrower, including both a balance sheet at , December 31, 1995
and September 30, 1996, together with supporting schedules, and
an income statement for the twelve (12) months ended December
31, 1995, have heretofore been furnished to Bank, and are true
and complete and fairly represent the financial condition of
Borrower during the period covered thereby. Since December 31,
1995, and September 30, 1996, there has been no material adverse
change in the financial condition or operations of Borrower.
3.4 Title. Except for assets which may have been
disposed of in the ordinary course of business, Borrower has good
and marketable title to all of the property reflected in its
financial statements delivered to Bank and to all property
acquired by Borrower since the date of said financial statements,
free and clear of all liens, encumbrances, security interests,
adverse claims, and negative pledges, except those specifically
referred to in said financial statements.
3.5 Litigation. There is no litigation or proceeding
pending or threatened against Borrower or any of its property
which is reasonably likely to affect the financial condition,
property or business of Borrower in a materially adverse manner
or result in liability in excess of Borrower's insurance coverage
or an aggregate of Five Hundred Thousand Dollars ($500,000).
3.6 Default. Borrower is not now in default in the
payment of any of its material obligations, and there exists no
event, condition or act which constitutes an event of default
under Section 6 hereof and no condition, event or act which with
notice or lapse of time, or both, would constitute an event of
default.
3.7 Organization. Borrower is duly organized and
existing under the laws of the state of its organization, and has
the power and authority to carry on the business in which it is
engaged and/or proposes to engage.
3.8 Power. Borrower has the power and authority to
enter into this Agreement and to execute and deliver the Note and
all of the other Loan Documents.
3.9 Authorization. This Agreement and all things
required by this Agreement have been duly authorized by all
requisite action of Borrower.
3.10 Qualification. Borrower is duly qualified and in
good standing in any jurisdiction where such qualification is
required, except to the extent that a failure to so qualify would
not have a material adverse effect on Borrower's financial
condition.
3.11 Compliance With Laws. Borrower is not in
violation with respect to any applicable laws, rules, ordinances
or regulations which materially affect the operations or
financial condition of Borrower.
3.12 ERISA. Any defined benefit pension plans as
defined in the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), of Borrower meet, as of the date hereof,
the minimum funding standards of Section 302 of ERISA, and no
Reportable Event or Prohibited Transaction as defined in ERISA
has occurred with respect to any such plan.
3.13 Regulation U. No action has been taken or is
currently planned by Borrower, or any agent acting on its behalf,
which would cause this Agreement or the Note to violate
Regulation U or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities and
Exchange Act of 1934, in each case as in effect now or as the
same may hereafter be in effect. Borrower is not engaged in the
business of extending credit for the purpose of purchasing or
carrying margin stock as one of its important activities and none
of the proceeds of the Loan will be used directly or indirectly
for such purpose.
3.14 Continuing Representations. These representations
shall be considered to have been made again at and as of the date
of each disbursement of the Loan and shall be true and correct as
of such date or dates.
SECTION 4. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this
Agreement or any other of the Loan Documents have been paid in
full, unless Bank waives compliance in writing, Borrower agrees
that:
4.1 Use of Proceeds. Borrower will use the proceeds
of the Loan only as provided in subsection 1.4 above.
4.2 Payment of Obligations. Borrower will pay and
discharge promptly all taxes, assessments and other governmental
charges and claims levied or imposed upon it or its property, or
any part thereof, provided, however, that Borrower shall have the
right in good faith to contest any such taxes, assessments,
charges or claims and, pending the outcome of such contest, to
delay or refuse payment thereof provided that adequately funded
reserves are established by it to pay and discharge any such
taxes, assessments, charges and claims.
4.3 Maintenance of Existence. Borrower will maintain
and preserve its existence and assets and all rights, franchises,
licenses and other authority necessary for the conduct of its
business and will maintain and preserve its property, equipment
and facilities in good order, condition and repair. Bank may, at
reasonable times, visit and inspect any of the properties of
Borrower.
