<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON AUGUST 14, 1997
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.*
- ---------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 7, 1997, there were 20,707,999 shares of the
Registrant's Common Stock outstanding, par value $0.0001.
This quarterly report on Form 10-Q Consists of 24 pages of which
this is page 1.
The Exhibit Index appears on page 24.
* Although the Form 10-Q was received by the Commission on August 15, 1997,
pursuant to Rule 201(a)(4), the filing shall be deemed to have been made
on August 14, 1997.
</PAGE>
<PAGE>
P-COM, INC.
TABLE OF CONTENTS
PART I. Financial Information Page Number
--------------------- -----------
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 ................ 3
Condensed Consolidated Statements of Operations
for the three and six month periods ended
June 30, 1997 and 1996 ............................. 4
Condensed Consolidated Statements of Cash Flows
for the six month periods ended June 30,
1997 and 1996 ...................................... 5
Notes to Condensed Consolidated Financial
Statements ......................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 9
PART II. Other Information
-----------------
Item 1. Legal Proceedings ............................ 21
Item 2. Changes in Securities ........................ 21
Item 3. Defaults Upon Senior Securities .............. 21
Item 4. Submission of Matters to a Vote of Security
Holders ...................................... 21
Item 5. Other Information ............................ 22
Item 6. Exhibits and Reports on Form 8-K ............. 22
Signatures .................................................. 23
2
</PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
---------------------------------
ITEM 1.
P-COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
June 30, December 31,
1997 1996
-----------------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,511 $ 42,025
Accounts receivable, net 52,059 42,804
Notes receivable 199 2,013
Inventory 42,182 30,819
Prepaid expenses and other
current assets 13,726 6,052
---------- ----------
Total current assets 127,677 123,713
Property and equipment, net 22,227 19,955
Goodwill and other assets 40,402 2,573
---------- ----------
$ 190,306 $ 146,241
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 26,324 $ 23,960
Accrued employee benefits 3,241 1,378
Other accrued liabilities 4,350 5,160
Income taxes payable 4,225 2,494
Notes payable 17,541 2,116
---------- ----------
Total current liabilities 55,681 35,108
---------- ----------
Long-term debt 2,087 260
---------- ----------
Minority interest 652 619
---------- ----------
Stockholders' equity:
Common Stock 30 30
Additional paid-in capital 128,617 112,397
Retained earnings 3,716 (2,246)
Cumulative translation adjustment (477) 73
---------- ----------
Total stockholders' equity 131,886 110,254
---------- ----------
$ 190,306 $ 146,241
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
</PAGE>
<PAGE>
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
<TABLE>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 48,914 $ 21,356 $ 87,771 $ 40,673
Cost of sales 28,377 12,588 51,630 24,609
---------- ---------- ---------- ----------
Gross profit 20,537 8,768 36,141 16,064
---------- ---------- ---------- ----------
Operating expenses:
Research and development 7,051 4,483 13,825 8,393
Selling and marketing 3,832 1,475 6,598 2,937
General and administrative 3,594 1,265 6,335 2,456
---------- ---------- ---------- ----------
Total operating expenses 14,477 7,223 26,758 13,786
Income from operations 6,060 1,545 9,383 2,278
Interest and other income
(expense), net (59) 134 (68) 129
---------- ---------- ---------- ----------
Income before income taxes 6,001 1,679 9,315 2,407
Provision for income taxes 1,800 206 3,353 357
---------- ---------- ---------- ----------
Net income $ 4,201 $ 1,473 $ 5,962 $ 2,050
========== ========== ========== ==========
Net income per share $ 0.20 $ 0.08 $ 0.28 $ 0.11
========== ========== ========== ==========
Weighted average common
and common equivalent shares 21,332 19,320 21,200 18,760
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
</PAGE>
<PAGE>
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
- -------------------------------------
Net income $ 5,962 $ 2,050
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 2,664 1,354
Change in minority interest 33 --
Change in assets and liabilities (net of
acquisition balances):
Accounts receivable (6,551) (7,057)
Notes receivable 1,814 --
Inventory (7,114) (6,890)
Prepaid expenses (5,804) (3,007)
Other assets (733) (29)
Accounts payable (3,603) 3,918
Accrued employee benefits 1,278 199
Income taxes payable 1,731 --
Other accrued liabilities (3,992) 236
---------- ----------
Net cash used in operating activities (14,315) (9,226)
---------- ----------
Cash flows from investing activities:
- -------------------------------------
Acquisition of property and equipment (3,076) (5,945)
Acquisition of Geritel, S.p.A., net -- (2,714)
Acquisition of Technosystem, S.p.A., net of
cash acquired (3,057) --
Acquisition of Columbia Spectrum Management,
L.P., net of cash acquired (7,798) --
---------- ----------
Net cash used in investing activities (13,931) (8,659)
---------- ----------
Cash flows from financing activities:
- -------------------------------------
Proceeds of bank line of credit 15,000 520
Payment of notes payable (10,770) --
Proceeds of long term debt 332 --
Proceeds from stock issuances, net of expense 1,720 53,731
---------- ----------
Net cash provided by financing activities 6,282 54,251
---------- ----------
Effect of exchange rate changes on cash (550) (40)
Net increase (decrease) in cash and cash
equivalents (22,514) 36,326
Cash and cash equivalents at the
beginning of the period 42,025 8,186
---------- ----------
Cash and cash equivalents at the
end of the period $ 19,511 $ 44,512
========== ==========
Supplemental cash flow disclosures:
Cash paid for income taxes $ 1,510 $ --
Stock issued in connection with the
acquisition of CSM $ 14,500 $ --
Cash paid for interest $ 459 $ 175
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
</PAGE>
<PAGE>
P-COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited Condensed Consolidated
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. On May 29, 1997, the Company acquired
Control Resources Corporation ("CRC") in a stock-for-stock
merger. This transaction has been accounted for based on
the pooling-of-interests method of accounting. As a result,
prior period amounts have been restated to present the
effect as if the two companies had been combined for all
periods presented. In the opinion of management, the
accompanying unaudited Condensed Consolidated 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 June 30, 1997, and the results of its
operations, and its cash flows for the six month periods
ended June 30, 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 and six month period ended
June 30, 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. Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards
Board ("FASB") 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 earnings 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. If the Company had
adopted this Statement for the three and six month periods
ended June 30, 1997 and June 30, 1996, the Company's earning
per share would have been as follows:
<TABLE>
Three Months Ended Three Months Ended
June, 30 June, 30
------------------ ------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Earnings per share:
Basic $ 0.20 $ 0.08 $ 0.29 $ 0.11
Diluted $ 0.20 $ 0.08 $ 0.28 $ 0.11
</TABLE>
In June 1997, the FASB issued SFAS 130, "Reporting
Comprehensive Income". SFAS 130 establishes standards for
reporting comprehensive income and its components in a
financial statement that is displayed with the same
prominence as other financial statements. Comprehensive
income as defined includes all changes in equity (net
assets) during a period from nonowner sources. Examples of
items to be included in comprehensive income, which are
excluded from net income, include foreign currency
translation adjustments and unrealized gain/loss on
available-for-sale securities. The disclosure prescribed by
SFAS 130 must be made beginning with the first quarter of
1998.
In June 1997, the FASB issued SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information."
This statement establishes standards for the way companies
report information about operating segments in annual
financial statements. It also establishes standards for
related disclosures about products and services, geographic
areas, and major customers. The company has not yet
determined the impact, if any, of adopting this new
standard. The disclosures prescribed by SFAS 131 are
effective in 1998.
6
</PAGE>
<PAGE>
3. Mergers and Acquisitions
On May 29, 1997, the Company acquired all of the
outstanding shares of capital stock of CRC, a provider of
integrated network access devices to network service
providers, in exchange for 751,478 shares of P-Com Common
Stock that were issued or are issuable to former CRC
securityholders 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.
The unaudited combined net sales and net income (loss)
shown below combine the historical net sales and net income
(loss) of P-Com and CRC for the three and six months ended
June 30, 1996 in each case as if the merger had occurred at
the beginning of the earliest period presented.
<TABLE>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------------------ ------------------------------
P-Com CRC Combined P-Com CRC Combined
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 19,788 $ 1,568 $ 21,356 $ 37,340 $ 3,333 $ 40,673
Net Income (Loss) $ 2,384 $ (911) $ 1,473 $ 3,743 $ (1,693) $ 2,050
</TABLE>
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 393,888 net 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 393,888 net
shares issued to the former partners are a restated amount,
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.
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 and the
assumption oflong-term debt of approximately $12.7 million
in addition to other liabilities. 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.
The Company accounted for its acquisitions of
Technosystem and CSM 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 Company
accounted for its acquisition of CRC as a pooling of
interests and, therefore, all prior period financial
statements presented, and the financial statements as of
June 30, 1997 and for the three and six months then ended,
were restated as if the merger took place at the beginning
of such periods.
The total purchase price of the acquisitions of CSM and
Technosystem 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
========== ========== ==========
</TABLE>
7
</PAGE>
<PAGE>
The allocation of the purchase price of the acquisitions of
CSM and Technosystem was as follows (in thousands):
<TABLE>
Technosystem CSM Total
<S> <C> <C> <C>
Cash and cash equivialents $ 14 $ 330 $ 344
Accounts receivable 2,704 -- 2,704
Inventory 4,196 -- 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. As of June 30,
1997, the Company's Quick Ratio was 1.20:1.0 as compared to
the bank requirement of 1.30:1.0, and the Company's Debt to
Tangible Net Worth was 0.62:1.0 as compared to the bank
requirement of 0.60:1.0. The bank conceded to the Company's
ratios and granted a written waiver with respect to such
convenants.
5. Inventories
Inventories consist of the following (in
thousands):
<TABLE>
June 30, Dec. 31,
1997 1996
(unaudited)
---------- ----------
<S> <C> <C>
Raw materials $ 6,335 $ 7,948
Work-in-process 23,370 15,834
Finished goods 12,477 7,037
---------- ----------
$ 42,182 $ 30,819
========== ==========
</TABLE>
6. Property and equipment
Property and equipment consist of the following (in thousands):
<TABLE>
June 30, Dec. 31,
1997 1996
(unaudited)
---------- ----------
<S> <C> <C>
Tooling and test equipment $ 21,720 $ 20,044
Computer equipment 3,601 2,482
Furniture and fixtures 3,291 2,056
Land and buildings 1,390 1,204
Construction-in-process 1,496 1,817
---------- ----------
31,498 27,603
Less - accumulated
depreciation and amortization (9,271) (7,648)
---------- ----------
$ 22,227 $ 19,955
========== ==========
</TABLE>
8
</PAGE>
<PAGE>
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".
Except for the historical information contained herein,
the following discussion contains forward-looking statements
that involve risks and uncertainties. The Company's actual
results could differ materially from those discussed here.
Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this
section, as well as those discussed in the Company's 1996
Annual Report on Form 10-K and other documents filed by the
Company with the Securities and Exchange Commission.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 58.0 58.9 58.8 60.5
------- ------- ------- -------
Gross profit margin 42.0 41.1 41.2 39.5
Operating expenses
Research and
development 14.4 21.0 15.8 20.7
Selling and
marketing 7.8 6.9 7.5 7.2
General and
administrative 7.4 5.9 7.2 6.0
------- ------- ------- -------
Total operating expenses 29.6 33.8 30.5 33.9
------- ------- ------- -------
Income from operations 12.4 7.3 10.7 5.6
------- ------- ------- -------
Interest and other
income (expense),net (0.1) 0.6 (0.1) 0.3
------- ------- ------- -------
Income before income
taxes 12.3 7.9 10.6 5.9
Provision for income
taxes 3.7 1.0 3.8 0.9
------- ------- ------- -------
Net income 8.6% 6.9% 6.8% 5.0%
======= ======= ======= =======
</TABLE>
Results of Operations for the Three and Six Months Ended
June 30, 1997 and 1996
Net Sales. Net sales for the three months ended June 30,
1997 and 1996 were approximately $48.9 million and $21.4
million, respectively. Net sales for the six months ended
June 30, 1997 and 1996 were approximately $87.8 million and
$40.7 million, respectively. The increases were primarily
due to increased unit sales of 38 GHz and 23 GHz radio
systems to new and existing customers and recent
acquisitions. For the six months ended June 30, 1997, seven
customers accounted for 61% of the sales of the Company. For
the six months ended June 30, 1996, five customers accounted
for 67% of the sales of the Company.
