<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998.
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 12, 1998, there were 43,469,103 shares of the Registrant's Common
Stock outstanding, par value $0.0001.
This quarterly report on Form 10-Q Consists of 29 pages of which this is
page 1. The Exhibit Index appears on page 29.
<PAGE>
P-COM, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION NUMBER
--------------------- -------
<S> <C> <C>
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of June 30, 1998 and December 31,
1997................................................................................... 3
Condensed Consolidated Statements of Operations for the three and six month periods
ended June 30, 1998 and 1997........................................................... 4
Condensed Consolidated Statements of Cash Flows for the six month periods ended
June 30, 1998 and 1997................................................................. 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...................................................................... 26
Item 2. Changes in Securities.................................................................. 26
Item 3. Defaults Upon Senior Securities........................................................ 26
Item 4. Submission of Matters to a Vote of Security Holders.................................... 26
Item 5. Other Information...................................................................... 26
Item 6. Exhibits and Reports on Form 8-K....................................................... 26
Signatures.............................................................................................. 27
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
ITEM I
P-COM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------------- ---------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,988 $ 88,145
Accounts receivable, net 79,422 70,883
Notes receivable 1,370 205
Inventory 78,618 58,003
Prepaid expenses and other current assets 19,517 12,329
-------- --------
Total current assets 203,915 229,565
Property and equipment, net 45,868 32,313
Deferred income taxes 12,927 1,697
Goodwill and other assets 58,332 41,946
-------- --------
$321,042 $305,521
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 27,570 $ 38,043
Accrued employee benefits 4,165 3,930
Other accrued liabilities 6,260 6,255
Income taxes payable 5,756 6,409
Notes payable 38,693 293
-------- --------
Total current liabiltities 82,444 54,930
-------- --------
Long-term debt 102,643 101,690
-------- --------
Minority interest - 604
-------- --------
Stockholders' equity:
Preferred stock - -
Common Stock 4 4
Additional paid-in capital 135,248 131,735
Retained earnings 1,477 18,380
Cumulative translation adjustment (774) (1,822)
-------- --------
Total stockholders' equity 135,955 148,297
-------- --------
$321,042 $305,521
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Sales $63,459 $55,058 $122,096 $99,285
Cost of sales 38,740 32,375 72,252 59,827
------- ------- -------- -------
Gross profit 24,719 22,683 49,844 39,458
------- ------- -------- -------
Operating expenses:
Research and development 10,192 7,051 17,920 13,825
Selling and marketing 6,438 4,008 10,663 6,923
General and administrative 4,937 4,032 8,869 7,469
Goodwill amortization 1,187 565 1,818 911
Acquired in-process research and
development - - 33,882 -
------- ------- -------- -------
Total operating expenses 22,754 15,656 73,152 29,128
------- ------- -------- -------
Income (loss) from operations 1,965 7,027 (23,308) 10,330
Interest and other income (expense), net (1,442) (100) (2,306) (171)
------- ------- -------- -------
Income (loss) before income taxes 523 6,927 (25,614) 10,159
Provision (benefit) for income taxes 177 1,816 (8,711) 3,369
------- ------- -------- -------
Net income (loss) $ 346 $ 5,111 $(16,903) $ 6,790
======= ======= ======== =======
Net income (loss) per share:
Basic $ 0.01 $ 0.12 $ (0.39) $ 0.16
======= ======= ======== =======
Diluted $ 0.01 $ 0.12 $ (0.39) $ 0.16
======= ======= ======== =======
Shares used in per share computation:
Basic 43,201 42,174 43,077 41,772
======= ======= ======== =======
Diluted 44,253 43,771 43,077 43,504
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
P-COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
- ------------------------------------
Net income (loss) $(16,903) $ 6,790
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 5,793 1,868
Amortization of goodwill 1,001 913
Change in minority interest (604) 33
Acquired in-process research and development 33,856 -
Change in assets and liabilities (net of acquisition balances):
Accounts receivable 526 (5,743)
Notes receivable (1,165) 1,814
Inventory (15,506) (7,054)
Prepaid expenses (7,188) (5,804)
Goodwill and other assets (12,770) (805)
Accounts payable (11,828) (5,223)
Accrued employee benefits 235 1,278
Other accrued liabilities 5 (3,096)
Income taxes payable (653) 1,731
-------- --------
Net cash used in operating activities (25,201) (13,298)
-------- --------
Cash flows from investing activities:
- ------------------------------------
Acquisition of property and equipment (18,887) (3,226)
Acquisitions, net of cash acquired (48,483) (10,855)
-------- --------
Net cash used in investing activities (67,370) (14,081)
-------- --------
Cash flows from financing activities:
- ------------------------------------
Proceeds from notes payable 24,853 4,562
Proceeds from stock issuances, net of expenses 3,513 1,720
-------- --------
Net cash provided by financing activities 28,366 6,282
-------- --------
Effect of exchange rate changes on cash 1,048 (550)
-------- --------
Net decrease in cash and cash equivalents (63,157) (21,647)
Cash and cash equivalents at the beginning of the period 88,145 42,226
-------- --------
Cash and cash equivalents at the end of the period $ 24,988 $ 20,579
======== ========
Supplemental cash flow disclosures:
Cash paid for income taxes $ 1,902 $ 1,510
======== ========
Cash paid for interest $ 558 $ 459
======== ========
Stock issued in connection with the acquisition of CSM $ - $ 14,500
======== ========
Notes Payable issued in connection with the acquisition of Cylink $ 14,500 $ -
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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. 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, 1998, and the results of its operations for the three
and six-month periods ended June 30, 1998 and 1997 and its cash flows for the
six months ended June 30, 1998 and 1997. These financial statements should be
read in conjunction with the Company's audited 1997 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 periods ended June 30, 1998 are
not necessarily indicative of the operating results that may be expected for the
year ending December 31, 1998. This Quarterly Report on Form 10-Q contains
forward-looking statements that involve numerous risks and uncertainties. The
statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended and Section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the factors affecting operating results
contained in this Quarterly Report on Form 10-Q.
2. NET INCOME (LOSS) PER SHARE
Following is a reconciliation of the numerators and denominators of the Basic
and Diluted EPS computations for the periods presented below (in thousands
except per share data):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Numerator - net income (loss) $ 346 $ 5,111 $(16,903) $ 6,790
======= ======= ======== =======
Denominator for basic earnings per common share 43,201 42,174 43,077 41,772
Effect of dilutive securities:
Stock options 1,052 1,597 - 1,732
Denominator for diluted earnings per common share 44,253 43,771 43,077 43,504
======= ======= ======== =======
Income (loss) per share:
Basic $ 0.01 $ 0.12 $ (0.39) $ 0.16
======= ======= ======== =======
Diluted $ 0.01 $ 0.12 $ (0.39) $ 0.16
======= ======= ======== =======
</TABLE>
For purposes of computing diluted earnings per share, weighted average common
share equivalents do not include stock options with an exercise price that
exceeds the average fair market value of the Company's common stock for the
period because the effect would be antidilutive. For the three and six-months
ended June 30, 1998, options to purchase approximately 2,257,624 and 2,669,314
shares of common stock, respectively, were excluded from the computation. For
the three and six-months ended June 30, 1998, the assumed conversion of
Convertible Subordinated Notes into 3,641,661 shares of Common Stock was not
included in the computation of diluted earnings per share because the effect
would be antidilutive.
6
<PAGE>
3. RECENT ACCOUNTING PRONOUNCEMENTS
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 Company's total comprehensive net income (loss) was as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----------- ------------ ------------ -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $ 346 $5,111 $(16,903) $6,790
Other comprehensive income 1,231 1,623 1,048 1,346
------ ------ -------- ------
Total comprehensive income (loss) $1,577 $6,734 $(15,855) $8,136
====== ====== ======== ======
</TABLE>
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
disclosures prescribed by SFAS 131 are effective in 1998, and are not required
for interim periods. The Company does not expect this pronouncement to have a
material effect on its financial statements.
4. ACQUISITIONS
On March 28, 1998 and April 1, 1998, the Company acquired substantially all of
the assets of the Wireless Communications Group of Cylink Corporation ("Cylink
Wireless Group"), a Sunnyvale, California-based company, for $46.0 million in
cash and $14.5 million in a short-term, non-interest bearing unsecured
subordinated promissory note. The Cylink Wireless Communications Group designs,
manufactures and markets spread spectrum radio products for voice and data
applications in both domestic and international markets. The Company incurred a
one time research and development charge of approximately $33.9 million during
the three-month period ended March 31, 1998 related to this requisition.
The Company accounted for this acquisition based on the purchase method of
accounting. The results of the Cylink Wireless Group are included from the date
of acquisition and were not material to the Company's results of operations.
The total purchase price of the acquisition was as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash Payment $46,000
Short-term promissory note 14,500
Expenses 2,483
-------
Total $62,983
=======
</TABLE>
7
<PAGE>
The allocation of the purchase price was as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable, net $ 9,065
Inventory 5,109
Property and equipment, net 461
In-process research and development 33,856
Intangible assets 15,847
Current liabilities assumed (1,355)
--------
Total $ 62,983
========
</TABLE>
The following estimated unaudited pro forma sales, net income (loss) and
income (loss) per share combine the historical sales and net income (loss) and
income (loss) per share of P-Com and Cylink for the three months ended March 31,
1998 and the year ended December 31, 1997 in each case as if the acquisition had
occurred at the beginning of the earliest period presented. The results include
goodwill amortization related to the Cylink acquisition. (In thousands, except
per share data)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
------------------ -------------------
March 31, 1998 December 31, 1997
------------------------------------------------- ------------------------------------------------
P-Com Cylink Pro Forma P-Com Cylink Pro Forma
------------ ----------- -------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 58,637 $ 4,508 $ 63,145 $220,702 $31,267 $251,969
Net income (loss) (17,249) (3,510) (20,757) 18,891 2,948 21,839
Net Income (loss) per share:
Basic (0.40) (0.08) (0.48) 0.45 0.07 0.52
Diluted (0.40) (0.08) (0.48) 0.43 0.06 0.49
</TABLE>
5. BORROWING ARRANGEMENTS
The Company entered into a new revolving line-of-credit agreement on May 15,
1998 that provides for borrowings of up to $50 million. The maturity date of the
line-of-credit agreement is April 30, 2001. Borrowings under the line are
secured 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 specific minimum ratios. The Company was
in compliance with such covenants as of June 30, 1998.
6. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
----------- -------------
<S> <C> <C>
Raw materials $12,374 $ 9,695
Work-in-process 40,559 32,472
Finished goods 25,685 15,836
------- -------
$78,618 $58,003
======= =======
</TABLE>
8
<PAGE>
7. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(unaudited)
----------- -------------
<S> <C> <C>
Tooling and test equipment $ 39,726 $ 31,603
Computer equipment 7,252 4,950
Furniture and fixtures 6,895 4,979
Land and buildings 1,403 1,389
Construction-in-process 10,287 3,294
--------- ---------
$ 65,563 $ 46,215
Less -- accumulated depreciation and amortization (19,695) (13,902)
--------- ---------
$ 45,868 $ 32,313
========= =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth items from the Consolidated Condensed Income
Statements as a percentage of sales for the periods indicated. In addition, this
Quarterly Report on Form 10-Q may contain forward-looking statements that
involve numerous risks and uncertainties. The statements contained in this
Quarterly Report on Form 10-Q that are not purely historical maybe forward-
looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended, including without limitation, statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the factors affecting operating results contained in this Quarterly
Report on Form 10-Q.
Factors that could cause or contribute to such differences include, but are
not limited to, those discussed in the Company's 1997 Annual Report on Form 10-
K, Quarterly Report on Form 10-Q for the period ended March 31, 1998 and other
documents filed by the Company with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 61.0 58.8 59.2 60.3
----- ----- ----- -----
Gross profit 39.0 41.2 40.8 39.7
----- ----- ----- -----
Operating expenses:
Research and development 16.1 12.8 14.7 13.9
Selling and marketing 10.1 7.3 8.7 7.0
General and administrative 7.8 7.3 7.2 7.5
Goodwill amortization 1.9 1.0 1.5 0.9
Acquired in-process
research and development - - 27.8 -
----- ----- ----- -----
Total operating expenses 35.9 28.4 59.9 29.3
----- ----- ----- -----
Income (loss) from operations 3.1 12.8 (19.1) 10.4
----- ----- ----- -----
Interest and other income (expense), net (2.3) (0.2) (1.9) (0.2)
----- ----- ----- -----
Income (loss) before income taxes 0.8 12.6 (21.0) 10.2
Provision (benefit) for income taxes 0.3 3.3 (7.1) 3.4
----- ----- ----- -----
Net income (loss) 0.5% 9.3% (13.9)% 6.8%
===== ===== ===== =====
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Sales. Sales for the three months ended June 30, 1998 and 1997 were
approximately $63.5 million and $55.1 million, respectively, an increase of
15.1%. Sales for the six months ended June 30, 1998 and 1997 were approximately
$122.1 million and $99.3 million, respectively, an increase of 23.0%. The
increase was primarily due to sales from companies recently acquired. For the
six months ended June 30, 1998, five customers accounted for 55.1% of the sales
of the Company. For the six months ended June 30, 1997, seven customers
accounted for 54.1% of the sales of the Company.
Gross Profit. For the three months ended June 30, 1998 and 1997, gross
profit was approximately $24.7 million, or 39.0% of sales, and approximately
$22.7 million, or 41.2% of sales, respectively. For the six months ended June
30, 1998 and 1997, gross profit was approximately $49.8 million or 40.8% of net
sales, and approximately $39.5 million, or 39.7% of net sales, respectively. The
decline in gross profit in the second quarter of 1998 compared to the
corresponding period in 1997 was primarily due to declines in prices.
Research and Development. For the three months ended June 30, 1998 and 1997,
research and development expenses were approximately $10.2 million and $7.1
million, respectively. The increase in research and development expenses during
the three months ended June 30, 1998 as compared to the corresponding period in
1997 was due primarily to increased staffing. As a percentage of sales, research
and development expenses increased from 12.8% in the three months ended June 30,
1997 to 16.1% in the corresponding period in 1998. The increase in research and
development expenses as a percentage of sales was primarily due to increased
expenses related to new product development including point to multipoint
development also due to slower growth in sales relative to R&D. The Company
expects that research and development expenses will continue to increase
significantly in absolute dollars during the remainder of 1998 compared to the
1997 fiscal year.
Research and development expenses for the six months ended June 30, 1998 and
1997 were approximately $17.9 million and $13.8 million, respectively. The
increase in research and development during the six months ended June 30, 1998,
as compared to the corresponding period in 1997 was due primarily to increased
staffing. As a percentage of sales, research and development expenses increased
from 13.9% in the six months ended June 30, 1997 to 14.7% in the corresponding
period in 1998. The increase in research and development expenses as a
percentage of sales was primarily due to increased expenses related to new
product development also due to slower growth in sales relative to R&D. The
Company expects that research and development expenses will continue to increase
significantly in absolute dollars during the remainder of 1998 compared to the
1997 fiscal year.
Selling and Marketing. For the three months ended June 30, 1998 and 1997,
selling and marketing expenses were approximately $6.4 million and $4.0 million,
respectively. The increase in selling and marketing expenses in the three months
ended June 30, 1998, as compared to the corresponding period in 1997, was
primarily due to increased staffing 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 7.3% in the
three months ended June 30, 1997 to 10.1% in the corresponding period in 1998.
The increase in selling and marketing expenses as a percentage of sales was
primarily due to the costs relating to the Company's expansion of its
international market. The Company expects that such expenses will continue to
increase significantly in absolute dollars during the remainder of 1998 compared
to the 1997 fiscal year, as the Company continues to expand its operations.
Selling and marketing expenses for the six months ended June 30, 1998 and 1997
were approximately $10.7 million and $6.9 million, respectively. The increase in
selling and marketing during the six months ended June 30, 1998, as compared to
the corresponding period in 1997 was due primarily to increased staffing, 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 7.0% in the six months ended June 30, 1997 to
8.7% in the corresponding period in 1998. The increase in selling and marketing
expenses as a percentage of sales was primarily due to the costs relating to the
expansion of the Company's international sales. The Company expects that selling
and marketing expenses will continue to increase significantly in absolute
dollars during the remainder of 1998.
General and Administrative. For the three months ended June 30, 1998 and 1997,
general and administrative expenses were $4.9 million and $4.0 million,
respectively. The increase was principally due to increased staffing and other
costs resulting from the Company's expansion of its operations. As a percentage
of sales, general and administrative expenses increased from 7.3% in the three
months ended June 30, 1997 to 7.8% in the corresponding
10
<PAGE>
period in 1998. This increase in general and administrative expenses as a
percentage of sales during the three months ended June 30, 1998 as compared to
the corresponding period in 1997 was due primarily to the costs relating to the
expansion of Company's operations.
General and administrative expenses for the six months ended June 30, 1998 and
1997 were approximately $8.9 million and $7.5 million, respectively. This
increase was due primarily to increased staffing and other costs resulting from
the Company's expansion of its operations. As a percentage of sales, general
and adminsitrative expenses decreased from 7.5% in the six months ended June 30,
1997 to 7.2% in the corresponding period in 1998. This decrease in general and
administrative expenses as a percentage of sales during the six months ended
June 30, 1998 as compared to the corresponding period in 1997 was primarily due
to a higher level of sales. The Company expects that general and administrative
expenses will continue to increase significantly in absolute dollars during the
remainder of 1998.
Goodwill Amortization. Goodwill amortization consists of the charge to income
that results from the allocation over the estimated useful life of the component
of the cost of the Company's acquisitions accounted for by the purchase method
which is greater than the fair value of the net assets acquired. For the three
months ended June 30, 1998 and 1997, goodwill amortization was $1.2 million and
$0.6 million, respectively. The increase in goodwill amortization in the three
months ended June 30, 1998 as compared to the corresponding period in 1997 was
due primarily to the acquisition of the Wireless Communications Group of Cylink
Corporation ("Cylink Wireless Group"), a Sunnyvale, California-based company in
March 1998.
Goodwill amortization for the six months ended June 30, 1998 and 1997 was $1.8
million and $0.9 million, respectively. The increase in goodwill amortization in
the six months ended June 30, 1998 as compared to the corresponding period in
1997 was due to the requisitions using the purchase method of Accounting of
Technosystem S.p.A. ("Technosystem") a Rome, Italy-based company, Columbia
Spectrum Management ("CSM") a Vienna, Virginia-based company, and the Cylink
Wireless Group in February 1997, March 1997, and March 1998, respectively
In-Process Research and Development During the three months ended March 31,
1998, the Company incurred a one time in-process research and development
expense of $33.9 million. This in-process research and development expense
related to the acquisition of the assets of the Cylink Wireless Group.
Interest and Other Income (Expense), Net . The Company incurred net interest
and other income and expense of $1.4 million during the three months ended June
30, 1998, as compared to $0.1 million of net interest and other income and
expense during the corresponding period in 1997. The Company incurred net
interest and other income and expense of $2.3 million during the six months
ended June 30, 1998, as compared to $0.2 million of net interest and other
income and expense during the corresponding period in 1997. The increase in net
interest and other income and expense was primarily due to interest expense
incurred on its $100 million aggregate principal amount of its promissory notes,
borrowings under the Company's bank line of credit, and finance charges related
to the Company's receivables purchase agreement.
LIQUIDITY AND CAPITAL RESOURCES
The Company used approximately $25.2 million in operating activities during
the six months ended June 30, 1998, primarily due to an increase in inventory,
prepaid expenses and other assets of $15.5 million, $7.2 million and $12.8
million, respectively, and a decrease in accounts payable of $11.8 million.
These uses of cash were partially offset by net income (excluding non-cash
charges for acquired in-process research and development expense) of $17.0
million and depreciation and amortization expense of $6.8 million.
On March 28 and April 1, 1998, the Company acquired substantially all of the
assets of the Cylink Wireless Group, for $46.0 million in cash and $14.5 million
in a short term, non-interest bearing unsecured subordinated promissory note.
The Cylink Wireless Group designs, manufactures and markets spread spectrum
radio products for voice and data applications in both domestic and
international markets. The Company incurred a one time research and development
charge of approximately $33.9 million in the first quarter of 1998. In
connection with the acquisition of the assets of the Cylink Wireless Group, the
Company purchased the accounts receivable balance of $9.1 million on April 1,
1998. The consideration for these accounts receivable was included in the total
of $60.5 million in cash and the debt mentioned above.
11
<PAGE>
The Company used approximately $67.4 million in investing activities during
the six months ended June 30, 1998 consisting of approximately $48.5 million to
acquire the assets of the Cylink Wireless Group and $18.9 million to acquire
capital equipment.
The Company generated approximately $28.4 million in its financing activities
during the six months ended June 30, 1998. The Company received approximately
$24.9 million from borrowings, under its bank line of credit and approximately
$3.5 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, 1998 and December 31, 1997, net accounts receivable were
approximately $79.4 million and $70.9 million, respectively. The Company has
established a receivables purchase agreement which allows the Company to sell
up to $25 million in accounts receivable. These sales have no recourse to the
Company. The Company plans to continue to utilize this facility as part of
managing its overall liquidity and/or third-party financing programs. At June
30, 1998 and December 31, 1997, inventory was approximately $78.6 million and
$58.0 million, respectively. Of the $20.6 million increase that occurred in
the six months ended June 30, 1998, $5.1 million was due to the acquisition of
inventory from the Cylink Wireless Group requisition.
At June 30, 1998, the Company had working capital of approximately $121.5
million, compared to $174.6 million at December 31, 1997. 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 continue to be significant and will continue to
represent a significant portion of working capital. Significant investments in
accounts receivable and inventories will subject the Company to increased risks
that has and could continue to 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, 1998 consisted of
approximately $25.0 million of cash and cash equivalents. In addition, the
Company entered into a new revolving line-of-credit agreement on May 15, 1998
that provides for borrowings of up to $50.0 million. As of June 30, 1998, the
Company had been advanced $31 million under such line. The maturity date of the
line of credit is April 30, 2001. Borrowings under the line are secured 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 specific minimum ratios. The Company was in
compliance with such covenants as of June 30, 1998
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 its
newly acquired entities including Geritel S.p.A. ("Geritel"), Atlantic
Communication Sciences, Inc. ("ACS"), Technosystem, Control Resources
Corporation ("CRC"), Columbia Spectrum Management ("CSM") and Cylink Wireless
Group, 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, may 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 or for acquisition. 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".
There can be no assurance that any of the operations of ACS, Geritel,
Technosystem, CRC, CSM or Cylink Wireless Group will be profitable after the
acquisitions. Moreover, there can be no assurance that the anticipated benefits
of the ACS, Geritel, Technosystem, CRC, CSM and Cylink Wireless Group
acquisitions will be realized. The ongoing process of integrating the operations
of ACS, Geritel, Technosystem, CRC, CSM and Cylink Wireless Group 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.
12
<PAGE>
CERTAIN FACTORS AFFECTING OPERATING RESULTS
Limited Operating History
P-Com 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 1998, the Company generated
a cumulative net profit of approximately $1.5 million. The decrease in
cumulative net profit from 1997 to the second quarter of 1998 was due to the one
time in-process research and development charge of approximately $33.9 million
related to the acquisition of the assets of the Cylink Wireless Group. From
October 1993 through June 30, 1998, the Company generated sales of approximately
$577.0 million, of which $342.8 million, or 59.4% of such amount, was generated
in the year ended December 31, 1997 and the first half of 1998. The Company does
not believe recent growth rates are indicative of future operating results. Due
to the Company's limited operating history and limited resources, among other
factors, there can be no assurance that profitability or significant revenues on
a quarterly or annual basis will occur in the future. During 1997 and the first
half of 1998, 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 1997 or in the first half of 1998 or that sales will not decline.
In fact, during the second quarter of 1998, the company experienced of its
lowest rate of sequential sales growth since it became a public company. In
the recent quarter, the Company has been experiencing higher than normal price
declines. The declines in prices has a downward impact on the Company's gross
margin. There can be no assurance that such pricing pressure will not continue
in future quarters. 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.
Significant Customer Concentration
To date, approximately four hundred customers accounted for substantially all
of the Company's sales, and two customers, each of which individually accounted
for over 10% of the Company's 1997 sales, accounted for over 27% of the
Company's 1997 sales. During the first half of 1998, five customers accounted
for 55% of the Company's sales and as of June 30, 1998, seven customers
accounted for 50% of the Company's backlog scheduled for shipment in the twelve
months subsequent to June 30, 1998. The Company anticipates that it will
continue to sell its products and services to a changing but still relatively
small group of customers. Several of the Company's subsidiaries are dependent on
one or a few 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 in volume 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, as has been the case with
certain customers historically, 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 telecommunications industry have been reported to have
undergone financial difficulties and may therefore limit their future orders).
In addition, acquisitions in the communications industry are common, which
further concentrates the customer base and may cause orders to be delayed or
cancelled. 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 will 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. There can be no assurance that profitability or significant revenue
growth on a quarterly or annual basis will occur in the future. The sale and
13
<PAGE>
implementation of the Company's products and services generally involves a
significant commitment of the Company's senior management, sales force and other
resources. The sales cycle for the Company's products and services typically
involves a significant technical evaluation and commitment of cash and other
resources, with the attendant delays frequently associated with, among other
things: (i) existing and potential customers' seasonal purchasing and budgetary
cycles; (ii) educating customers as to the potential applications of, and
product-life cost savings associated with, using the Company's products and
services; (iii) complying with customers' internal procedures for approving
large expenditures and evaluating and accepting new technologies that affect key
operations; (iv) complying with governmental or other regulatory standards; (v)
difficulties associated with each customer's ability to secure financing;
(vi) negotiating purchase and service terms for each sale; and (vii) price
decreases required to secure purchase orders. Orders for the Company's products
have typically been strongest towards the end of the calendar year, with a
reduction in shipments occurring during the summer months, as evidenced in the
third quarter of fiscal year 1997, due primarily to the inactivity of the
European market, the Company's major current customer base, at such time. To the
extent such seasonality continues, the Company's results of operations will
fluctuate from quarter to quarter.
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 and commitments, among other
factors. As a result, the Company's operating results for a particular period
have in the past been and will in the future be materially adversely affected by
a delay, rescheduling or cancellation of even one purchase order. Much of the
anticipated growth in telecommunications infrastructure, if any, is expected to
result from the entrance of new service providers, many of which 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 orders, 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, 1998 can be
canceled since orders are often made substantially in advance of shipment, and
the Company's contracts typically provide that orders may be canceled with
limited or no penalties. As a result, backlog is not necessarily indicative of
future sales for any particular period. In addition, the Company's customers
have increasingly been requiring shipment of products at the time of ordering
rather than submitting purchase orders far in advance of expected dates of
product shipment. 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, pricing concessions to customers, 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 products and
services, the Company expects to continue to make substantial capital
investments in equipment and inventory, recruit and train additional personnel
and possibly invest in additional manufacturing facilities. The Company
anticipates that these expenditures will 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 the addition of equipment and inventory, personnel or facilities, and that
each cost category may increase as a percentage of revenues from time-to-time on
a periodic basis. In addition, as the Company's customers increasingly require
shipment of products at the time of ordering, the Company must forecast demand
for each quarter and build up inventory accordingly. Such increases in inventory
could materially adversely affect the Company's operations, if such inventory
were not utilized or becomes obsolete. In the second quarter of 1998, the
company writ off $1.4 million of inventory.
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, services and technologies could
cause
14
<PAGE>
customers to defer or cancel purchases of the Company's systems and services,
which would materially adversely affect the Company's business, financial
condition and results of operations. Additional factors that have caused and
will 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; weakness in Asia over
capacity for microwave industry; the Company's ability to manufacture and
produce sufficient volumes of systems and meet customer requirements;
manufacturing capacity, efficiencies and costs; customers confusion due to
the impact of actions of competitors; mix of sales through direct efforts or
through distributors or other third parties; mix of systems and related software
tools sold and services provided; operating and new product development
expenses; product discounts; accounts receivable collection, in particular those
acquired in recent acquisitions, especially outside of the United States;
changes in pricing by the Company, its customers or suppliers; inventory write-
offs, as the Company recently experienced in several recent quarters, which the
Company may experience again in the future; inventory obsolescence; natural
disasters; market acceptance by the Company's customers and the timing of
availability of new products and services by the Company or its competitors;
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 and services; 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
and services. 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, as was recently the case. In such event, the price of
the Company's Common Stock may be materially adversely affected.