4.4 Records. Borrower will keep and maintain full and
accurate accounts and records of its operations according to
generally accepted accounting principles and will permit Bank to
have access thereto, to make examination and photocopies thereof,
and to make audits during regular business hours. Costs for such
audits shall be paid by Borrower.
4.5 Information Furnished. Borrower will furnish to
Bank:
(a) Within sixty (60) days after the close of
each fiscal quarter, its 10-Q as of the close of such fiscal
quarter, prepared in accordance with the generally accepted
accounting principles and the requirements of the Securities and
Exchange Commission;
(b) Within One Hundred (100) days after the close
of each fiscal year, Form 10-K as of the close of such fiscal
quarter, prepared in accordance with the generally accepted
accounting principles applied on a consistent basis with that of
last year and the requirements of the Securities and Exchange
Commission;
(c) Copies of such financial statements and
reports as Borrower may file with any state or federal agency,
including all state and federal income tax returns, as Bank may
reasonably request from time to time.
(d) Such other financial statements and
information as Bank may reasonably request from time to time;
(e) In connection with each financial statement
provided hereunder, a statement executed by the president or
chief financial officer of Borrower, certifying that no default
has occurred and no event exists which with notice or the lapse
of time, or both, would result in a default hereunder;
(f) Prompt written notice to Bank of all events
of default under any of the terms or provisions of this Agreement
or of any other agreement, contract, document or instrument
entered, or to be entered into with Bank; and of any litigation
which, if decided adversely to Borrower, would have a material
adverse effect on Borrower's financial condition; and of any
other matter which has resulted in, or is likely to result in, a
material adverse change in its financial condition or operations;
(g) Prior written notice to Bank of any changes
in Borrower's officers and other senior management; Borrower's
name; and location of Borrower's assets, principal place of
business or chief executive office.
4.6 Zero Balance. Borrower shall maintain a zero
balance on the Loan for sixty (60) consecutive days during the
term of the agreement.
4.7 Quick Ratio. Borrower shall maintain at all times
a ratio of unrestricted cash, accounts receivable and marketable
securities to current liabilities of not less than 1.75:1.0, as
such terms are defined by generally accepted accounting
principles.
4.8 Tangible Net Worth. Until March 31, 1998,
Borrower will at all times maintain Tangible Net Worth of not
less than One Hundred Million Dollars ($100,000,000).
Thereafter, Borrower will at all times maintain a minimum
Tangible Net Worth that increases from said amount as of the end
of Borrower's fiscal year by ninety percent (90%) of Borrower's
net profit after taxes plus One Hundred Percent (100%) of the
proceed from any additional equity offerings. "Tangible Net
Worth" shall mean net worth increased by both indebtedness of
Borrower subordinated to Bank, and equity offerings, and
decreased by patents, licenses, trademarks, trade names, goodwill
and other similar intangible assets, organizational expenses,
and monies due from affiliates (including officers, shareholders
and directors).
4.9 Debt to Tangible Net Worth. Borrower will at all
times maintain a ratio of total liabilities to tangible net worth
of not greater than 0.5:1.0. "Tangible Net Worth" shall mean net
worth increased by indebtedness of Borrower subordinated to Bank
and decreased by patents, licenses, trademarks, trade names,
goodwill, and other similar intangible assets, organizational
expenses, and monies due from affiliates (including officers,
shareholders and directors).
4.10 Profitability. Borrower will maintain its net
profit, after provision for income taxes, of not less than Six
Million Dollars ($6,000,000) for any fiscal year, and that there
will be no quarterly after tax losses as reported at the end of
such fiscal quarter.
4.11 Insurance. Borrower will keep all of its
insurable property, real, personal or mixed, insured by companies
and in amounts approved by Bank against fire and such other
risks, and in such amounts, as is customarily obtained by
companies conducting similar business with respect to like
properties. Borrower will furnish to Bank statements of its
insurance coverage, will promptly furnish other or additional
insurance deemed necessary by and upon request of Bank to the
extent that such insurance may be available and hereby assigns to
Bank, as security for Borrower's obligations to Bank, the
proceeds of any such insurance. Borrower will maintain adequate
worker's compensation insurance and adequate insurance against
liability for damage to persons or property. All policies shall
require at least ten (10) days' written notice to Bank before any
policy may be altered or canceled.