Gross Profit. For the three months ended June 30, 1997
and 1996, gross profit was approximately $20.5 million, or
42.0% of net sales, and approximately $8.8 million, or 41.1%
of net sales, respectively. For the six months ended June
30, 1997 and 1996, gross profit was approximately $36.1
million or 41.2% of net sales, and approximately $16.1
million, or 39.5% of net sales, respectively. The
improvement in gross profit was primarily due to product
design improvements and economies of scale and recent
acquisitions. There can be no assurance that either of these
trends will continue.
Research and Development. For the three months ended
June 30, 1997 and 1996, research and development expenses
were approximately $7.1 million and $4.5 million,
respectively. The increase in research and development
expenses during the three months ended June 30, 1997 as
compared to the corresponding period in 1996 was due
primarily to expenses associated with increased staffing and
recent acquisitions. As a percentage of net sales, research
and development expenses decreased from 21.0% in the three
months ended June 30, 1996 to 14.4% 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 June 30,
1997, as compared to the corresponding period in 1996.
Research and development expenses for the six months ended
June 30, 1997 and 1996 were approximately $13.8 million and
$8.4 million, respectively. The increase in research and
development during the six months ended June 30, 1997, as
compared to the corresponding period in 1996 was due
primarily to increased staffing and recent acquisitions. As
a percentage of sales, research and development expenses
decreased from 20.7% in the six months ended June 30, 1996
to
9
</PAGE>
<PAGE>
15.8% in the corresponding period in 1997. The decrease in
research and development expenses as a percentage of sales
during the six months ended June 30, 1997 as compared to the
corresponding period in 1996 was primarily due to a higher
level of sales in the six months ended June 30, 1997. The
Company expects that research and development expenses will
continue to increase significantly in dollars during the
remainder of 1997.
Selling and Marketing. For the three
months ended June 30, 1997 and 1996, selling and marketing
expenses were approximately $3.8 million and $1.5 million,
respectively. The increase in selling and marketing expenses
in the three months ended June 30, 1997 as compared to the
corresponding period in 1996 was primarily due to increased
staffing, recent acquisitions, 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 increased from 6.9% in
the three months ended June 30, 1996 to 7.8% in the
corresponding period in 1997. The increase in selling and
marketing expenses as a percentage of net sales was
primarily due to the expansion of Company's international
sales, especially to South America and the Pacific Rim.
Selling and marketing expenses for the six months ended
June 30, 1997 and 1996 were approximately $6.6 million and
$2.9 million, respectively. The increase in selling and
marketing during the six months ended June 30, 1997, as
compared to the corresponding period in 1996 was due
primarily to increased staffing, recent acquisitions, and
increased expenses relating to the Company's expansion of
its international sales and marketing organization. As a
percentage of sales, selling and marketing expenses
increased from 7.2% in the six months ended June 30, 1996 to
7.5% in the corresponding period in 1997. The increase in
selling and marketing expenses as a percentage of sales
during the six months ended June 30, 1997 as compared to the
corresponding period in 1996 was primarily due to the
expansion of Company's international sales. The Company
expects that selling and marketing expenses will continue to
increase significantly in absolute dollars during the
remainder of 1997.
General and Administrative. For the three months ended
June 30, 1997 and 1996, general and administrative expenses
were $3.6 million and $1.3 million, respectively. This
increase was principally due to increases in staffing and
other costs resulting from the Company's expansion of its
operations and goodwill amortization associated with the
Company's acquisitions of Geritel, Technosystem and CSM. As
a percentage of net sales, general and administrative
expenses were 7.4% for the three months ended June 30, 1997
as compared to 5.9% 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 acquisitions.
General and administrative expenses for the six months
ended June 30, 1997 and 1996 were approximately $6.3 million
and $2.5 million, respectively. This increase was due
primarily to increased staffing and other costs resulting
from the Company's expansion of its operations and goodwill
amortization associated with the Company's acquisitions of
Geritel, Technosystem and CSM. As a percentage of sales,
general and administrative expenses increased from 6.0% in
the six months ended June 30, 1996 to 7.2% in the
corresponding period in 1997. The increase in general and
administrative expenses as a percentage of sales during the
six months ended June 30, 1997 as compared to the
corresponding period in 1996 was primarily due to the
expansion of Company's operations and goodwill amortization
associated with the Company's acquisitions. The Company
expects that general and administrative expenses will
continue to increase significantly in absolute dollars
during the remainder of 1997.
Interest and Other Income (Expense), Net. The Company
incurred net interest and other expense of $59,000 during
the three months ended June 30, 1997, as compared to
$134,000 of net interest and other income during the
corresponding period in 1996. The Company incurred net
interest and other expense of $68,000 during the six months
ended June 30, 1997, as compared to $129,000 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 borrowings under the
Company's bank line of credit, partially offset by exchange
rate gain generated by collections of foreign accounts.
Liquidity and Capital Resources
The Company used approximately $14.3 million in operating
activities during the six months ended June 30, 1997,
primarily due to an increase in accounts receivable, prepaid
expenses and inventory of $6.6 million, $5.8 million and
$7.1 million, respectively, and a decrease in accounts
payable and other accrued liabilities of $3.6 million and
$4.0 million, respectively. This was partially offset by net
income of $6.0 million, depreciation and amortization
expense of $2.7 million, increase in notes receivable of
$1.8 million, and increases in accrued employee benefits and
income taxes payable of $1.3 million and $1.7 million,
respectively.
The Company used approximately $13.9 million in investing
activities during the six months ended June 30, 1997
consisting of approximately $3.1 million to purchase
Technosystem and $7.8 million to purchase CSM, and $3.1
million to acquire capital equipment.
10
</PAGE>
<PAGE>
The Company generated approximately $6.3 million in
financing its activities during the six months ended June
30, 1997. The Company received approximately $15.0 million
from its borrowings under its bank line of credit, partially
offset by the payment of approximately $10.8 million to
retire a portion of the bank debt of Technosystem and all of
the bank debt of Geritel, S.p.A. ("Geritel"), and
approximately $1.7 million from the issuance of the
Company's Common Stock pursuant to the Company's stock
option and employee stock purchase plans.
At June 30, 1997 and December 31, 1996, accounts
receivable were approximately $52.1 million and $42.8
million, respectively. Of the $9.3 million increase that
occurred in the six months ended June 30, 1997, $7.3 million
was due to the acquisition of accounts receivable from both
Technosystem and CSM. At June 30, 1997 and December 31,
1996, inventory was approximately $42.2 million and $30.8
million, respectively. Of the $11.4 million increase that
occurred in the six months ended June 30, 1997, $5.4 million
was due to the acquisition of inventory from Technosystem
and CSM. At June 30, 1997 and December 31, 1996, notes
payable were approximately $17.5 million and $2.1 million,
respectively. Of the $15.4 million increase that occurred in
the six months ended June 30, 1997, $15.0 million was due to
borrowings under the bank line of credit.
At June 30, 1997, the Company had working capital of
approximately $72.0 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 that
could materially adversely affect the Company's business,
prospects, financial condition and results of operations.
The Company's principal sources of liquidity as of June
30, 1997 consisted of approximately $19.5 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. As of June 30,
1997, the Company's Quick Ratio was 1.20:1.0 as compared to
the bank requirement of 1.30:1.0 and the Company's Debt to
Tangible Net Worth was 0.62:1.0 as compared to the bank
requirement of 0.60:1.0. The bank conceded to the Company's
ratios and granted a written waiver with respect to such
convenants. As of June 30, 1997, the Company had total
borrowings of approximately $13.0 million in cash and
approximately $2.6 million outstanding in the form of stand-
by line of credit under such line and had $1.9 million
available for additional borrowings under.
As discussed in Note 3 to the Condensed Consolidated
Financial Statements, the Company made several acquisitions
and a merger during the first half of 1997. Note 3 discusses
the acquisition of 100% of the equity of Technosystem,
S.p.A. on February 24, 1997, the acquisition of
substantially all of the assets of Columbia Spectrum
Management, L.P. on March 7, 1997 and the acquisition of
all of the outstanding shares of capital stock of Control
Resources Corporation on May 29, 1997.
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. For a discussion of risk factors associated
with the Company's future capital requirements, please see
"Certain Factors Affecting Operating Results -- Future
Capital Requirements" and "Acquisitions".
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CERTAIN FACTORS AFFECTING OPERATING RESULTS
Limited Operating History
The Company was founded in August 1991 and was in the
development stage until October 1993 when it began
commercial shipments of its first product. From inception to
the end of the second quarter of fiscal 1997, the Company
generated a cumulative net profit of approximately $3.7
million. From October 1993 through June 30, 1997, the
Company generated sales of approximately $242.4 million, of
which $189.6 million, or 78% of such amount, was generated
in the year ended December 31, 1996 and the first half 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 half 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 half 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, 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 seventy customers have accounted
for all of the Company's sales. For 1996, six customers
accounted for 75% 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 half of
1997, six customers accounted for 63% of the Company's
sales, and as of June 30, 1997, four customers accounted for
60% of the Company's backlog scheduled for shipment in the
twelve months subsequent to June 30, 1997. The Company
anticipates that it will continue to sell its products 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 products 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, certain potential customers in the
telecommunication industry have been reported to have
undergone recent financial difficulties and may therefore
limit their 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. There can be no assurance that the
Company will be able to obtain such large orders from single
customers in the future. 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. Much of the anticipated growth in telecommunication
infrastructure results from the entrance of new service
providers, many of whom do not have the financial resources
of existing service providers. To the extent these new
service providers are unable to adequately finance their
operations, they may cancel orders. Moreover, purchase
orders are often received and accepted substantially in
advance of shipment, and the failure to reduce actual costs
to the extent anticipated or an increase in anticipated
costs 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 June 30, 1997 can be canceled since orders are
often made substantially
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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.
In connection with its efforts to ramp-up production of
recently introduced products, the Company expects to
continue to make substantial capital investments in
equipment, recruit and train additional personnel and
possibly invest in additional manufacturing facilities. The
Company anticipates that these expenditures may be made in
advance of, and in anticipation of, increased sales and,
therefore, that its gross margins will be adversely affected
from time-to-time due to short-term inefficiencies
associated with addition of equipment, personnel or
facilities, and that each cost category may increase as a
percentage of revenues from time-to-time on a periodic
basis. As a result, the Company's operating results will
vary.
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
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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, CSM and CRC, significant
investments in research and development to support product
development, including the new products recently introduced,
and the hiring of additional personnel, including in sales
and marketing, manufacturing and operations and finance and
has resulted in significantly higher operating expenses. The
Company anticipates that its operating expenses will
continue to increase significantly. If the Company's sales
do not correspondingly increase, the Company's results of
operations would be materially adversely affected. See "--
Limited Operating History." 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.
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<PAGE>
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."
Trade Account Receivables
The Company is subject to credit risk in the form of trade
account receivables. The Company may in certain
circumstances be unable to enforce a policy of receiving
payment within a limited number of days of issuing bills,
especially in the case of customers who are in the early
phases of business development. In addition, many of the
Company's foreign customers are accustomed to paying their
suppliers on longer terms than those typically existing in
the United States. See "--International Operations; Risks of
Doing Business in Developing Countries." Generally, the
Company does not require collateral or other security to
support customer receivables.
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. All of the Company's acquisitions
to date, except CRC, are being accounted for under the
purchase method of accounting and as a result a significant
amount of goodwill is being amortized as set forth in the
Company's Financial Statements. 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.
There can be no assurance that any operations of Geritel,
ACS, Technosystem, CRC or CSM will be profitable after the
acquisitions or merger. Moreover, there can be no assurance
that the anticipated benefits of the Geritel, ACS,
Technosystem, CRC and CSM acquisitions will be realized. The
process of integrating the operations of Geritel, 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.