Acquisitions
Since April 1996, the Company has acquired nine complementary companies and
businesses. Integration of these companies into the Company's business is
currently ongoing, and no assurance may be made that the Company will be able to
successfully complete this process. Risks commonly encountered in such
transactions include the difficulty of assimilating the operations and personnel
of the combined companies, the potential disruption of the Company's ongoing
business, the inability to retain key technical and managerial personnel, the
inability of management to maximize the financial and strategic position of the
Company through the integration of acquired businesses, additional expenses
associated with amortization of acquired intangible assets, dilution of existing
stockholders, the maintenance of uniform standards, controls, procedures, and
policies, the impairment of relationships with employees and customers as a
result of any integration of new personnel, risks of entering markets in which
the Company has no or limited direct prior experience, and operating companies
in different geographical locations with different cultures. All of the
Company's acquisitions to date (the "Acquisitions"), except the acquisitions of
CRC, RT Masts Limited ("RT Masts") and Telematics, Inc. ("Telematics") have been
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
consolidated financial statements. This amortization expense may have a
significant effect on the Company's financial results. There can be no assurance
that the Company will be successful in overcoming these risks or any other
problems encountered in connection with such acquisitions, or that such
transactions will not materially adversely affect the Company's business,
financial condition, or results of operations.
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products or technologies and to enter into
joint ventures and strategic alliances with other companies. In July 1998, the
Company acquired Cemetel S.r.l., and Italian limited liability company engaged
in the supply of engineering services to wireless telecommunication providers in
Italy, for an aggregate consideration of approximately $2.9 million. The
Company is currently pursuing numerous acquisitions; however no material
acquisition is currently the subject of any definitive agreement, letter of
intent or agreement in principle. The Company is unable to predict whether and
when any prospective acquisition candidate will
15
<PAGE>
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. There can be no
assurance that the Company will be able to successfully identify suitable
acquisition candidates, pay for acquisitions, complete acquisitions, 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 the stand alone acquired company or otherwise
perform as expected. In addition, as commonly occurs with mergers of technology
companies, during the pre-merger and integration phases, aggressive competitors
may undertake formal initiatives to attract customers and to recruit key
employees through various incentives. If the Company proceeds with one or more
significant acquisitions in which the consideration consists of cash, as was the
case with Cylink Wireless Group, a substantial portion of the Company's
available cash could be used to consummate the acquisitions. Many business
acquisitions must be accounted for as a purchase for financial reporting
purposes. Most of the businesses that might become attractive acquisition
candidates for the Company are likely to have significant goodwill and
intangible assets, and acquisition of these businesses, if accounted for as a
purchase, as was the case with Cylink Wireless Group, would typically result in
substantial amortization of goodwill charges to the Company. The occurrence of
any of these events could have a material adverse effect on the Company's
workforce, business, financial condition and results of operations.
Dependence on Contract Manufacturers; Reliance on Sole or Limited Sources of
Supply
The Company's internal manufacturing capacity is very limited. The Company
utilizes contract manufacturers such as 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. 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. 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 Engineering S.r.L. and Associates, Milliwave,
Scientific Atlanta and Xilinx, Inc. each are sole source or limited source
suppliers for critical components used in the Company's radio systems.
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, many of which the Company
has been experiencing, including an inability to obtain an adequate supply of
finished products and required components and subassemblies, and reduced control
over the price, timely delivery, reliability and quality of finished products,
components and subassemblies. The Company does not have long-term supply
agreements with most of its manufacturers or suppliers. Manufacture of the
Company's products 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 problems in the timely delivery and
quality of products 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 products 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 results of operations.
No Assurance of Successful Expansion of Operations; Management of Growth
Recently, the Company has significantly expanded the scale of its operations
to support increased sales and to address critical infrastructure and other
requirements. This expansion has included the leasing of additional space, the
opening of branch offices and subsidiaries in the United Kingdom, Italy,
Germany, Mexico, Dubai and Singapore, the opening of design centers and
manufacturing operations throughout the world, the acquisition of a significant
amount of inventory (the Company's inventory increased from approximately $58.0
million at December 31, 1997
16
<PAGE>
to approximately $78.6 million at June 30, 1998) and accounts receivable, nine
acquisitions, significant investments in research and development to support
product development and services, including the recently introduced products and
the development of point-to-multipoint systems, and the hiring of additional
personnel in all functional areas, including in sales and marketing,
manufacturing and operations and finance, and has resulted in significantly
higher operating expenses. Currently, the Company is devoting significant
resources to the development of new products and technologies and is conducting
evaluations of these products and will continue to invest significant additional
resources in plant and equipment, inventory, personnel and other items, to begin
production of these products and to provide the marketing and administration, if
any, required to service and support these new products. Accordingly, there can
be no assurance that gross profit margin and inventory levels will not be
adversely impacted in the future by start-up costs associated with the initial
production and installation of these new products. These start-up costs include,
but are not limited to, additional manufacturing overhead, additional allowance
for doubtful accounts, inventory and warranty reserve requirements and the
creation of service and support organizations. In addition, the increases in
inventory on hand for new product development and customer service requirements
increase the risk of inventory write-offs. As a result, the Company anticipates
that its operating expenses will continue to increase significantly. If the
Company's sales do not correspondingly increase, the Company's results of
operations would be materially adversely affected.
Expansion of the Company's operations and its acquisitions have caused and
are continuing to impose a significant strain on the Company's management,
financial, manufacturing and other resources and have disrupted the Company's
normal business operations. 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, including improvements relating to inventory control.
For a number of reasons, the Company has not been able to fully consolidate and
integrate the operations of certain acquired businesses. This inability may
cause inefficiencies, additional operational complexities and expenses and
greater risks of billing delays, inventory write-offs and financial reporting
difficulties. The Company must establish and improve a variety of systems,
procedures and controls to more efficiently coordinate its activities in its
companies and their facilities in Rome and Milan, Italy, France, Poland, the
United Kingdom, New Jersey, Florida, Virginia, Washington, Mexico, Dubai and
elsewhere. There can be no assurance that significant problems in these areas
will not re-occur. Any failure to expand these areas and implement and improve
such systems, procedures and controls, including improvements relating to
inventory control, 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, the integration and coordination of a geographically and ethnically
diverse group of employees 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
will continue to experience significant fluctuations in its revenues, costs, and
gross margins, and therefore its results of operations. See "Results of
Operations."
Declining Average Selling Prices
The Company believes that average selling prices and gross margins for its
systems and services will decline in the long term as such systems mature, as
volume price discounts in existing and future contracts take effect and
17
<PAGE>
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 that are in the early phases of business
development. In addition, many of the Company's foreign customers are granted
longer payment terms than those typically existing in the United States. The
Company has experienced difficulties in the past in receiving payment in
accordance with the Company's policies, particularly from customers awaiting
financing to fund their expansion and from customers outside of the United
States and the days sales outstanding of receivables have increased recently.
There can be no assurance that such difficulties will not continue in the
future, which could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company typically does not
require collateral or other security to support customer receivables. The
Company has in the past and may from time to time in the future sell its
receivables, as part of an overall customer financing program. There can be no
assurance that the Company will be able to locate parties to purchase such
receivables on acceptable terms, or at all. See "Results of Operations."
No Assurance of Product Quality, Performance and Reliability
The Company has limited experience in producing and manufacturing its systems
and contracting for such manufacture. The Company's customers require very
demanding specifications for quality, performance and reliability. There can be
no assurance that problems will not occur in the future with respect to the
quality, performance and reliability of the Company's systems or related
software tools. If such problems occur, the Company could experience increased
costs, delays in or cancellations or reschedulings of orders or shipments,
delays in collecting accounts receivable and product returns and discounts, any
of which would have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, in order to maintain
its ISO 9001 registration, the Company periodically must undergo a
recertification assessment. Failure to maintain such registration could
materially adversely affect the Company's business, financial condition and
results of operations. The Company completed ISO 9001 registration for its
United Kingdom sales and customer support facility, its Geritel facility in
Italy in 1996, and its Technosystem facility in Italy in 1997 and other
facilities will also be attempting ISO 9001 registration. There can be no
assurance that such registration will be achieved.
Uncertainty of Market Acceptance
The future operating results of the Company depend to a significant extent
upon the continued growth and increased availability and acceptance of
microcellular, PCN/PCS and wireless local loop access telecommunications
services in the United States and internationally. There can be no assurance
that the volume and variety of wireless telecommunications services or the
markets for and acceptance of such services will continue to grow, or that such
services will create a demand for the Company's systems. Because these markets
are relatively new, it is difficult to predict which segments of these markets
will develop and at what rate these markets will grow, if at all. If the short-
haul millimeter wave or spread spectrum microwave wireless radio market and
related services for the Company's systems fails to grow, or grows more slowly
than anticipated, the Company's business, financial condition and results of
operations would be materially adversely affected. In addition, the Company has
invested a significant amount of time and resources in the development of point-
to-multipoint radio systems. Should the point-to-multipoint radio market fail to
develop, or should the Company's products fail to gain market acceptance, the
Company's business, financial condition and results of operations could be
materially adversely affected. Certain sectors of the communications market will
require the development
18
<PAGE>
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, one 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.
Certain of the Company's current and prospective customers are currently
delivering products and technologies which utilize competing transmission media
such as fiber optic and copper cable, particularly in the local loop access
market. To successfully compete with existing products and 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, including copper
and fiber optic cable. The Company has experienced increasingly intense
competition worldwide from a number of leading telecommunications companies that
offer a variety of competitive products and services and broader
telecommunications product lines, including Adtran, Inc., Alcatel Network
Systems, California Microwave, Inc., Digital Microwave Corporation (which is in
the process of acquiring another competitor, Innova International Corp.),
Ericsson Limited, Harris Corporation-Farinon Division, Larus Corporation, Nokia
Telecommunications, Philips T.R.T., Utilicom and Western Multiplex Corporation,
many of which have substantially greater installed bases, financial resources
and production, marketing, manufacturing, engineering and other capabilities
than the Company. The Cylink Wireless Group which the Company recently acquired
competes with a large number of companies in the wireless communications
markets, including U.S. local exchange carriers and foreign telephone companies.
The most significant competition for such group's products in the wireless
market is from telephone companies that offer leased line data services. The
Company faces actual and potential competition not only from these established
companies, but also from start-up companies that are developing and marketing
new commercial products and services. The Company may also face competition in
the future from new market entrants offering competing technologies. In
addition, the Company's current and prospective customers and partners, certain
of which have access to the Company's technology or under some circumstances are
granted the right to use the technology for purposes of manufacturing, have
developed, are currently developing or could develop the capability to
manufacture products competitive with those that have
19
<PAGE>
been or may be developed or manufactured by the Company. Nokia and Ericsson have
recently developed new competitive radio systems. The Company's results of
operations may depend in part upon the extent to which these customers elect to
purchase from outside sources rather than develop and manufacture their own
radio systems. There can be no assurance that such customers will rely on or
expand their reliance on the Company as an external source of supply for their
radio systems. The principal elements of competition in the Company's market and
the basis upon which customers may select the Company's systems include price,
performance, software functionality, ability to meet delivery requirements and
customer service and support. Recently, certain of the Company's competitors
have announced the introduction of competitive products, including related
software tools and services, and the acquisition of other competitors and
competitive technologies. The Company expects its competitors to continue to
improve the performance and lower the price of their current products and
services and to introduce new products and services or new technologies that
provide added functionality and other features. New product and service
offerings and enhancements by the Company's competitors could cause a
significant decline in sales or loss of market acceptance of the Company's
systems, or make the Company's systems, services or technologies obsolete or
noncompetitive. The Company is experiencing significant price competition
especially from large system integrators, and expects such competition to
intensify, which 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. In
marketing its systems and services, the Company will face competition from
vendors employing other technologies and services that may extend the
capabilities of their competitive products beyond their current limits, increase
their productivity or add other features. There can be no assurance that the
Company will be able to compete successfully in the future.
Requirement for Response to Rapid Technological Change and Requirement for
Frequent New Product Introductions
The 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, including its point-to-multipoint systems currently
under development, on a timely and cost-effective basis that respond to changing
customer requirements. Recently, the Company has been developing point-to-
multipoint radio systems. Any success of the Company in developing new and
enhanced systems, including its point-to-multipoint systems currently under
development, 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 is continuing to experience delays from time to time in completing
development and introduction of new systems and related software tools,
including products acquired in the 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, as well as significant expenses
associated with re-work of previously delivered equipment. 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, to date, the Company has acquired two
Italy-based companies and two United Kingdom-based companies and two U.S.
companies with substantial international operations. These companies currently
sell their products and services primarily to customers in Europe, the Middle
East and Africa. The Company anticipates that international sales will continue
to account for a majority of its sales for the foreseeable future. Historically,
the Company's international sales have been denominated in British pounds
sterling or United States dollars. With
20
<PAGE>
recent acquisitions of foreign companies, certain of the Company's international
sales may be denominated in other foreign 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. The Company has in the past mitigated its currency
exposure to the British pound sterling through hedging measures. However, any
future hedging measures may be limited in their effectiveness with respect to
the British pound sterling and other foreign currencies. 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,
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 difficulty in accounts
receivable collections. Many of the Company's customer purchase and other
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
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 systems must conform
to a variety of domestic and international requirements established to, among
other things, avoid interference among users of radio frequencies and to permit
interconnection of equipment. Each country has a different regulatory process.
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. Regulatory bodies worldwide are continuing the process of adopting
new standards for wireless communications products. The delays inherent in this
governmental approval process may cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company and
its customers, which in turn may have a material adverse effect on the sale of
systems by the Company to such customers. The failure to comply with current or
future regulations or changes in the interpretation of existing regulations
could result in the suspension or cessation of operations.
21
<PAGE>
Such regulations or such changes in interpretation could require the Company to
modify its products and services 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, including changes in the allocation of
available spectrum, 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 and services 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 products 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. As a
result of the issuance of the Notes (as defined below) and the new bank line of
credit, the Company is severely limited in its ability to raise additional debt
financing. If additional funds are raised by issuing equity securities and as a
result of the significant decline in its stock price, 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.
Uncertainty Regarding Protection of Proprietary Rights
The Company relies on a combination of patents, trademarks, trade secrets,
copyrights and a variety of other measures to protect its intellectual property
rights. The Company generally enters into confidentiality and nondisclosure
agreements with its service providers, customers and others, and attempts to
limit access to and distribution of its proprietary rights. The Company also
enters into software license agreements with its customers and others. However,
there can be no assurance that such measures will provide adequate protection
for the Company's trade secrets or other proprietary information, that disputes
with respect to the ownership of its intellectual property rights will not
arise, that the Company's trade secrets or proprietary technology will not
otherwise become known or be independently developed by competitors or that the
Company can otherwise meaningfully protect its intellectual property rights.
There can be no assurance that any patent owned by the 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
22
<PAGE>
proprietary rights could have a material adverse effect on its business,
financial condition and results of operations.
Litigation may be necessary to enforce the Company's patents, copyrights and
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. The Company has, through
its acquisition of the Cylink Wireless Group, has been put on notice from a
variety of third parties that the Group's products may be infringing the
intellectual property rights of other parties. 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 or that such assertions
will not materially adversely affect the Company's business, financial condition
and results of operations. If any claims or actions are asserted against the
Company, the Company may seek to obtain a license under a third party's
intellectual property rights. There can be no assurance, however, that a license
will be available under reasonable terms or at all. In addition, should the
Company decide to litigate such claims, such litigation could be extremely
expensive and time consuming and could materially adversely affect the Company's
business, financial condition and results of operations, regardless of the
outcome of the litigation.
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 has experienced and may continue to 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 has experienced and may continue to 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.
Year 2000 Compliance
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may need
to be upgraded to comply with such "Year 2000" requirements. The Company has
commenced, for all its information systems and software contained in the
products it sells, a year 2000 date conversion project to address necessary code
changes, testing and implementation. Significant uncertainty exists concerning
the potential effects associated with such compliance. The Company expects such
modifications will be made on a timely basis and does not believe that the cost
of such modifications will have a material effect on the Company's operating
results. There can be no assurance, however, that the Company and/or its vendors
will be able to modify timely and successfully such products, services and
systems to comply with year 2000 requirements, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
23
<PAGE>
Volatility of Stock Price
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, developments in
the Asia/Pacific region, 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 that
differ from analysts' expectations (as recently experienced), 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 recent years the stock market in general, and the
market for shares of small capitalization and technology stocks in particular,
have experienced extreme price fluctuations, which have often been unrelated to
the operating performance of affected companies. Many companies in the
telecommunications industry, including the Company, have recently experienced
historic highs in the market price of their Common Stock. There can be no
assurance that the market price of the Company's Common Stock will not decline
substantially from its historic highs, or otherwise continue to experience
significant fluctuations in the future, including fluctuations that are
unrelated to the Company's performance. Such fluctuations could materially
adversely affect the market price of the Company's Common Stock.
Substantial Leverage
In connection with the private placement of promissory notes due 2002 (the
"Notes") in November 1997, the Company incurred $100 million of indebtedness.
As a result, the Company's total indebtedness including current liabilities, and
stockholders' equity, as of June 30, 1998, was approximately $185.1 million and
approximately $156.6 million, respectively. The Company recently borrowed $30
million under a new bank line of credit. The Company's ability to make scheduled
payments of the principal of, or interest on, its indebtedness will depend on
its future performance, which is subject to economic, financial, competitive and
other factors beyond its control.
Limitations on Dividends
Since its incorporation in 1991, the Company has not declared or paid cash
dividends on its Common Stock, and the Company anticipates that any future
earnings will be retained for investment in its business. Any payment of cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends.
Global Market Risks
Countries in the Asia/Pacific region have recently experienced weaknesses in
their currency, banking and equity markets. These weaknesses could adversely
affect demand for the Company's products, the availability and supply of product
components to the Company and, ultimately, the Company's consolidated results of
operations.
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 6% 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 the Company's stockholder
rights agreement, 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. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the
24
<PAGE>
Company. Although the Company has no present plans to issue shares of preferred
stock, the Board of Directors has pre-approved the terms of a Series A Junior
Participating Preferred Stock that may be issued pursuant to the stockholder
rights agreement upon the occurrence of certain triggering events. In general,
the stockholder rights agreement provides a mechanism by which the Board of
Directors and stockholders may act to substantially dilute the share position of
any takeover bidder that acquires 15% or more of the 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. Substantially
all of the shares of Common Stock of the Company eligible for immediate and
unrestricted sale in the public market at any time.
25
<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 SECURITY HOLDERS.
1 The following proposals were voted upon by the Company's stockholders
at the Annual Meeting of Stockholders held on May 28, 1998.
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
-------------------- --------- --------------
M. Bernard Puckett 2001 37,288,583 581,374
2 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 3,500,000 shares to
12,719,625 shares.approved by a vote of 15,390,128 shares, 11,613,112
shares voted against the proposal and 127,262 votes were withheld.
3 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 900,000 to 1,150,000 shares was approved by the
vote of 26,352,426 shares, 663,833 shares voted against the proposal
and 114,243 votes were withheld.
4 A proposal to ratify the appointment of Price Waterhouse LLP as
independent accountants of the Company for the fiscal year ending
December 31, 1998 was approved by the vote of 37,778,489 shares,
45,538 shares voted against the proposal and 45,930 votes were
withheld.
ITEM 5. OTHER INFORMATION. NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.16(1) 1995 Stock Option/Stock Issuance Plan, as amended.
10.17(1) Employee Stock Purchase Plan, as amended.
10.31 Credit Agreement among P-Com, Inc. as the Borrower, Union
Bank of California N.A., as Administrative Agent, Bank of
America National Trust and Savings Association as
Syndication Agent and the Lenders party hereto dated as of
May 15, 1998.
10.32 Revolving Promissory Note in the principal amount of
$25,000,000 dated May 15, 1998.
10.33 Revolving Promissory Note in the principal amount of
$25,000,000 dated May 15, 1998.
26
<PAGE>
10.34 Subsidiary Guarantee dated as of May 15, 1998.
10.35* Joint Development and License Agreement between Siemens
Aktiengesellschaft and P-Com, Inc. dated June 30, 1998.
10.36 International Employee Stock Purchase Plan.
27.1 Financial Data Schedule.
* Confidential treatment requested as to certain portion of this exhibit.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on July 24, 1998.
(b) Reports on Form 8-K.
Report on Form 8-K dated March 28, 1998 regarding the purchase of the
assets of the Wireless Communications Group of Cylink Corporation, as
filed with the Securities and Exchange Commission on April 9, 1998.
Amendment filed on April 17, 1998 to Report on Form 8-K dated March
28, 1998 regarding the purchase of the assets of the Wireless
Communications Group of Cylink Corporation, as filed with the
Securities and Exchange Commission on April 17, 1998.
Report on Form 8-K dated April 16, 1998 regarding the Company's press
release announcing its earnings for the quarter ended March 31, 1998
as filed with the Securities and Exchange Commission on April 17,
1998.
Amendment No. 2 to Report on Form 8-K dated on April 9, 1998 regarding
the purchase of the assets of the Wireless Communications Group of
Cylink Corporation, as filed with the Securities and Exchange
Commission on June 12, 1998.
27
<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, 1998
By: /s/ George P. Roberts
------------------------------------
George P. Roberts
Chairman of the Board of Directors
and Chief Executive Officer
Date: August 14, 1998
By: /s/ Michael J. Sophie
------------------------------------
Michael J. Sophie
Chief Financial Officer and Vice President
Finance and Administration
28
<PAGE>
EXHIBIT INDEX
EXHIBIT NO.
-----------
10.16(1) 1995 Stock Option/Stock Issuance Plan, as amended.
10.17(1) Employee Stock Purchase Plan, as amended.
10.31 Credit Agreement among P-Com, Inc. as the Borrower, Union
Bank of California N.A., as Administrative Agent, Bank of
America National Trust and Savings Association as
Syndication Agent and the Lenders party hereto dated as of
May 15, 1998.
10.32 Revolving Promissory Note in the principal amount of
$25,000,000 dated May 15, 1998.
10.33 Revolving Promissory Note in the principal amount of
$25,000,000 dated May 15, 1998.
10.34 Subsidiary Guarantee dated as of May 15, 1998.
10.35* Joint Development and License Agreement between Siemens
Aktiengesellschaft and P-Com, Inc. dated June 30, 1998.
10.36 International Employee Stock Purchase Plan.
27.1 Financial Data Schedule.
* Confidential treatment requested as to certain portion of this exhibit.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on July 24, 1998.
29
<PAGE>
Exhibit 10.31
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
AMONG
P-COM, INC.,
AS THE BORROWER
UNION BANK OF CALIFORNIA, N.A.,
AS ADMINISTRATIVE AGENT
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
AS SYNDICATION AGENT
AND THE LENDERS PARTY HERETO
- --------------------------------------------------------------------------------
* The Registrant agrees to furnish supplementally a copy of any omitted
Exhibits, Attachments, and Schedules to the Commission upon request.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS.......................................... 1
1.1 Defined Terms................................ 1
1.2 Other Definitional Provisions................ 11
ARTICLE II
THE LOANS............................................ 11
2.1 The Revolving Loans.......................... 11
2.2 Repayment.................................... 14
2.3 Interest Rate and Payment Dates.............. 15
2.4 Continuation and Conversion Options.......... 15
2.5 Letters of Credit............................ 16
2.6 Security for Loans........................... 19
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS.............. 19
3.1 Use of Proceeds.............................. 19
3.2 Post Maturity Interest....................... 19
3.3 Computation of Interest and Fees............. 20
3.4 Payments..................................... 20
3.5 Payment on Non-Business Days................. 20
3.6 Reduced Return............................... 20
3.7 Indemnities.................................. 21
3.8 Funding Sources.............................. 23
3.9 Sharing of Payments, Etc..................... 23
3.10 Inability to Determine Interest Rate......... 23
3.11 Requirements of Law.......................... 24
3.12 Illegality................................... 25
ARTICLE IV
CONDITIONS OF LENDING................................ 25
4.1 Conditions Precedent to Initial Loans........ 25
4.2 Conditions Precedent to Each Borrowing....... 27
4.3 Conditions Precedent to Each Letter of Credit 28
ARTICLE V
REPRESENTATIONS AND WARRANTIES....................... 29
<PAGE>
5.1 Representations and Warranties............... 29
ARTICLE VI
COVENANTS............................................ 33
6.1 Affirmative Covenants........................ 33
6.2 Negative Covenants........................... 38
ARTICLE VII
EVENTS OF DEFAULT.................................... 44
7.1 Events of Default............................ 44
ARTICLE VIII
THE AGENT AND THE ISSUING BANK....................... 46
8.1 Authorization and Action........................ 46
8.2 Agent's Reliance, Etc........................... 47
8.3 Union Bank of California, N.A. and Affiliates... 47
8.4 Lender Credit Decision.......................... 48
8.5 Indemnification................................. 48
8.6 Successor Agent................................. 48
8.7 Syndication Agent............................... 49
ARTICLE IX
MISCELLANEOUS........................................ 49
9.1 Amendments, Etc................................. 49
9.2 Notices, Etc.................................... 50
9.3 Right of Setoff; Deposit Accounts............... 50
9.4 No Waiver; Remedies............................. 50
9.5 Costs and Expenses.............................. 50
9.6 Additional Lenders; Assignments; Participations. 51
9.7 Audits of Collateral; Fees...................... 52
9.8 Effectiveness; Binding Effect; Governing Law.... 53
9.9 Waiver of Jury Trial............................ 53
9.10 Consent to Jurisdiction; Venue;
Agent for Service of Process................... 54
9.11 Alternative Dispute Resolution.................. 54
9.12 Entire Agreement................................ 58
9.13 Separability of Provisions...................... 58
9.14 Obligations Several............................. 58
9.15 Survival of Certain Agreements.................. 58
9.16 Execution in Counterparts....................... 59
ii
<PAGE>
CREDIT AGREEMENT
This Credit Agreement dated as of May 15, 1998 is entered into among P-Com,
Inc., a Delaware corporation (the "Borrower"), the financial institutions named
--------
on the signature pages hereof (each, a "Lender" and collectively the "Lenders"),
------ -------
Union Bank of California, N.A., as administrative agent for the Lenders (the
"Agent"), and Bank of America National Trust and Savings Association, as
- ------
syndication agent (the "Syndication Agent"). The parties hereto agree as
-----------------
follows:
RECITALS
WHEREAS, the Borrower desires that the Lenders extend certain credit
facilities to the Borrower for working capital, permitted acquisitions and other
corporate purposes;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrower, the Lenders, the Agent
and the Syndication Agent agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms have
-------------
the following meanings:
"Acquisition": As defined in Section 6.2(i).
-----------
"Affiliate": As applied to any Person, any Person directly or
---------
indirectly controlling, controlled by or under common control with, that Person.
For the purposes of this definition, "control" (including with the correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or by contract
or otherwise.
"Agent": As defined in the introductory paragraph of this Agreement.
-----
"Agreement": This Credit Agreement, as amended, supplemented or
---------
modified from time to time.
"Applicable Margin": As defined in Exhibit E hereto.
----------------- ---------
"Base Rate": The higher of (i) the rate of interest announced from
---------
time to time by Union Bank of California, N.A. as its Base Commercial Lending
Rate and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate on the day prior
to the date on which the Base Rate is
1
<PAGE>
to be determined. The Base Rate is a reference rate; the Agent and the Lenders
may make loans at, above or below the Base Rate.
"Base Rate Loans": Loans hereunder at such time as they accrue
---------------
interest at a rate based upon the Base Rate.
"Borrower": As defined in the introductory paragraph of this
--------
Agreement.
"Borrowing": As defined in Section 2.1.
---------
"Business Day": A day other than a Saturday, Sunday or day on which
------------
commercial banks in San Francisco, California are authorized or required by law
to close.
"Capital Lease": As applied to any Person, any lease of any property
-------------
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"Code": The California Uniform Commercial Code.