4.12 Additional Requirements. Borrower will promptly,
upon demand by Bank, take such further action and execute all
such additional documents and instruments in connection with this
Agreement as Bank in its reasonable discretion deems necessary,
and promptly supply Bank with such other information concerning
its affairs as Bank may request from time to time.
4.13 Litigation and Attorneys' Fees. Borrower will pay
promptly to Bank upon demand, reasonable attorneys' fees
(including but not limited to the reasonable estimate of the
allocated costs and expenses of in-house legal counsel and legal
staff) and all costs and other expenses paid or incurred by Bank
in collecting, modifying or compromising the Loan or in enforcing
or exercising its rights or remedies created by, connected with
or provided for in this Agreement or any of the Loan Documents,
whether or not an arbitration, judicial action or other
proceeding is commenced. If such proceeding is commenced, only
the prevailing party shall be entitled to attorneys' fees and
court costs.
4.14 Bank Expenses. Borrower will pay or reimburse
Bank for all costs, expenses and fees incurred by Bank in
preparing and documenting this Agreement and the Loan, and all
amendments and modifications thereof, including but not limited
to all filing and recording fees, costs of appraisals, insurance
and attorneys' fees, including the reasonable estimate of the
allocated costs and expenses of in-house legal counsel and legal
staff.
4.15 Reports Under Pension Plans. Borrower will
furnish to Bank, as soon as possible and in any event within 15
days after Borrower knows or has reason to know that any event or
condition with respect to any defined benefit pension plans of
Borrower described in Section 3 above has occurred, a statement
of an authorized officer of Borrower describing such event or
condition and the action, if any, which Borrower proposes to take
with respect thereto.
SECTION 5. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this
Agreement or any other of the Loan Documents have been paid in
full, unless Bank waives compliance in writing, Borrower agrees
that:
5.1 Encumbrances and Liens. Borrower will not create,
assume or suffer to exist any mortgage, pledge, security
interest, encumbrance, negative pledge, or lien (other than for
taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real,
personal or mixed, now owned or hereafter acquired, or upon the
income or profits thereof, except to Bank and except for minor
encumbrances and easements on real property which do not affect
its market value, and except for existing liens on Borrower's
personal property and future purchase money security interests
encumbering only the personal property purchased. All of such
permitted property liens shall not exceed, in the aggregate,
Seven Million Dollars ($7,000,000) at any time.
5.2 Borrowings. Borrower will not sell, discount or
otherwise transfer any account receivable or any note, draft or
other evidence of indebtedness, except to Bank, or except to in
connection with any ongoing lease financing arrangements having
an aggregate value up to Two Million Five Hundred Thousand
Dollars ($2,500,000) and which are in process as of the date of
this Agreement, or except to a financial institution at face
value for deposit or collection purposes only and without any fee
other than fees normally charged by the financial institution for
deposit or collection services. Borrower will not borrow any
money, become contingently liable to borrow money, nor enter any
agreement to directly or indirectly obtain borrowed money, except
pursuant to agreements made with Bank.
5.3 Sale of Assets, Liquidation, or Merger. Borrower
will neither liquidate nor dissolve nor enter into any
consolidation, merger, partnership or other combination, nor
convey, nor sell, nor lease all or the greater part of its assets
or business, nor purchase or lease all or the greater part of
the assets or business of another.
5.4 Loans, Advances and Guaranties. Borrower will
not, except in the ordinary course of business as currently
conducted and to its subsidiaries, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in
any manner or extend credit.