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
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<PAGE>
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., Inova
Corporation, Alcatel Network Systems, Philips T.R.T.,
Adtran, Inc., Western Multiplex Corporation, Cylink
Corporation, Larus Corporation, Ericsson Limited, Harris
Corporation -- Farinon Division and Nokia
Telecommunications, most of which have substantially greater
installed bases, financial resources and production,
marketing, manufacturing, engineering and other capabilities
than the Company. The Company also faces competition from
startup companies. The Company may also face competition in
the future from new market entrants offering competing
technologies. In addition, the Company's current and
prospective customers and partners have developed, are
currently developing or could develop the capability to
manufacture products competitive with those that have been
or may be developed or manufactured by the Company. Certain
of such customers and partners have access to the Company's
technology or 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
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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. Recently the
Company has been developing spread spectrum and point-to-
multipoint radio systems. 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, including products acquired in its
recent acquisitions. 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 Middle East and Africa. 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.
International telephone companies are in many cases
owned or strictly regulated by local regulatory authorities.
Access to such markets is often difficult due to the
established relationships between a government owned or
controlled telephone company and its traditional indigenous
suppliers of telecommunications equipment. The successful
expansion of the Company's international operations in
certain markets will depend on its ability to locate, form
and maintain strong relationships with established companies
providing communication services and equipment in targeted
regions. The failure
17
</PAGE>
<PAGE>
to establish regional or local relationships or to
successfully market or sell its products in international
markets could significantly limit the Company's ability to
expand its operations and would materially adversely affect
the Company's business, financial condition and results of
operations. The Company's inability to identify suitable
parties for such relationships, or even if such parties are
identified, to form and maintain strong relationships with
such parties could prevent the Company from generating sales
of its products and services in targeted markets or
industries. Moreover, even if such relationships are
established, there can be no assurance that the Company will
be able to increase sales of its products and services
through such relationships.
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.
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."
18
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<PAGE>
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.
The Company may experience employee turnover due to
several factors, including an expanding economy within the
geographic area in which the Company maintains its principal
business offices, making it more difficult for the Company
to retain its employees. Due to this and other factors, the
Company may experience high levels of employee turnover,
which could adversely impact the Company's business,
financial condition and results of operations. The Company
is presently addressing these issues and will pursue
solutions designed to retain its employees and to provide
performance incentives.
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
19
</PAGE>
<PAGE>
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
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 tradable in the public
market.
20
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<PAGE>
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.
1. The following proposals
were voted upon by the Company's stockholders at the
Annual Meeting of stockholders held on May 19, 1997, as
adjourned through May 29, 1997.
The following persons were elected as directors of the
Company to serve for a term ending upon the Annual
Stockholders' Meeting indicated beside their respective
names and until their successors are elected and
qualified:
Term Ending Upon the
Annual Stockholders'
Meeting Votes For Votes Withheld
------------------------------------------------------
John A. Hawkins 2000 14,947,664 291,908
James J. Sobczak 2000 14,947,664 291,908
2. A proposal to approve the
amendment and restatement of the Restated Certificate
of Incorporation to increase the authorized number of
shares of Common Stock from 30,000,000 shares to
95,000,000 shares was approved by a vote of 11,697,338
shares, 3,529,096 shares voted against the proposal and
13,138 shares abstained.
3. A proposal to approve the amendments to the Company's
1995 Stock Option/Stock Issuance Plan to (the "1995
Plan") (i) increase the maximum number of shares of
Common Stock authorized for issuance over the term of
the 1995 Plan by an additional 1,500,000 shares to
4,267,944 shares, (ii) implement an automatic share
increase feature pursuant to which the number of shares
available for issuance under the 1995 Plan will
automatically increase on the first trading day of each
calendar year, beginning with the 1998 calendar year
and continuing through calendar year 2001, by an amount
equal to one and six-tenths percent (1.6%) of the total
number of shares outstanding on the last trading day of
the immediately preceding calendar year, (iii) render
the non-employee Board members eligible to receive
option grants under the Discretionary Option Grant and
Stock Issuance Programs in effect under the 1995 Plan,
(iv) allow unvested shares issued under the 1995 Plan
and subsequently repurchased by the Company at the
option exercise or direct issue price paid per share to
be reissued under the 1995 Plan, (v) remove certain
restrictions on the eligibility of non-employee Board
members to serve as Plan Administrator and (vi) effect
a series of additional changes to the provisions of the
1995 Plan (including the stockholder approval
requirements, the transferability of non-statutory
options and the elimination of the six (6)-month
holding requirement as a condition to the exercise of
stock appreciation rights) in order to take advantage
of the recent amendments to Rule 16b-3 of the
Securities and Exchange Commission which exempts
certain officer and director transactions under the
1995 Plan from the short-swing liability provisions of
the federal securities laws, was approved by a vote of
7,595,357 shares, 7,309,054 shares voted against the
proposal and 13,533 votes were withheld.
4. A proposal to approve an amendment to the Company's
1995 Employee Stock Purchase Plan (the "Purchase Plan")
to increase the number of shares of Common Stock
authorized for issuance over the term of the Purchase
Plan from 300,000 to 450,000 shares was approved by the
vote of 11,558,160 shares, 3,669,514 shares voted
against the proposal and 11,898 votes were withheld.
5. A proposal to ratify the appointment of Price
Waterhouse LLP as independent accountants of the
Company for the fiscal year ending December 31, 1997
was approved by the vote of 15,223,383 share, 9,766
shares voted against the proposal and 6,423 votes were
withheld.
21
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<PAGE>
Item 5. Other Information.
On July 31, 1997, the Securities and Exchange
Commission declared effective the Company's
Registration Statement on Form S-3 (File No. 333-
30473), covering the resale of shares of the Company's
Common Stock previously issued in connection with the
CRC and CSM transactions. Pursuant to the final
prospectus issued in connection with such Registration
Statement, a total of 1,067,295 issued and outstanding
shares of the Company's Common Stock are eligible for
resale under the Registration Statement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.3 Restated Certificate of Incorporation, as
amended through June 16, 1997.
2.5(1) Agreement and Plan of Reorganization, dated
as of April 14, 1997, among P-Com, P-Com
Merger Subsidiary, Inc., CRC, and the
certain stockholders of CRC named therein
4.11(1) Registration Rights Agreement, dated as of
May 29, 1997, among P-Com and the
stockholders of CRC.
10.16B 1995 Stock Option/Stock Issuance Plan, as
amended.10.17B Employee Stock Purchase
Plan, as amended.10.30B(2) 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 May 29, 1997,
regarding the Company's acquisition of Control
Resources Corporation, as filed with the
Securities and Exchange Commission on June 13,
1997.
Amendment filed on June 26, 1997 to Report on
Form 8-K dated March 7, 1997, regarding the
Company's acquisition of Columbia Spectrum
Management, L.P., as originally filed with the
Securities and Exchange Commission on March 21,
1997.
Amendment filed on June 27, 1997 to Report on
Form 8-K dated May 29, 1997, regarding the
Company's acquisition of Control Resources
Corporation., as originally filed with the
Securities and Exchange Commission on June 13,
1997.
_____________________________________
(1) Previously filed as an exhibit to the Company's
Current Report on Form 8-K dated May 29, 1997, as filed
with the Securities and Exchange Commission on June 13,
1997 (File No. 0-25356).
(2) Previously filed as an exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period
ending March 31, 1997, as filed with the Securities and
Exchange Commission on May 15, 1997 (File No. 0-25356).
22
</PAGE>
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
P-COM, INC.
(Registrant)
Date: August 14, 1997 By: /s/ George Roberts
--------------------------------
George Roberts
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 14, 1997 By: /s/ Michael Sophie
---------------------------------
Michael Sophie
Chief Financial Officer and
Vice President Finance and
Administration
23
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<PAGE>
EXHIBIT INDEX
Exhibit
No.
- ------
3.3 Restated Certificate of Incorporation, as amended through
June 16, 1997.
10.16B 1995 Stock Option/Stock Issuance Plan
10.17B Employee Stock Purchase Plan, as amended.
27 Financial Data Schedule
24
</PAGE>
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
P-COM, INC.,
(Pursuant to Section 242 of the
Delaware General Corporation Law)
P-COM, Inc. (the "Corporation"), a Corporation
organized and existing under the General Corporation Law of the
State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY THAT:
FIRST: The first paragraph of Article IV of the
Restated Certificate of Incorporation of this corporation is
amended such that, as amended, said paragraph shall be read in
its entirety as follows:
"This Corporation is authorized to issue two (2)
classes of stock, to be designated, respectively, "Common
Stock" and "Preferred Stock." The total number of shares
that this Corporation is authorized to issue is Ninety-Seven
Million (97,000,000) shares. Ninety-Five Million
(95,000,000) shares shall be Common Stock, par value $.0001
per share, and Two Million (2,000,000) shares shall be
Preferred Stock, par value $.0001 per share."
SECOND: The foregoing Amendment has been duly adopted
in accordance with the provisions of Section 242 of the Delaware
General Corporation Law, by resolution of the Board of Directors
of the corporation declaring said amendment advisable and by the
affirmative vote of the holders of at least a majority of the
outstanding shares entitled to vote.
IN WITNESS WHEREOF, this Certificate of Amendment of
the Restated Certificate of Incorporation has been signed by the
President and the Secretary of the Corporation this 12th day of
June, 1997.
P-COM, INC.
By: /s/ Pier Antonuicci
-------------------------
Pier Antoniucci
President
ATTEST:
/s/ Warren Lazarow
- -------------------------
Warren T. Lazarow
Secretary
</PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF P-COM, INC.,
a Delaware Corporation
(Pursuant to Sections 242, 245 and 228 of
the Delaware General Corporation Law)
P-COM, Inc. (the "Corporation"), a Corporation
organized and existing under the General Corporation Law of the
State of Delaware (the "General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That the name of the Corporation is P-COM,
Inc., and that the Corporation was originally incorporated on
August 23, 1991, under the name P-COMM, Inc., pursuant to the
General Corporation Law.
SECOND: The Board of Directors of the Corporation
adopted resolutions proposing to restate the Amended and Restated
Certificate of Incorporation of the Corporation (the
"Certificate"), declaring said restatement to be advisable and in
the best interests of the Corporation and its stockholders and
authorizing the appropriate officers of the Corporation to
solicit the consent of the stockholders therefor, which
resolution setting forth the proposed restatement is as follows:
"RESOLVED, that the Amended and Restated
Certificate of Incorporation of the Corporation be
restated in its entirety as follows:
ARTICLE I
The name of this Corporation is P-COM, Inc.
ARTICLE II
The address of the registered office of this
Corporation in the State of Delaware is 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust
Company.
ARTICLE III
The nature of the business or purposes to be conducted
or promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law
of Delaware.
ARTICLE IV
This Corporation is authorized to issue two (2) classes
of stock, to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares that this
Corporation is authorized to issue is Thirty-Two Million
(32,000,000) shares. Thirty Million (30,000,000) shares shall be
Common Stock, par value $.0001 per share, and Two Million
(2,000,000) shares shall be Preferred Stock, par value $.0001 per
share.
The Preferred Stock may be issued from time to time in
one or more series, without further stockholder approval. The
Board of Directors is hereby authorized, in the resolution or
resolutions adopted by the Board of Directors providing for the
issue of any wholly unissued series of Preferred Stock, within
the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation, to fix or alter the
divided rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund
provisions), the redemption price or prices, and the liquidation
preferences of any wholly unissued series of Preferred Stock, and
the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease
the number of shares of any series subsequent to the issue of
shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance of the powers conferred by statute, the
Board of Directors is expressly authorized to make, repeal,
alter, amend and rescind any or all of the Bylaws of this
Corporation.