----
"Commitment": The obligation of each Lender to make Loans to the
----------
Borrower and to reimburse the Issuing Bank for the unreimbursed portion of
Letters of Credit, each pursuant to Article II in the amount or amounts referred
to therein. The term "Commitments" means all such obligations of the Lenders.
-----------
"Commitment Fee Rate": As defined in Exhibit E hereto.
------------------- ---------
"Consolidated Capital Expenditures": For any period, the dollar
---------------------------------
amount of gross expenditures (including obligations under Capital Leases)
incurred by the Borrower and its consolidated Subsidiaries during such period
for fixed assets, real property, plant and equipment, and renewals, improvements
and replacements thereto required to be included in "capital expenditures",
"additions to property, plant or equipment" or comparable items in the
consolidated statement of changes in financial position of the Borrower in
conformity with GAAP, excluding, however, expenditures of insurance proceeds
received as the result of damage or destruction of the property being replaced.
"Consolidated Current Liabilities": At any date of determination, the
--------------------------------
sum, determined on a consolidated basis, of all liabilities of Borrower and its
consolidated Subsidiaries which may properly be classified as current
liabilities in accordance with GAAP, including, without limitation, all
outstanding Loans and the Letter of Credit Usage under this Agreement.
"Consolidated Debt": At any date of determination, the sum,
-----------------
determined on a consolidated basis, of all Debt of the Borrower and its
consolidated Subsidiaries.
"Consolidated EBITDA": For any period, the net income of Borrower and
-------------------
its consolidated Subsidiaries for such period plus, to the extent deducted in
----
computing such
2
<PAGE>
consolidated net income, without duplication, the sum of (a) income tax expense,
(b) interest expense, (c) depreciation and amortization expense, (d) any
extraordinary or non-recurring losses and (e) other noncash items reducing such
consolidated net income, minus, to the extent added in computing such
-----
consolidated net income, without duplication, the sum for such period of (i)
interest income, (ii) any extraordinary or non-recurring gains and (iii) other
noncash items increasing such consolidated net income, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Funded Debt": As of any date of determination, an
------------------------
amount equal to the sum of all Debt of the Borrower and its Subsidiaries
determined on a consolidated basis in accordance with GAAP pursuant to any
agreement or instrument to which the Borrower or any of its Subsidiaries is
party relating (without duplication) to the borrowing of money including,
without limitation, any and all subordinated Debt, all Debt and the Letter of
Credit Usage under this Agreement, purchase money Debt, all obligations in
respect of Synthetic Leases, or Debt in respect of Capitalized Leases.
"Consolidated Interest Expense": For any period, the sum, determined
-----------------------------
on a consolidated basis, of all interest expensed by the Borrower and its
consolidated Subsidiaries during such period (including that attributable to
Capital Leases in accordance with GAAP).
"Consolidated Net Income": For any period, the net income (or loss)
-----------------------
after income taxes for such period of the Borrower and its consolidated
Subsidiaries on a consolidated basis determined in accordance with GAAP.
"Consolidated Operating Income": For any period, the operating income
-----------------------------
(or loss) for such period of the Borrower and its consolidated Subsidiaries on a
consolidated basis determined in accordance with GAAP.
"Consolidated Quick Assets": At any date of determination, the total
-------------------------
cash, marketable securities with maturities of less than one year, and net,
billed accounts receivable of the Borrower and its consolidated Subsidiaries on
a consolidated basis determined in accordance with GAAP.
"Consolidated Tangible Net Worth": At any date of determination, the
-------------------------------
sum of the capital stock and additional paid-in capital plus retained earnings
----
(or minus accumulated deficit) of the Borrower and its consolidated Subsidiaries
minus intangible assets, on a consolidated basis determined in accordance with
GAAP.
"Contingent Obligation": As applied to any Person, any direct or
---------------------
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Debt, lease, dividend or other obligation of another if the primary purpose
or intent thereof by the Person incurring the Contingent Obligation is to
provide assurance that such obligation of another will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such obligation will be protected (in whole or in part) against loss in
respect thereof, (ii) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, or (iii) with respect to
3
<PAGE>
any Interest Rate Agreement or Currency Agreement. Contingent Obligations shall
include (a) the direct or indirect guaranty, endorsement (otherwise than for
collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payment if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of that Person for the obligation of another
through any agreement (contingent or otherwise) (x) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclauses
(x) or (y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"Currency Agreement": As applied to any Person, any foreign exchange
------------------
contract, currency swap agreement, futures contract, option contract, synthetic
cap or other similar agreement or arrangement designed to protect that Person
against fluctuations in currency values.
"Debt": As applied to any Person, (i) all indebtedness for borrowed
----
money, including Subordinated Debt, (ii) that portion of obligations with
respect to Capital Leases which is properly classified as a liability on a
balance sheet in accordance with GAAP, (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money, (iv) any obligation owed for all or any part of the deferred
purchase price of property or services, (v) all obligations with respect to
Synthetic Leases, and (vi) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that person. Obligations not yet due and payable under Interest Rate
Agreements and Currency Agreements constitute Contingent Obligations and not
Debt.
"Dollars and $": Dollars in lawful currency of the United States of
-------------
America.
"Employee Benefit Plan": Any Pension Plan, any employee welfare
---------------------
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower.
"Equity Issuance": As applied to any Person, the sale or issuance by
---------------
such Person of (i) any capital stock of such Person, (ii) any options, warrants
or other similar rights exercisable in respect of such capital stock, or (iii)
any other security or instrument representing an equity interest (or the right
to obtain an equity interest) in such Person.
"ERISA": The Employee Retirement Income Security Act of 1974, as
-----
amended from time to time and any successor statute.
4
<PAGE>
"Federal Funds Rate": On any day, a fluctuating interest rate per
------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Agent from three Federal funds brokers of recognized standing selected by it.
"Fee Letter": That certain letter agreement dated as of the date of
----------
this Agreement, between Borrower and Union Bank of California, N.A., as Agent
and Issuing Bank, regarding certain fees payable to the Agent and the Issuing
Bank.
"GAAP": Generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession.
"Guarantor": Each of (i) P-Com Network Services, Inc., a Delaware
---------
corporation, (ii) P-Com United Kingdom, Inc., a Delaware corporation, (iii) P-
Com Finance Corporation, a Delaware corporation, (iv) Control Resources
Corporation, a Delaware corporation, (v) Telematics, Inc., a Virginia
corporation, and (vi) any Material Subsidiary which has delivered a guaranty to
the Agent pursuant to Section 6.1(n).
"Guaranty": That certain Subsidiary Guaranty dated as of the date
--------
hereof, executed by each Material Subsidiary in favor of the Agent.
"Intellectual Property Security Agreement": That certain Intellectual
----------------------------------------
Property Security Agreement dated as of the date hereof by and between Borrower
and Agent.
"Interest Payment Date": As to any Base Rate Loan until payment in
---------------------
full, the last day of each March, June, September and December commencing on the
first of such days to occur after such Base Rate Loan is made. As to any LIBO
Rate Loan with an Interest Period of three months or less until payment in full,
the last day of such Interest Period and the Maturity Date, and as to any LIBO
Rate Loan with an Interest Period in excess of three months until payment in
full, (i) the same day of each three months following the beginning of such
Interest Period, (ii) the last day of such Interest Period and (iii) the
Maturity Date.
"Interest Period": With respect to any LIBO Rate Loan:
---------------
(i) initially, the period commencing on, as the case may
be, the Borrowing or conversion date with respect to such LIBO Rate Loan and
ending one, two, three, six, nine or twelve months thereafter as selected by the
Borrower in its notice of Borrowing as provided in Section 2.1(b) or its notice
of conversion as provided in Section 2.4; and
5
<PAGE>
(ii) thereafter, each period commencing on the last day of
the next preceding Interest Period applicable to such LIBO Rate Loan and ending
one, two, three, six, nine or twelve months thereafter as selected by the
Borrower in its notice of continuation as provided in Section 2.4; provided,
--------
that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(a) if any Interest Period for a LIBO Rate Loan would
otherwise end on a day which is not a LIBO Business Day, that Interest Period
shall be extended to the next succeeding LIBO Business Day unless the result of
such extension would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the immediately preceding
LIBO Business Day;
(b) the Borrower may not select an Interest Period with
respect to any portion of principal of a LIBO Rate Loan which extends beyond a
date on which the Borrower is required to make a scheduled payment of that
portion of principal;
(c) the Borrower may not select an Interest Period of nine
or twelve months without the prior consent of all Lenders, which consent may be
granted or withheld in the sole discretion of such Lenders;
(d) there shall be no more than ten Interest Periods with
respect to LIBO Rate Loans outstanding at any time.
"Interest Rate Agreement": As applied to any Person, an interest rate
-----------------------
swap, cap or collar agreement or similar arrangement designed to protect that
Person against fluctuations in interest rates.
"Internal Revenue Code": The Internal Revenue Code of 1986, as
---------------------
amended to the date hereof and from time to time hereafter.
"Investment": As applied to any Person, (i) any direct or indirect
----------
purchase or other acquisition of, or of a beneficial interest in, capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of, another Person, or (ii) any direct or indirect loan, extension of
credit, advance (other than advances to employees for moving, entertainment and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution to any other Person, including all
indebtedness and accounts receivable from the other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustment for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"Issuing Bank": Union Bank of California, N.A., as issuer of the
------------
Letters of Credit.
6
<PAGE>
"Lender": As defined in the introductory paragraph of this Agreement.
------
"Letter of Credit" or "Letters of Credit": Any standby letter of
---------------- -----------------
credit or similar instrument issued or to be issued by the Issuing Bank for the
account of the Borrower pursuant to Section 2.5 for the purpose of supporting
the obligations of the Borrower permitted under this Agreement.
"Letter of Credit Usage": At any date of determination, the sum of
----------------------
(i) the maximum aggregate amount that is or at any time thereafter may become
available for drawing under all Letters of Credit then outstanding and (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Issuing
Bank and not theretofore reimbursed by the Borrower.
"LIBO Business Day": A day which is a Business Day and a day on which
-----------------
dealings in Dollar deposits may be carried out in the London interbank market.
"LIBO Rate": For each Interest Period (i) the rate of interest
---------
determined by the Agent at which U.S. dollar deposits for the relevant Interest
Period and in the approximate amount of the relevant LIBO Rate Loan would be
offered by the Agent to prime banks in the London interbank market as of 11:00
A.M. (London time) on the day which is two (2) LIBO Business Days prior to the
first day of such Interest Period, divided by (ii) a number equal to 1.00 minus
the aggregate (but without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on the day which is two (2) LIBO
Business Days prior to the beginning of such Interest Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as in effect at the time the Agent
quotes the rate to the Borrower) for Eurocurrency funding of domestic assets
(currently referred to as "Eurocurrency liabilities" in Regulation D of such
Board) having a term equal to the relevant Interest Period which are required to
be maintained by a member bank of such System (such rate to be adjusted to the
next higher 1/16 of 1%).
"LIBO Rate Loans": Loans hereunder at such time as they accrue
---------------
interest at a rate based upon the LIBO Rate.
"Lien": Any lien, mortgage, deed of trust, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"Loan Documents": This Agreement, the Notes, each letter of credit
--------------
application, the Security Agreement, the Fee Letter, Financing Statements (Forms
UCC-1), the Intellectual Property Security Agreement, the Guaranty, the
Subsidiary Pledge and Security Agreement, the Subsidiary Intellectual Property
Security Agreements and all other documents delivered by any Loan Party to the
Agent, the Issuing Bank or any Lender in connection with this Agreement and/or
the credit extended hereunder.
"Loan Party": The Borrower and each Guarantor.
----------
7
<PAGE>
"Loans": Revolving Loans made to the Borrower pursuant to Section
-----
2.1.
"Majority Lenders": As of any date of determination, Lenders owed
----------------
66.667% of the then aggregate unpaid principal amount of the Notes, or, if no
principal amount of the Notes is outstanding, then Lenders having 66.667% of the
Commitments.
"Material Adverse Effect": A material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or financial or other condition of the
Borrower, individually, or the Borrower and its Subsidiaries, taken as a whole;
(b) the ability of Borrower to pay or perform in accordance with the terms of
this Agreement or any Loan Document; or (c) the rights and remedies of Agent or
any Lender under this Agreement or any of the Loan Documents.
"Maturity Date": April 30, 2001.
-------------
"Material Subsidiary": Any Subsidiary having a net worth or annual
-------------------
revenues of at least Ten Million Dollars ($10,000,000).
"Net Proceeds": With respect to any Equity Issuance, the gross
------------
proceeds received by the issuer from the issuance less all legal and accounting
expenses, commissions and other fees and expenses incurred or to be incurred and
all federal, state, local and foreign taxes assessed in connection therewith.
"Note" and "Notes": The Revolving Notes.
---- -----
"Permitted Liens": The following types of Liens:
---------------
(i) Liens for taxes, assessments or governmental charges or
claims (other than any such Lien imposed pursuant to Section 401(a)(29) or
412(n) of the Internal Revenue Code or by ERISA) to the extent not yet
delinquent or being contested in good faith and for which appropriate reserves
have been made in accordance with GAAP;
(ii) statutory Liens of landlords and statutory Liens of
carriers, warehousemen, mechanics and materialmen and other Liens imposed by law
incurred in the ordinary course of business securing obligations that are not
yet delinquent or are being contested in good faith and for which appropriate
reserves have been made in accordance with GAAP;
(iii) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
8
<PAGE>
(iv) easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not interfering in any material respect
with the use or value of such property;
(v) any attachment or judgment Lien not constituting an
Event of Default under Section 7.1(h); and
(vi) Liens not prior to the Lien of the Lenders which
constitute rights of set-off of a customary nature or bankers' Lien with respect
to amounts on deposit, arising by operation of law.
"Person": An individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"Potential Event of Default": A condition or event which, after
--------------------------
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"Receivables Facility": That certain Receivables Purchase Agreement
--------------------
dated as of March 26, 1998 by and between Borrower and Wells Fargo HSBC Trade
Bank N.A., as the same may from time to time be modified, supplemented, amended,
restated, extended, renewed, or replaced in a manner no less favorable to
Lenders or with the prior written consent of all Lenders.
"Regulations G, T, U and X": Regulations G, T, U and X, respectively,
-------------------------
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"Revolving Commitment": The amount of Fifty Million Dollars
--------------------
($50,000,000) as such amount may be reduced pursuant to Section 2.1(e).
"Revolving Loans": As defined in Section 2.1(a).
---------------
"Revolving Note": As defined in Section 2.1(c).
--------------
"S.E.C.": The United States Securities and Exchange Commission and
------
any successor institution or body which performs the functions or substantially
all of the functions thereof.
"Security Agreement": The Security Agreement dated as of even date
------------------
herewith, between the Borrower and the Agent.
"Solvent": As to any Person at any time, that (a) the fair value of
-------
the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for
9
<PAGE>
purposes of Section 101(32) of the United States Bankruptcy Code and, in the
alternative, for purposes of the California Uniform Fraudulent Transfer Act; (b)
the present fair saleable value of the property of such Person is not less than
the amount that will be required to pay the probable liability of such Person on
its debts as they become absolute and mature; (c) such Person is able to pay its
debts and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (e) such Person is not engaged in a business or a transaction for
which such Person's property would constitute unreasonably small capital.
"Subordinated Debt": Any Debt of the Borrower which is subordinated
-----------------
in right of payment to the obligations hereunder.
"Subsidiary": A corporation, partnership, association, joint venture
----------
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of Person or Persons
(whether directors, managers, trustees or other Persons performing similar
functions) having the power to direct or cause the direction of the management
and policies thereof are at the time owned, directly, or indirectly through one
or more intermediaries, or both, by the Borrower.
"Subsidiary Intellectual Property Security Agreements": Those certain
----------------------------------------------------
Intellectual Property Security Agreements, each dated as of the date hereof, by
and between the Agent and each of the Guarantors.
"Subsidiary Pledge and Security Agreement": That certain Subsidiary
----------------------------------------
Pledge and Security Agreement dated as of the date hereof, by and among each of
the Guarantors and the Agent.
"Synthetic Lease": As applied to any Person, obligations of such
---------------
Person, contingent or otherwise, under any lease of property or related
documents (including a separate purchase agreement) which provide that such
Person must purchase or cause another to purchase any interest in the leased
property and thereby guarantee a minimum residual value of the leased property
to the lessor.
1.2 Other Definitional Provisions.
-----------------------------
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
Section 1.1, and accounting terms partly defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under GAAP. In
the event that GAAP changes during the
10
<PAGE>
term of this Agreement such that the financial covenants contained in Sections
6.2(a) through (e) would then be calculated in a different manner or with
different components, (i) the Borrower and the Lenders agree to negotiate to
amend this Agreement in such respects as are necessary to conform those
covenants as criteria for evaluating the Borrower's financial condition to
substantially the same criteria as were effective prior to such change in GAAP
and (ii) the Borrower shall be deemed to be in compliance with the financial
covenants contained in such Sections, pending reaching agreement on such
amendment, following any such change in GAAP if and to the extent that the
Borrower would have been in compliance therewith under GAAP as in effect
immediately prior to such change.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
(d) The terms defined in Section 1.1 include the plural as well as the
singular. Pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms. The terms "includes" and "including" shall not be
construed to imply any limitation.
ARTICLE II
THE LOANS
2.1 The Revolving Loans.
-------------------
(a) The Revolving Commitment. Each Lender agrees, severally and not
------------------------
jointly, on the terms and conditions hereinafter set forth, to make loans
("Revolving Loans") to the Borrower from time to time during the period from the
---------------
date hereof to and including the Maturity Date in an aggregate amount not to
exceed the amount set opposite such Lender's name on the signature pages hereof,
as such amount may be reduced pursuant to Section 2.1(e), provided, that no
Lender shall be obligated on any date to make a Loan which, when added to the
aggregate principal amount of outstanding Revolving Loans on such date plus the
Letter of Credit Usage, would exceed the Revolving Commitment then in effect.
Each borrowing under this Section (a "Borrowing") shall be in a minimum amount
---------
of $1,000,000. Each Borrowing shall be made on the same day by the
Lenders ratably according to their respective Commitments. Within the limits of
the Revolving Commitment and prior to the Maturity Date, the Borrower may
borrow, repay pursuant to Section 2.2(b) and reborrow under this Section,
provided, however, that at no time shall the aggregate principal
- -------- -------
amount of outstanding Revolving Loans plus the Letter of Credit Usage then in
effect exceed the Revolving Commitment then in effect.
(b) Making the Revolving Loans.
--------------------------
(i) The Borrower may borrow under the Revolving Commitment on
any Business Day if the Borrowing is to consist of a Base Rate Loan and on any
LIBO
11
<PAGE>
Business Day if the Borrowing is to consist of a LIBO Rate Loan, provided that
--------
the Borrower shall give the Agent irrevocable notice (which notice must be
received by the Agent prior to 10:00 A.M., San Francisco time) (i) three (3)
LIBO Business Days prior to the requested Borrowing date in the case of a LIBO
Rate Loan, and (ii) one (1) Business Day prior to the requested Borrowing date
in the case of a Base Rate Loan, specifying (A) the amount of the proposed
Borrowing, (B) the requested date of the Borrowing, (C) whether the Borrowing is
to consist of a LIBO Rate Loan or a Base Rate Loan, and (D) if the Loan is to be
a LIBO Rate Loan, the length of the Interest Period therefor. Promptly
following receipt of such notice, the Agent shall notify each Lender of the date
of the Loan, whether the Loan will be a Base Rate Loan or a LIBO Rate Loan, the
amount of that Lender's pro rata share of the Loan and, if the Loan is a LIBO
Rate Loan, of the applicable Interest Period. Not later than 2:00 P.M., San
Francisco time, on the date specified for any Loan, each Lender shall deposit
immediately available funds in the amount of its pro rata share of the Loan to
the account of the Agent set forth on the signature pages hereof. Upon
satisfaction of the applicable conditions set forth in Article IV, the Agent
will make available the proceeds of all such Loans to the Borrower by crediting
the account of the Borrower on the books of the Agent, or as otherwise directed
by the Borrower.
(ii) The notice of Borrowing may be given orally (including
telephonically) or in writing (including telex or facsimile transmission);
provided that any oral notice shall be confirmed in writing on the same Business
- --------
Day and all written notices and confirmation shall be in the form of the Notice
of Revolving Loan attached hereto as Exhibit B. Any conflict regarding a notice
---------
or between an oral notice and a written notice applicable to the same Borrowing
shall be conclusively determined by the Agent's books and records absent
manifest error. The Agent's failure to receive any written notice of a
particular Borrowing made on oral notice shall not relieve the Borrower of its
obligations to repay the Borrowing made and to pay interest thereon. The Agent
shall not incur any liability to the Borrower in acting upon, and shall be
entitled to rely upon, any notice of Borrowing, or any notice of interest rate
conversion or extension or regarding any Letter of Credit, which the Agent
believes in good faith to have been given by a Person duly authorized to borrow
on behalf of the Borrower.
(iii) Unless the Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Agent such Lender's ratable portion of such Borrowing, the
Agent may assume that such Lender has made such portion available to the Agent
on the date of such Borrowing in accordance with subsection (1) of this Section
2.1(b) and the Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the Agent, such
Lender and the Borrower severally agree to repay to the Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to the Borrower until the date such
amount is repaid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at the time to such Borrowing and (ii) in the case of such
Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such
corresponding amount, such amount so repaid shall constitute such Lender's pro
rata share of such Borrowing for purposes of this Agreement. The failure of any
Lender to make
12
<PAGE>
available its pro rata share of any Borrowing shall not relieve any other Lender
of its obligation, if any, hereunder, to make available its pro rata share of
such Borrowing on the date of such Borrowing, but no Lender shall be responsible
for the failure of any other Lender to make available its pro rata share of any
Borrowing on the date of any Borrowing.
(c) Revolving Notes. The Revolving Loans made by the Lenders
---------------
pursuant hereto shall be evidenced by promissory notes of the Borrower,
substantially in the form of Exhibits A-1 and A-2 hereto, with appropriate
--------------------
insertions (the "Revolving Notes"), payable to the order of each Lender and
---------------
representing the obligation of the Borrower to pay the aggregate unpaid
principal amount of all Revolving Loans made by that Lender, with interest
thereon as prescribed in Section 2.3. Each Lender is hereby authorized to record
in its books and records and on any schedule annexed to its Revolving Note, the
date and amount of each Revolving Loan made by that Lender, and the date and
amount of each payment of principal thereof, and in the case of LIBO Rate Loans,
the Interest Period and interest rate with respect thereto and any such
recordation shall constitute prima facie evidence of the accuracy of the
----- -----
information so recorded; provided that failure by any Lender to effect such
--------
recordation shall not affect the Borrower's obligations hereunder. Prior to the
transfer of a Revolving Note, the transferring Lender shall record such
information on any schedule annexed to and forming a part of such Revolving
Note.
(d) Commitment Fee. The Borrower agrees to pay to the Agent for the
--------------
ratable benefit of the Lenders a commitment fee on the average daily unused
portion of the Revolving Commitment, from the execution date of this Agreement
until the Maturity Date at the applicable Commitment Fee Rate per annum set
forth in Exhibit E hereto (the "Commitment Fee"), payable in arrears on the last
---------
day of each calendar quarter commencing on the first such date occurring after
the date of this Agreement, and on the Maturity Date. The Commitment Fee shall
be calculated on the basis of a 360-day year for the actual days elapsed, and
shall be non-refundable. For the purposes of calculating the Commitment Fee, the
Letter of Credit Usage shall be deemed a usage of the Revolving Commitment.
(e) Reduction of Revolving Commitment. The Revolving Commitment
---------------------------------
shall be permanently and automatically reduced (i) within one (1) Business Day
of the date on which Borrower or any Material Subsidiary receives any cash
proceeds from the incurrence, issuance or sale by Borrower or any Material
Subsidiary of any Debt (other than Debt permitted under Section 6.2), by an
amount equal to 100% of the cash proceeds received by Borrower or any Material
Subsidiary from such incurrence, issuance or sale, net of all taxes applicable
to and customary fees, commissions, costs and other expenses incurred in
connection with such issuance or sale; and (ii) within one (1) Business Day of
the date on which Borrower or any of its Subsidiaries receives any cash proceeds
from the sale, transfer or other disposition of any assets of Borrower or any
Subsidiaries (other than (x) inventory disposed of in the ordinary course of
business, or of worn-out or obsolete assets, (y) sales of receivables under the
Receivables Facility and (z) sales of equipment in connection with the lease
financing thereof within 60 days after the acquisition thereof), by an amount
equal to 100% of the cash proceeds received by Borrower or any Subsidiary from
such sale, transfer or disposition, net of selling expenses (including
Borrower's good faith estimate of income tax liabilities incurred in connection
with the receipt of such proceeds) ("Asset Sale Proceeds");
13
<PAGE>
provided that if Borrower shall deliver a certificate of a responsible officer
- --------
of Borrower to the Agent promptly following receipt of any such proceeds setting
forth the intention of Borrower or the applicable Subsidiary to use any portion
of such proceeds to purchase assets useful in the business of Borrower or the
applicable Subsidiary within 6 months of such receipt, such portion of such
proceeds shall not constitute Asset Sale Proceeds except to the extent not so
used within such 6-month period.
(f) Fees. From time to time, Borrower shall pay to the Agent non-
----
refundable fees as specified in the Fee Letter.
2.2 Repayment.
---------
(a) Mandatory Repayments. The aggregate principal amount of the
--------------------
Revolving Loans outstanding on the Maturity Date, together with accrued interest
thereon and any other amounts due under this Agreement, shall be due and payable
in full on the Maturity Date. At any time the sum of the aggregate principal
amount of outstanding Revolving Loans plus the Letter of Credit Usage exceeds
the Revolving Commitment then in effect, the Borrower shall immediately repay
the Revolving Loans in an amount equal to the excess.
(b) Optional Prepayment. Subject to Section 3.7(b), the Borrower
-------------------
may at its option prepay the Loans, in whole or in part, at any time and from
time to time, provided that the Agent shall have received from the Borrower
--------
notice of any such prepayment at least one (1) Business Day prior to the date of
the proposed prepayment if such date is not the last day of the then current
Interest Period for each Loan being prepaid, in each case specifying the date
and the amount of prepayment. Partial prepayments hereunder shall be in an
aggregate principal amount of the lesser of (a) $1,000,000 and (b) the
outstanding balance of the Loan being prepaid .
2.3 Interest Rate and Payment Dates.
-------------------------------
(a) Payment of Interest. Interest with respect to each Loan shall
-------------------
be payable in arrears on each Interest Payment Date for such Loan, on the
Maturity Date and on the date of any prepayment.
(b) Base Rate Loans. Except as otherwise provided in Section 3.2,
---------------
Revolving Loans which are Base Rate Loans shall bear interest on the unpaid
principal amount thereof at a rate per annum equal to the Base Rate plus the
Applicable Margin.
(c) LIBO Rate Loans. Except as otherwise provided in Section 3.2,
---------------
Revolving Loans which are LIBO Rate Loans shall bear interest for each Interest
Period with respect thereto on the unpaid principal amount thereof at a rate per
annum equal to the LIBO Rate determined for such Interest Period in accordance
with the terms hereof plus the Applicable Margin.