5.5 Investments. Borrower will not purchase the debt
or equity of another person or entity except for savings accounts
and certificates of deposit of Bank, direct U.S. Government
obligations and commercial paper issued by corporations with the
top ratings of Moody's or Standard & Poor's, provided all such
permitted investments shall mature within eighteen months of
purchase.
5.6 Payment of Dividends. Borrower will not declare
or pay any dividends, other than a dividend payable in its own
common stock, or authorize or make any other distribution with
respect to any of its stock now or hereafter outstanding.
5.7 Capital Expenditures. Borrower will not make
capital expenditures in excess of Ten Million Dollars
($10,000,000) in any fiscal year; and shall only make such
expenditures as are necessary for Borrower in the conduct of its
ordinary course of business. No more than Five Million Dollars
($5,000,000) of which shall be unfinanced through third parties.
Each said expenditure shall be needed by Borrower in the ordinary
course of its business. Expenditures as used in this subsection
shall include the current expense portion of all leases whether
or not capitalized and shall also include the current portion of
any debt used to finance capital expenditures.
SECTION 6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of
Default") shall terminate any obligation on the part of Bank to
make or continue the Loan and automatically, unless otherwise
provided under the Note, shall make all sums of interest and
principal and any other amounts owing under the Loan immediately
due and payable, without notice of default, presentment or demand
for payment, protest or notice of nonpayment or dishonor, or any
other notices or demands:
6.1 Borrower shall default in the due and punctual
payment of the principal of or the interest on the Note or any of
the other Loan Documents; or
6.2 Any default shall occur under the Note; or
6.3 Borrower shall default in the due performance or
observance of any covenant or condition of the Loan Documents,
which default continues for more than thirty (30) days;
6.4 Any guaranty or subordination agreement required
hereunder is breached or becomes ineffective, or any Guarantor or
subordinating creditor dies, disavows or attempts to revoke or
terminate such guaranty or subordination agreement; or
6.5 There is a change in ownership or control of
twenty percent (20%) or more of the issued and outstanding stock
of Borrower or any Guarantor, or (if Borrower is a partnership)
there is a change in ownership or control of any general
partner's interest.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Additional Remedies. The rights, powers and
remedies given to Bank hereunder shall be cumulative and not
alternative and shall be in addition to all rights, powers and
remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of set off or
banker's lien.
7.2 Nonwaiver. Any forbearance or failure or delay by
Bank in exercising any right, power or remedy hereunder shall not
be deemed a waiver thereof and any single or partial exercise of
any right, power or remedy shall not preclude the further
exercise thereof. No waiver shall be effective unless it is in
writing and signed by an officer of Bank.
7.3 Inurement. The benefits of this Agreement shall
inure to the successors and assigns of Bank and the permitted
successors and assignees of Borrower, and any assignment of
Borrower without Bank's consent shall be null and void.
7.4 Applicable Law. This Agreement and all other
agreements and instruments required by Bank in connection
therewith shall be governed by and construed according to the
laws of the State of California.
7.5 Severability. Should any one or more provisions
of this Agreement be determined to be illegal or unenforceable,
all other provisions nevertheless shall be effective.
7.6 Integration Clause. Except for documents and
instruments specifically referenced herein, this Agreement
constitutes the entire agreement between Bank and Borrower
regarding the Loan and all prior communications verbal or written
between Borrower and Bank shall be of no further effect or
evidentiary value.
7.7 Construction. The section and subsection headings
herein are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
7.8 Amendments. This Agreement may be amended only in
writing signed by all parties hereto.
7.9 Counterparts. Borrower and Bank may execute one
or more counterparts to this Agreement, each of which shall be
deemed an original.
SECTION 8. SERVICE OF NOTICES
8.1 Any notices or other communications provided for
or allowed hereunder shall be effective only when given by one of
the following methods and addressed to the respective party at
its address given with the signatures at the end of this
Agreement and shall be considered to have been validly given:
(a) upon delivery, if delivered personally; (b) upon receipt, if
mailed, first class postage prepaid, with the United States
Postal Service; c on the next business day, if sent by overnight
courier service of recognized standing; and (d) upon telephoned
confirmation of receipt, if telecopied.