ARTICLE VI
Elections of directors need not be by written ballot
unless the Bylaws of this Corporation shall so provide. At each
annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term
for which they are elected, and until their successors have been
duly elected and qualified; except that if any such election
shall not be so held, such election shall take place at a
stockholders' meeting called and held in accordance with the
Delaware General Corporation Law. The directors of the
Corporation shall be divided into three classes as nearly equal
in size as is practicable, hereby designated Class I, Class II
and Class III. The term of office of the initial Class I
directors shall expire at the next succeeding annual meeting of
stockholders, the term of office of the initial Class II
directors shall expire at the second succeeding annual meeting of
stockholders and the term of office of the initial Class III
directors shall expire at the third succeeding annual meeting of
stockholders. For the purposes hereof, the initial Class I,
Class II and Class III directors shall be those directors so
nominated and elected at the first annual meeting of stockholders
after the filing of this Restated Certificate of Incorporation.
At each annual meeting of stockholders thereafter, directors to
replace those of a class whose terms expire at such annual
meeting shall be elected to hold office until the third
succeeding annual meeting and until their respective successors
shall have been duly elected and qualified. If the number of
directors is hereafter changed, any newly created directorships
or decrease in directorships shall be so apportioned among the
classes as to make all classes as nearly equal in number as is
practicable.
The number of directors which constitute the whole
board of directors of the Corporation shall be designated in the
bylaws of the Corporation or by resolution adopted by the Board
of Directors. Vacancies occurring on the board of directors for
any reason may be filled by vote of a majority of the remaining
members of the board of directors, although less than a quorum,
at any meeting of the board of directors. A person so elected by
the board of directors to fill a vacancy shall hold office until
the next succeeding annual meeting of stockholders of the
Corporation and until his or her successor shall have been duly
elected and qualified.
ARTICLE VII
Meetings of stockholders may be held within or without
the State of Delaware, as the Bylaws may provide. The books of
this Corporation may be kept (subject to any provision contained
in the statutes of the State of Delaware) outside the State of
Delaware at such place or places as may be designated from time
to time by the Board of Directors or in the Bylaws of this
Corporation.
ARTICLE VIII
A director of this Corporation shall not be personally
liable to this Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty
to this Corporation or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the
General Corporation Law is amended after approval by the
stockholders of this Article VIII to authorize Corporation action
further eliminating or limiting the personal liability of
directors, then the liability of a director of this Corporation
shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions
of this Article VIII by the stockholders of this Corporation
shall not adversely affect any right or protection of a director
of this Corporation existing at the time of such repeal or
modification.
ARTICLE IX
This Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated
Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
* * *
THIRD: The foregoing restatement was approved by the
holders of the requisite number of shares of said Corporation in
accordance with Section 228 of the General Corporation Law.
FOURTH: That said restatement was duly adopted in
accordance with the provisions of Section 242 and 245 of the
General Corporation Law.
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation has been signed by the President and the Secretary
of the Corporation this 9th day of March, 1995.
P-COM, INC.
By: /s/ George P. Roberts
______________________________
George P. Roberts
President
ATTEST:
/s/ Warren T. Lazarow
______________________________
Warren T. Lazarow
Secretary
EXHIBIT 10.16B
P-COM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(As Amended and Restated Effective as of April 1997)
ARTICLE ONE
GENERAL PROVISIONS
------------------
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended
to promote the interests of P-COM, Inc., a Delaware corporation,
by providing eligible persons with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary
interest, in the Corporation as an incentive for them to remain
in the service of the Corporation.
Capitalized terms shall have the meanings assigned to
such terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate
equity programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the
discretion of the Plan Administrator, be granted
options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under
which eligible persons may, at the discretion of the
Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such
shares or as a bonus for services rendered the
Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program
under which Eligible Directors shall automatically
receive option grants at periodic intervals to purchase
shares of Common Stock.
B. The provisions of Articles One and Five shall
apply to all equity programs under the Plan and shall accordingly
govern the interests of all persons under the Plan.
</PAGE>
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to Section 16 Insiders.
Except to the extent the Primary Committee is granted sole and
exclusive authority under one or more specific provisions of the
Plan, administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to
participate in these programs may, at the Board's discretion, be
vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with
respect to all such persons. The members of the Secondary
Committee may be individuals who are Employees eligible to
receive discretionary option grants or direct stock issuances
under the Plan or any stock option, stock appreciation, stock
bonus or other stock plan of the Corporation (or any Parent or
Subsidiary).
B. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may
determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and
authority (subject to the provisions of the Plan) to establish
such rules and regulations as it may deem appropriate for proper
administration of the Discretionary Option Grant and Stock
Issuance Programs and to make such determinations under, and
issue such interpretations of, the provisions of such programs
and any outstanding options or stock issuances thereunder as it
may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions
under the Plan shall be final and binding on all parties who have
an interest in the Discretionary Option Grant or Stock Issuance
Program under its jurisdiction or any option or stock issuance
thereunder.
D. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members
of each such committee shall accordingly be entitled to full
indemnification and reimbursement as Board members for their
service on such committee. No member of the Primary Committee or
the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants
or stock issuances under the Plan.
E. Administration of the Automatic Option Grant
Program shall be self-executing in accordance with the terms of
that program, and no Plan Administrator shall exercise any
discretionary functions with respect to option grants made
thereunder.
2.
</PAGE>
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as
follows:
(i) Employees,
(ii) non-employee members of the Board
or of the board of directors of any Parent or
Subsidiary, and
(iii) consultants or other independent
advisors who provide services to the Corporation (or
any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full
authority to determine, (i) with respect to the option grants
under the Discretionary Option Grant Program, which eligible
persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered
by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at
which each option is to become exercisable, the vesting schedule
(if any) applicable to the option shares and the maximum term for
which the option is to remain outstanding and (ii) with respect
to stock issuances under the Stock Issuance Program, which
eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to
be issued to each Participant, the vesting schedule (if any)
applicable to the issued shares and the consideration to be paid
by the Participant for such shares.
C. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the
Discretionary Option Grant Program or to effect stock issuances
in accordance with the Stock Issuance Program.
D. The individuals eligible to receive option grants
under the Automatic Option Grant Program shall be limited to (i)
those individuals who were serving as non-employee Board members
on February 1, 1996, (ii) those individuals who first become non-
employee Board members after February 1, 1996, whether through
appointment by the Board or election by the Corporation's
stockholders, and (iii) those individuals who continue to serve
as non-employee Board members at one or more Annual Stockholders
Meetings held after February 1, 1996. A non-employee Board
member who has previously been in the employ of the Corporation
(or any Parent or Subsidiary) shall not be eligible to receive an
initial 20,000-share option grant under the Automatic Option
Grant Program at the time he or she first becomes a non-employee
Board member, but such individual shall be eligible to receive
periodic option grants under the Automatic Option Grant Program
upon his or her continued service as a non-employee Board member.
3.
</PAGE>
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including
shares repurchased by the Corporation on the open market. The
maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed 4,267,944* shares. Such
authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the Plan Effective
Date, under the Predecessor Plan as last approved by the
Corporation's stockholders prior to such date, including the
shares subject to the outstanding options incorporated into the
Plan and any other shares which would have been available for
future option grants under the Predecessor Plan, (ii) an
additional increase of 320,000 shares of Common Stock previously
authorized by the Board and approved by the Corporation's
stockholders prior to the Plan Effective Date, (iii) an
additional increase of 800,000 shares of Common Stock authorized
by the Board on February 1, 1996 and approved by the
Corporation's stockholders at the 1996 Annual Meeting, plus (iv)
a further increase of 1,500,000 shares of Common Stock,
authorized by the Board in April 1997, subject to stockholder
approval at the 1997 Annual Meeting.
* All share numbers in this Plan reflect (i) the 1-
for-3 reverse split of the Common Stock effected after
the Board's adoption of the Plan but prior ro the Plan
Effective Date and (ii) the 2-for-1 split of the Common
Stock effected October 27, 1995.
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on the first
trading day of each calendar year, beginning with the 1998
calendar year and continuing through calendar year 2001, by an
amount equal to one and six-tenths percent (1.6%) of the total
number of shares of Common Stock outstanding on the last trading
day of the immediately preceding calendar year. No Incentive
Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.
C. No one person participating in the Plan may
receive options, separately exercisable stock appreciation rights
and direct stock issuances for more than 800,000 shares of Common
Stock in the aggregate over the term of the Plan.
D. Shares of Common Stock subject to outstanding
options shall be available for subsequent issuance under the Plan
to the extent (i) the options (including any options incorporated
from the Predecessor Plan) expire or terminate for any reason
prior to exercise in full or (ii) the options are cancelled in
accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently
cancelled or repurchased by the Corporation, at the original
option exercise or direct issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option
4.
</PAGE>
<PAGE>
grants or direct stock issuances under the Plan. However, should
the exercise price of an option under the Plan (including any
option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with
the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock
available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which
vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or
stock issuance.
E. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class
of securities for which any one person may be granted options,
separately exercisable stock appreciation rights and direct stock
issuances over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be
subsequently made per Eligible Director under the Automatic
Option Grant Program and (iv) the number and/or class of
securities and the exercise price per share in effect under each
outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement
of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
5.
</PAGE>
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each granted option shall be evidenced by one or more
documents in the form approved by the Plan Administrator;
provided, however, that each such document shall comply with the
terms specified below. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. Exercise Price.
---------------
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five
percent (85%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the
provisions of Section I of Article Five and the documents
evidencing the option grant, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the
Corporation's earnings for financial reporting purposes
and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is
exercised for vested shares, through a special sale and
remittance procedure pursuant to which the Optionee
shall concurrently provide irrevocable written
instructions to (A) a Corporation-designated brokerage
firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient
funds to cover the aggregate exercise price payable for
the purchased shares plus all applicable Federal, state
and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise
and (B) the Corporation to deliver the certificates for
the purchased shares directly to such brokerage firm in
order to complete the sale transaction.
Except to the extent such sale and remittance procedure
is utilized, payment of the exercise price for the purchased
shares must be made on the Exercise Date.
6.
</PAGE>
<PAGE>
B. Exercise and Term of Options. Each option shall
-----------------------------
be exercisable at such time or times, during such period and for
such number of shares as shall be determined by the Plan
Administrator and set forth in the documents evidencing the
option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. Effect of Termination of Service.
---------------------------------
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of
cessation of Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason
shall remain exercisable for such period of time
thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable
after the expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be
subsequently exercised by the personal representative
of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the
Optionee's will or in accordance with the laws of
descent and distribution.
(iii) During the applicable post-Service
exercise period, the option may not be exercised in the
aggregate for more than the number of vested shares for
which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration
of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall
terminate and cease to be outstanding for any vested
shares for which the option has not been exercised.
However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to
be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.
(iv) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options
held by the Optionee shall terminate immediately and
cease to be outstanding.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted
or at any time while the option remains outstanding, to:
(i) extend the period of time for which
the option is to remain exercisable following the
Optionee's cessation of Service from the period
otherwise in effect for that option to such greater
period of time as the
7.
</PAGE>
<PAGE>
Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not
only with respect to the number of vested shares of
Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but
also with respect to one or more additional
installments in which the Optionee would have vested
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall
-------------------
have no stockholder rights with respect to the shares subject to
the option until such person shall have exercised the option,
paid the exercise price and become a holder of record of the
purchased shares.
E. Repurchase Rights. The Plan Administrator shall
------------------
have the discretion to grant options which are exercisable for
unvested shares of Common Stock. Should the Optionee cease
Service while holding such unvested shares, the Corporation shall
have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which
such repurchase right shall be exercisable (including the period
and procedure for exercise and the appropriate vesting schedule
for the purchased shares) shall be established by the Plan
Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the
-----------------------------------
lifetime of the Optionee, Incentive Options shall be exercisable
only by the Optionee and shall not be assignable or transferable
other than by will or by the laws of descent and distribution
following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned
in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust
established exclusively for one or more such family members. The
assigned portion may only be exercised by the person or persons
who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be
the same as those in effect for the option immediately prior to
such assignment and shall be set forth in such documents issued
to the assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all
Incentive Options. Except as modified by the provisions of this
Section II, all the provisions of Articles One, Two and Five
shall be applicable to Incentive Options. Options which are
specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to the terms of this Section
II.