2.4 Continuation and Conversion Options. The Borrower may elect from
-----------------------------------
time to time to convert its outstanding Loans from Loans bearing interest at a
rate determined by
14
<PAGE>
reference to one basis to Loans bearing interest at a rate determined by
reference to an alternative basis by giving the Agent irrevocable notice
prior to 10:00 A.M. San Francisco time (i) at least one (1) Business Day prior
to an election to convert Loans to Base Rate Loans and (ii) at least three
(3) LIBO Business Days' prior irrevocable notice of an election to convert Loans
to LIBO Rate Loans, provided that any conversion of Loans other than Base Rate
--------
Loans shall only be made on the last day of an Interest Period with respect
thereto, provided, further that no Loan may be converted to a Loan other than a
-------- -------
Base Rate Loan so long as an Event of Default or Potential Event of Default has
occurred and is continuing. The Borrower may elect from time to time to
continue its outstanding Loans other than Base Rate Loans upon the expiration of
the Interest Period(s) applicable thereto by giving to the Agent at least three
(3) LIBO Business Days' prior irrevocable notice of continuation of a LIBO Rate
Loan and the succeeding Interest Period(s) of such continued Loan or Loans will
commence on the last day of the Interest Period of the Loan to be continued,
provided that no Loan may be continued as a Loan other than a Base Rate Loan so
- --------
long as an Event of Default or Potential Event of Default has occurred and is
continuing. Each notice electing to convert or continue a Loan shall be in the
form of Exhibit C hereto, and shall specify: (i) the proposed
---------
conversion/continuation date; (ii) the amount of the Loan to be
converted/continued; (iii) the nature of the proposed continuation/conversion;
and (iv) in the case of a conversion to, or continuation of, a Loan other than a
Base Rate Loan, the requested Interest Period, and shall certify that no Event
of Default or Potential Event of Default has occurred and is continuing. On the
date on which such conversion or continuation is being made each Lender shall
take such action as is necessary to effect such conversion or continuation. In
the event that no notice of continuation or conversion is received by the Agent
with respect to outstanding Loans other than Base Rate Loans, upon expiration of
the Interest Period(s) applicable thereto, such Loans shall continue with
Interest Periods having the same duration as the expiring Interest Periods.
Subject to the limitations set forth in this Section and in the definition of
Interest Period, all or any part of outstanding Loans may be converted or
continued as provided herein, provided that partial conversions or
--------
continuations with respect to Loans other than Base Rate Loans shall be in an
aggregate minimum amount of $1,000,000.
2.5 Letters of Credit
-----------------
(a) Letters of Credit. The Borrower may request from time to time
-----------------
during the period from the date hereof through the Maturity Date that the
Issuing Bank issue Letters of Credit for the account of the Borrower, provided
--------
that (i) Borrower shall not request that the Issuing Bank issue any Letter of
Credit, if after giving effect to such issuance, the sum of the aggregate
principal amount of outstanding Revolving Loans plus the Letter of Credit Usage
exceeds the Revolving Commitment then in effect, (ii) in no event shall the
Issuing Bank issue any Letter of Credit having an expiration date (x) later than
30 days prior to the Maturity Date or (y) more than one year from the date of
issuance or amendment, whichever is later, and (iii) Borrower shall not request
any Letter of Credit, if after giving effect to such issuance, the Letter of
Credit Usage exceeds Twenty Million Dollars ($20,000,000) or any regulatory,
legal or internal limit on the Issuing Bank's ability to issue the requested
Letter of Credit.
15
<PAGE>
(b) Request for Issuance; Payments Under Letters of Credit.
------------------------------------------------------
Whenever the Borrower requests that the Issuing Bank issue a Letter of Credit,
it shall deliver to the Issuing Bank an executed application for such Letter of
Credit in the form customarily required by the Issuing Bank and the form of the
Letter of Credit requested, together with such other information or materials as
the Issuing Bank may request with respect to such Letter of Credit no later than
10:00 A.M., San Francisco time, at least three (3) Business Days in advance of
the proposed date of issuance. IN DETERMINING WHETHER TO PAY UNDER ANY LETTER OF
CREDIT, THE ISSUING BANK SHALL BE RESPONSIBLE ONLY TO DETERMINE THAT THE
DOCUMENTS AND CERTIFICATES REQUIRED TO BE DELIVERED UNDER THAT LETTER OF CREDIT
HAVE BEEN DELIVERED AND THAT THEY COMPLY ON THEIR FACE WITH THE REQUIREMENTS OF
THAT LETTER OF CREDIT.
(c) Issuance of Letters of Credit. Upon the satisfaction of all
------------------------------
relevant conditions set forth in Section 4.3, and provided that the issuance of
such Letter of Credit would not violate any internal policy of the Issuing Bank
at the time such issuance is requested, the Issuing Bank in respect of a
requested Letter of Credit shall issue a Letter of Credit by delivering the
Letter of Credit to the beneficiary, and shall promptly notify the Agent and
each Lender of the amount and terms thereof. If the Issuing Bank declines to
issue the requested Letter of Credit, it shall promptly so notify the Borrower
and the Borrower shall withdraw its application therefor.
(d) Participation by Lenders in Letters of Credit. Upon the
---------------------------------------------
issuance of a Letter of Credit, each Lender shall be deemed to have irrevocably
purchased from the Issuing Bank, without recourse to or warranty from the
Issuing Bank, a pro rata undivided participation in the Letter of Credit, in an
amount equal to the face amount of the Letter of Credit multiplied by that
Lender's ratable share of the Revolving Commitment.
(e) Reimbursement of Amounts Drawn Under Letter of Credit. The
------------------------------------------------------
Issuing Bank shall notify the Borrower and the Agent of each request for a
drawing under a Letter of Credit, and the Borrower shall reimburse the Issuing
Bank for such amount in immediately available funds prior to 11:00 A.M., San
Francisco time, on the date of the drawing. In the event that the Borrower
shall fail to so reimburse the Issuing Bank, the Issuing Bank shall promptly
notify the Agent who shall promptly notify each Lender. Prior to 2:00 P.M., San
Francisco time, on the date of such notice, each Lender shall make a payment
under its participation in such Letter of Credit (which, except as provided in
Section 2.5(f)(ii), shall constitute a Revolving Loan to the Borrower) in an
amount equal to that Lender's ratable share of the unreimbursed amount of such
drawing, by depositing immediately available funds in such amount to the account
of the Agent set forth on the signature pages hereof. The Agent shall promptly
pay to the Issuing Bank the proceeds of such Revolving Loans, which shall be
used by the Issuing Bank to repay the unreimbursed amount. Such Revolving Loans
shall be evidenced by the Revolving Notes and shall initially be Base Rate
Loans. The obligation of each Lender to reimburse the Issuing Bank is absolute
and unconditional and shall not be affected by the occurrence of an Event of
Default or any other occurrence or event. Any such reimbursement shall not
relieve or otherwise impair the obligation of the Borrower to reimburse the
Issuing Bank for the amount of any payment made by the Issuing
16
<PAGE>
Bank under any Letter of Credit as set forth herein. If any Lender fails to make
available to the Agent the amount of such Lender's participation in such Letter
of Credit as provided above, the Issuing Bank shall be entitled to recover such
amount on demand from such Lender together with interest thereon, for each day
from the date of notice to such Lender to the date such amount is paid to the
Issuing Bank at rate which is at all times equal to Federal Funds Rate.
(f) Compensation. The Borrower agrees to pay the following
-------------
amounts to the Agent with respect to Letters of Credit:
(i) with respect to each Letter of Credit, a Letter of Credit
fee for the period from and including the date of issuance of the Letter of
Credit to and including the date such Letter of Credit is drawn in full, expires
or is terminated for the ratable benefit of the Lenders at a rate per annum
equal to the Applicable Margin for LIBO Rate Loans multiplied by the stated
amount of the Letter of Credit, payable on the date of issuance of the Letter of
Credit for the period from the date of issuance to the last day of the next
occurring March, June, September and December, and thereafter payable quarterly
in arrears on the last day of each March, June, September and December;
(ii) with respect to drawings made under any Letter of
Credit, to the extent a Revolving Loan is not made to reimburse the Issuing Bank
for each such drawing, or the Issuing Bank is not otherwise reimbursed for any
reason, interest, for the ratable benefit of the Lenders, payable on demand, on
the amount paid by the Issuing Bank in respect of each such drawing from the
date of the drawing through the date such amount is reimbursed the Borrower at a
rate which is at all times equal to two percent (2%) per annum in excess of the
Base Rate in effect from time to time ;
(iii) with respect to the amendment or transfer of each
Letter of Credit and each drawing made thereunder, for the account of the
Issuing Bank, documentary and processing charges in accordance with the Issuing
Bank's standard schedule for such charges in effect at the time of amendment,
transfer or drawing, as the case may be;
(iv) with respect to each Letter of Credit, payable on the
date of issuance of such Letter of Credit, a non-refundable Letter of Credit fee
for the account of the Issuing Bank as specified in the Fee Letter.
(g) Obligations Absolute. The obligations of the Borrower to
---------------------
reimburse the Issuing Bank for drawings made under each Letter of Credit and the
obligation of the Lenders under Section 2.5(e) shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other
right which the Borrower may have at any time against the beneficiary or any
transferee of the Letter of
17
<PAGE>
Credit (or any persons or entities for whom any such transferee may be acting),
the Agent or any Lender or any other person or entity, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between the Borrower and the
beneficiary for which the Letter of Credit was procured);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(iv) payment against any draft, document or other demand for
payment that does not comply with the terms of the Letter of Credit, provided
that such payment does not constitute gross negligence or willful misconduct on
the part of the Issuing Bank; or
(v) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
(h) Payments Avoided. If any payment received on account of any
----------------
reimbursement obligation in respect of a Letter of Credit and distributed to a
Lender as a participant under this Section 2.5 is thereafter set aside, avoided
or recovered from the Issuing Bank in connection with any receivership,
liquidation, reorganization or bankruptcy proceeding relating to the Borrower,
each Lender that received a distribution in respect of such payment shall, upon
demand by the Agent, pay to the Issuing Bank the amount of such distribution
received by such Lender.
2.6 Security for Loans. As security for the payment and performance of
------------------
its obligations hereunder, the Borrower hereby grants to the Agent as collateral
agent for the Lenders a first priority security interest (subject to Permitted
Liens or other Liens permitted under this Agreement) in all of the Borrower's
right, title and interest in and to the collateral described in the security
agreement executed by the Borrower in favor of the Agent as collateral agent for
the Lenders.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
3.1 Use of Proceeds. The proceeds of the Loans hereunder shall be used by
---------------
the Borrower for working capital and Acquisitions permitted under this
Agreement, and for general corporate purposes.
3.2 Post Maturity Interest. Notwithstanding anything to the contrary
----------------------
contained in Section 2.3, if all or a portion of the principal amount of any of
the Loans made hereunder or any interest accrued thereon shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), any such
overdue amount shall bear interest at a rate per annum
18
<PAGE>
which is equal to the greater of (a) two percent (2%) above the highest rate
which would otherwise be applicable pursuant to Section 2.3 and (b) two percent
(2%) above the Base Rate, from the date of such nonpayment until paid in full
(after as well as before judgment), payable on demand. In addition, such Loan,
if a Loan other than a Base Rate Loan, shall be converted to a Base Rate Loan at
the end of the then current Interest Period therefor.
3.3 Computation of Interest and Fees.
--------------------------------
(a) Calculations. Interest in respect of Base Rate Loans when the
------------
Base Rate is determined by Union Bank of California N.A.'s "Base Commercial
Lending Rate" shall be calculated on the basis of a 365 day year for the actual
days elapsed, and otherwise shall be calculated on the basis of a 360 day year
for the actual days elapsed. Interest in respect of LIBO Rate Loans, and all
fees hereunder, shall be calculated on the basis of a 360 day year for the
actual days elapsed. Interest payable pursuant to Section 2.5 shall be
calculated on the basis of a 360 day year for the actual days elapsed. Any
change in the interest rate on a Base Rate Loan resulting from a change in the
Base Rate shall become effective as of the opening of business on the day on
which such change in the Base Rate shall become effective. In computing interest
on any Loan, the date of the making of the Loan shall be included and the date
of payment shall be excluded; provided that if a Loan is repaid on the same day
--------
on which it is made, one day's interest shall be paid on that Loan.
(b) Determination by Agent. Each determination of an interest
----------------------
rate or fee by the Agent pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error.
3.4 Payments. The Borrower shall make each payment of principal, interest
--------
and fees hereunder and under the Notes, without setoff or counterclaim, not
later than 10:00 A.M., San Francisco time, on the day when due in lawful money
of the United States of America to the Agent at the office of the Agent
designated from time to time in immediately available funds. The Borrower
hereby authorizes the Agent with notice to the Borrower (i) to charge its
accounts with the Agent in order to cause payment to be made to the Agent of all
principal, interest, fees and expenses due hereunder (subject to sufficient
funds being available in its accounts for that purpose), and (ii) to make
Revolving Loans in order to cause payment to be made to Agent of all interest,
fees and expenses due hereunder. The Agent shall promptly provide notice to the
Borrower of any charge or the making of any such Revolving Loan. The Agent
shall promptly pay to each Lender its pro rata share of each payment received by
the Agent.
3.5 Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day, and
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
3.6 Reduced Return. If any Lender or the Issuing Bank shall reasonably
--------------
have determined that, after the date hereof, the adoption of any applicable law,
regulation, rule or regulatory requirement ("Requirement") regarding capital
-----------
adequacy, or any change therein, or
19
<PAGE>
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender or the Issuing Bank with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on any Lender's or the Issuing
Bank's capital as a consequence of its undrawn Commitments and obligations
hereunder, the Letters of Credit issued hereunder or its obligation to purchase
a participation in the Letters of Credit to a level below that which would have
been achieved but for such Requirement, change or compliance (taking into
consideration that Lender's or the Issuing Bank's, as the case may be, policies
with respect to capital adequacy) by an amount deemed by that Lender or the
Issuing Bank, as the case may be, to be material, then from time to time,
within five (5) Business Days after demand by such Lender or the Issuing Bank,
as the case may be, the Borrower shall pay to that Lender or the Issuing Bank,
as the case may be, such additional amount or amounts as will compensate that
Lender or the Issuing Bank, as the case may be, for such reduction.
3.7 Indemnities.
-----------
(a) General. Whether or not the transactions contemplated hereby
-------
shall be consummated, the Borrower agrees to indemnify, pay and hold the Agent,
the Issuing Bank and each Lender, and the shareholders, officers, directors,
employees and agents of the Agent, the Issuing Bank and each Lender (each, an
"Indemnified Person"), harmless from and against any and all claims,
- -------------------
liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs (including the reasonable estimate of the allocated
cost of in-house legal counsel and staff) and including costs of investigation,
document production, attendance at a deposition, or other discovery, with
respect to or arising out of (i) any proposed acquisition by the Borrower or any
of its Subsidiaries of any Person or any securities (including a self-tender),
(ii) this Agreement or any other Loan Document or any use of proceeds hereunder,
(iii) the issuance of any Letter of Credit or the failure by the Issuing Bank to
honor a drawing under a Letter of Credit as a result of any act or omission of
any government or governmental authority, or (iv) any claim, demand, action or
cause of action arising from any of the foregoing being asserted against the
Agent, any Lender, the Borrower or any of its Subsidiaries, whether or not any
Indemnified Person is a party thereto, including, without limitation, any claim
under any environmental law, rule or regulation, or any dispute between or among
any parties to the Loan Documents (collectively, the "Indemnified Liabilities"),
-----------------------
except to the extent such Indemnified Liabilities result from the gross
negligence or willful misconduct of such Indemnified Person. If any claim is
made, or any action, suit or proceeding is brought, against any Indemnified
Person pursuant to this Section, the Indemnified Person shall notify the
Borrower of such claim or of the commencement of such action, suit or
proceeding, and the Borrower at its option may, or at the request of the
Indemnified Person will, control and direct the defense of such action, suit or
proceeding, employing counsel selected by the Borrower and reasonably
satisfactory to the Indemnified Person, and pay the reasonable fees and expenses
of such counsel; provided, however, that any Indemnified Person may at its own
-------- -------
expense retain separate counsel to participate in such defense. Notwithstanding
the foregoing, such Indemnified Person shall have the right to employ separate
counsel at the Borrower's expense and to control and direct its own defense
20
<PAGE>
of such action, suit or proceeding if, in the reasonable opinion of counsel to
such Indemnified Person, (i) there are or may be legal defenses available to
such Indemnified Person or to other Indemnified Persons that are different from
or additional to those available to the Borrower that the Borrower cannot
assert, or (ii) a conflict or potential conflict exists between the Borrower and
such Indemnified Person that would make such separate representation advisable.
The Borrower agrees that it will not, without the prior written consent of the
Agent, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding with respect to which
the indemnification provided for in this Section is available (whether or not
any Indemnified Person is a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Agent and each other
Indemnified Person from all liability arising or that may arise out of such
claim, action, suit or proceeding. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 3.7 may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by any Indemnified Person. This covenant shall survive
termination of this Agreement and payment of the outstanding Notes.
(b) Funding Losses. The Borrower agrees to indemnify each Lender
--------------
and to hold each Lender harmless from any loss or expense including, but not
limited to, any such loss or expense arising from interest or fees payable by
such Lender to lenders of funds obtained by it in order to maintain its LIBO
Rate Loans hereunder, which such Lender may sustain or incur as a consequence of
(i) default by the Borrower in payment of the principal amount of or interest on
the LIBO Rate Loans of that Lender, (ii) default by the Borrower in making a
conversion or continuation after the Borrower has given a notice thereof, (iii)
default by the Borrower in making any payment after the Borrower has given a
notice of payment or (iv) the Borrower making any payment of a LIBO Rate Loan on
a day other than the last day of the Interest Period for such Loan. For purposes
of this Section and Section 3.12, it shall be assumed that the affected Lender
had funded or would have funded 100%, as the case may be, of a LIBO Rate Loan in
the London interbank market for a corresponding amount and term. The
determination of such amount by such Lender shall be presumed correct in the
absence of manifest error. This covenant shall survive termination of this
Agreement and payment of the outstanding Notes.
(c) Letters of Credit. As between the Borrower and the Issuing
------------------
Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of
the Letters of Credit by, the respective beneficiaries of the Letters of Credit.
In furtherance and not in limitation of the foregoing, the Issuing Bank shall
not be responsible: (i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for and issuance of the Letters of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any reason;
(iii) for failure of the beneficiary of a Letter of Credit to comply fully with
conditions required in order to draw upon such Letter of Credit; (iv) for
errors, omissions, interruptions or delays in transmission
21
<PAGE>
or delivery of any messages, by mail, cable, telegraph, telex or otherwise,
whether or not they be in cipher; (v) for errors in interpretation of technical
terms; (vi) for any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of Credit or of
the proceeds thereof; (vii) for the misapplication by the beneficiary of a
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Issuing Bank, including any act or omission by any government or governmental
authority. None of theabove shall affect, impair, or prevent the vesting of any
of the Issuing Bank's rights or powers hereunder. In furtherance and extension
and not in limitation of the specific provisions set forth herein, any action
taken or omitted by the Issuing Bank, under or in connection with the Letters of
Credit or the related certificates, if taken or omitted in good faith, shall not
put the Issuing Bank under any resulting liability to the Borrower.
Notwithstanding the foregoing, Issuing Bank shall not be relieved of any
liability it may otherwise have as a result of its gross negligence or willful
misconduct.
3.8 Funding Sources. Nothing in this Agreement shall be deemed to
---------------
obligate any Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by any Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
3.9 Sharing of Payments, Etc. If any Lender shall obtain any payment
-------------------------
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Loans owing to it in excess of its ratable share
of payments on account of the Loans obtained by all the Lenders, then such
Lender shall forthwith purchase from the other Lenders such participations in
the Loans owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided, however, that if
-------- --------
all or any portion of such excess payment is thereafter recovered from such
purchasing Lender, such purchase from each Lender shall be rescinded and such
Lender shall repay to the purchasing Lender the purchase price to the extent of
such recovery together with an amount equal to such Lender's ratable share
(according to the proportion of (i) the amount of such Lender's required
repayment to (ii) the total amount so recovered from the purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 3.9 or
any other provision of this Agreement may, to the fullest extent permitted by
law, exercise all of its rights of payment (including the right to set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.
3.10 Inability to Determine Interest Rate. In the event that the Agent
------------------------------------
or any Lender shall have determined (which determination shall be conclusive and
binding upon the Borrower) that by reason of circumstances affecting the London
interbank market, adequate and reasonable means do not exist for ascertaining
the LIBO Rate applicable pursuant to Section 2.3 for any Interest Period with
respect to a LIBO Rate Loan that will result from a requested LIBO Rate Loan or
that such rate of interest does not adequately cover the cost of funding such
Loan, the Agent or such Lender shall forthwith give notice of such determination
to the Borrower not later than 1:00 P.M., San Francisco time, on the requested
22
<PAGE>
Borrowing date, the requested conversion date or the last day of an Interest
Period of a Loan which was to have been continued as a LIBO Rate Loan. If such
notice is given and has not been withdrawn (i) any requested LIBO Rate Loan
shall be made as a Base Rate Loan, or, at the Borrower's option, such Loan shall
not be made, (ii) any Loan that was to have been converted to a LIBO Rate Loan
shall be continued as, or converted into, a Base Rate Loan and (iii) any
outstanding LIBO Rate Loan shall be converted, on the last day of the then
current Interest Period with respect thereto, to a Base Rate Loan. Until such
notice has been withdrawn by the Agent, no further LIBO Rate Loans shall be made
and the Borrower shall not have the right to convert a Loan to a LIBO Rate Loan.
The Agent will review the circumstances affecting the London interbank market
from time to time and the Agent will withdraw such notice at such time as it
shall determine that the circumstances giving rise to said notice no longer
exist.
3.11 Requirements of Law. In the event that any change after the date
-------------------
hereof in any law, regulation or directive or in the interpretation or
application thereof or compliance by any Lender or the Issuing Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority, agency or instrumentality not in effect on
the date hereof:
(a) does or shall subject any Lender or the Issuing Bank to any tax
of any kind whatsoever (other than any income or franchise tax) with respect to
this Agreement, any Note or any Loan made hereunder, or any Letter of Credit
issued hereunder, or change the basis of taxation of payments to any Lender or
the Issuing Bank of principal, fee, commission, interest or any other amount
payable hereunder (except for changes in the rate or amount of any income or
franchise tax imposed on such Lender or the Issuing Bank);
(b) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, Letters of Credit issued by, or other credit extended by,
or any other acquisition of funds by, any office of any Lender or the Issuing
Bank;
(c) does or shall impose on any Lender or the Issuing Bank any
other condition;
and the result of any of the foregoing is to increase the cost to any Lender or
the Issuing Bank of maintaining its Revolving Commitment or the LIBO Rate Loans,
or of issuing, renewing or maintaining the Letters of Credit or purchasing a
participation therein, or to reduce any amount receivable thereunder (which
increase or reduction shall be determined by such Lender's or the Issuing
Bank's, as the case may be, reasonable allocation of the aggregate of such cost
increases or reduced amounts receivable resulting from such events), then, in
any such case, the Borrower shall pay to such Lender or the Issuing Bank, as the
case may be, within three (3) Business Days of its demand, any additional
amounts necessary to compensate such Lender or the Issuing Bank, as the case may
be, for such additional cost or reduced amount receivable as determined by such
Lender or the Issuing Bank, as the case may be, with respect to this Agreement;
provided that before making such demand, each
- --------
23
<PAGE>
Lender or Issuing Bank, as the case may be, agrees to use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions) to
designate a different lending office if the making of such a designation would
avoid, or reduce the amount of, such additional cost or reduced amount, and
would not, in the reasonable judgment of such Lender or Issuing Bank, as the
case may be, be otherwise disadvantageous to such Lender or Issuing Bank. If any
Lender or the Issuing Bank becomes entitled to claim any additional amounts
pursuant to this Section, it shall notify the Borrower of the event by reason of
which it has become so entitled. A statement incorporating the calculation as to
any additional amounts payable pursuant to the foregoing sentence submitted by
the affected Lender or the Issuing Bank, as the case may be, to the Borrower
shall be conclusive in the absence of manifest error.
3.12 Illegality. Notwithstanding any other provisions herein, if any
----------
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful, impossible, or
impracticable for any Lender to make or maintain LIBO Rate Loans as contemplated
by this Agreement, (a) the commitment of such Lender hereunder to make LIBO Rate
Loans or convert Base Rate Loans to LIBO Rate Loans shall forthwith be canceled
and (b) such Lender's Loans then outstanding as LIBO Rate Loans, if any, shall
be converted automatically to Base Rate Loans on the next succeeding Interest
Payment Date or within such earlier period as allowed by law. The Borrower
hereby agrees to pay each Lender, within three (3) Business Days of its demand,
any additional amounts necessary to compensate such Lender for any costs
incurred by such Lender in making any conversion in accordance with this
Section, including, but not limited to, any interest or fees payable by such
Lender to lenders of funds obtained by it in order to make or maintain its LIBO
Rate Loans hereunder (such Lender's notice of such costs, as certified to the
Borrower and the Agent to be conclusive absent manifest error).
ARTICLE IV
CONDITIONS OF LENDING
4.1 Conditions Precedent to Initial Loans. The obligation of each
-------------------------------------
Lender to make its initial Loan is subject to the conditions precedent that:
(a) The Agent shall have received on or before the day of the
initial Borrowing the following, each dated on or about the date hereof (except
for the documents referred to in clauses (i) and (v)), in form and substance
satisfactory to the Agent and (except for the Notes) in sufficient copies for
each Lender:
(i) Copies of the Certificate of Incorporation, or other
organizational document of each Loan Party, certified as of a recent date by the
Secretary of State of its state of formation or incorporation;
(ii) Copies of the Bylaws, if any, of each Loan Party,
certified by the Secretary or an Assistant Secretary of such Loan Party;
24
<PAGE>
(iii) Copies of resolutions of the Board of Directors or other
authorizing documents of each Loan Party, approving the Loan Documents and the
Borrowings and the reimbursement obligations under the Letters of Credit issued
hereunder;
(iv) An incumbency certificate or equivalent document
executed by the Secretary or an Assistant Secretary of each Loan Party
certifying the names and signatures of the officers of such Loan Party or other
Persons authorized to sign the Loan Documents and the other documents to be
delivered hereunder;
(v) a good standing certificate for each Loan Party, issued
as of a recent date by the Secretary of State of (A) the state in which such
Loan Party is incorporated or formed and (B) each state in which it owns
material assets and conducts material operations.
(vi) The Notes issued by the Borrower to the order of each
Lender;
(vii) This Agreement, including all exhibits and schedules
hereto, duly executed by the Borrower, the Agent, the Syndication Agent and the
Lenders;
(viii) A Notice of Revolving Loan, executed by the chief
financial officer of Borrower;
(ix) The Guaranty, duly executed by each Guarantor;
(x) The Security Agreement, duly executed by the Borrower,
and the Subsidiary Pledge and Security Agreement, duly executed by each
Guarantor together with (A) certificates representing the Pledged Shares
referred to in Schedule II to each of the Security Agreement and the Subsidiary
Pledge and Security Agreement, accompanied by undated stock powers executed in
blank, and (B) evidence satisfactory to the Agent that all other actions
necessary or advisable to perfect and protect the security interest created by
the Security Agreement and the Subsidiary Pledge and Security Agreement have
been taken, including delivery to the Agent of financing statements (Forms UCC-
1) duly executed by the Borrower and each Guarantor in form sufficient for
filing in all offices in which the Agent or Lenders may consider filing to be
appropriate in order to perfect the Lenders' security interest;
(xi) Certificates as to coverage under the insurance policies
required by the Security Agreement and the Subsidiary Pledge and Security
Agreement, each of which shall be endorsed or otherwise amended to include a
standard lender's loss payable endorsement and to name the Agent as additional
insured, in form and substance satisfactory to the Agent;
(xii) The Intellectual Property Security Agreement, duly
executed by the Borrower, and the Subsidiary Intellectual Property Security
Agreements, duly executed by each Guarantor, each in form sufficient for
recording in the United States Patent and Trademark Office and the United States
Copyright Office;
25
<PAGE>
(xiii) The Fee Letter, duly executed by the Borrower, and such
other matters as the Agent acting on behalf of the Lenders may reasonably
request.
(b) The Borrower shall have paid to the Agent, for distribution (as
appropriate) to the Agent and/or the Lenders, the fees payable as required in
Section 2.1 and as specified in the Fee Letter.
(c) The Borrower shall have paid to Syndication Agent the fees
payable as specified in a separate letter between Borrower and Syndication
Agent.
(d) The Borrower shall have furnished to the Agent and each Lender
audited consolidated financial statements of Borrower for Borrower's fiscal year
ended December 31, 1997, prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm acceptable to the Agent;
(e) The Borrower shall have executed and delivered all financing
statements, notices, and other documents necessary or appropriate to perfect (to
the extent such perfection can be effected by such filings) the security
interest of Agent in the assets of Borrower in the U.S. covered by the Security
Agreement, and such financing statements, notices and other documents shall have
been filed or recorded with or delivered to the appropriate Person;
(f) The Borrower shall have delivered to Lenders one or more legal
opinions from its counsel, which opinions shall be acceptable to Lenders;
(g) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Agent and
its counsel, and each Lender, and the Agent and the Agent's counsel shall have
received any and all further information and documents which the Agent or such
counsel may reasonably have requested in connection therewith, such documents
where appropriate to be certified by proper corporate or governmental
authorities.