8.2 The addresses to which notices or demands are to
be given may be changed from time to time by notice delivered as
provided above.
THIS AGREEMENT is executed on behalf of the parties by duly
authorized officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A.
By: /s/ John A. Noble
-----------------------
Name: John A. Noble
Title: Vice President and Trade Finance Specialist
By: /s/ Larry D. Fountain
------------------------
Name: Larry D. Fountain
Title: Vice President and Senior Credit Executive
P-Com, Inc.
By: /s/ Michael Sophie
------------------------
Title: CFO/VP Finance
Address: 3175 South Winchester
Campbell, CA 95008
In reference to the Loan Agreement ("Agreement") dated March 3, 1997
between Union Bank of California, N.A. ("Bank") and P-Com, a Delaware
Corporation, ("Borrower") for a loan in the amount of Seventeen Million
Five Hundred Thousand Dollars ($17,500,000), the Bank and Borrower desire
to amend the Agreement. This amendment shall be called the First
Amendment to the Agreement. Initially capitalized terms used herein
which are not otherwise defined shall have the meaning assigned thereto
in the Agreement.
Amendments to the Agreement :
SECTION 4. Affirmative Covenants
Subsection 4.7 Quick Ratio, line 2, of the Agreement is hereby
amended by substituting "1.30:1.00" for 1.75:1.00"
Subsection 4.8 Tangible Net Worth
a) line 2, of the Agreement is hereby amended by substituting
"Eighty Five Million Dollars ($85,000,000)" for "One Hundred Million Dollars
($100,000,000)
b) lines 3 and 4, of the Agreement is hereby amended by
substituting "one hundred percent (100%)" for "ninety percent (90%)"
Subsection 4.9 Debt to Tangible Net Worth, line 2, of the
Agreement is hereby amended by substituting "0.60:1.0" for "0.5:1.00."
SECTION 5. Negative Covenants
Subsection 5.7 Capital Expenditures,
a) line 2, of the Agreement is hereby amended by substituting
"Fifteen Million Dollars ($15,000,000)" for "Ten Million Dollars
($10,000,000)
b) line 3, of the Agreement is hereby amended by substituting
"Seven Million Five Hundred Thousand Dollars ($7,500,000)" for "Five
Million Dollars ($5,000,000)"
This First Amendment shall become effective and retroactive to April
1, 1997, when the Bank shall have received the acknowledgment copy of
this First Amendment executed by the Borrower on or before May 20, 1997.
Except as specifically amended hereby, the Agreement shall remain in
full force and effect and is hereby ratified and confirmed. This First
Amendment shall not be a waiver of any existing default or breach of a
condition to covenant unless specified herein.
Very truly yours,
Union Bank of California, N.A.
By: /s/ John Noble
-------------------------
John Noble
Vice President
By: /s/ James Goudy
-------------------------
James Goudy
Vice President
Agreed and Accepted this day 13th
of May 1997.
P-Com, Inc.
By: /s/ Michael Sophie
-------------------------
Name: Michael Sophie
Title: CFO/VP Finance
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,028
<SECURITIES> 8,461
<RECEIVABLES> 48,840
<ALLOWANCES> (4,565)
<INVENTORY> 40,645
<CURRENT-ASSETS> 115,936
<PP&E> 27,424
<DEPRECIATION> (6,189)
<TOTAL-ASSETS> 177,559
<CURRENT-LIABILITIES> 44,562
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 130,892
<TOTAL-LIABILITY-AND-EQUITY> 177,559
<SALES> 38,144
<TOTAL-REVENUES> 38,144
<CGS> 22,736
<TOTAL-COSTS> 33,567
<OTHER-EXPENSES> 10,831
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 375
<INCOME-PRETAX> 4,567
<INCOME-TAX> 1,553
<INCOME-CONTINUING> 3,014
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,014
<EPS-PRIMARY> .15
<EPS-DILUTED> 0
</TABLE>