A. Eligibility. Incentive Options may only be
------------
granted to Employees.
8.
</PAGE>
<PAGE>
B. Exercise Price. The exercise price per share
----------------
shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market
-------------------
Value (determined as of the respective date or dates of grant) of
the Common Stock for which one or more options granted to any
Employee under the Plan (or any other option plan of the
Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two (2) or more
such options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are
granted.
D. 10% Stockholder. If any Employee to whom an
-----------------
Incentive Option is granted is a 10% Stockholder, then the
exercise price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share of Common Stock
on the option grant date, and the option term shall not exceed
five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the
shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested
shares of Common Stock. However, an outstanding option shall not
so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed
by the successor corporation (or parent thereof) or to be
replaced with a comparable option to purchase shares of the
capital stock of the successor corporation (or parent thereof),
(ii) such option is to be replaced with a cash incentive program
of the successor corporation which preserves the spread existing
on the unvested option shares at the time of the Corporate
Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the
acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause
(i) above shall be made by the Plan Administrator, and its
determination shall be final, binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject
to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent: (i)
those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such
9.
</PAGE>
<PAGE>
Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed by the Plan Administrator
at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any
time while the option remains outstanding, to provide for the
automatic acceleration of one or more outstanding options upon
the occurrence of a Corporate Transaction, whether or not those
options are to be assumed or replaced in the Corporate
Transaction.
D. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate
and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
E. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted,
immediately after such Corporate Transaction, to apply to the
number and class of securities which would have been issuable to
the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities
shall remain the same. In addition, appropriate adjustments to
reflect the Corporate Transaction shall be made to (i) the class
and number of securities available for issuance over the
remaining term of the Plan and (ii) the maximum number and/or
class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and
direct stock issuances in the aggregate over the remaining term
of the Plan.
F. Any options which are assumed or replaced in the
Corporate Transaction and do not otherwise accelerate at that
time shall automatically accelerate (and any of the Corporation's
outstanding repurchase rights which do not otherwise terminate at
the time of the Corporate Transaction shall automatically
terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event
the Optionee's Service should subsequently terminate by reason of
an Involuntary Termination within eighteen (18) months following
the effective date of such Corporate Transaction. Any options so
accelerated shall remain exercisable for fully-vested shares
until the earlier of (i) the expiration of the option term or
(ii) the expiration of the one (1)-year period measured from the
effective date of the Involuntary Termination.
G. The Plan Administrator shall have the discretion,
exercisable either at the time the option is granted or at any
time while the option remains outstanding, to (i) provide for
the automatic acceleration of one or more outstanding options
(and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of
Common Stock subject to those rights) upon the occurrence of a
Change in Control or (ii) condition any such option acceleration
(and the termination of any outstanding repurchase rights) upon
the subsequent Involuntary Termination of the
10.
</PAGE>
<PAGE>
Optionee's Service within a specified period following the
effective date of such Change in Control. Any options
accelerated in connection with a Change in Control shall remain
fully exercisable until the expiration of the option term.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control
shall remain exercisable as an Incentive Option only to the
extent the applicable One Hundred Thousand Dollar ($100,000)
limitation is not exceeded. To the extent such dollar limitation
is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary
Option Grant Program shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to
effect, at any time and from time to time, with the consent of
the affected option holders, the cancellation of any or all
outstanding options under the Discretionary Option Grant Program
(including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same
or different number of shares of Common Stock but with an
exercise price per share based on the Fair Market Value per share
of Common Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock
appreciation rights and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be
granted the right, exercisable upon such terms as the
Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for
a distribution from the Corporation in an amount equal
to the excess of (A) the Fair Market Value (on the
option surrender date) of the number of shares in which
the Optionee is at the time vested under the
surrendered option (or surrendered portion thereof)
over (B) the aggregate exercise price payable for such
shares.
11.
</PAGE>
<PAGE>
(ii) No such option surrender shall be
effective unless it is approved by the Plan
Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be
entitled may be made in shares of Common Stock valued
at Fair Market Value on the option surrender date, in
cash, or partly in shares and partly in cash, as the
Plan Administrator shall in its sole discretion deem
appropriate.
(iii) If the surrender of an option is
rejected by the Plan Administrator, then the Optionee
shall retain whatever rights the Optionee had under the
surrendered option (or surrendered portion thereof) on
the option surrender date and may exercise such rights
at any time prior to the later of (A) five (5) business
days after the receipt of the rejection notice or (B)
the last day on which the option is otherwise
exercisable in accordance with the terms of the
documents evidencing such option, but in no event may
such rights be exercised more than ten (10) years after
the option grant date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with
respect to their outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each such individual holding one or more
options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-
Over) to surrender each such option to the Corporation,
to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash
distribution from the Corporation in an amount equal to
the excess of (A) the Take-Over Price of the shares of
Common Stock which are at the time vested under each
surrendered option (or surrendered portion thereof)
over (B) the aggregate exercise price payable for such
shares. Such cash distribution shall be paid within
five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-
approve, at the time the limited right is granted, the
subsequent exercise of that right in accordance with
the terms of the grant and the provisions of this
Section V. No additional approval of the Plan
Administrator or the Board shall be required at the
time of the actual option surrender and cash
distribution.
12.
</PAGE>
<PAGE>
(iv) The balance of the option (if any)
shall continue in full force and effect in accordance
with the documents evidencing such option.
13.
</PAGE>
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock
Issuance Program through direct and immediate issuances without
any intervening option grants. Each such stock issuance shall be
evidenced by a Stock Issuance Agreement which complies with the
terms specified below.
A. Purchase Price.
---------------
1. The purchase price per share shall be fixed
by the Plan Administrator, but shall not be less than eighty-five
percent (85%) of the Fair Market Value per share of Common Stock
on the stock issuance date.
2. Subject to the provisions of Section I of
Article Five, shares of Common Stock may be issued under the
Stock Issuance Program for one or both of the following items of
consideration which the Plan Administrator may deem appropriate
in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting Provisions.
-------------------
1. Shares of Common Stock issued under the Stock
Issuance Program may, in the discretion of the Plan
Administrator, be fully and immediately vested upon issuance or
may vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to
any unvested shares of Common Stock issued under the Stock
Issuance Program, namely:
(i) the Service period to be completed
by the Participant or the performance objectives to be
attained,
(ii) the number of installments in which
the shares are to vest,
14.
</PAGE>
<PAGE>
(iii) the interval or intervals (if any)
which are to lapse between installments, and
(iv) the effect which death, Permanent
Disability or other event designated by the Plan
Administrator is to have upon the vesting schedule,
shall be determined by the Plan Administrator and incorporated
into the Stock Issuance Agreement.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular
cash dividend) which the Participant may have the right to
receive with respect to his or her unvested shares of Common
Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable to
the Participant's unvested shares of Common Stock and (ii) such
escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to him
or her under the Stock Issuance Program, whether or not his or
her interest in those shares is vested. Accordingly, the
Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock
issued under the Stock Issuance Program or should the performance
objectives not be attained with respect to one or more such
unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with
respect to those shares. To the extent the surrendered shares
were previously issued to the Participant for consideration paid
in cash or cash equivalent (including the Participant's purchase-
money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered
shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable
to such surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested
shares of Common Stock (or other assets attributable thereto)
which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall
result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such
waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
15.
</PAGE>
<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate
automatically, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i)
those repurchase rights are assigned to the successor corporation
(or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or
at any time while the Corporation's repurchase right remains
outstanding, to provide for the automatic termination of one or
more of those outstanding rights and the immediate vesting of the
shares of Common Stock subject to such rights upon the occurrence
of a Corporate Transaction.
C. Any repurchase rights that are assigned in the
Corporate Transaction shall automatically terminate, and all the
shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event the Optionee's Service
should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective
date of such Corporate Transaction.
D. The Plan Administrator shall have the discretion,
exercisable either at the time the unvested shares are issued or
at any time while the Corporation's repurchase right remains
outstanding, to (i) provide for the automatic termination of one
or more of those outstanding rights and the immediate vesting of
the shares subject to such rights upon the occurrence of a Change
in Control or (ii) condition any such accelerated vesting upon
the subsequent Involuntary Termination of the Participant's
Service within a specified period following the effective date of
such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's
discretion, be held in escrow by the Corporation until the
Participant's interest in such shares vests or may be issued
directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
16.
</PAGE>
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Pursuant to the provisions of the
------------
February 1, 1996 restatement of this Article Four, option grants
shall be made to Eligible Directors in accordance with the grant
date provisions specified below:
1. Each individual serving as an Eligible
Director on February 1, 1996 was automatically granted on such
date a Non-Statutory Option to purchase 20,000 shares of Common
Stock.
2. Each individual who first becomes an Eligible
Director after February 1, 1996 shall automatically be granted,
on the date such individual is first elected or appointed as a
non-employee Board member, a Non-Statutory Option to purchase
20,000 shares of Common Stock.
3. On the date of each Annual Stockholders
Meeting, beginning with the 1997 Annual Meeting, each individual
who is to continue as an Eligible Director shall automatically be
granted, whether or not he or she is standing for re-election as
a Board member at that Annual Meeting, a Non-Statutory Option to
purchase an additional 2,000 shares of Common Stock, provided
such individual has not received an option grant pursuant to this
Automatic Option Grant Program within six (6) months prior to the
date of such Annual Meeting. There shall be no limit on the
number of such 2,000-share option grants any one Eligible
Director may receive over his or her period of Board service.
The number of shares for which the automatic option grants are to
be made to each newly-elected or continuing Eligible Director
shall be subject to periodic adjustment pursuant to the
applicable provisions of Section V.D. of Article One.
Stockholder approval of this 1997 Restatement at
the 1997 Annual Stockholders Meeting will constitute pre-approval
of each option subsequently granted pursuant to the express terms
of this Automatic Option Grant Program and the subsequent
exercise of that option in accordance with its terms.
B. Exercise Price.
---------------
1. The exercise price per share shall be equal
to one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
17.
</PAGE>
<PAGE>
2. The exercise price shall be payable in one or
more of the alternative forms authorized under the Discretionary
Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the
Exercise Date.
C. Option Term. Each option shall have a term of ten
------------
(10) years measured from the option grant date.
D. Exercise and Vesting of Options. Each option
---------------------------------
shall be immediately exercisable for any or all of the option
shares. However, any shares purchased under the option shall be
subject to repurchase by the Corporation, at the exercise price
paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each
option, whether the initial 20,000-share grant or any annual
2,000-share grant, shall vest, and the Corporation's repurchase
right with respect to those shares shall lapse, in a series of
eight (8) successive equal quarterly installments upon the
Optionee's completion of each three (3) months of continued
service as a Board member over the twenty-four (24)-month period
measured from the option grant date.
E. Effect of Termination of Board Service. The
------------------------------------------
following provisions shall govern the exercise of any options
held by the Optionee at the time the Optionee ceases to serve as
a Board member:
(i) The Optionee (or, in the event of
Optionee's death, the personal representative of the
Optionee's estate or the person or persons to whom the
option is transferred pursuant to the Optionee's will
or in accordance with the laws of descent and
distribution) shall have a twelve (12)-month period
following the date of such cessation of Board service
in which to exercise each such option.
(ii) During the twelve (12)-month
exercise period, the option may not be exercised in the
aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve
as a Board member by reason of death or Permanent
Disability, then all shares at the time subject to the
option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following
such cessation of Board service, be exercised for all
or any portion of such shares as fully-vested shares of
Common Stock.
(iv) In no event shall the option remain
exercisable after the expiration of the option term.
Upon the expiration of the twelve (12)-month exercise
period or (if earlier) upon the expiration of the
option
18.