4.2 Conditions Precedent to Each Borrowing. The obligation of each
--------------------------------------
Lender to make a Loan on the occasion of each Borrowing (including the initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing:
(a) the following statements shall be true and the Agent shall have
received the notice required by Section 2.1(b), which notice shall be deemed to
be a certification by the Borrower that:
(i) the representations and warranties contained in Section
5.1 and in the other Loan Documents are correct in all material respects on and
as of the date of such Borrowing as though made on and as of such date (except
to the extent they relate specifically
26
<PAGE>
to any earlier date, in which case such representations and warranties shall
continue to have been correct in all material respects as of such date).
(ii) no event has occurred and is continuing, or would result
from such Borrowing, which constitutes an Event of Default or Potential Event of
Default, and
(iii) all Loan Documents are in full force and effect,
(iv) after giving effect to such requested Loan, the
aggregate outstanding principal amount of the Loans plus the Letter of Credit
Usage shall not exceed the Revolving Commitment then in effect, and
(b) each Lender shall have received such other approvals, opinions
or documents as any Lender or the Agent may reasonably request.
4.3 Conditions Precedent to Each Letter of Credit. The issuance of any
---------------------------------------------
Letter of Credit hereunder is subject to the prior or concurrent satisfaction of
all of the following conditions:
(a) On or before three (3) Business Days prior to the date of
issuance of the initial Letter of Credit, each of the conditions set forth in
Section 4.1 shall have been satisfied or waived and the initial Loan shall have
been made hereunder.
(b) On or before the date of issuance, the Issuing Bank shall have
received the executed application for such Letter of Credit in the form
customarily required by the Issuing Bank and all other information specified in
Section 2.5(b) and such other documents as the Issuing Bank may reasonably
require in connection with the issuance of such Letter of Credit.
(c) On the date of issuance, all conditions precedent described in
Section 4.2 shall be satisfied to the same extent as though the issuance of such
Letter of Credit were the making of a Loan and the date of issuance of such
Letter of Credit were the date of a Borrowing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties. The Borrower represents and
------------------------------
warrants as follows:
(a) Organization. Each Loan Party is duly organized, validly
------------
existing and in good standing under the laws of the state of its formation. Each
Loan Party is also duly authorized, qualified and licensed in all applicable
jurisdictions, and under all applicable laws, regulations, ordinances or orders
of public authorities, to carry on its business in the locations
27
<PAGE>
and in the manner presently conducted, except where failure to be so qualified
would not reasonably be expected to have a Material Adverse Effect.
(b) Authorization, Execution and Delivery. The execution, delivery
-------------------------------------
and performance by each Loan Party of the Loan Documents to which it is a party,
and the making of Borrowings hereunder, are within such Loan Party's corporate
powers, have been duly authorized by all necessary corporate action, and do not
contravene (i) such Loan Party's charter, by-laws or other organizational
document or (ii) except to the extent not resulting in a Material Adverse
Effect, any law or regulation (including Regulations U and X) or any contractual
restriction binding on or affecting such Loan Party. Each of the Loan Documents
have been duly executed and delivered by each Loan Party which is a party
thereto.
(c) Governmental Consents. Except for the filings required to
---------------------
perfect the security interest of Agent in the collateral as specified in the
Security Agreement or Intellectual Property Security Agreement, no authorization
or approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body (except routine reports required
pursuant to the Securities Exchange Act of 1934, as amended (if such act is
applicable to any Loan Party), which reports will be made in the ordinary course
of business) is required for the due execution, delivery and performance by each
Loan Party of the Loan Documents to which it is a party or by which it is bound.
(d) Executive Offices; FEIN. As of the date of this Agreement, the
-----------------------
current location of Borrower's chief executive office and principal place of
business, together with each location at which any Inventory is located, are set
forth on Schedule 5.1(d), and, except as set forth on Schedule 5.1(d), none of
--------------- ---------------
such locations have changed within the twelve (12) months preceding the
execution date of this Agreement. In addition, Schedule 5.1(d) lists the
---------------
federal employer identification number of Borrower.
(e) Validity. The Loan Documents are the binding obligations of
--------
the Borrower and each other Loan Party which is a party thereto enforceable in
accordance with their respective terms, except in each case as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors' rights.
(f) Financial Condition. The balance sheets of the Borrower and
-------------------
its consolidated Subsidiaries as at December 31, 1997 and the related statements
of income and retained earnings of the Borrower and its consolidated
Subsidiaries for the fiscal year then ended, copies of which have been furnished
to each Lender, fairly present the financial condition of the Borrower and its
consolidated Subsidiaries as at such dates and the results of the operations of
the Borrower and its consolidated Subsidiaries for the respective periods ended
on such dates, all in accordance with GAAP, consistently applied, and since
December 31, 1997 there has been no material adverse change in the business,
operations, properties, assets, prospects or condition (financial or otherwise)
of the Borrower and its Subsidiaries, taken as a whole.
28
<PAGE>
(g) Litigation. Except as set forth on Schedule 5.1(g), there is
---------- ---------------
no pending or threatened action or proceeding affecting the Borrower or any of
its Subsidiaries before any court, governmental agency or arbitrator, which
would reasonably be expected to have a Material Adverse Effect.
(h) Employee Benefit Plans. Neither the Borrower nor any Material
----------------------
Subsidiary is party to any employee benefit plans subject to ERISA.
(i) Disclosure. No representation or warranty of the Borrower
----------
contained in this Agreement or any other document, certificate or written
statement furnished to the Agent or any Lender by or on behalf of the Borrower
for use in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state a material
fact (known to the Borrower in the case of any document not furnished by it)
necessary in order to make the statements contained herein or therein not
misleading. There is no fact known to the Borrower (other than matters of a
general economic nature) which materially adversely affects the business,
operations, properties, assets, prospects or condition (financial or otherwise)
of the Borrower and its Subsidiaries, taken as a whole, which has not been
disclosed herein or in such other documents, certificates and statements
furnished to the Agent or any Lender for use in connection with the transactions
contemplated hereby.
(j) Margin Stock. The aggregate value of all margin stock (as
------------
defined in Regulation U) directly or indirectly owned by the Borrower and its
Material Subsidiaries is less than 25% of the aggregate value of the Borrower's
assets. No proceeds of any Loan will be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.
(k) Environmental Matters. Except as set forth in Schedule 5.1(k)
--------------------- ---------------
or where no Material Adverse Effect has occurred or would reasonably be expected
to occur as a result, none of Borrower's or any Material Subsidiary's properties
or assets has ever been used by Borrower or any Material Subsidiary or, to the
best of Borrower's knowledge, by previous owners or operators, in the disposal
of, or to produce, store, handle, treat, release, or transport, any hazardous
waste or hazardous substance other than in accordance with applicable law; to
the best of Borrower's knowledge, none of Borrower's properties or assets in the
U.S. has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property in the U.S.
owned by Borrower or any Material Subsidiary; and neither Borrower nor any
Material Subsidiary has received a summons, citation, notice, or directive from
the Environmental Protection Agency or any other federal, state or other U.S.
governmental agency concerning any action or omission by Borrower or any
Material Subsidiary resulting in the release or other disposition of hazardous
waste or hazardous substances into the environment.
(l) Employee Matters. There is no strike or work stoppage in
----------------
existence or threatened involving the Borrower or its Material Subsidiaries that
may materially adversely
29
<PAGE>
affect the consolidated financial condition or operations of the Borrower or
that may have a material adverse effect on the Borrower's ability to perform its
obligations under the Loan Documents, having regard for its other financial
obligations.
(m) Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth in Schedule 5.1(m), Borrower has no
- ------------ ---------------
Subsidiaries, is not engaged in any joint venture or partnership with any other
Person, or is an Affiliate of any other Person. Schedule 5.1(m) sets forth all
---------------
of the Borrower's Material Subsidiaries as of the date of this Agreement. All
of the issued and outstanding capital stock of Borrower and each Subsidiary is
owned by each of the stockholders and in the amounts set forth on Schedule
--------
5.1(m). Except as set forth in Schedule 5.1(m), there are no outstanding rights
- ------ ---------------
to purchase, options, warrants or similar rights or agreements pursuant to which
Borrower may be required to issue, sell, repurchase or redeem any of its capital
stock or other equity securities or any capital stock or other equity securities
of its Subsidiaries.
(n) Government Regulation. Borrower is not an "investment
---------------------
company" or an "affiliated person" of, or "promoter" or "principal underwriter"
for, and "investment company," as such terms are defined in the Investment
Company Act of 1940 as amended. Borrower is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, or any other
federal or state statute that restricts or limits its ability to incur
indebtedness or to perform its obligations hereunder. The making of the
Revolving Loans by Lenders to Borrower, the issuance of Letters of Credit on
behalf of Borrower, the application of the proceeds of Collateral and repayment
of the Revolving Loans will not violate any provision of any such statute or any
rule, regulation or order issued by the S.E.C.
(o) Taxes. Except where the failure to do so would not reasonably
-----
be expected to have a Material Adverse Effect, all tax returns, reports and
statements, including information returns, required by any governmental
authority to be filed by Borrower have been filed with the appropriate
governmental authority and all claims asserted by any such authority have been
paid prior to the date on which any fine, penalty, interest or late charge may
be added thereto for nonpayment thereof (or any such fine, penalty, interest,
late charge or loss has been paid), excluding any such claims being contested in
good faith and for appropriate reserves have been established on Borrower's
financial statements. Proper and accurate amounts have been withheld by
Borrower from its employees for all periods in full and complete compliance with
all applicable federal, state, local and foreign law and such withholdings have
been timely paid to the respective governmental authorities. Schedule 5.1(o)
---------------
sets forth as of the execution date of this Agreement those taxable years for
which Borrower's tax returns are currently being audited by the IRS or any other
applicable governmental authority and any assessments or threatened assessments
in connection with such audit, or otherwise currently outstanding.
(p) Brokers. No broker or finder acting on behalf of Borrower
-------
brought about the obtaining, making or closing of the Revolving Loans, and
Borrower has no obligation to any Person in respect of any finder's or brokerage
fees in connection therewith.
30
<PAGE>
(q) Intellectual Property. As of the execution date of this
---------------------
Agreement, Borrower owns or has rights to use all intellectual property
(including all patents, trademarks, copyrights, licenses to use any of the
foregoing, trade secrets, and know-how) necessary to continue to conduct its
business as now or heretofore conducted by it or proposed to be conducted by it
except where the failure to do so would not reasonably be expected to have a
Material Adverse Effect, and each patent, trademark, copyright and license held
by Borrower and registered or covered by a registration application is listed,
together with application or registration numbers, as applicable, on Schedule
--------
5.1(q) hereto, and on Exhibits A, B, and C to the Intellectual Property Security
- ------
Agreement. Borrower has not received written notice from any Person expressly
asserting that the Borrower has conducted its business in infringement of or
interference with any intellectual property of any other Person.
(r) Insurance. Schedule 5.1(r) lists all insurance policies of any
--------- ---------------
nature maintained, as of the execution date of this Agreement, for current
occurrences by Borrower, as well as a summary of the terms of each such policy.
(s) Customer and Trade Relations. As of the execution date of this
----------------------------
Agreement, there exists no actual or, to the knowledge of Borrower, threatened
in writing termination or cancellation of, or any material adverse modification
or change in: (i) the business relationship of Borrower with any customer or
group of customers whose purchases during the preceding twelve (12) months
caused them to be ranked among the ten largest customers of Borrower; or (ii)
the business relationship of Borrower with any supplier material to its
operations.
(t) Solvency. Both before and after giving effect to (i) the
--------
Revolving Loans and Letters of Credit to be made or issued on the date of this
Agreement or such other date as Revolving Loans and Letters of Credit requested
hereunder are made or issued, (ii) the disbursement of the proceeds of such
Revolving Loans pursuant to the instructions of Borrower, and (c) the payment
and accrual of all transactions costs in connection with the foregoing, Borrower
is Solvent.
ARTICLE VI
COVENANTS
6.1 Affirmative Covenants. So long as any Note shall remain unpaid,
---------------------
any Letter of Credit shall remain outstanding or unreimbursed or any Lender
shall have any Commitment hereunder, the Borrower will, unless the Majority
Lenders shall otherwise consent in writing:
(a) Financial Information. Furnish to each Lender and the Agent:
---------------------
(i) as soon as available, but in any event within one
hundred (100) days after the end of each fiscal year of the Borrower, a copy of
the consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of each fiscal year and the related
consolidated and consolidating statements of income and
31
<PAGE>
retained earnings (or comparable statement) and changes in financial position
and cash flow for such year, setting forth in each case in comparative form the
figures as at the end of the previous year as to the balance sheet and the
figures for the previous corresponding period as to the other statements,
accompanied by an unqualified report and opinion thereon of independent
certified public accountants acceptable to the Agent, all such financial
statements to be complete and correct in all material respects and in accordance
with GAAP applied consistently throughout the fiscal year (except as approved by
such accountants and disclosed therein);
(ii) as soon as available, but in any event within fifty (50)
days after the end of each fiscal quarter of Borrower, a copy of the unaudited
consolidated and consolidating balance sheet of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related unaudited
consolidated and consolidating statements of income and retained earnings (or
comparable statement) and changes in financial position and cash flow for such
period and year to date, setting forth in each case in comparative form the
figures as at the end of the previous fiscal year as to the balance sheet and
the figures for the previous corresponding period as to the other statements,
certified by a duly authorized officer of the Borrower as being fairly stated in
all material respects subject to year end and audit adjustments, all such
financial statements to be complete and correct in all material respects and in
accordance with GAAP subject to normal year end and audit adjustments and the
absence of footnotes, applied consistently throughout the period reflected
therein (except as approved by such accountants and disclosed therein);
(iii) together with each delivery of financial statements of
the Borrower and its Subsidiaries pursuant to subdivisions (i) and (ii) above,
(A) an officers' certificate stating that the signers have reviewed the terms of
the Loan Documents and have made, or caused to be made under their supervision,
a review in reasonable detail of the transactions and condition of the Borrower
and its Subsidiaries during the accounting period covered by such financial
statements and that such review has not disclosed the existence during or at the
end of such accounting period, and that the signers do not have knowledge of the
existence as at the date of the officers' certificate, of any condition or event
which constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrower has taken, is taking and proposes
to take with respect thereto; and (B) a Compliance Certificate in the form of
Exhibit D hereto demonstrating in reasonable detail compliance during and at
- ---------
the end of such accounting periods with the restrictions contained in Sections
6.2(a), (b), (c), (d), (e), and (h) as of the end of the fiscal period covered
thereby;
(iv) substantially concurrent with the sending or filing
thereof, copies of all reports which the Borrower sends to a majority of its
security holders, and copies of all reports and registration statements which
the Borrower or any of its Subsidiaries files with the S.E.C. or any national
securities exchange; and
32
<PAGE>
(b) Notices and Information. Deliver to the Agent and each Lender:
-----------------------
(i) promptly upon any officer of the Borrower obtaining
knowledge (A) of any condition or event which constitutes an Event of Default or
Potential Event of Default, (B) that any Person has given any notice to the
Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 7.1(f), (C) of the institution of any litigation involving an alleged
liability (including possible forfeiture of property) of the Borrower or any of
its Subsidiaries equal to or greater than $2,000,000 or any adverse
determination in any litigation involving a potential liability of the Borrower
or any of its Subsidiaries equal to or greater than $2,000,000, or (D) of a
material adverse change in the business, operations, properties, assets or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, an officers' certificate specifying the nature and period of
existence of any such condition or event, or specifying the notice given or
action taken by such holder or Person and the nature of such claimed default,
Event of Default, Potential Event of Default, event or condition, and what
action the Borrower has taken, is taking and proposes to take with respect
thereto;
(ii) promptly, but in any event within five (5) Business Days
after receipt thereof, copies of all management letters, exception reports or
similar letters or reports received by Borrower from its independent certified
public accountants;
(iii) promptly, but in any event within thirty (30) days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Material Subsidiaries in connection with any substance defined as toxic or
hazardous by any applicable federal, state or local law, rule, regulation, order
or directive or any waste or by product thereof, or concerning the filing of a
lien upon, against or in connection with the Borrower, its Material
Subsidiaries, or any of their leased or owned real or personal property, in
connection with a Hazardous Substance Superfund or a Post-Closure Liability Fund
as maintained pursuant to (S) 9507 of the Internal Revenue Code if such act or
omission may reasonably be expected to result in liability in an amount
exceeding $100,000 for all such acts or omissions or if any such Lien, together
with all other such Liens, is filed upon or against property the fair market
value of which exceeds $100,000 in the aggregate;
(iv) prompt notice of the occurrence of any event or
transaction described in Section 2.1(e);
(v) promptly, but in any event within ten (10) days after
request, such other information and data with respect to the Borrower or any of
its Subsidiaries as from time to time may be reasonably requested by the Agent
or any Lender.
(c) Corporate Existence, Etc. At all times preserve and keep in
------------------------
full force and effect its and its Material Subsidiaries' corporate existence and
rights and franchises material to its business and those of each of its Material
Subsidiaries; provided, however, that
-------- -------
33
<PAGE>
the corporate existence of any such Subsidiary may be terminated if such
termination would not reasonably be expected to have a Material Adverse Effect.
(d) Books and Records. Borrower shall keep adequate books and
-----------------
records with respect to its business activities in which proper entries,
reflecting all financial transactions, are made in accordance with GAAP and on a
basis consistent with the financial statements previously delivered to Lenders.
(e) Payment of Taxes and Claims. Except to the extent that a
---------------------------
Material Adverse Effect would not reasonably be expected to result, pay, and
cause each of its Subsidiaries to pay, all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and all claims (including claims for labor,
services, materials and supplies) for sums which have become due and payable and
which by law have or may become a lien upon any of its properties or assets,
prior to the time when any penalty or fine shall be incurred with respect
thereto; provided that no such charge or claim need be paid if being contested
--------
in good faith by appropriate proceedings promptly instituted and diligently
conducted and if such reserve or other appropriate provision, if any, as shall
be required in accordance with GAAP shall have been made therefor.
(f) Maintenance of Properties; Insurance. Maintain or cause to be
------------------------------------
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Material Subsidiaries and
from time to time make or cause to be made all appropriate repairs, renewals and
replacements thereof except where the failure to do so would not reasonably be
expected to have a Material Adverse Effect. The Borrower will maintain or cause
to be maintained, with financially sound and reputable insurers, insurance with
respect to its properties and business and the properties and business of its
Material Subsidiaries against loss or damage of the kinds customarily insured
against by corporations of established reputation engaged in the same or similar
businesses and similarly situated, of such types and in such amounts as are
customarily carried under similar circumstances by such other corporations. The
Borrower will comply with any other insurance requirement set forth in any other
Loan Document.
(g) Inspection. Permit any authorized representatives designated
----------
by the Agent or any Lender to visit and inspect any of the properties of the
Borrower or any of its Material Subsidiaries, including its and their financial
and accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants, all at such reasonable times during normal
business hours and as often as may be reasonably requested.
(h) Compliance with Laws, Etc. Exercise, and cause each of its
-------------------------
Material Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including all environmental laws, rules, regulations and
orders, noncompliance with which would reasonably be expected to have a Material
Adverse Effect.
34
<PAGE>
(i) Registration of Intellectual Property Rights.
--------------------------------------------
(i) Borrower shall register or cause to be registered (to
the extent not already registered) on an expedited basis copyrights, and file
patent and trademark applications with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, with respect to the
intellectual property rights of Borrower which, either individually or together
with other intellectual property rights of Borrower and its Subsidiaries, exist
in products the sale or licensing of which Borrower reasonably expects will
generate accounts receivable equal to or greater than $5,000,000 in any fiscal
year (the "Material Products"), including without limitation patent and
copyright applications related to those intellectual property rights listed on
Exhibits A, B and C to the Intellectual Property Security Agreement delivered in
connection with this Agreement, within ninety (90) days of the date of this
Agreement, and shall promptly deliver copies of the registrations to Agent.
Borrower shall register or cause to be registered with the United States Patent
and Trademark Office or the United States Copyright Office, as applicable,
trademarks, and copyright and patent applications covering intellectual property
rights in those additional Material Products developed or acquired by Borrower
from time to time, within ninety (90) days of the date on which such products
become Material Products, as defined above, including without limitation
revisions or additions to the intellectual property rights listed on such
Exhibits A, B and C. Notwithstanding the foregoing, with respect to Patents (as
defined in the Intellectual Property Security Agreement), Borrower shall only be
required to register with the U.S. Patent and Trademark Office those Patents
which are material to the value of a Material Product. Borrower shall execute
and deliver such additional instruments and documents from time to time as the
Agent shall reasonably request to perfect the Agent's and the Lenders' security
interest in the Intellectual Property Collateral (as defined in the Intellectual
Property Security Agreement).
(ii) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, and Copyrights (as such
terms are defined in the Intellectual Property Security Agreement) except for
any such Trademarks, Patents or Copyrights that the Borrower has determined are
no longer materially important for the conduct of its or its Material
Subsidiaries' business, (ii) use commercially reasonable efforts to detect
infringements of the Trademarks, Patents, and Copyrights except for any such
Trademarks, Patents or Copyrights that the Borrower has determined are no longer
materially important for the conduct of its or its Material Subsidiaries'
business, and promptly advise the Agent in writing of material infringements
detected and (iii) not allow any Trademarks, Patents, or Copyrights except for
any such Trademarks, Patents or Copyrights that the Borrower has determined are
no longer materially important for the conduct of its or its Material
Subsidiaries' business, to be abandoned, forfeited or dedicated to the public
without the written consent of the Majority Lenders, which shall not be
unreasonably withheld.
(iii) the Agent shall have the right, but not the obligation,
to take, at Borrower's sole expense, any actions that Borrower is required under
this Section to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify the Agent for all
reasonable costs and expenses incurred in the exercise of its rights under this
Section.
35
<PAGE>
(j) Principal Depository. Maintain its principal depository and
--------------------
operating accounts with the Agent.
(k) Intellectual Property. Borrower will conduct its business and
---------------------
affairs without infringement of or interference with any intellectual property
of any other Person except where the failure to do so would not have a Material
Adverse Effect.
(l) Environmental Matters. Borrower shall: (i) conduct its operations
---------------------
and keep and maintain its real property in compliance with all environmental
laws and environmental permits except where the failure to do so would not have
a Material Adverse Effect; (ii) except where the failure to do so would not have
a Material Adverse Effect, implement any and all investigation, remediation,
removal and response actions which are appropriate or necessary to comply with
environmental laws and environmental permits pertaining to the presence,
generation, treatment, storage, use, disposal, transportation or release of any
hazardous material on, at, in, under, above, to, from or about any of its real
property; (iii) notify Agent promptly after Borrower becomes aware of any
violation of environmental laws or environmental permits or any release on, at,
in, under, above, to, from or about any real property which is reasonably likely
to result in a Material Adverse Effect; and (iv) promptly forward to Agent a
copy of any order, notice, request for information or any communication or
report received by Borrower in connection with any such violation or release or
any other matter relating to any environmental laws or environmental permits
that could reasonably be expected to result in a Material Adverse Effect.
(m) Landlords' Agreements, Mortgage Agreements and Bailee Letters.
-------------------------------------------------------------
Borrower shall use commercially reasonable efforts (not including the payment of
any fee or compensation to any party to such agreement or letter) to obtain a
landlord's agreement, mortgage agreement or bailee letter, as applicable, from
the lessor of each leased property or mortgagee of owned property or with
respect to any warehouse, processor or converter facility located in the U.S. or
other location where collateral securing obligations under Loan Documents is
located, which agreement or letter shall contain a waiver or subordination of
all Liens or claims that the landlord, mortgagee or bailee may assert against
the Inventory or collateral at that location, and shall otherwise be reasonably
satisfactory in form and substance to Agent. Borrower shall timely and fully
pay and perform its obligations under all leases and other agreements with
respect to each leased location or public warehouse where any collateral is or
may be located except where failure to do so would not reasonably be expected to
result in a Material Adverse Effect.
(n) Material Subsidiaries. In the event that any Subsidiary or other
---------------------
Person becomes a Material Subsidiary whose assets and business are located
primarily in the U.S., (i) Borrower shall deliver to Agent prompt notice
thereof, and (ii) at the request of Agent, Borrower shall promptly cause such
Material Subsidiary to deliver to Agent a guaranty of all of the indebtedness
and obligations hereunder, a security agreement with respect to all of its
assets, an intellectual property security agreement, and such financing
statements, resolutions, legal opinions or other such documents as Agent or any
Lender shall reasonably request in connection therewith, each in form and
substance satisfactory to Agent and the Lenders; provided that in the event that
any Subsidiary or other Person becomes a Material Subsidiary
36
<PAGE>
whose assets and business are located primarily outside of the U.S., Borrower
shall (i) deliver to Agent prompt notice thereof, and (ii) at the request of
Agent, Borrower shall grant to Agent a security interest in all of the capital
stock (but not more than 65% of any class of equity securities of any such
Subsidiary) of such Material Subsidiary.
(o) Further Assurances. Borrower shall, at its expense and upon
------------------
request of Agent, duly execute and deliver, or cause to be duly executed and
delivered, to Agent such further instruments and do and cause to be done such
further acts as may be necessary or proper in the reasonable opinion of Agent to
carry out more effectually the provisions and purposes of this Agreement or any
other Loan Document.
6.2 Negative Covenants. So long as any Note shall remain unpaid, any
------------------
Letter of Credit shall remain outstanding or unreimbursed or any Lender shall
have any Commitment hereunder, the Borrower will not, without the written
consent of the Majority Lenders:
(a) Quick Ratio. Permit the ratio of Consolidated Quick Assets to
-----------
Consolidated Current Liabilities as of the last day of each fiscal quarter of
Borrower to be less than 1.0 to 1.0.
(b) Leverage Ratio. As at the end of any fiscal quarter of the
--------------
Borrower, permit the ratio of Consolidated Funded Debt as at the end of such
fiscal quarter to Consolidated EBITDA for the four fiscal quarters ending on the
last day of such fiscal quarter, to be greater than 4.0 to 1.0. If Borrower
completes an Acquisition permitted under Section 6.1, and accounts for such
Acquisition using the pooling of interest accounting method, Borrower may
include any positive impact on Consolidated EBITDA, and exclude (up to a maximum
of $10,000,000) any negative impact on Consolidated EBITDA. In addition, for
purposes of this Section 6.2(b), Consolidated EBITDA shall exclude charges to
earnings directly related to any Acquisition permitted hereunder, but only to
the extent that any such charges are incurred during the fiscal quarter in which
the Acquisition closes.
(c) Consolidated Tangible Net Worth. Commencing with the fiscal
-------------------------------
quarter ended December 31, 1997, permit Consolidated Tangible Net Worth as of
the last day of any fiscal quarter of Borrower to be less than Ninety Two
Million Dollars ($92,000,000) plus (i) 75% of Consolidated Net Income (but not
----
loss) for each fiscal quarter of the Borrower commencing with the quarter ending
March 31, 1998, plus (ii) 100% of the Net Proceeds of any Equity Issuance by the
----
Borrower after December 31, 1997, minus (iii) 100% of any additions to goodwill
-----
and charges to earnings resulting directly from an Acquisition permitted
hereunder (but only to the extent such additions to goodwill or charges to
earnings are recognized during the fiscal quarter in which the Acquisition
closes). Notwithstanding the foregoing, Borrower shall not permit Consolidated
Tangible Net Worth as of the last day of any fiscal quarter of Borrower to be
less than Sixty Two Million Dollars ($62,000,000).
(d) Profitability. Permit (i) Consolidated Operating Income or
-------------
Consolidated Net Income to be less than Zero Dollars ($0) for any two
consecutive fiscal quarters of Borrower, or (ii) Consolidated Operating Income
or Consolidated Net Income for any fiscal quarter of Borrower to reflect a loss
greater than five percent (5%) of Consolidated Tangible
37
<PAGE>
Net Worth as of the last day of the immediately preceding fiscal quarter, or
(iii) Consolidated Operating Income or Consolidated Net Income to be less than
Zero Dollars ($0) for any fiscal year of Borrower. For purposes of this Section
6.2(d), Consolidated Operating Income and Consolidated Net Income shall exclude
charges to earnings directly related to any Acquisition permitted hereunder, but
only to the extent that any such charges are incurred during the fiscal quarter
in which the Acquisition closes.
(e) Interest Coverage Ratio. As at the end of any fiscal quarter of
-----------------------
Borrower, permit the ratio of Consolidated EBITDA to Consolidated Interest
Expense for the four consecutive fiscal quarters ending on the last day of such
fiscal quarter to be less than 3.0 to 1.0.
(f) Liens, Etc. Create or suffer to exist, or permit any of its
----------
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, other than:
(i) Liens in favor of the Agent for the benefit of the Lenders;
(ii) Liens existing on the date hereof and set forth in Schedule
--------
6.2(f);
- ------
(iii) Liens in favor of Wells Fargo HSBC Trade Bank N.A., or any
successor or assign thereof, upon specific accounts receivable of Borrower
purchased under the Receivables Facility, provided that the obligations secured
--------
by such Liens shall not exceed $25,000,000 in the aggregate at any one time
outstanding; and provided, further, that Borrower shall not permit the
-------- -------
Receivables Facility to be modified, supplemented, amended, restated, extended,
renewed or replaced in a manner that is less favorable to Lenders without the
prior written consent of all Lenders;
(iv) Permitted Liens;
(v) purchase money Liens upon or in any property acquired or
held by the Borrower or any Subsidiary in the ordinary course of business to
secure the purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of such property, excluding
Capital Leases; and
(vi) all renewals, refundings, refinancings and extensions of any
such Liens described in clause (i) above; provided that the principal amount
--------
secured is not increased and that such Lien is not extended to other property.
(g) Debt. Create or suffer to exist, or permit any of its
----
Subsidiaries to create or suffer to exist, any Debt, other than:
(i) Debt existing on the date hereof and set forth on Schedule
--------
6.2(g);
- ------
38
<PAGE>
(ii) Debt owed to the Lenders hereunder;
(iii) Debt relating to Liens permitted under Section 6.2(f)(v) and
Debt relating to Capital Leases; provided that the aggregate principal amount of
--------
such Debt of the Borrower and its consolidated Subsidiaries incurred pursuant to
this clause (iii) shall not exceed $10,000,000 at any time; and
(iv) Debt of a wholly-owned Subsidiary of the Borrower to another
wholly-owned Subsidiary of the Borrower or to the Borrower and Debt of the
Borrower to a wholly-owned Subsidiary of the Borrower;
(v) Contingent Obligations permitted under Section 6.2(l);
(vi) Debt not otherwise permitted by clauses (i) through (v)
above, not in excess of $10,000,000 in the aggregate at any one time
outstanding; and
(vii) all renewals, refundings, refinancings or extensions of any
such Debt described in clauses (i) and (iii) above, provided that the terms
--------
thereof are substantially similar to those set forth in the documents evidencing
such Debt as in effect on the date hereof in the case of Debt described in
clause (i), and provided further that no additional assets are pledged to secure
----------------
any renewals, refundings, refinancings or extensions of Debt described in clause
(iii).
(h) Dividends, Etc. Declare or pay any dividends, purchase or
--------------
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such, or
permit any of its Subsidiaries to purchase or otherwise acquire for value any
stock of the Borrower, except that (i) the Borrower may declare and deliver
dividends and distributions payable in capital stock of the Borrower, and (ii)
provided no Event of Default exists, Borrower may repurchase stock from former
employees of Borrower in accordance with the terms of repurchase or similar
agreements between Borrower and such employees.
(i) Consolidation, Merger. Consolidate or merge with any other
---------------------
Person, liquidate, wind-up or dissolve itself or acquire by purchase or
otherwise all or substantially all of the business, property or fixed assets of,
or stock or other evidence of beneficial ownership of, any Person, or permit any
of its Subsidiaries to do any of the foregoing, except that:
(i) any Subsidiary of the Borrower may be merged or consolidated
with or into the Borrower or any wholly-owned Subsidiary of the Borrower, or be
liquidated, wound up or dissolved, or all or any substantial part of its
business, property or assets may be conveyed, sold, leased, transferred or
otherwise disposed of, in one transaction or a series of transactions, to the
Borrower or any wholly-owned Subsidiary of the Borrower; provided that, in the
--------
case of such a merger or consolidation, the Borrower or such wholly-owned
Subsidiary shall be the continuing or surviving corporation; and
39
<PAGE>
(ii) Borrower may acquire the business, property, fixed assets or
stock of Persons in a substantially similar business or business utilizing the
products and services of the Borrower and its Subsidiaries (each, an
"Acquisition"), provided that (i) prior to and immediately following the
- ------------ --------
consummation of any such Acquisition there shall exist no condition or event
that constitutes an Event of Default or a Potential Event of Default, (ii) the
Borrower shall be the continuing or surviving corporation in any such
Acquisition, (iii) Borrower shall demonstrate compliance with the provisions of
Sections 6.2(a)-(e) prior to and immediately following the consummation of the
proposed Acquisition on a proforma basis, and (iv) the proposed Acquisition is
not opposed by the board of directors of the Person whose business, property,
fixed assets, or stock is sought to be acquired.
(j) Investments. Make or permit to remain outstanding, or permit any
-----------
Subsidiary to make or permit to remain outstanding, any Investment, except that
the Borrower and its Subsidiaries may:
(i) continue to own Investments existing on the date hereof and
set forth on Schedule 6.2(j);
---------------
(ii) own, purchase or acquire certificates of deposit issued by
any Lender, commercial paper rated Moody's P-I, municipal bonds rated Moody's AA
or better, direct obligations of the United States of America or its agencies,
and obligations guaranteed by the United States of America;
(iii) acquire and own stock, obligations or securities received
from customers in connection with debts created in the ordinary course of
business owing to the Borrower or a Subsidiary;
(iv) continue to own the existing capital stock of the Borrower's
Subsidiaries;
(v) make Investments constituting Acquisitions permitted by
Section 6.2(i);
(vi) make Investments in and to any Loan Party; and
(vii) make loans to any Subsidiary to finance the working capital
needs of the borrowing Subsidiary in the ordinary course of its business.
(k) Contingent Obligations. Create or become or remain liable, or
----------------------
permit any of its Subsidiaries to create or become or remain liable, with
respect to any Contingent Obligation, except that the Borrower and its
Subsidiaries may:
(i) remain liable with respect to Contingent Obligations
existing on the date hereof and set forth on Schedule 6.2(k);
---------------
40
<PAGE>
(ii) endorse negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business; and
(iii) become or remain liable with respect to reimbursement
obligations under those Letters of Credit issued hereunder in accordance with
Section 2.5.
(l) Asset Sales. Convey, sell, lease, transfer or otherwise dispose
-----------
of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, (i) all or any part
of its or its Subsidiary's business, property or fixed assets outside of the
ordinary course of business, whether now owned or hereafter acquired, or (ii)
any capital stock or debt of any of its Subsidiaries, except:
(i) the Borrower and its Subsidiaries may convey, sell, lease,
transfer of otherwise dispose of obsolete or worn out assets;
(ii) the Borrower may assign and sell accounts receivable to Wells
Fargo HSBC Trade Bank N.A., or any successor or assign thereof, pursuant to the
Receivables Facility, provided that the total outstanding amount of all
--------
purchased receivables thereunder shall not exceed $25,000,000 at any time;
(iii) any Subsidiary of the Borrower may sell, lease or transfer
assets to the Borrower or to any wholly-owned Subsidiary of the Borrower;
(iv) the Borrower may sell, lease or transfer assets to any other
Loan Party; and
(v) the Borrower and its Subsidiaries may sell equipment in
connection with the lease financing thereof within 60 days after the acquisition
of such equipment.
(m) Transactions with Shareholders and Affiliates. Enter into, or
---------------------------------------------
permit any of its Subsidiaries to enter into, any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 5% or more of any class of equity securities of the
Borrower, or with any Affiliate of the Borrower or any such holder, on terms
that (when taken in the light of any related or series of transactions of which
such transaction is a part (if any)) are less favorable to the Borrower or any
such Subsidiary than those which might be obtained at the time from Persons who
are not such a holder or Affiliate, provided, however, that the foregoing shall
-------- -------
not limit the terms upon which the Borrower and its Subsidiaries may enter into
employment agreements with their respective officers.
(n) Agreements Restricting Payment of Dividends. Permit any of its
-------------------------------------------
Subsidiaries to enter into any agreement restricting the ability of such
Subsidiary to declare, order, pay or make or set apart any sum for any dividends
or other distributions on account of any shares of any class of its stock.
41
<PAGE>
(o) Restrictive Agreements. Other than with respect to specific
----------------------
accounts receivable purchased under the Receivables Facility, agree with any
Person, or permit any of its Subsidiaries to agree with any Person, that the
Borrower or such Subsidiary will not create, incur or suffer to exist any Liens
on its properties.
(p) Payments on Subordinated Debt. Declare, order or pay, or permit
-----------------------------
any of its Subsidiaries to declare, order or pay, any amount of principal of,
premium, if any, or interest on, or redeem, purchase, retire or decease or make
any sinking fund or similar payment, or permit any of its Subsidiaries to do any
of the foregoing, with respect to any Subordinated Debt of the Borrower.
Notwithstanding the foregoing, provided that no Event of Default exists or would
result from such payment, Borrower may (i) make regularly scheduled payments of
interest that constitutes Subordinated Debt, and (ii) make regularly scheduled
payments of principal under that certain Promissory Note dated as of April 1,
1998 executed by Borrower in favor of Cylink Corporation in the original
principal amount of $14,500,000.
(q) Fiscal Year. Change its fiscal year-end from December 31.
-----------
(r) Capital Structure and Business. (i) Make any changes in any of
------------------------------
its business objectives, purposes or operations which would materially adversely
affect the repayment of the Revolving Loans or any of the other obligations,
(ii) make any change in its capital structure as described on Schedule 5.1(m),
---------------
except that Borrower may issue and sell shares of its capital stock and options
or warrants therefor or similar securities in connection with the Borrower's
benefit and incentive program for employees, (iii) amend its charter or bylaws
in a manner which would adversely affect Agent or Lenders or Borrower's duty or
ability to repay its obligations to Lenders, or (iv) engage in any business
other than the businesses currently engaged in by it.
(s) ERISA. Cause or permit to occur an event which could result in
-----
the imposition of a lien under Section 41.2 of the Internal Revenue Code or
Section 302 or 4068 of ERISA.
(t) Sale-Leasebacks. Other than as permitted under Section
---------------
6.2(l)(iv), engage in any sale-leaseback, synthetic lease or similar transaction
involving any of its assets.
(u) Cancellation of Indebtedness. Cancel any claim or debt owing to
----------------------------
it, except for reasonable consideration negotiated on an arm's-length basis and
in the ordinary course of its business consistent with past practices.
(v) Change of Corporate Name or Location. (i) Change its corporate
------------------------------------
name, or (ii) change its chief executive office, principal place of business,
corporate offices or warehouses or locations at which Collateral is held or
stored, or the location of its records concerning the collateral, in any case
without at least thirty (30) days prior written notice to Agent and after
reasonable action to continue the perfection of any security interests in favor
of Agent, on behalf of Lenders, in any collateral, has been completed or taken.
Without limiting the foregoing, Borrower shall not change its name, identity or
corporate structure in any manner which might make any financing or continuation
statement filed in connection
42
<PAGE>
herewith seriously misleading within the meaning of Section 9-402(7) of the Code
or any other then applicable provision of the Code except upon prior written
notice to Agent and Lenders and after reasonable action to continue the
perfection of any security interests in favor of Agent, on behalf of Lenders, in
any collateral, has been completed or taken.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Events of Default. If any of the following events ("Events of
----------------- ---------
Default") shall occur and be continuing:
(a) The Borrower shall fail to pay (i) any installment of principal
when due hereunder, or (ii) any installment of interest hereunder or other
amount payable hereunder within three (3) Business Days of the date when due; or
(b) Any representation or warranty made by any Loan Party herein or in
any other Loan Document or by any Loan Party (or any of their respective
officers) in connection with this Agreement or any other Loan Document, shall
prove to have been incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 3.1, 6.1(a), (b) or (c), 6.2(a), (b), (c),
(d), (e), (g), (h), (i), (j), (l), (p), (q), (r), (s), (t), (u), or (v) on its
part to be performed or observed; or
(d) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in this Agreement or any other Loan Document other than
those referred to in Sections 7.1(a), (b), and (c) above on its part to be
performed or observed and any such failure shall remain unremedied or uncured
for thirty (30) days after the Borrower knows of such failure or, in the event
such failure cannot by its nature be cured within such thirty (30) day period or
cannot after diligent attempts by Borrower be cured within such thirty (30) day
period, and the Borrower determines and so notifies the Agent within such thirty
(30) day period that such a remedy or cure is practicable within an additional
thirty (30) days, such failure shall remain unremedied or uncured for sixty (60)
days after the Borrower knows of such failure; or
(e) Any Loan Party shall default in the performance of or compliance
with any term contained in any Loan Document other than this Agreement and such
default shall not have been remedied or waived (A) within any applicable grace
period or (B) if not specified in the applicable Loan Document, within 30 days
after such Loan Party knows of such default or, in the event that such a remedy
or cure is not practicable within such 30 day period but the Borrower determines
and so notifies the Agent within such 30 day period that such a remedy or cure
is practicable within an additional 30 days, such default shall remain
unremedied or uncured for 60 days after the Borrower knows of such default; or
43
<PAGE>
(f) Any Loan Party shall (A) fail to pay any principal of, or premium
or interest on, any Debt, the aggregate outstanding principal amount of which is
at least $2,000,000 (excluding Debt evidenced by the Notes), when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt, or (B) fail to
perform or observe any term, covenant or condition on its part to be performed
or observed under any agreement or instrument relating to any such Debt, when
required to be performed or observed, and such failure shall result in a right,
whether or not exercised, to accelerate the maturity of any such Debt; or
(g) (i) Any Loan Party shall commence any case, proceeding or other
action (A) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to it or its debts, or (B) seeking appointment of a
receiver, trustee, custodian or other similar official for it or for all or any
substantial part of its assets, or any Loan Party shall make a general
assignment for the benefit of its creditors; or (ii) there shall be commenced
against any Loan Party any case, proceeding or other action of a nature referred
to in clause (i) above which (A) results in the entry of an order for relief or
any such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (iii) there shall be commenced
against any Loan Party any case, proceeding or other action seeking issuance of
a warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or (iv) the
Borrower or any of its Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii) and (iii) above; or (v) the Borrower or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance) equal to or greater than $2,000,000 and all
such judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within sixty (60) days from the entry thereof; or
(i) Collateral; Guarantees. (i) any material provision of any
----------------------
security agreement or guaranty given in connection herewith shall for any reason
cease to be valid and binding on or enforceable against the Loan Party party
thereto or any Loan Party shall so state in writing or bring an action to limit
its obligations or liabilities thereunder; (ii) any such guaranty shall for any
reason be partially (including with respect to future advances) or wholly
revoked; or (iii) any such security agreement shall for any reason (other than
pursuant to the terms thereof) cease to create a valid security interest in the
collateral purported to be covered thereby or such security interest shall for
any reason cease to be a perfected and first priority (subject to Permitted
Liens and other Liens permitted hereunder) security interest;
44
<PAGE>
THEN (i) upon the occurrence of any Event of Default described in clause
(g) above, the Commitments and any obligation of the Issuing Bank to issue any
Letter of Credit shall immediately terminate and all Loans hereunder together
with accrued interest thereon, an amount equal to the Letter of Credit Usage and
all other amounts owing under this Agreement, the Notes, the Letters of Credit
and the other Loan Documents shall automatically become due and payable; (ii)
upon the occurrence of any other Event of Default, the Agent shall at the
request, or may with the consent, of the Majority Lenders, by notice to the
Borrower, declare the Commitments and any obligation of the Issuing Bank to
issue any Letter of Credit to be terminated forthwith, whereupon the Commitments
and any obligation of the Issuing Bank to issue any Letter of Credit shall
immediately terminate, and/or, by notice to the Borrower, declare the Loans
hereunder, with accrued interest thereon, an amount equal to the Letter of
Credit Usage and all other amounts owing under this Agreement, the Notes, the
Letters of Credit and the other Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable; and (iii) Agent may
exercise any and all rights and remedies provided to Agent or the Lenders under
the Loan Documents. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived. So long as any Letter of Credit shall remain outstanding, any
amounts received by the Issuing Bank may be held as cash collateral for the
obligation of the Borrower to reimburse the Issuing Bank in event of any drawing
under any Letter of Credit. In the event any Letter of Credit in respect of
which the Borrower has deposited cash collateral with the Issuing Bank is
canceled or expires, the cash collateral shall be applied first to the
-----
reimbursement of the Issuing Bank for any drawings thereunder, and second
------
to the payment of any outstanding obligations of the Borrower hereunder or under
any other Loan Document.
ARTICLE VIII
THE AGENT AND THE ISSUING BANK
8.1 Authorization and Action.
------------------------
(a) Each Lender hereby appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto. As to any matters not expressly provided for
by this Agreement (including enforcement or collection of the Notes), the Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority Lenders,
and such instructions shall be binding upon all Lenders and all holders of
Notes; provided, however, that the Agent shall not be required to take any
-------- -------
action which exposes the Agent to personal liability or which is contrary to
this Agreement or applicable law. The Agent agrees to give to each Lender
prompt notice of each notice given to it by the Borrower pursuant to the terms
of this Agreement.
45
<PAGE>
(b) The Issuing Bank shall act on behalf of the Lenders with respect
to the Letters of Credit and the Documents associated therewith; provided that
--------
the Issuing Bank shall have all the benefits and immunities (i) provided to the
Agent in this Article VIII with respect to any acts taken or omissions suffered
by the Issuing Bank in connection with the Letters of Credit as fully as if the
term "Agent", as used in this Article VIII, included the Issuing Bank with
respect to such acts or omissions, and (ii) as otherwise provided in this
Agreement with respect to the Issuing Bank.
8.2 Agent's Reliance, Etc. Neither the Agent nor any of its directors,
---------------------
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them under or in connection with this Agreement, except for
its or their own gross negligence or wilful misconduct. Without limitation of
the generality of the foregoing, the Agent: (i) may treat the payee of any Note
as the holder thereof until the Agent receives written notice of the assignment
or transfer thereof signed by such payee and in form satisfactory to the Agent;
(ii) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (iii) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties or
representations made in or in connection with this Agreement; (iv) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including the books and records) of the
Borrower; (v) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or any other instrument or document furnished pursuant hereto; and
(vi) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telegram, cable or telex) believed by it to be genuine and signed or sent
by the proper party or parties.
8.3 Union Bank of California, N.A. and Affiliates. With respect to its
---------------------------------------------
Commitment, the Loans made by it, the Note issued to it and the Letters of
Credit issued by it, Union Bank of California, N.A. shall have the same rights
and powers under this Agreement as any other Lender and may exercise the same as
though it were not the Agent and the Issuing Bank respectively; and the term
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include Union
- ------- -------
Bank of California, N.A. in its individual capacity. Union Bank of California,
N.A. and its respective affiliates may accept deposits from, lend money to, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower, any of its subsidiaries and any Person who may do business
with or own securities of the Borrower or any such subsidiary, all as if Union
Bank of California, N.A. were not the Agent and the Issuing Bank, respectively,
and without any duty to account therefor to the Lenders.
8.4 Lender Credit Decision. Each Lender and the Issuing Bank acknowledges
----------------------
that it has, independently and without reliance upon the Agent or any other
Lender and based on the financial statements referred to in Section 4.1(c) and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender and the
Issuing Bank also acknowledges that it will,
46
<PAGE>
independently and without reliance upon the Agent or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
8.5 Indemnification. The Lenders agree to indemnify the Agent, and the
---------------
Issuing Bank (to the extent not reimbursed by the Borrower), ratably according
to the respective principal amounts of the Notes then held by each of them (or
if no Notes are at the time outstanding or if any Notes are held by Persons
which are not Lenders, ratably according to the respective amounts of their
Commitments), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent or the Issuing Bank, as the case may be, in any way
relating to or arising out of this Agreement or any action taken or omitted by
the Agent or the Issuing Bank, as the case may be, under this Agreement,
provided that no Lender shall be liable for any portion of such liabilities,
- --------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the Agent's or the Issuing Bank's, as
the case may be, gross negligence or wilful misconduct. Without limiting the
foregoing, each Lender agrees to reimburse the Agent and the Issuing Bank
promptly upon demand for its ratable share of any out-of-pocket expenses
(including counsel fees) incurred by the Agent or the Issuing Bank, as the case
may be, in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Agent or the
Issuing Bank, as the case may be, is not reimbursed for such expenses by the
Borrower.
8.6 Successor Agent. The Agent may resign at any time by giving written
---------------
notice thereof to the Lenders and the Borrower and may be removed at any time
with or without cause by the Majority Lenders. Upon any such resignation or
removal, the Majority Lenders shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority Lenders, and
shall have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a commercial bank organized under the laws of
the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations as Agent under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VIII shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
8.7 Syndication Agent. The Lender identified on the facing page or
-----------------
signature pages of or elsewhere in this Agreement as a "syndication agent" shall
have no right, power, obligation, liability, responsibility or duty under this
Agreement other than those applicable to all Lenders as such. Without limiting
the foregoing, the Lender so identified shall not have or
47
<PAGE>
be deemed to have any fiduciary relationship with any Lender. Each Lender
acknowledges that it has not relied, and will not rely, on the Lender so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder or under any other Loan Document.
ARTICLE IX
MISCELLANEOUS
9.1 Amendments, Etc. No amendment or waiver of any provision of the Loan
---------------
Documents nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Majority Lenders, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
--------
however, that no amendment, waiver or consent shall, unless in writing and
- -------
signed by all the Lenders, do any of the following: (a) waive any of the
conditions specified in Sections 4.1, 4.2 and 4.3, (b) increase the Commitments
of the Lenders or subject the Lenders to any additional obligations, (c) reduce
the principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, (d) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, (e)
change the percentage of the Commitments or of the aggregate unpaid principal
amount of the Notes, or the number of Lenders, which shall be required for the
Lenders or any of them to take any action hereunder, (f) amend any of the
provisions in Sections 3.6 through 3.12, (g) alter or limit the obligation of
the Borrower to reimburse the Issuing Bank for amounts drawn under the Letters
of Credit, (h) alter or limit the obligations of the Lenders set forth in
Section 2.5(d), (i) amend this Section 9.1, (j) release any material portion of
any collateral covered by any security agreement given in connection herewith
(other than in accordance with the terms of any such security agreement), or (k)
release any Guarantor from its obligations or liabilities under any Loan
Document, or limit or reduce such obligations or liabilities in any material
respect; and provided, further, that no amendment, waiver or consent shall,
-------- -------
unless in writing and signed by the Agent in addition to the Lenders required
above to take such action, affect the rights or duties of the Agent under this
Agreement or any other Loan Document; and provided, further, that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by the Issuing Bank in
addition to the Lenders required above to take such action, alter or effect the
obligations of the Issuing Bank under Section 2.5 or effect the rights or duties
of the Issuing Bank under Article VIII; and provided, further, that no waiver or
-------- -------
consent shall unless in writing and signed by the affected Lender or the Issuing
Bank, as the case may be, waive the rights of that Lender or the Issuing Bank to
receive any payment or compensation under any of Sections 3.6 through 3.12.
9.2 Notices, Etc. Except as otherwise set forth in this Agreement, all
------------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or delivered, if to the Borrower, at
its address set forth on the signature page hereof; and if to any Lender, the
Issuing Bank or the Agent, at its address set forth on the signature page
hereof; or, as to each party, at such other address as shall be
designated by such party in a
48
<PAGE>
written notice to the other parties. All such notices and communications shall
be effective three (3) Business Days after deposit in the U.S mail, postage
prepaid, when sent by telex or sent by facsimile, or when delivered,
respectively, except that notices and communications to the Agent pursuant to
Article II or VII shall not be effective until received by the Agent.
9.3 Right of Setoff; Deposit Accounts. Upon and after the occurrence of
---------------------------------
any Event of Default, each Lender is hereby authorized by the Borrower, at any
time and from time to time, without notice, for the ratable benefit of the
Lenders, (a) to set off against, and to appropriate and apply to the payment of,
the obligations and liabilities of the Borrower under the Loan Documents
(whether matured or unmatured, fixed or contingent or liquidated or
unliquidated) any and all amounts owing by such Lender to the Borrower (whether
payable in Dollars or any other currency, whether matured or unmatured, and, in
the case of deposits, whether general or special, time or demand and however
evidenced) and (b) pending any such action, to the extent necessary, to hold
such amounts as collateral to secure such obligations and liabilities and to
return as unpaid for insufficient funds any and all checks and other items drawn
against any deposits so held as such Lender in its sole discretion may elect;
provided that no such setoff, appropriation, or application shall be taken or
- --------
made without the prior written consent of Agent or the Majority Lenders. The
Borrower hereby grants to each Lender a security interest in all deposits and
accounts maintained with that Lender. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
set-off) which such Lender may have.
9.4 No Waiver; Remedies. No failure on the part of the Agent or any
-------------------
Lender to exercise, and no delay in exercising, any right under any of the Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
9.5 Costs and Expenses. The Borrower agrees to pay on demand all costs
------------------
and expenses of the Agent (including attorney's fees and the reasonable estimate
of the allocated cost of in-house counsel and staff) in connection with the
preparation, amendment, or modification of this Agreement or the other Loan
Documents, or incurred by the Agent or any Lender in connection with the
enforcement (including in appellate, bankruptcy, insolvency, liquidation,
reorganization, moratorium or other similar proceedings) or restructuring of the
Loan Documents.
9.6 Additional Lenders; Assignments; Participations.
-----------------------------------------------
(a) None of the Loan Documents nor any rights thereunder may be
assigned by Borrower without the prior written consent of all the Lenders, which
consent may be granted or withheld in the Lenders' sole discretion. Any Lender
may assign, from time to time, all or any portion of its pro rata share of the
Commitments and its Note to an Affiliate of that Lender or, subject at any time
prior to the occurrence of an Event of Default to the prior written approval of
the Borrower (which approval will not be unreasonably withheld or delayed), to
any other financial institution reasonably acceptable to the Agent; provided
--------
that
49
<PAGE>
(i) the amount of the Commitment of the assigning Lender being assigned
pursuant to each such assignment shall in no event be less than $5,000,000 or
the entire Commitment of such assigning Lender, whichever is less, (ii) the
parties to each such assignment shall execute and deliver to the Agent and
Borrower an assignment agreement reasonably satisfactory to Agent, and (iii) the
assignee (a) represents and warrants to the Lender, the Agent and the Borrower
that under applicable law and treaties no tax will be required to be withheld by
the Lender with respect to any payments to be made to the assignee hereunder,
(b) agrees to furnish (if it is organized under the laws of any jurisdiction
other than the United States or any State thereof) to the Agent and the Borrower
prior to the time that the Agent or Borrower is required to make any payment of
principal, interest or fees hereunder, duplicate executed originals of either
U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form
1001 (wherein the assignee claims entitlement to the benefits of a tax treaty
that provides for a complete exemption from U.S. federal income withholding tax
on all payment hereunder) and agrees to provide new Forms 4224 or 1001 upon
expiration of any previously delivered form or comparable statement in
accordance with applicable U.S. law and regulations and amendments thereto, duly
executed and completed by the assignee, and (c) agrees to comply with all
applicable U.S. laws and regulations with regard to such withholding tax
exemption. Upon such execution and delivery and payment of a fee in the amount
of $3,500 to Agent to cover administrative costs, from and after the effective
date of such assignment (i) the assignee thereunder shall be a party hereto and,
to the extent that rights and obligations hereunder have been assigned to it,
have the rights and obligations of a Lender hereunder and (ii) the Lender
assignor thereunder shall, to the extent that rights and obligations hereunder
have been assigned by it, relinquish its rights and be released from its
obligations under this Agreement (other than pursuant to Section 9.6(e)), and,
in the case of an assignment covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto, subject to its continuing obligations under
Section 9.6(e). The Commitments hereunder shall be modified to reflect the
Commitment of such assignee, and, if any such assignment occurs while any Notes
are outstanding, new Notes shall, upon the surrender of the assigning Lender's
Notes, be issued to such assignee and to the assigning Lender as necessary to
reflect the new Commitments of the assigning Lender and of its assignee.