</PAGE>
<PAGE>
term, the option shall terminate and cease to be
outstanding for any vested shares for which the option
has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board
service, terminate and cease to be outstanding to the
extent it is not exercisable for vested shares at that
time.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE
TAKE-OVER
A. In the event of any Corporate Transaction, the
shares of Common Stock at the time subject to each outstanding
option but not otherwise vested shall automatically vest in full
so that each such option shall, immediately prior to the
effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time
subject to such option and may be exercised for all or any
portion of such shares as fully-vested shares of Common Stock.
Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and
cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
B. In connection with any Change in Control, the
shares of Common Stock at the time subject to each outstanding
option but not otherwise vested shall automatically vest in full
so that each such option shall, immediately prior to the
effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares
as fully-vested shares of Common Stock. Each such option shall
remain exercisable for the fully-vested option shares until the
expiration or sooner termination of the option term or the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to
surrender to the Corporation each automatic option held by him or
her. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock
at the time subject to the surrendered option (whether or not the
Optionee is otherwise at the time vested in those shares) over
(ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following
the surrender of the option to the Corporation. Stockholder
approval of the Plan shall constitute pre-approval of the grant
of each such option surrender right under this Automatic Option
Grant Program and the subsequent exercise of such right in
accordance with the terms and provisions of this Section II.C.
No additional approval or consent of the Plan Administrator or
the Board shall be required at the time of the actual option
surrender and cash distribution.
19.
</PAGE>
<PAGE>
D. The grant of options under the Automatic Option
Grant Program shall in no way affect the right of the Corporation
to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve,
liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the
Automatic Option Grant Program shall be the same as the terms in
effect for option grants made under the Discretionary Option
Grant Program.
20.
</PAGE>
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee or
Participant to pay the option exercise price under the
Discretionary Option Grant Program or the purchase price of
shares issued under the Stock Issuance Program by delivering a
promissory note payable in one or more installments. The terms
of any such promissory note (including the interest rate and the
terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Promissory notes may be
authorized with or without security or collateral. In all
events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (I) the aggregate option
exercise price or purchase price payable for the purchased shares
plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion,
determine that one or more such promissory notes shall be subject
to forgiveness by the Corporation in whole or in part upon such
terms as the Plan Administrator may deem appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or stock appreciation
rights or upon the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested
shares of Common Stock under the Plan (other than the options
granted or the shares issued under the Automatic Option Grant
Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders
in connection with the exercise of their options or the vesting
of their shares. Such right may be provided to any such holder
in either or both of the following formats:
(i) Stock Withholding: The election to
------------------
have the Corporation withhold, from the shares of
Common Stock otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such
shares, a portion of those shares with an aggregate
Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated
by the holder.
21.
</PAGE>
<PAGE>
(ii) Stock Delivery: The election to
---------------
deliver to the Corporation, at the time the Non-
Statutory Option is exercised or the shares vest, one
or more shares of Common Stock previously acquired by
such holder (other than in connection with the option
exercise or share vesting triggering the Taxes) with an
aggregate Fair Market Value equal to the percentage of
the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the date on which the
Underwriting Agreement was executed and the initial public
offering price of the Common Stock was established. The Plan
serves as the successor to the Predecessor Plan, and no further
option grants shall be made under the Predecessor Plan after the
Plan Effective Date. All options outstanding under the
Predecessor Plan on the Plan Effective Date have been
incorporated into the Plan and treated as outstanding options
under the Plan. However, each outstanding option so incorporated
shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan
shall be deemed to affect or otherwise modify the rights or
obligations of the holders of such incorporated options with
respect to their acquisition of shares of Common Stock.
B. The Plan was amended and restated by the Board,
effective February 1, 1996 (the "February 1996 Restatement") to
effect the following revisions: (i) increase the maximum number
of shares of Common Stock authorized for issuance over the term
of the Plan by an additional 800,000 shares to 2,767,944 shares
and (ii) enhance the benefit and eligibility provisions of the
Automatic Option Grant Program in order to (A) effect an
automatic option grant for 20,000 shares of Common Stock on
February 1, 1996 to each individual serving as a non-employee
Board member at that time, (B) increase the number of shares for
which an initial option grant is to be made under the Automatic
Option Grant Program to each newly-elected non-employee Board
member to 20,000 shares, (C) authorize a series of automatic
option grants to be made annually to each non-employee Board
member, in the amount of 2,000 shares per annual grant, over that
individual's period of continued service as a Board member and
(D) allow non-employee Board members who joined the Board prior
to the implementation of the Plan to qualify for such annual
option grants. The February 1996 Restatement became effective
immediately upon adoption by the Board and was approved by the
Corporation's stockholders at the 1996 Annual Meeting. All
option grants made under the Plan prior to the February 1996
Restatement shall remain outstanding in accordance with the terms
and conditions of the respective instruments evidencing those
options, and nothing in the February 1996 Restatement shall be
deemed to modify or in any way affect those outstanding options.
22.
</PAGE>
<PAGE>
C. In April 1997, the Board further amended and
restated the Plan (the "April 1997 Restatement") to effect the
following revisions: (i) increase the number of shares of Common
Stock reserved for issuance over the term of the Plan by an
additional 1,500,000 shares to 4,267,944 shares, (ii) implement
an automatic share increase feature pursuant to which the number
of shares available for issuance under the 1995 Plan shall
automatically increase on the first trading day of each calendar
year, beginning with the 1998 calendar year and continuing
through calendar year 2001, by an amount equal to one and six
tenths percent (1.6%) of the total number of shares of Common
Stock outstanding on the last trading day of the immediately
preceding calendar year, (iii) render the non-employee Board
members eligible to receive option grants under the Discretionary
Option Grant and Stock Issuance Programs, (iv) allow unvested
shares issued under the Plan and subsequently repurchased by the
Corporation at the option exercise or direct issue price paid per
share to be reissued under the Plan, (v) remove certain
restrictions on the eligibility of non-employee Board members to
serve as Plan Administrator and (vi) effect a series of
additional changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of
the recent amendments to Rule 16b-3 of the Securities and
Exchange Commission which exempts certain officer and director
transactions under the Plan from the short-swing liability
provisions of the federal securities laws.
The April 1997 Restatement is subject to stockholder
approval at the 1997 Annual Meeting, and no option grants made on
the basis of the 1,500,000-share increase under the April 1997
Restatement shall become exercisable in whole or in part unless
and until the April 1997 Restatement is approved by the
stockholders. Should such stockholder approval not be obtained,
then each option grant made pursuant to the 1,500,000-share
increase shall terminate and cease to remain outstanding without
ever becoming exercisable for those shares, and no additional
option grants shall be made on the basis of that share increase.
In addition, the automatic annual share increase feature shall
not be implemented. However, the provisions of the Plan as in
effect immediately prior to the April 1997 Restatement shall
automatically be reinstated, and option grants and direct stock
issuances may thereafter continue to be made pursuant to the
reinstated provisions of the Plan. All option grants and stock
issuances made prior to the April 1997 Restatement shall remain
outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options or issuances, and
nothing in the April 1997 Restatement shall be deemed to modify
or in any way affect those outstanding options or issuances.
Subject to the foregoing limitations, the Plan Administrator may
make option grants and direct stock issuances under the Plan at
any time before the date fixed herein for the termination of the
Plan.
D. The option/vesting acceleration provisions of
Article Two relating to Corporate Transactions and Changes in
Control may, in the Plan Administrator's discretion, be extended
to one or more options incorporated from the Predecessor Plan
which do not otherwise provide for such acceleration.
23.
</PAGE>
<PAGE>
E. The Plan shall terminate upon the earliest of
(i) January 10, 2005, (ii) the date on which all shares available
for issuance under the Plan shall have been issued pursuant to
the exercise of the options or the issuance of shares (whether
vested or unvested) under the Plan or (iii) the termination of
all outstanding options in connection with a Corporate
Transaction. Upon such Plan termination, all options and
unvested stock issuances outstanding on such date shall
thereafter continue to have force and effect in accordance with
the provisions of the documents evidencing such options or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power
and authority to amend or modify the Plan in any or all respects.
However, (i) no such amendment or modification shall adversely
affect the rights and obligations with respect to options, stock
appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant
consents to such amendment or modification, and (ii) any
amendment made to the Automatic Option Grant Program (or any
options outstanding thereunder) shall be in compliance with the
limitations of that program. In addition, certain amendments may
require stockholder approval pursuant to applicable laws or
regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant Program and shares
of Common Stock may be issued under the Stock Issuance Program
that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares
actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock
available for issuance under the Plan. If such stockholder
approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the
Corporation shall promptly refund to the Optionees and the
Participants the exercise or purchase price paid for any excess
shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall
thereupon be automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the
sale of shares of Common Stock under the Plan shall be used for
general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of
any option or stock appreciation right under the Plan and the
issuance of any shares of Common Stock (i) upon the exercise of
any option or stock appreciation right or (ii) under the Stock
Issuance
24.
</PAGE>
<PAGE>
Program shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having
jurisdiction over the Plan, the options and stock appreciation
rights granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall
have been compliance with all applicable requirements of Federal
and state securities laws, including the filing and effectiveness
of the Form S-8 registration statement for the shares of Common
Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for
trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or
the Participant any right to continue in Service for any period
of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee
or the Participant, which rights are hereby expressly reserved by
each, to terminate such person's Service at any time for any
reason, with or without cause.
25.
</PAGE>
<PAGE>
APPENDIX
The following definitions shall be in effect under the
Plan:
A. Automatic Option Grant Program shall mean the automatic
------------------------------
option grant program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or
-----------------
control of the Corporation effected through either of the
following transactions:
(i) the acquisition, directly or indirectly,
by any person or related group of persons (other than
the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control
with, the Corporation) of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of
securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders,
or
(ii) a change in the composition of the Board
over a period of thirty-six (36) consecutive months or
less such that a majority of the Board members ceases,
by reason of one or more contested elections for Board
membership, to be comprised of individuals who either
(A) have been Board members continuously since the
beginning of such period or (B) have been elected or
nominated for election as Board members during such
period by at least a majority of the Board members
described in clause (A) who were still in office at the
time such election or nomination was approved by the
Board.
D. Code shall mean the Internal Revenue Code of 1986, as
----
amended.
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the
----------------------
following stockholder-approved transactions to which the
Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's
outstanding securities are transferred to a person or
persons different from the persons holding those
securities immediately prior to such transaction; or
A-1
</PAGE>
<PAGE>
(ii) the sale, transfer or other disposition
of all or substantially all of the Corporation's assets
in complete liquidation or dissolution of the
Corporation.
G. Corporation shall mean P-COM, Inc., a Delaware
-----------
corporation.
H. Discretionary Option Grant Program shall mean the
-----------------------------------
discretionary option grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board
------------------
member eligible to participate in the Automatic Option Grant
Program in accordance with the provisions of Section IV.E of
Article One.
J. Employee shall mean an individual who is in the employ
--------
of the Corporation (or any Parent or Subsidiary), subject to the
control and direction of the employer entity as to both the work
to be performed and the manner and method of performance.
K. Exercise Date shall mean the date on which the
--------------
Corporation shall have received written notice of the option
exercise.
L. Fair Market Value per share of Common Stock on any
------------------
relevant date shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time
traded on the Nasdaq National Market, then the Fair
Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such
price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price
for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time
listed on any Stock Exchange, then the Fair Market
Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation
exists.
A-2
</PAGE>
<PAGE>
M. Hostile Take-Over shall mean the acquisition, directly
-----------------
or indirectly, by any person or related group of persons (other
than the Corporation or a person that directly or indirectly
controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule
13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept.
N. Incentive Option shall mean an option which satisfies
----------------
the requirements of Code Section 422.
O. Involuntary Termination shall mean the termination of
-----------------------
the Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal
or discharge by the Corporation for reasons other than
Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the
Corporation which materially reduces his or her level
of responsibility, (B) a reduction in his or her level
of compensation (including base salary, fringe benefits
and any non-discretionary and objective-standard
incentive payment or bonus award) by more than fifteen
percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles,
provided and only if such change, reduction or
relocation is effected by the Corporation without the
individual's consent.