(b) Each Lender may sell, negotiate or grant participations to other
financial institutions in all or part of the obligations of the Borrower
outstanding under the Loan Documents, without notice to or the approval of the
Agent or the Borrower; provided that any such sale, negotiation or participation
--------
shall be in compliance with any applicable federal and state securities laws and
the other requirements of this Section 9.6. No participant shall constitute a
"Lender" under any Loan Document, and the Borrower shall continue to deal solely
and directly with the Agent and the Lenders.
(c) Each Lender may disclose to any proposed assignee or participant
any information relating to the Borrower or any of its Subsidiaries; provided,
--------
that prior to such disclosure such proposed assignee or participant shall have
agreed in writing to keep any such information confidential substantially on the
terms of Section 9.6(e).
50
<PAGE>
(d) The grant of a participation interest shall be on such terms as
the granting Lender determines are appropriate, provided only that (i) the
holder of such a participation interest shall not have any of the rights of a
Lender under this Agreement except, if the participation agreement so provides,
rights to demand the payment of costs of the type described in Article III, and
(ii) the consent of the holder of such a participation interest shall not be
required for amendments or waivers of provisions of the Loan Documents other
than those that (A) increase the amount of the Commitments, (B) extend the term
of the Commitments, (C) decrease the rate of interest or the amount of any fee
or any other amount payable to the Lenders under the Loan Documents, (D) reduce
the principal amount payable under the Loan Documents, or (E) extend the date
fixed for the payment of principal or interest or any other amount payable under
the Loan Documents.
(e) Each Lender understands that some of the information and documents
furnished to it pursuant to this Agreement may be confidential and each Lender
agrees that it will keep all non-public information, documents and agreements so
furnished to it confidential and will make no disclosure to other Persons of
such information or agreements until it shall have become public, except (i) to
the extent required in connection with matters involving operations under or
enforcement or amendment of the Loan Documents; (ii) to such Lender's examiners
and auditors or in accordance with such Lender's obligations under law or
regulations or pursuant to subpoenas or other process to make information
available to governmental agencies and examiners or to others; (iii) to any
corporate affiliate of any Lender so long as such parent agrees to accept such
information or agreement subject to the restrictions provided in this Section
9.6(e); (iv) to any participant bank or trust company of any Lender so long as
such participant shares the corporate parent with such Lender and agrees to keep
such information, documents or agreement confidential in accordance with the
restrictions provided in this Section 9.6(e); (v) to the Agent or to any other
Lender and their respective counsel and other professional advisors and to its
own counsel and professional advisors so long as such Persons are instructed to
keep such information confidential in accordance with the provisions of this
Section 9.6(e); (vi) to proposed assignees and participants in accordance with
Section 9.6(c); and (vii) with the prior written consent of the Borrower.
9.7 Audits of Collateral; Fees. The Agent, on behalf of the Lenders,
--------------------------
shall have the right from time to time to audit Borrower's accounts receivable,
inventory, or other collateral securing the indebtedness hereunder, provided
that such audits will be conducted no more than one (1) time in any fiscal year
unless an Event of Default has occurred and is continuing. Borrower agrees to
reimburse the Agent, on demand, for customary and reasonable fees and costs
incurred by the Agent for such audits, and for each appraisal of collateral and
financial analysis and examination of Borrower performed from time to time by
the Agent or their respective agents.
9.8 Effectiveness; Binding Effect; Governing Law. This Agreement shall
--------------------------------------------
become effective when it shall have been executed by the Borrower, the Agent and
each Lender and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agent, each Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights hereunder
or any interest herein without the prior written consent
51
<PAGE>
of the Agent and all the Lenders. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE. EACH LETTER OF CREDIT SHALL
BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS
AND RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO RULES OR LAWS ARE
DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDIT (1983
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UCP")
AND, AS TO MATTERS NOT GOVERNED BY THE UCP, THE LAWS OF THE STATE OF CALIFORNIA.
9.9 Waiver of Jury Trial. THE BORROWER, THE AGENT, THE ISSUING BANK AND
--------------------
EACH LENDER HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE
LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING
ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any
and all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including contract claims, tort claims, breach of
duty claims, and all other common law and statutory claims. The Agent, each
Lender, the Issuing Bank and the Borrower each acknowledge that this waiver is a
material inducement to enter into a business relationship, that each has already
relied on the waiver in entering into this Agreement, and that each will
continue to rely on the waiver in their related future dealings. The Agent,
each Lender, the Issuing Bank and the Borrower further warrant and represent
that each has reviewed this waiver with its legal counsel, and that each
knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT,
THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE
LOAN. In the event of litigation, this Agreement may be filed as a written
consent to a trial by the court.
9.10 Consent to Jurisdiction; Venue; Agent for Service of Process. All
------------------------------------------------------------
judicial proceedings brought against the Borrower with respect to this Agreement
and the Loan Documents may be brought in any state or federal court of competent
jurisdiction in the City and County of San Francisco or Santa Clara in the State
of California, and by execution and delivery of this Agreement, the Borrower
accepts for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. The Borrower irrevocably waives any right it may have to
assert the doctrine of forum non conveniens or to object to venue to the extent
----- --- ----------
any proceeding is brought in accordance with this Section. The Borrower
designates and appoints Borrower's Chief Financial Officer, from time to time,
P-Com, Inc., 3175 S. Winchester Boulevard, Campbell, California 95008, and such
other Persons as may hereafter be selected by the Borrower
52
<PAGE>
irrevocably agreeing in writing to so serve as its agent to receive on its
behalf service of all process in any such proceedings in any such court, such
service being hereby acknowledged by the Borrower to be effective and binding
service in every respect. A copy of any such process so served shall be mailed
by registered mail to the Borrower at its address provided in the applicable
signature page hereto, except that unless otherwise provided by applicable law,
any failure to mail such copy shall not affect the validity of service of
process. If any agent appointed by the Borrower refuses to accept service, the
Borrower hereby agrees that service upon it by mail shall constitute sufficient
notice. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of the Agent or any Lender to
bring proceedings against the Borrower in courts of any jurisdiction.
9.11 Alternative Dispute Resolution.
------------------------------
(1) Claims Subject to Arbitration or Judicial Reference.
---------------------------------------------------
(a) Any Claim other than a Claim that arises out of or relates to
any obligation under any Subject Document that is secured, in whole or in part,
by an interest in real property shall, at the written request of any Party, be
determined by Arbitration.
(b) Any Claim that arises out of or relates to any obligation
under any Subject Document that is secured, in whole or in part, by an interest
in real property shall be determined by Arbitration only with the consent of
both Parties. If both Parties do not consent to the determination of any such
Claim by Arbitration, then such Claim shall, at the written request of any
Party, be determined by Reference.
(c) The determination as to whether or not a Claim arises out of
or relates to any obligation under any Subject Document that is secured, in
whole or in part, by an interest in real property shall be made at the time the
arbitrator or referee is selected pursuant to subsection 2 of this Section 9.11.
(2) Selection of Arbitrator or Referee. Within 30 days after written
----------------------------------
demand, or within 30 days after commencement by any Party, of any lawsuit
subject to this Section 9.11, the Parties shall select a single neutral
arbitrator pursuant to the Commercial Arbitration Rules of the AAA or a single
neutral referee pursuant to the Judicial Reference Procedures of the AAA.
However, the arbitrator or referee selected must be a retired state or federal
court judge with at least five years of judicial experience in civil matters. In
the event that the selection pursuant to such Commercial Arbitration Rules or
Judicial Reference Procedures does not result in the appointment of a single
neutral arbitrator or a single neutral referee within 30 days, any such Party
may petition the court to appoint a single neutral arbitrator or single neutral
referee with the judicial experience described above. The Parties shall equally
bear the fees and expenses of the arbitrator or referee unless the arbitrator or
referee otherwise provides in the award or statement of decision.
(3) Conduct of Arbitration or Reference.
-----------------------------------
53
<PAGE>
(a) Except as provided in this Section 9.11, the arbitrator shall
have the powers provided under Applicable State Law and the Commercial
Arbitration Rules of the AAA, and the referee shall have the powers provided
under Applicable State Law and the Judicial Reference Procedures of the AAA.
(b) The arbitrator or referee shall determine all challenges to
the legality or enforceability of this Section 9.11.
(c) The arbitrator or referee shall apply the rules of evidence
to the same extent as they would be applied in a court of law.
(d) A Party may not conduct discovery unless the arbitrator or
referee grants such Party leave to do so upon a showing of good cause. All
discovery shall be completed within 90 days after the appointment of the
arbitrator or referee, except upon a showing of good cause by any Party. The
arbitrator or referee shall limit discovery to non-privileged material that is
relevant to the issues to be determined by the arbitrator or referee.
(e) The arbitrator or referee shall determine the time of the
hearing and shall designate its location based upon the convenience of the
arbitrator or referee, the Parties and any witnesses. However, such hearing
shall be commenced within 30 days after completion of discovery, unless the
arbitrator or referee grants a continuance upon a showing of good cause by any
Party. At least 7 days before the date set for such hearing, the Parties shall
exchange copies of exhibits to be offered as evidence, and lists of the
witnesses who will testify, at such hearing. Once commenced, the hearing shall
proceed day to day until completed, unless the arbitrator or referee grants a
continuance upon a showing of good cause by any Party. Any Party may cause to be
prepared, at its expense, a written transcription or electronic recordation of
such hearing.
(f) Subject to the provisions of this Section 9.11, the
arbitrator may award, or the referee may report, a statement of decision
providing for any remedy or relief, including without limitation judicial
foreclosure, deficiency judgment and equitable relief, and give effect to all
legal and equitable defenses, including without limitation statutes of
limitation, the statute of frauds, waiver and estoppel .
(g) The award of the arbitrator or the statement of decision of
the referee shall be supported by written findings of fact and conclusions of
law delivered by the arbitrator or referee to the Parties concurrently with such
award or statement of decision.
(h) In the event that punitive damages are permitted under
Applicable State Law, the award of the arbitrator or the statement of decision
of the referee may provide for recovery of punitive damages provided that the
arbitrator or referee first makes written findings of fact that would satisfy
the requirements for recovery of punitive damages under Applicable State Law.
Any such punitive damages shall not exceed a sum equal to three times the amount
of actual damages as determined by the arbitrator or referee.
54
<PAGE>
(i) The arbitrator shall have the power to award or the referee
shall have the power to report a statement of decision providing for reasonable
attorneys' fees (including a reasonable allocation for the costs of in-house
counsel) and costs to the prevailing party.
(j) In the event that Applicable State Law provides that
publications or communications made in a judicial proceeding are subject to a
litigation privilege, such litigation privilege shall apply to the same extent
to publications or communications made in the Arbitration or Reference.
(4) Provisional Remedies, Self-Help and Foreclosure. No provision of
-----------------------------------------------
this Section 9.11 shall limit the right of any Party (a) to exercise self-help
remedies including, without limitation, set-off, (b) to foreclose against or
sell any collateral, by power of sale or otherwise or (c) to obtain or oppose
provisional or ancillary remedies from a court of competent jurisdiction before,
after or during the pendency of the Arbitration or Reference. The exercise of,
or opposition to, any such remedy does not waive the right of any Party to
Arbitration or Reference pursuant to this Section 9.11.
(5) Final, Binding and Nonappealable Judgment. Any court of competent
-----------------------------------------
jurisdiction shall, upon the petition of any Party, confirm the award of the
arbitrator and enter judgment in conformity therewith. Any court of competent
jurisdiction shall, upon the filing of the statement of decision of the referee,
enter judgment thereon. Any such judgment shall be final, binding and
nonappealable.
(6) Miscellaneous. In the event that multiple claims are asserted,
-------------
some of which are found not subject to this Section 9.11, the Parties agree to
stay the proceedings of the claims not subject to this Section 9.11 until all
other claims are resolved in accordance with this Section 9.11. In the event
that claims are asserted against multiple parties, some of whom are not subject
to this Section 9.11, the Parties agree to sever the claims subject to this
Section 9.11 and resolve them in accordance with this Section 9.11. In the
event that any provision of this Section 9.11 is found to be illegal or
unenforceable, the remainder of this Section 9.11 shall remain in full force and
effect. In the event of any challenge to the legality or enforceability of this
Section 9.11, the prevailing Party shall be entitled to recover the costs and
expenses, including reasonable attorneys' fees, incurred by it in connection
therewith. Applicable State Law shall govern the interpretation of this Section
9.11. This Section 9.11 fully states all of the terms and conditions of the
Parties' agreement regarding the matters mentioned in, or incidental to, this
Section 9.11. This Section 9.11 supersedes all oral negotiations and prior
writings concerning the subject matter hereof.
(7) Defined Terms. As used in this Section 9.11, the following terms
-------------
shall have the respective meanings set forth below:
(a) "AAA" shall mean the American Arbitration Association.
---
(b) "Applicable State Law" shall mean the law of the state of
--------------------
California; provided, however, that if any Party seeks (i) to exercise self-help
remedies,
55
<PAGE>
including without limitation set-off, (ii) to foreclose against or sell any
collateral, by power of sale or otherwise or (iii) to obtain or oppose
provisional or ancillary remedies from a court of competent jurisdiction before,
after or during the pendency of the Arbitration or Reference, the law of the
state where such collateral is located shall govern the exercise of or
opposition to such rights and remedies.
(c) "Arbitration" shall mean an arbitration conducted pursuant
-----------
to this Section 9.11 in accordance with Applicable State Law, and under the
Commercial Arbitration Rules of the AAA, as in effect at the time the arbitrator
is selected pursuant to subsection 2 of this Section 9.11.
(d) "Claim" shall mean any claim, cause of action, action,
-----
dispute or controversy between or among the Parties, including any claim, cause
of action, action, dispute or controversy alleged in or subject to a lawsuit
between or among the Parties, which arises out of or relates to:
(i) any of the Subject Documents,
(ii) any negotiations, correspondence or communications
relating to any of the Subject Documents, whether or not incorporated into the
Subject Documents or any indebtedness evidenced thereby,
(iii) the administration or management of the Subject
Documents or any indebtedness evidenced thereby or
(iv) any alleged agreements, promises, representations or
transactions in connection therewith, including but not limited to any claim,
cause of action, action, dispute or controversy which arises out of or is based
upon an alleged tort or other breach of legal duty.
(e) "Parties" shall mean the Borrower, each Guarantor, the Agent,
-------
Issuing Bank and the Lenders party to this Agreement.
(f) "Reference" shall mean a judicial reference conducted
---------
pursuant to this Section 9.11 in accordance with Applicable State Law and under
the Judicial Reference Procedures of the AAA, as in effect at the time the
referee is selected pursuant to subsection 2 of this Section 9.11.
(g) "Subject Documents" shall mean the Loan Documents, any and all
-----------------
related documents, instruments and agreements, and any and all extensions,
renewals, amendments, substitutions and replacements of any of the foregoing;
and "Subject Document" shall mean any one of such Subject Documents.
(8) Waiver of Right to Trial By Jury. In connection with an
--------------------------------
Arbitration or Reference, or any other action or proceeding, the Parties hereby
expressly, intentionally and deliberately waive any right they may otherwise
have to trial by jury of any Claim.
56
<PAGE>
9.12 Entire Agreement. This Agreement with Exhibits and Schedules and the
----------------
other Loan Documents embody the entire agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof.
9.13 Separability of Provisions. In case any one or more of the provisions
--------------------------
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
9.14 Obligations Several. The obligation of each Lender hereunder is
-------------------
several, and no Lender shall be responsible for the obligation or commitment of
any other Lender hereunder. Nothing contained in this Agreement and no action
taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders
to be a partnership, an association, a joint venture or any other kind of
entity.
9.15 Survival of Certain Agreements. Notwithstanding anything in this
------------------------------
Agreement or implied by law to the contrary, the agreements of the Borrower set
forth in Sections 3.6, 3.7, 3.11 and 9.5 and the agreements of the Lenders set
forth in Sections 3.9, 8.2, 8.5 and 9.3, and the agreements set forth in Section
9.11 shall survive the payment of the Loans and the Notes and the termination of
this Agreement.
9.16 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement; signature
pages may be detached from counterpart documents and reassembled to form
duplicate executed originals.
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
P-COM, INC., a
Delaware corporation
By: Michael J. Sophie
---------------------------
Title: Chief Financial Officer
------------------------
Address:
3175 S. Winchester Boulevard
Campbell, California 95008
Telephone: (408) 866-3666
Facsimile: (408) 866-3655
Attention: Michael Sophie
58
<PAGE>
THE AGENT:
UNION BANK OF CALIFORNIA, N.A.
By: /s/ John A. Noble
-------------------------------------
John A. Noble, Vice President
Payment Address:
350 California Street, 10th Floor
San Francisco, California 94104
Telephone: (415) 705-7118
Facsimile: (415) 705-7111
Attention: Cecilia Person
Notice Address:
350 California Street, 10th Floor
San Francisco, California 94104
Telephone: (415) 705-7118
Facsimile: (415) 705-7111
Attention: Cecilia Person
with a copy to:
99 Almaden Boulevard, 2nd Floor
San Jose, California 95113
Telephone: (408) 279-7721
Facsimile: (408) 279-7720
Attention: John A. Noble
59
<PAGE>
COMMITMENT THE LENDERS:
$25,000,000 UNION BANK OF CALIFORNIA, N.A.
By: /s/ John A. Noble
-------------------------------------
John A. Noble, Vice President
Payment Address:
350 California Street, 10th Floor
San Francisco, California 94104
Telephone: (415) 705-7118
Facsimile: (415) 705-7111
Attention: Cecilia Person
Notice Address:
350 California Street, 10th Floor
San Francisco, California 94104
Telephone: (415) 705-7118
Facsimile: (415) 705-7111
Attention: Cecilia Person
with a copy to:
99 Almaden Boulevard, 2nd Floor
San Jose, California 95113
Telephone: (408) 279-7721
Facsimile: (408) 279-7720
Attention: John A. Noble
$25,000,000 BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By: Richard Bryson
-------------------------------------
Title: Managing Director
----------------------------------
Notice and Payment Address:
555 California Street
San Francisco, California 94104
Telephone: (415) 622-8512
Facsimile: (415) 622-0632
Attention: Richard E. Bryson
60
<PAGE>
EXHIBIT A-1
P-COM, INC.
REVOLVING PROMISSORY NOTE
San Francisco, California
$25,000,000 May 15, 1998
FOR VALUE RECEIVED, P-Com, Inc., a Delaware corporation (the "Borrower"),
--------
promises to pay to the order of Union Bank of California, N.A. (the "Lender")
------
the principal amount of Twenty-Five Million Dollars ($25,000,000) or, if less,
the aggregate amount of Revolving Loans (as defined in the Credit Agreement
referred to below) made by the Lender to the Borrower pursuant to the Credit
Agreement referred to below outstanding on the Maturity Date (as defined in the
Credit Agreement referred to below) on the Maturity Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
Notwithstanding any other limitations contained in this Note, Lender does not
intend to charge and the Borrower shall not be required to pay any interest or
other fees or charges in excess of the maximum permitted by applicable law. Any
payments in excess of such maximum shall be refunded to the Borrower or credited
against principal.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the office
of the Agent described in the Credit Agreement. Until notified of the transfer
of this Note, the Borrower shall be entitled to deem the Lender or such person
who has been so identified by the transferor in writing to the Borrower as the
holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of May 15, 1998 (the "Credit Agreement") among the Borrower,
----------------
the financial institutions named therein and Union Bank of California, N.A. as
Agent. The Credit Agreement, among other things, (i) provides for the making of
advances (the "Loans") by the Lender to the Borrower from time to time in an
-----
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Loan being evidenced by this Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligation of the Borrower, which
is absolute and
1
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws of
the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
P-Com, Inc.
By
------------------------------
Title
---------------------------
2
<PAGE>
EXHIBIT A-2
P-COM, INC.
REVOLVING PROMISSORY NOTE
San Francisco, California
$25,000,000 May 15, 1998
FOR VALUE RECEIVED, P-Com, Inc., a Delaware corporation (the "Borrower"),
--------
promises to pay to the order of Bank of America National Trust and Savings
Association (the "Lender") the principal amount of Twenty-Five Million Dollars
------
($25,000,000) or, if less, the aggregate amount of Revolving Loans (as defined
in the Credit Agreement referred to below) made by the Lender to the Borrower
pursuant to the Credit Agreement referred to below outstanding on the Maturity
Date (as defined in the Credit Agreement referred to below) on the Maturity
Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
Notwithstanding any other limitations contained in this Note, Lender does not
intend to charge and the Borrower shall not be required to pay any interest or
other fees or charges in excess of the maximum permitted by applicable law. Any
payments in excess of such maximum shall be refunded to the Borrower or credited
against principal.
All payments of principal and interest in respect of this Note shall be made
in lawful money of the United States of America in same day funds at the office
of the Agent described in the Credit Agreement. Until notified of the transfer
of this Note, the Borrower shall be entitled to deem the Lender or such person
who has been so identified by the transferor in writing to the Borrower as the
holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of May 15, 1998 (the "Credit Agreement") among the Borrower,
----------------
the financial institutions named therein and Union Bank of California, N.A. as
Agent. The Credit Agreement, among other things, (i) provides for the making of
advances (the "Loans") by the Lender to the Borrower from time to time in an
-----
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Loan being evidenced by this Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
1
<PAGE>
No reference herein to the Credit Agreement and no provision of this Note or
the Credit Agreement shall alter or impair the obligation of the Borrower, which
is absolute and unconditional, to pay the principal of and interest on this Note
at the place, at the respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws of
the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
P-Com, Inc.
By
-----------------------------
Title
-------------------------
2
<PAGE>
EXHIBIT B
[FORM OF NOTICE OF REVOLVING LOAN]
NOTICE OF REVOLVING LOAN
Pursuant to that certain Credit Agreement, dated as of May 15, 1998 as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the
"Agreement"; the terms defined therein and not otherwise defined herein being
- ----------
used herein as therein defined), among P-Com, Inc., a Delaware corporation (the
"Borrower"), the financial institutions named on the signature pages thereof
--------
(each a "Lender" and collectively the "Lenders"), and Union Bank of California,
------ -------
N.A., as Agent for the Lenders (the "Agent"), this represents the Borrower's
-----
request to borrow on _____________, _____ from Lenders, in accordance with their
respective pro rata share of the Revolving Commitment, $______________ in
Revolving Loans as [Base Rate] [LIBO Rate] Loans. [The Interest Period for LIBO
Rate Loans shall be [one] [two] [three] [six] [nine] [twelve] months.]
The undersigned officers, to the best of their knowledge, and Borrower
certify that:
(i) The representations and warranties contained in the Agreement and
the other Loan Documents are true and correct in all material respects on and as
of the date hereof;
(ii) No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an Event
of Default or a Potential Event of Default;
(iii) All Loan Documents are in full force and effect; and
(iv) There is no pending or threatened action or proceeding against or
affecting Borrower or any of its Subsidiaries before any court, governmental
agency or arbitrator, which could reasonably be expected to have a material
adverse effect on the business, operations, prospects, properties, assets or
condition (financial or otherwise) of Borrower, or on the ability of Borrower to
perform, or of any of the Lenders to enforce, the obligations of any of Borrower
under the Agreement or the other Loan Documents.
DATED: _____________________ P-Com, Inc.
By
-----------------------------
Title
-------------------------
B-1
<PAGE>
EXHIBIT C
[FORM OF NOTICE OF CONVERSION/CONTINUATION]
NOTICE OF CONVERSION/CONTINUATION
Pursuant to that certain Credit Agreement, dated as of May 15, 1998 as
amended, supplemented or otherwise modified to the date hereof (said Credit
Agreement, as so amended, supplemented or otherwise modified, being the
"Agreement"; the terms defined therein and not otherwise defined herein being
- ----------
used herein as therein defined), among P-Com, Inc., a Delaware corporation (the
"Borrower"), the financial institutions named on the signature pages thereof
--------
(each a "Lender" and collectively the "Lenders"), and Union Bank of California,
------ -------
N.A., as Agent for the Lenders (the "Agent"), this represents Borrower's request
-----
to [Select A or B with appropriate insertions and deletions: [A: convert
$_________ in principal amount of presently outstanding Revolving Loans that are
[Base/LIBO] Rate Loans [having an Interest Period that expires on ____________,
199_] to [Base/LIBO] Rate Loans on ____________, 199_. [The initial Interest
Period for such LIBO Rate Loans is requested to be a [one] [two] [three] [six]
[nine] [twelve] month period.] [B: continue as LIBO Rate Loans $_________ in
principal amount of presently outstanding Revolving Loans having an Interest
Period that expires on ____________, 199_. The Interest Period for such LIBO
Rate Loans commencing on _______________, 199__ is requested to be a [one] [two]
[three] [six] [nine] [twelve] month period.]
[For Conversions to or Continuations of LIBO Rate Loans Only: The
undersigned officers, to the best of their knowledge, and Borrower certify that
no Event of Default or Potential Event of Default has occurred and is continuing
under the Agreement.]
DATED: P-Com, Inc.
By
-----------------------------
Title
-------------------------
C-1
<PAGE>
EXHIBIT D
[FORM OF COMPLIANCE CERTIFICATE]
1. This Compliance Certificate ("Compliance Certificate") is executed and
delivered by P-Com, Inc., a Delaware corporation (the "Borrower") to Union Bank
of California, N.A. (the "Agent") pursuant to Section 6.1(a)(iii)(B) of the
Credit Agreement dated as of May 15, 1998 among the Borrower, the financial
institutions named therein and the Agent. Any terms used herein and not defined
herein shall have the meanings defined in the Credit Agreement. This Compliance
Certificate covers the Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended _________, 19__
2. The following paragraphs set forth calculations in compliance with
obligations pursuant to Section 6.2(a), (b), (c), (d), (e), and (h) of the
Credit Agreement, as of the end of the fiscal period set forth in paragraph 1
hereof.
A. Quick Ratio (Sec. 6.2(a)):
--------------------------
(a) Consolidated Quick Assets $____________
(b) Consolidated Current
Liabilities $____________
Ratio (a) : (b) ____________
Minimum Permitted Ratio 1.00 to 1.00
B. Leverage Ratio (Sec 6.2(b)):
----------------------------
(a) Consolidated Funded Debt as at the
end of the most recent fiscal quarter $____________
(b) Consolidated EBITDA for the four
quarters ending on the last day
of the most recently ended
fiscal quarter $____________
Ratio (a) to (b) ____________
Maximum Permitted Ratio 4.0 to 1.0
D-1
<PAGE>
C. Consolidated Tangible Net Worth (Sec. 6.2(c)):
----------------------------------------------
(a) $92,000,000
(b) plus 75% of Consolidated
Net Income (but not loss)
for each fiscal quarter
of the Borrower commencing
with the fiscal quarter
ending March 31, 1998 $____________
(c) plus 100% of Net Proceeds
of any Equity Issuance after
December 31, 1997 $____________
(d) minus 100% of additions to
goodwill and charges to earnings
resulting from permitted
Acquisitions $____________
Minimum Required Consolidated
Tangible Net Worth:
(a) + (b) + (c) - (d), but in no event
less than $62,000,000: $____________
Actual Consolidated Tangible
Net Worth: $____________
D. Profitability (Sec 6.2(d)):
---------------------------
1. (a) Consolidated Net Income during
the most recent fiscal quarter $____________
(b) Consolidated Net Income during
the fiscal quarter preceding
the most recent fiscal quarter $____________
(c) Consolidated Operating Income
during the most recent fiscal
quarter $____________
(d) Consolidated Operating Income
during the fiscal quarter
preceding the most recent
fiscal quarter $____________
Required: (a) or (b) greater than $0.
--------
(c) or (d) greater than $0.