P. Misconduct shall mean the commission of any act of
----------
fraud, embezzlement or dishonesty by the Optionee or Participant,
any unauthorized use or disclosure by such person of confidential
information or trade secrets of the Corporation (or any Parent or
Subsidiary) or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The
foregoing definition shall not be deemed to be inclusive of all
the acts or omissions which the Corporation (or any Parent or
Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of
---------
1934, as amended.
R. Non-Statutory Option shall mean an option not intended
--------------------
to satisfy the requirements of Code Section 422.
A-3
</PAGE>
<PAGE>
S. Optionee shall mean any person to whom an option is
--------
granted under the Discretionary Option Grant or Automatic Option
Grant Program.
T. Parent shall mean any corporation (other than the
------
Corporation) in an unbroken chain of corporations ending with the
Corporation, provided each corporation in the unbroken chain
(other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of
the other corporations in such chain.
U. Participant shall mean any person who is issued shares
-----------
of Common Stock under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean
--------------------------------------------
the inability of the Optionee or the Participant to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment expected to result in
death or to be of continuous duration of twelve (12) months or
more.
W. Plan shall mean the Corporation's 1995 Stock
----
Option/Stock Issuance Plan, as set forth in this document and as
amended from time to time.
X. Plan Administrator shall mean the particular entity,
------------------
whether the Primary Committee, the Board or the Secondary
Committee, which is authorized to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to one or
more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs
with respect to the persons under its jurisdiction.
Y. Plan Effective Date shall mean the date on which the
-------------------
Underwriting Agreement was executed and the initial public
offering price was established.
Z. Predecessor Plan shall mean the Corporation's 1992
-----------------
Stock Option Plan.
AA. Primary Committee shall mean the committee of two (2)
-----------------
or more non-employee Board members appointed by the Board to
administer the Discretionary Option Grant and Stock Issuance
Programs with respect to Section 16 Insiders.
AB. Secondary Committee shall mean a committee of two (2)
-------------------
or more Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with
respect to eligible persons other than Section 16 Insiders.
AC. Section 16 Insider shall mean an officer or director of
------------------
the Corporation subject to the short-swing profit liabilities of
Section 16 of the 1934 Act.
AD. Section 12(g) Registration Date shall mean the first
-------------------------------
date on which the Common Stock is registered under Section 12(g)
of the 1934 Act.
A-4
</PAGE>
<PAGE>
AE. Service shall mean the provision of services to the
-------
Corporation (or any Parent or Subsidiary) by a person in the
capacity of an Employee, a non-employee member of the board of
directors or a consultant or independent advisor, except to the
extent otherwise specifically provided in the documents
evidencing the option grant.
AF. Stock Exchange shall mean either the American Stock
---------------
Exchange or the New York Stock Exchange.
AG. Stock Issuance Agreement shall mean the agreement
-------------------------
entered into by the Corporation and the Participant at the time
of issuance of shares of Common Stock under the Stock Issuance
Program.
AH. Stock Issuance Program shall mean the stock issuance
----------------------
program in effect under the Plan.
AI. Subsidiary shall mean any corporation (other than the
----------
Corporation) in an unbroken chain of corporations beginning with
the Corporation, provided each corporation in the unbroken chain
(other than the last corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of
the other corporations in such chain.
AJ. Take-Over Price shall mean the greater of (i) the Fair
---------------
Market Value per share of Common Stock on the date the option is
surrendered to the Corporation in connection with a Hostile Take-
Over or (ii) the highest reported price per share of Common Stock
paid by the tender offeror in effecting such Hostile Take-Over.
However, if the surrendered option is an Incentive Option, the
Take-Over Price shall not exceed the clause (i) price per share.
AK. 10% Stockholder shall mean the owner of stock (as
----------------
determined under Code Section 424(d)) possessing more than ten
percent (10%) of the total combined voting power of all classes
of stock of the Corporation (or any Parent or Subsidiary).
AL. Taxes shall mean the Federal, state and local income
-----
and employment tax liabilities incurred by the holder of Non-
Statutory Options or unvested shares of Common Stock in
connection with the exercise of such holder's options or the
vesting of his or her shares.
AM. Underwriting Agreement shall mean the agreement
-----------------------
executed between the Corporation and the underwriter or
underwriters managing the initial public offering of the Common
Stock.
A-5
</PAGE>
EXHIBIT 10.17B
P-COM, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(As Amended and Restated Effective as of April 1997)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to
promote the interests of P-Com, Inc. by providing eligible
employees with the opportunity to acquire a proprietary interest
in the Corporation through participation in a payroll-deduction
based employee stock purchase plan designed to qualify under
Section 423 of the Code.
Capitalized terms herein shall have the meanings
assigned to such terms in the attached Appendix.
All share numbers in this document reflect (i) the 1-
for-3 reverse split of the Common Stock effected after the
Board's adoption of the Plan but prior to the Effective Time and
(ii) the 2-for-1 forward split of the Common Stock effected
October 27, 1995.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to
interpret and construe any provision of the Plan and to adopt
such rules and regulations for administering the Plan as it may
deem necessary in order to comply with the requirements of Code
Section 423. Decisions of the Plan Administrator shall be final
and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be
shares of authorized but unissued or reacquired Common Stock,
including shares of Common Stock purchased on the open market.
The maximum number of shares of Common Stock which may be issued
over the term of the Plan shall not exceed Four Hundred Fifty
Thousand (450,000) shares. Such authorized share reserve is
comprised of (i) the Two Hundred Thousand (200,000) shares
initially authorized for issuance under the Plan, (ii) an
additional increase of One Hundred Thousand (100,000) shares of
Common Stock authorized for issuance by the Board on February 1,
1996 and approved by the Corporation's stockholders at the 1996
Annual Meeting and (iii) a further increase of One Hundred Fifty
Thousand (150,000) shares authorized for issuance by the Board in
April 1997, subject to stockholder approval at the 1997 Annual
Meeting.
B. In the event any change is made to the Common
Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or
</PAGE>
<PAGE>
other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of
securities issuable under the Plan, (ii) the maximum number and
class of securities purchasable per Participant on any one Semi-
Annual Purchase Date and (iii) the number and class of securities
and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits
thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for
purchase under the Plan through a series of successive offering
periods until such time as (i) the maximum number of shares of
Common Stock available for issuance under the Plan shall have
been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall have a maximum duration
of twenty-four (24) months. The duration of each offering period
shall be designated by the Plan Administrator prior to its start
date. The initial offering period commenced at the Effective
Time and shall terminate on the last business day in January
1997. The next offering period shall commence on the first
business day in February 1997, and subsequent offering periods
shall commence as designated by the Plan Administrator.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to
participate in the Plan in accordance with the following
provisions:
(i) An individual who is an Eligible
Employee on the start date of any offering period shall be
eligible to commence participation in that offering period
on such start date or on any subsequent Semi-Annual Entry
Date within that offering period on which he/she remains an
Eligible Employee.
(ii) An individual who first becomes an
Eligible Employee after the start date of any offering
period may enter that offering period on the first Semi-
Annual Entry Date on which he/she is an Eligible Employee or
on any subsequent Semi-Annual Entry Date within that
offering period on which he/she remains an Eligible
Employee.
B. To participate in the Plan for a particular
offering period, the Eligible Employee must complete the
enrollment forms prescribed by the Plan Administrator (including
a stock purchase agreement and a payroll deduction authorization
form) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
2.
</PAGE>
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Parti
cipant for purposes of acquiring shares of Common Stock under the
Plan may be any multiple of one percent (1%) of the Base Salary
paid to the Participant during each Semi-Annual Period of
Participation within the offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall
continue in effect for the remainder of the offering period,
except to the extent such rate is changed in accordance with the
following guidelines:
(i) The Participant may, at any time
during a Semi-Annual Period of Participation, reduce
his or her rate of payroll deduction to become
effective as soon as possible after filing the
appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1)
such reduction per Semi-Annual Period of Participation.
(ii) The Participant may, prior to the
commencement of any new Semi-Annual Period of
Participation within the offering period, increase the
rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new
rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective as of the first day of
the first Semi-Annual Period of Participation following
the filing of such form.
B. Payroll deductions shall begin on the first pay
day following the Participant's Entry Date into the offering
period and shall (unless sooner terminated by the Participant)
continue through the pay day ending with or immediately prior to
the last day of the offering period. The amounts so collected
shall be credited to the Participant's book account under the
Plan, but no interest shall be paid on the balance from time to
time outstanding in such account. The amounts collected from the
Participant shall not be held in any segregated account or trust
fund and may be commingled with the general assets of the
Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon
the termination of the Participant's purchase right in accordance
with the provisions of Section VII below.
D. The Participant's acquisition of Common Stock
under the Plan on any Semi-Annual Purchase Date shall neither
limit nor require the Participant's acquisition of Common Stock
on any subsequent Semi-Annual Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be
------------------------
granted a separate purchase right for each offering period in
which he or she participates. The purchase right shall be
granted on the Participant's Entry Date into the offering period
and shall provide
3.
</PAGE>
<PAGE>
the Participant with the right to purchase shares of Common
Stock, in a series of successive semi-annual installments over
the remainder of such offering period, upon the terms set forth
below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent
with the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted
under the Plan to any Eligible Employee if such individual would,
immediately after the grant, own (within the meaning of Code
Section 424(d)) or hold outstanding options or other rights to
purchase, stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase
--------------------------------
right shall be automatically exercised in successive semi-annual
installments on each Semi-Annual Purchase Date in an offering
period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant (other than Participants whose
payroll deductions have previously been refunded in accordance
with the Termination of Purchase Right provisions below) on each
such date. The purchase shall be effected by applying the
Participant's payroll deductions for the Semi-Annual Period of
Participation ending on such Semi-Annual Purchase Date (together
with any carryover deductions from the preceding Semi-Annual
Period of Participation) to the purchase of whole shares of
Common Stock (subject to the limitation on the maximum number of
shares purchasable per Participant on any one Semi-Annual
Purchase Date) at the purchase price in effect for the
Participant for that Semi-Annual Purchase Date.
C. Purchase Price. The purchase price per share at
---------------
which Common Stock will be purchased on the Participant's behalf
on each Semi-Annual Purchase Date within the offering period
shall be equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the
Fair Market Value per share of Common Stock on that Semi-Annual
Purchase Date. However, for each Participant whose Entry Date is
other than the start date of the offering period, the clause (i)
amount shall in no event be less than the Fair Market Value per
share of Common Stock on the start date of that offering period.
D. Number of Purchasable Shares. The number of
-------------------------------
shares purchasable by a Participant on each Semi-Annual Purchase
Date during the offering period shall be the number of whole
shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Semi-Annual
Period of Participation ending with that Semi-Annual Purchase
Date (together with any carryover deductions from the preceding
Semi-Annual Period of Participation) by the purchase price in
effect for that Semi-Annual Purchase Date. However, the maximum
number of shares of Common Stock purchasable
4.
</PAGE>
<PAGE>
per Participant on any one Semi-Annual Purchase Date shall not
exceed Two Thousand (2,000) shares, subject to periodic
adjustments in the event of certain changes in the Corporation's
capitalization.
E. Excess Payroll Deductions. Any payroll
-----------------------------
deductions not applied to the purchase of shares of Common Stock
on any Semi-Annual Purchase Date because they are not sufficient
to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Semi-Annual Purchase Date.
However, any payroll deductions not applied to the purchase of
Common Stock by reason of the limitation on the maximum number of
shares purchasable by the Participant on the Semi-Annual Purchase
Date shall be promptly refunded.
F. Termination of Purchase Right. The following
-------------------------------
provisions shall govern the termination of outstanding purchase
rights:
(i) A Participant may, at any time prior to
the next Semi-Annual Purchase Date in an offering
period, terminate his or her outstanding purchase right
under the offering period by filing the appropriate
form with the Plan Administrator (or its designate),
and no further payroll deductions shall be collected
from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during
the Semi-Annual Period of Participation in which such
termination occurs shall, at the Participant's
election, be immediately refunded or held for the
purchase of shares on the next Semi-Annual Purchase
Date. If no such election is made at the time such
purchase right is terminated, then the payroll
deductions collected with respect to the terminated
right shall be refunded as soon as possible.
(ii) The termination of such purchase right
shall be irrevocable, and the Participant may not
subsequently rejoin the offering period for which the
terminated purchase right was granted. To resume
participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a
timely filing of the prescribed enrollment forms) on or
before the date he or she is first eligible to join the
new offering period.
(iii) Should the Participant cease to remain
an Eligible Employee for any reason (including death,
disability or change in status) while his or her
purchase right remains outstanding, then that purchase
right shall immediately terminate, and all of the
Participant's payroll deductions for the Semi-Annual
Period of Participation in which such cessation of
Eligible Employee status occurs shall be immediately
refunded.
G. Corporate Transaction. In the event of a
-----------------------
Corporate Transaction during the offering period, each
outstanding purchase right shall automatically be exercised,
immediately prior to the effective date of such Corporate
Transaction, by applying the
5.
</PAGE>
<PAGE>
payroll deductions of each Participant for the Semi-Annual Period
of Participation in which such Corporate Transaction occurs to
the purchase of whole shares of Common Stock at a purchase price
per share equal to eighty-five percent (85%) of the lower of (i)
the Fair Market Value per share of Common Stock on the
Participant's Entry Date into the offering period in which such
Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of
such Corporate Transaction. However, the applicable share
limitations per Participant shall continue to apply to any such
purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other
than the start date of that offering period, be less than the
Fair Market Value per share of Common Stock on such start date.
The Corporation shall use its best efforts to provide
at least ten (10)-days prior written notice of the occurrence of
any Corporate Transaction, and Participants shall, following the
receipt of such notice, have the right to terminate their
outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. Proration of Purchase Rights. Should the total
-----------------------------
number of shares of Common Stock which are to be purchased
pursuant to outstanding purchase rights on any particular date
exceed the number of shares then available for issuance under the
Plan, the Plan Administrator shall make a pro-rata allocation of
the available shares on a uniform and nondiscriminatory basis,
and the payroll deductions of each Participant, to the extent in
excess of the aggregate purchase price payable for the Common
Stock pro-rated to such individual, shall be refunded.
I. Assignability. During the Participant's lifetime,
--------------
the purchase right shall be exercisable only by the Participant
and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no
-------------------
stockholder rights with respect to the shares subject to his or
her outstanding purchase right until the shares are purchased on
the Participant's behalf in accordance with the provisions of the
Plan and the Participant has become a holder of record of the
purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights
to acquire Common Stock pursuant to any purchase right
outstanding under this Plan if and to the extent such accrual,
when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right outstanding under this Plan and
(ii) similar rights accrued under other employee stock purchase
plans (within the meaning of Code Section 423) of the Corporation
or any Corporate Affiliate, would otherwise permit such
Participant to purchase more than Twenty-Five Thousand Dollars
($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of
such stock on the
6.
</PAGE>
<PAGE>
date or dates such rights are granted) for each calendar year
such rights are at any time outstanding.
B. For purposes of applying such accrual limitations,
the following provisions shall be in effect:
(i) The right to acquire Common Stock
under each purchase right shall accrue on each Semi-
Annual Purchase Date for which the right remains
outstanding.
(ii) No right to acquire Common Stock
under any outstanding purchase right shall accrue to
the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock
under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth
of Common Stock (determined on the basis of the Fair
Market Value of such stock on the date or dates of
grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular
Semi-Annual Period of Participation, then the payroll deductions
which the Participant made during that Semi-Annual Period of
Participation with respect to such purchase right shall be
promptly refunded.
D. In the event there is any conflict between the
provisions of this article and one or more provisions of the Plan
or any instrument issued thereunder, the provisions of this
article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board in January 1995
and approved by the stockholders in February 1995, and the Plan
became effective at the Effective Time. The 100,000-share
increase to the share reserve available for issuance under the
Plan was authorized by the Board on February 1, 1996 and approved
by the Corporation's stockholders at the 1996 Annual Meeting.
The 150,000-share increase to the share reserve available for
issuance under the Plan was authorized by the Board in April
1997, subject to approval by the Corporation's stockholders at
the 1997 Annual Meeting. Should such stockholder approval not be
obtained, then the 150,000-share increase will not be
implemented, and any purchase rights granted on the basis of the
150,000-share increase to the Plan will immediately terminate.
No additional purchase rights will be granted on the basis of
such share increase, and the Plan will terminate once the
existing share reserve has been issued.
B. Unless sooner terminated by the Board, the Plan
shall terminate upon the earliest of (i) the last business day in
January 2005, (ii) the date on which all shares
7.
</PAGE>
<PAGE>
available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the
date on which all purchase rights are exercised in connection
with a Corporate Transaction.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue
the Plan following the close of any Semi-Annual Period of
Participation. However, the Board may not, without the approval
of the Corporation's stockholders, (i) materially increase the
number of shares issuable under the Plan or the maximum number of
shares purchasable per Participant on any one Semi-Annual
Purchase Date, except for permissible adjustments in the event of
certain changes in the Corporation's capitalization, (ii) alter
the purchase price formula so as to reduce the purchase price
payable for the shares purchasable under the Plan, or (iii)
materially increase the benefits accruing to Participants under
the Plan or materially modify the requirements for eligibility to
participate in the Plan.
B. The Corporation shall have the right, exercisable
in the sole discretion of the Plan Administrator, to terminate
all outstanding purchase rights under the Plan immediately
following the close of any Semi-Annual Period of Participation.
Should the Corporation elect to exercise such right, then the
Plan shall terminate in its entirety. No further purchase rights
shall thereafter be granted or exercised, and no further payroll
deductions shall thereafter be collected, under the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the
administration of the Plan shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the
Participant any right to continue in the employ of the
Corporation or any Corporate Affiliate for any period of specific
duration or interfere with or otherwise restrict in any way the
rights of the Corporation (or any Corporate Affiliate employing
such person) or of the Participant, which rights are hereby
expressly reserved by each, to terminate such person's employment
at any time for any reason, with or without cause.
C. The provisions of the Plan shall be governed by
the laws of the State of California without resort to that
State's conflict-of-laws rules.
8.
</PAGE>
<PAGE>
Schedule A
Corporations Participating in
Employee Stock Purchase Plan
As of April 1997
P-Com, Inc.
P-Com United Kingdom, Inc.
P-Com (Barbados) FSC Limited
P-Com Finance Corporation
Geritel S.p.A.
P-Com Field Services, Inc.
P-Com Merger Subsidiary, Inc.
</PAGE>
<PAGE>
APPENDIX
The following definitions shall be in effect under the
Plan:
A. Base Salary shall mean the regular base salary
------------
paid to a Participant by one or more Participating Companies
during such individual's period of participation in the Plan,
plus any pre-tax contributions made by the Participant to any
Code Section 401(k) salary deferral plan or any Code Section 125
cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate. The following items of
compensation shall not be included in Base Salary: (i) all
overtime payments, bonuses, commissions (other than those
functioning as base salary equivalents), profit-sharing
distributions and other incentive-type payments and (ii) any and
all contributions (other than Code Section 401(k) or Code Section
125 contributions) made on the Participant's behalf by the
Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.
B. Board shall mean the Corporation's Board of
-----
Directors.
C. Code shall mean the Internal Revenue Code of 1986,
----
as amended.
D. Common Stock shall mean the Corporation's common
------------
stock.
E. Corporate Affiliate shall mean any parent or
--------------------
subsidiary corporation of the Corporation (as determined in
accordance with Code Section 424), whether now existing or
subsequently established.
F. Corporate Transaction shall mean either of the
---------------------
following stockholder-approved transactions to which the
Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of
the total combined voting power of the Corporation's
outstanding securities are transferred to a person or
persons different from the persons holding those
securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition
of all or substantially all of the assets of the
Corporation in complete liquidation or dissolution of
the Corporation.
G. Corporation shall mean P-Com, Inc., a Delaware
-----------
corporation, and any corporate successor to all or substantially
all of the assets or voting stock of P-Com, Inc. which shall by
appropriate action adopt the Plan.
A-1
</PAGE>
<PAGE>
H. Effective Time shall mean the time at which the
--------------
Underwriting Agreement was executed and finally priced. Any
Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective
Time with respect to its employee-Participants.
I. Eligible Employee shall mean any person who is
-----------------
engaged, on a regularly-scheduled basis of more than twenty (20)
hours per week for more than five (5) months per calendar year,
in the rendition of personal services to any Participating
Corporation as an employee for earnings considered wages under
Section 3401(a) of the Code.
J. Entry Date shall mean the date an Eligible
-----------
Employee first commences participation in the offering period in
effect under the Plan. The earliest Entry Date under the Plan
shall be the Effective Time, and subsequent Entry Dates shall
correspond with the Semi-Annual Entry Dates permitted under the
Plan.
K. Fair Market Value per share of Common Stock on any
-----------------
relevant date shall be determined in accordance with the
following provisions:
(i) If the Common Stock is at the time
traded on the Nasdaq National Market, then the Fair
Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such
price is reported by the National Association of
Securities Dealers on the Nasdaq National Market or any
successor system. If there is no closing selling price
for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time
listed on any Stock Exchange, then the Fair Market
Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price
on the last preceding date for which such quotation
exists.
(iii) For purposes of the initial offering
period which began at the Effective Time, the Fair
Market Value shall be deemed to be equal to the price
per share at which the Common Stock was sold in the
initial public offering pursuant to the Underwriting
Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as
--------
amended.
A-2
</PAGE>
<PAGE>
M. 1934 Act shall mean the Securities Exchange Act of
--------
1934, as amended.
N. Participant shall mean any Eligible Employee of a
-----------
Participating Corporation who is actively participating in the
Plan.
O. Participating Corporation shall mean the
--------------------------
Corporation and such Corporate Affiliate or Affiliates as may be
authorized from time to time by the Board to extend the benefits
of the Plan to their Eligible Employees. The Participating
Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
P. Plan shall mean the Corporations Employee Stock
----
Purchase Plan, as set forth in this document.
Q. Plan Administrator shall mean the committee of two
------------------
(2) or more Board members appointed by the Board to administer
the Plan.
R. Semi-Annual Entry Date shall mean the first
-----------------------
business day of February and August each calendar year within an
offering period in effect under the Plan. However, the earliest
Semi-Annual Entry Date for the initial offering period under the
Plan shall be the Effective Time.
S. Semi-Annual Period of Participation shall mean
-----------------------------------
each semi-annual period for which the Participant participates in
an offering period in effect under the Plan. There shall be a
maximum of four (4) semi-annual periods of participation within
each offering period. The first such semi-annual period (which
may be less than six (6) months for the initial offering period)
extended from the Effective Time through the last business day in
July 1995. Subsequent semi-annual periods shall be measured from
the first business day of August in each calendar year to the
last business day of January in the succeeding calendar year and
from the first business day of February in each calendar year to
the last business day of July in that calendar year.
T. Semi-Annual Purchase Date shall mean the last
-------------------------
business day of each Semi-Annual Period of Participation. The
initial Semi-Annual Purchase Date was July 31, 1995.
U. Stock Exchange shall mean either the American
---------------
Stock Exchange or the New York Stock Exchange.
V. Underwriting Agreement shall mean the agreement
----------------------
between the Corporation and the underwriter or underwriters
managing the initial public offering of the Common Stock.
A-3
</PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 14,423
<SECURITIES> 5,088
<RECEIVABLES> 52,639
<ALLOWANCES> (580)
<INVENTORY> 42,182
<CURRENT-ASSETS> 127,677
<PP&E> 31,498
<DEPRECIATION> (9,271)
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0
0
<COMMON> 2
<OTHER-SE> 128,617
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<SALES> 87,771
<TOTAL-REVENUES> 87,771
<CGS> 51,630
<TOTAL-COSTS> 78,388
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<LOSS-PROVISION> (579)
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<INCOME-PRETAX> 9,315
<INCOME-TAX> 3,353
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<EPS-PRIMARY> 0.28
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</TABLE>