D-2
<PAGE>
2. (a) Consolidated Tangible Net Worth
as of the end of the fiscal
quarter immediately preceding
the current fiscal $____________
(b) Consolidated Net Income during
the most recent fiscal quarter
(same as 1(a) above) $____________
(c) Consolidated Operating Income
during the most recent fiscal
quarter $____________
(same as 1(c) above)
Required: (b) and (c): No loss
--------
greater than 5% of (a).
3. (a) Consolidated Net Income during
the most recent fiscal year $____________
(b) Consolidated Operating Income
during the most recent fiscal
year $____________
Required: (a) and (b): greater than $0
--------
E. Interest Coverage Ratio (Sec. 6.2(e)):
--------------------------------------
(a) Consolidated EBITDA $____________
(b) Consolidated Interest Expense $____________
Ratio (a) to (b) ____________
Minimum Permitted Ratio 3.0:1.0
F. Dividends (Sec. 6.2(h)):
------------------------
Dividends declared or paid in
current fiscal year $____________
Permitted: $0
3. The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and its Subsidiaries
during the fiscal period covered by this Compliance Certificate. The undersigned
does not (either as a result of such review or otherwise) have any knowledge of
the existence as of the date of this Compliance Certificate of
D-3
<PAGE>
any condition or event that constitutes an Event of Default or a Potential Event
of Default, with the exception set forth below in response to which the Borrower
is taking or proposes to take the following actions (if none, so state):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. This Compliance Certificate is executed on _______________, ____ by
the Chief Executive Officer or Chief Financial Officer of the Borrower. The
undersigned hereby certifies that each and every matter contained herein is
derived from the Borrower's books and records and is, to the best knowledge of
the undersigned, true and correct.
P-Com, Inc.
a Delaware corporation
By
-----------------------------
Title
-------------------------
D-4
<PAGE>
EXHIBIT E
PRICING GRID
The "Applicable Margin" and the "Commitment Fee Rate" shall mean the
----------------- -------------------
variable number of percentage points determined in accordance with the grid set
forth below, based upon the Borrower's ratio of Consolidated Funded Debt as at
the end of each fiscal quarter to Consolidated EBITDA on a rolling four quarter
basis, as set forth in Section 6.2(b) (the "Leverage Ratio"), as determined by
the Agent with reference to the Borrower's most recently delivered financial
statements and Compliance Certificate; provided that from the execution date of
--------
this Agreement until five (5) Business Days after Agent's receipt of the
Borrower's financial statements and Compliance Certificate for the fiscal
quarter ended June 30, 1998, the Applicable Margin for LIBO Rate Loans, the
Applicable Margin for Base Rate Loans, and the Commitment Fee Rate shall be as
set forth in Level II, below. Thereafter, the effective date of any change in
the Applicable Margin and/or the Commitment Fee Rate shall be five (5) Business
Days following Agent's receipt of Borrower's financial statements and Compliance
Certificate; provided that if Borrower shall not have timely delivered its
--------
financial statements and Compliance Certificate in accordance with Section
6.1(a), then commencing five (5) Business Days following the date upon which
such financial statements should have been delivered and continuing until such
financial statements are actually delivered, it shall be assumed for purposes of
determining said rates that Borrower's Leverage Ratio is equal to or greater
than 3.00 to 1.00.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Ratio of Consolidated
Funded Debt to Applicable Applicable
Consolidated Margin for Margin for
EBITDA on rolling Commitment LIBO Rate Base Rate
Level four quarter basis Fee Rate Loans Loans
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
I. Equal to or greater 0.25 1.25 0.00
than 3.00:1.00
- ------------------------------------------------------------------------
II. Equal to or greater 0.20 1.125 0.00
than 2.50:1.00 but less
than 3.00:1.00
- ------------------------------------------------------------------------
III. Equal to or greater 0.20 1.00 0.00
than 2.00:1.00 but less
than 2.50:1.00
- ------------------------------------------------------------------------
IV. Less than 2.00:1.00 0.175 0.875 0.00
- ------------------------------------------------------------------------
</TABLE>
E-1
<PAGE>
EXHIBIT 10.32
P-COM, INC.
REVOLVING PROMISSORY NOTE
San Francisco, California
$25,000,000 May 15, 1998
FOR VALUE RECEIVED, P-Com, Inc., a Delaware corporation (the "Borrower"),
--------
promises to pay to the order of Bank of America National Trust and Savings
Association (the "Lender") the principal amount of Twenty-Five Million Dollars
------
($25,000,000) or, if less, the aggregate amount of Revolving Loans (as defined
in the Credit Agreement referred to below) made by the Lender to the Borrower
pursuant to the Credit Agreement referred to below outstanding on the Maturity
Date (as defined in the Credit Agreement referred to below) on the Maturity
Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
Notwithstanding any other limitations contained in this Note, Lender does not
intend to charge and the Borrower shall not be required to pay any interest or
other fees or charges in excess of the maximum permitted by applicable law. Any
payments in excess of such maximum shall be refunded to the Borrower or credited
against principal.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Agent described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of May 15, 1998 (the "Credit Agreement") among the Borrower,
----------------
the financial institutions named therein and Union Bank of California, N.A. as
Agent. The Credit Agreement, among other things, (i) provides for the making of
advances (the "Loans") by the Lender to the Borrower from time to time in an
-----
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Loan being evidenced by this Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
<PAGE>
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
P-Com, Inc.
By: /s/ Michael J. Sophie
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
<PAGE>
EXHIBIT 10.33
P-COM, INC.
REVOLVING PROMISSORY NOTE
San Francisco, California
$25,000,000 May 15, 1998
FOR VALUE RECEIVED, P-Com, Inc., a Delaware corporation (the "Borrower"),
--------
promises to pay to the order of Union Bank of California, N.A. (the "Lender")
------
the principal amount of Twenty-Five Million Dollars ($25,000,000) or, if less,
the aggregate amount of Revolving Loans (as defined in the Credit Agreement
referred to below) made by the Lender to the Borrower pursuant to the Credit
Agreement referred to below outstanding on the Maturity Date (as defined in the
Credit Agreement referred to below) on the Maturity Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
Notwithstanding any other limitations contained in this Note, Lender does not
intend to charge and the Borrower shall not be required to pay any interest or
other fees or charges in excess of the maximum permitted by applicable law. Any
payments in excess of such maximum shall be refunded to the Borrower or credited
against principal.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Agent described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of May 15, 1998 (the "Credit Agreement") among the Borrower,
----------------
the financial institutions named therein and Union Bank of California, N.A. as
Agent. The Credit Agreement, among other things, (i) provides for the making of
advances (the "Loans") by the Lender to the Borrower from time to time in an
-----
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Loan being evidenced by this Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
P-Com, Inc.
By: /s/ Michael J. Sophie
--------------------------------------
Title: Chief Financial Officer
------------------------------------
<PAGE>
EXHIBIT 10.34
SUBSIDIARY GUARANTY
-------------------
This Subsidiary Guaranty, dated as of May 15, 1998, is made by each
entity identified on the signature pages hereof (each, a "Guarantor" and
collectively, "Guarantors") in favor of Union Bank of California, N.A. (the
"Agent"), as agent for the financial institutions (each, a "Lender" and
collectively, "Lenders") party to the Credit Agreement described below.
RECITALS
A. P-Com, Inc., a Delaware corporation ("Borrower"), has entered
into that certain Credit Agreement dated as of May 15, 1998 with Agent and
Lenders (said Credit Agreement, as it may hereafter be amended, supplemented or
otherwise modified from time to time, being the "Credit Agreement"; capitalized
terms defined therein and not otherwise defined herein being used herein as
therein defined).
B. Each Guarantor is a direct or indirect subsidiary of the Borrower
and expects to derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement.
C. It is a condition precedent to the extension of credit under the
Credit Agreement that each Guarantor shall have guaranteed payment of each and
all the debts, liabilities and obligations of the Borrower and each other
Subsidiary of the Borrower under the Loan Documents, on the terms set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and in order to
induce the Lenders to extend credit to the Borrower under the Credit Agreement,
each Guarantor hereby agrees as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 General Definitions. Except as otherwise specifically
-------------------
provided herein, the terms that are defined in Section 1.1 of the Credit
Agreement shall have the same meanings when used in this Guaranty.
SECTION 1.2 Certain Defined Terms. As used in this Guaranty, the
---------------------
following terms shall have the following meanings:
"Bankruptcy Code" means Title 11 of the United States Code, as from
---------------
time to time amended.
1
<PAGE>
"Bankruptcy, Insolvency or Liquidation Proceeding" means (i) any case
------------------------------------------------
commenced by or against the Borrower under any chapter of the United States
Bankruptcy Code, any other proceeding for the reorganization, recapitalization
or adjustment or marshalling of the assets or liabilities of the Borrower, any
receivership or assignment for the benefit of creditors relating to the Borrower
or any similar case or proceeding relative to the Borrower or its creditors, as
such, in each case whether or not voluntary, (ii) any liquidation, dissolution,
marshalling of assets or liabilities or other winding up of or relating to the
Borrower, in each case whether or not voluntary and whether or not involving
bankruptcy or insolvency, and (iii) any other proceeding of any type or nature
in which claims against the Borrower generally are determined, proven or paid.
"Disallowed Post-Commencement Interest and Expenses" means any claim
--------------------------------------------------
for interest on Loans accrued or computed for or as to any period of time at any
time after the commencement of any Bankruptcy, Insolvency or Liquidation
Proceeding at the rate (including any applicable post-default rate) set forth in
the Credit Agreement or other applicable Loan Document or for fees, expense
reimbursements, indemnification or other similar obligations accrued or
determined for or as to any such period of time in accordance with the
provisions of the Credit Agreement or any such Loan Document, if such claim is
not allowed, allowable or enforceable in such Bankruptcy, Insolvency or
Liquidation Proceeding.
"Guaranteed Obligations" has the meaning assigned to that term in
----------------------
Section 2.1.
"Guaranty" means this Subsidiary Guaranty, dated as of May 15, 1998,
--------
as it may be amended, supplemented or otherwise modified from time to time.
"Guaranty Taxes" has the meaning assigned to that term in Section
--------------
3.8(a).
"Subordinated Liabilities" has the meaning assigned to that term
-------------------------
in Section 2.8(a).
ARTICLE II
GUARANTY AND RELATED PROVISIONS
SECTION 2.1 Guaranty. Each Guarantor hereby unconditionally:
--------
(a) guarantees the punctual payment when due, whether at stated maturity,
by acceleration or otherwise, of (i) all obligations of Borrower in respect of
notes, advances, borrowings, loans, debts, letters of credit, interest, fees,
costs, expenses (including, without limitation, reasonable legal fees and
expenses of counsel and allocated costs of internal counsel), indemnities and
liabilities of whatsoever nature now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, and however arising under or in connection with the Credit Agreement and
the other Loan
2
<PAGE>
Documents, including those arising under successive borrowing transactions under
the Credit Agreement which shall either continue such obligations of Borrower or
from time to time renew them after they have been satisfied, (ii) all
liabilities of each Guarantor now outstanding or hereafter arising under this
Guaranty, and (iii) each other debt, liability or obligation of the Borrower or
any Subsidiary of the Borrower now outstanding or hereafter arising under any of
the Loan Documents (such obligations, liabilities and other debts, liabilities
and obligations, collectively, are the "Guaranteed Obligations"), and
(b) agrees to pay on demand (i) all Disallowed Post-Commencement Interest
and Expenses, to the Person entitled to payment thereof if the claim therefor
had been allowed in any Bankruptcy, Insolvency or Liquidation Proceeding, and
(ii) all costs and expenses (including, without limitation, reasonable
attorneys' fees and legal expenses of counsel and allocated costs of internal
counsel) incurred by Agent or any Lender in enforcing this Guaranty.
SECTION 2.2 Acceleration of Payment. If (i) the Loans and other
-----------------------
amounts due under the Credit Agreement and the other Loan Documents become
immediately due and payable pursuant to Section 7.1 of the Credit Agreement,
(ii) any Bankruptcy, Insolvency or Liquidation Proceeding is commenced
voluntarily by any Guarantor, or (iii) any Bankruptcy, Insolvency or Liquidation
Proceeding is commenced involuntarily against any Guarantor and either (x)
remains pending for more than 60 days or (y) an order for relief is granted or
consented to by the Borrower or by the debtor therein, then all liability of
each Guarantor under this Guaranty in respect of any Guaranteed Obligation that
is not then due and payable shall thereupon become and be immediately due and
payable, without notice or demand.
SECTION 2.3 Guaranty Absolute and Unconditional. Each Guarantor
-----------------------------------
guarantees that the Guaranteed Obligations will be paid in accordance with the
terms of the Credit Agreement and the other Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights and claims of Agent or any Lender
against the Borrower or any Subsidiary of the Borrower with respect thereto and
even if any such rights or claims are modified, reduced or discharged in a
Bankruptcy, Insolvency or Liquidation Proceeding or otherwise. The obligations
of each Guarantor under this Guaranty are independent of the Guaranteed
Obligations, and a separate action or actions may be brought and prosecuted
against each Guarantor to enforce this Guaranty, whether or not any action is
brought against the Borrower or any other Guarantor and whether or not the
Borrower or any other Guarantor is joined in any such action or actions. The
liability of each Guarantor under this Guaranty shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of
the Credit Agreement or any other Loan Document or any other agreement or
instrument relating thereto; (ii) any change in the time, manner or place of
payment of, or in any other term of, any of the Guaranteed Obligations, or any
other amendment or waiver of or any consent to departure from the Credit
Agreement or any other Loan Document, including, without limitation, any
increase in the Guaranteed Obligations resulting from the extension of
3
<PAGE>
additional credit to the Borrower or any of its Subsidiaries or otherwise; (iii)
any taking, exchange, release or non-perfection of any Lien securing, or any
taking, release or amendment or waiver of or consent to departure from any other
guaranty of, any of the Guaranteed Obligations; (iv) any manner or order of sale
or other enforcement of any Lien securing any or all of the Guaranteed
Obligations or any manner or order of application of the proceeds of any such
Lien to the payment of the Guaranteed Obligations or any failure to enforce any
Lien or to apply any proceeds thereof; (v) any change, restructuring or
termination of the corporate structure or existence of the Borrower or any of
its Subsidiaries; or (vi) any other circumstance which might otherwise
constitute a defense (except the defense of payment) available to, or a
discharge of, a surety or guarantor.
SECTION 2.4 Guaranty Irrevocable and Continuing. This Guaranty is an
-----------------------------------
irrevocable and continuing offer and agreement guaranteeing payment of any and
all Guaranteed Obligations and shall extend to all Guaranteed Obligations now
outstanding or created or incurred at any future time, whether or not created or
incurred pursuant to any agreement presently in effect or hereafter made, until
all obligations of the Lenders to extend credit to the Borrower have expired or
been terminated and all Guaranteed Obligations have been fully, finally and
indefeasibly paid. To the extent any contingent obligation survives the
expiration or termination of the Credit Agreement and the repayment of the
Loans, each Guarantor's liability under this Guaranty shall likewise survive.
SECTION 2.5 Reinstatement. If at any time any payment on any
-------------
Guaranteed Obligation is set aside, avoided or rescinded or must otherwise be
restored or returned, this Guaranty and the liability of each Guarantor under
this Guaranty shall remain in full force and effect and, if previously released
or terminated, shall be automatically and fully reinstated, without any
necessity for any act, consent or agreement of any Guarantor, as fully as if
such payment had never been made and as fully as if any such release or
termination had never become effective.
SECTION 2.6 Waiver. Each Guarantor hereby waives and relinquishes
------
all rights, remedies and defenses accorded by applicable law to sureties or
guarantors and agrees not to assert or take advantage of any such rights,
remedies or defenses, including without limitation:
(a) any right to require Agent or any Lender to proceed against
Borrower or any other Person or to proceed against or exhaust any security held
by Agent or any Lender at any time or to pursue any other remedy in the power of
Agent or any Lender before proceeding against such Guarantor;
(b) the defense of the statute of limitations in any action hereunder
or in any action for the collection or performance of any Guaranteed
Obligations;
4
<PAGE>
(c) any defense that may arise by reason of the incapacity, lack of
authority, death or disability of any other Person or the failure of Agent or
any Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other Person;
(d) demand, presentment, protest and notice of any kind, including
without limitation notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action on the part
of Borrower, Agent, any Lender, any endorser or creditor of Borrower or any
Guarantor or on the part of any other Person under this or any other instrument
in connection with any obligation or evidence of indebtedness held by Agent or
any Lender as Collateral or in connection with any Guaranteed Obligations;
(e) any defense based upon an election of remedies by Agent or any
Lender (including without limitation an election to proceed by non-judicial
rather than judicial foreclosure) irrespective of whether such election destroys
or otherwise impairs any subrogation rights of any Guarantor, the right of such
Guarantor to proceed against Borrower (or any other Person) for reimbursement,
or both (it being understood that as a consequence of the waiver set forth in
this Section 2.6(e), such Guarantor is waiving, among other things, any defense
that such Guarantor might be able to invoke under California law based upon the
argument (as enunciated in, among other cases, Union Bank v. Gradsky, 265 Cal.
---------------------
App. 2d 40 (1968), and Cathay Bank v. Lee, 93 Los Angeles Daily Journal D.A.R.
------------------
4871 (1993)), that an election by a lender to foreclose non-judicially under a
deed of trust effects a release of the Guarantor from any obligation to pay,
under its guaranty, any portion of the guaranteed obligation remaining unpaid
after the non-judicial foreclosure since the non-judicial foreclosure could
destroy or impair such Guarantor's subrogation or other rights to obtain any
reimbursement from the Borrower for such payments);
(f) any defense based upon any statute or rule of law which provides
that the obligation of a surety must be neither larger in amount nor in other
respects more burdensome than that of the principal;
(g) any duty on the part of Agent or any Lender to disclose to such
Guarantor any facts Agent or any Lender may now or hereafter know about
Borrower, regardless of whether Agent or any Lender has reason to believe that
any such facts materially increase the risk beyond that which such Guarantor
intends to assume, or has reason to believe that such facts are unknown to such
Guarantor, or has a reasonable opportunity to communicate such facts to such
Guarantor, since such Guarantor acknowledges that such Guarantor is fully
responsible for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing on the risk of non-payment of any
Guaranteed Obligations;
5
<PAGE>
(h) any defense arising because of the election by Agent or any
Lender, in any proceeding instituted under the Bankruptcy Code, of the
application of Section 1111(b)(2) of the Bankruptcy Code; and
(i) any defense based upon any borrowing or grant of a security
interest under Section 364 of the Federal Bankruptcy Code.
Without limiting the generality of the foregoing, each Guarantor
hereby expressly waives any and all benefits which might otherwise be available
to such Guarantor under California Civil Code Sections 2809, 2810, 2819, 2839,
2845 through 2850, 2899 and 3433, California Code of Civil Procedure Sections
580(a), 580(b), 580(d) and 726, and California Commercial Code Section 3606(1).
SECTION 2.7 Subrogation. Each Guarantor hereby represents, warrants
-----------
and agrees, in respect of any and all present and future rights of subrogation,
recourse, reimbursement, indemnity, exoneration, contribution and other claims
in respect of the Guaranteed Obligations that such Guarantor at any time may
have against the Borrower, any other Guarantor or any other Person liable for
the payment of any of the Guaranteed Obligations (including, without limitation,
the owner of any interest in collateral subject to a Lien securing any of the
Guaranteed Obligations) as a result of or in connection with this Guaranty or
any payment hereunder, that:
(a) No Agreement. Such Guarantor has not entered into, and agrees
------------
that, until the Guaranteed Obligations have been repaid in full, it will not
enter into, any agreement providing, directly or indirectly, for any such right
or claim against the Borrower or, except as set forth in Section 2.10, against
any other Subsidiary of the Borrower, and each such agreement now existing or,
until the Guaranteed Obligations have been repaid in full, hereafter entered
into (except as provided for in Section 2.10) is and shall be void;
(b) Release. Such Guarantor waives and releases any such right or
-------
claim against the Borrower, any other Guarantor or any other such Person until
the Guaranteed Obligations have been paid in full;
(c) Capital Contribution. Neither the execution and delivery of this
--------------------
Guaranty by such Guarantor nor any payment by such Guarantor under this Guaranty
shall give rise to any claim (as that term is defined in the Bankruptcy Code) in
favor of such Guarantor against the Borrower until the Guaranteed Obligations
have been paid in full; and
(d) Subordination of Contribution Rights. Such Guarantor reserves, as
------------------------------------
against each other Guarantor, its right of contribution under Section 2.10 but
agrees that all such contribution rights shall be included among the
Subordinated Liabilities.
6
<PAGE>
SECTION 2.8 Subordination Provisions.
------------------------
(a) Subordination. Any and all present and future debts, liabilities
-------------
and obligations of every type and description (whether for money borrowed, on
intercompany accounts, for provision of goods or services, under tax sharing or
contribution agreements or on account of any other transaction, agreement,
occurrence or event and whether absolute or contingent, direct or indirect,
matured or unmatured, liquidated or unliquidated, created directly or acquired
from another, or sole, joint, several or joint and several) of the Borrower or
any Guarantor now outstanding or hereafter incurred or owed to any Guarantor
(the "Subordinated Liabilities") shall be, and hereby are, subordinated to full
and final payment of the Guaranteed Obligations.
(b) Prohibited Payments. If any Event of Default or Potential Default
-------------------
occurs, then for so long as such Event of Default or Potential Default may be
continuing, no Guarantor will demand, sue for, accept or receive, or cause or
permit any other Person to make, any payment on or transfer of property on
account of any Subordinated Liabilities.
(c) No Liens or Transfers. Each Guarantor agrees that (i) it will not
---------------------
demand, accept or hold any Lien upon any real or personal property of the
Borrower or any Guarantor as security for any of the Subordinated Liabilities
and (ii) any such Lien shall be void.
(d) Insolvency Proceedings. In any Bankruptcy, Insolvency or
-----------------------
Liquidation Proceeding, Agent, for the ratable benefit of the Lenders, shall be
entitled to receive payment in full of all amounts due or to become due on or in
respect of the Guaranteed Obligations, or provision shall be made for such
payment in money or money's worth, before any Guarantor is entitled to receive
any payment or distribution of any kind or character, whether in cash, property
or securities, on account of any of the Subordinated Liabilities, and to that
end Agent, for the ratable benefit of the Lenders, shall be entitled to receive,
for application to the payment thereof, all payments and distributions of any
kind or character, whether in cash, property or securities (including any such
payment or distribution which may be payable or deliverable by reason of the
payment of any other debt or liability of the Borrower or any Subsidiary of the
Borrower being subordinated to the payment of the Subordinated Liabilities),
which may be payable or deliverable in respect of the Subordinated Liabilities
in any such Bankruptcy, Insolvency or Liquidation Proceeding.
(e) Disallowed Post-Commencement Interest and Expenses. If in any
--------------------------------------------------
Bankruptcy, Insolvency or Liquidation Proceeding (i) any payment or distribution
of any kind or character, whether in cash, property or securities (including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other debt or liability of the Borrower or any Subsidiary of
the Borrower being subordinated to the payment of the Subordinated Liabilities)
is payable or deliverable in respect of the Subordinated Liabilities, and (ii)
Agent or Lenders are not otherwise entitled to receive such
7
<PAGE>
payment or distribution pursuant to Section 2.8(d), and (iii) any amount remains
unpaid to the Lenders on account of any Disallowed Post-Commencement Interest
and Expenses, then the Agent, for the ratable benefit of the Lenders, shall be
entitled to receive payment of all such unpaid Disallowed Post-Commencement
Interest and Expenses from and out of any and all such payments and
distributions in respect of the Subordinated Liabilities.
(f) Held in Trust. If any payment, transfer or distribution is made
-------------
to any Guarantor upon any Subordinated Liabilities that is not permitted to be
made under this Section 2.8 or that any Lender or Agent is entitled to receive
under this Section 2.8, such Guarantor shall receive and hold the same in trust,
as trustee for the benefit of Agent and Lenders, and shall forthwith transfer
and deliver the same to the Agent, for the ratable benefit of Lenders, in
precisely the form received (except for any required endorsement), for
application to the payment of Guaranteed Obligations or any unpaid Disallowed
Post-Commencement Interest and Expenses.
(g) Claims in Bankruptcy. Each Guarantor will file all claims against
--------------------
the Borrower or any Subsidiary of the Borrower in any Bankruptcy, Insolvency or
Liquidation Proceeding in which the filing of claims is required or permitted by
law upon any of the Subordinated Liabilities and will assign to the Agent, for
the benefit of Lenders, all rights of such Guarantor thereunder. If any
Guarantor does not file any such claim at least 30 days prior to any applicable
claims bar date, the Agent is hereby authorized (but shall not be obligated), as
attorney-in-fact for such Guarantor with full power of substitution, either to
file such claim or proof thereof in the name of such Guarantor or, at the option
of the Agent, to assign the claim and cause the claim or proof thereof to be
filed by an agent or nominee. The Agent, and its agents and nominees shall have
the sole right, but no obligation, to accept or reject any plan proposed in such
Bankruptcy, Insolvency or Liquidation Proceeding and to cast any votes and to
take any other action with respect to all claims upon any of the Subordinated
Liabilities.
(h) Subordination Effective and not Impaired. This Section 2.8 shall
----------------------------------------
remain effective for so long as this Guaranty is continuing and thereafter for
so long as any Guaranteed Obligation is outstanding. Each Guarantor's
obligations under this Section 2.8: (i) shall be absolute and unconditional as
set forth in Section 2.3, irrevocable and continuing as set forth in Section
2.4, subject to reinstatement as set forth in Section 2.5 and not be affected or
impaired by any of the matters waived in Section 2.6; (ii) shall be subject to
the provisions of Article III; and (iii) shall otherwise be as equally enduring
and free from defenses as such Guarantor's liability under this Guaranty.
SECTION 2.9 Fraudulent Transfer Limitation. If, in any action to
------------------------------
enforce this Guaranty or any proceeding to allow or adjudicate a claim under
this Guaranty, a court of competent jurisdiction determines that enforcement of
this Guaranty against any Guarantor for the full amount of the Guaranteed
Obligations is not lawful under, or would be subject to avoidance under, Section
548 of the Bankruptcy Code or any applicable provision of
8
<PAGE>
comparable state law, the liability of such Guarantor under this Guaranty shall
be limited to the maximum amount lawful and not subject to avoidance under such
law.
SECTION 2.10 Contribution among Guarantors. The Guarantors desire
-----------------------------
to allocate among themselves, in a fair and equitable manner, their rights of
contribution from each other when any payment is made by one of the Guarantors
under this Guaranty. Accordingly, if any payment is made by a Guarantor under
this Guaranty (a "Funding Guarantor") that exceeds its Fair Share, the Funding
Guarantor shall be entitled to a contribution from each other Guarantor in the
amount of such other Guarantor's Fair Share Shortfall, so that all such
contributions shall cause each Guarantor's Aggregate Payments to equal its Fair
Share. For these purposes:
(a) "Fair Share" means, with respect to a Guarantor as of any date of
determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum
Amount of such Guarantor to (y) the aggregate Adjusted Maximum Amounts of all
Guarantors, multiplied by (ii) the aggregate amount paid on or before such date
by all Funding Guarantors under this Guaranty.
(b) "Fair Share Shortfall" means, with respect to a Guarantor as of
any date of determination, the excess, if any, of the Fair Share of such
Guarantor over the Aggregate Payments of such Guarantor.
(c) "Adjusted Maximum Amount" means, with respect to a Guarantor as
of any date of determination, the maximum aggregate amount of the liability of
such Guarantor under this Guaranty, limited to the extent required under Section
2.9 (except that, for purposes solely of this calculation, any assets or
liabilities arising by virtue of any rights to or obligations of contribution
under this Section 2.10 shall not be counted as assets or liabilities of such
Guarantor).
(d) "Aggregate Payments" means, with respect to a Guarantor as of any
date of determination, the aggregate net amount of all payments made on or
before such date by such Guarantor under this Guaranty (including, without
limitation, under this Section 2.10).
The amounts payable as contributions hereunder shall be determined by the
Funding Guarantor as of the date on which the related payment or distribution is
made by the Funding Guarantor, and such determination shall be binding on the
other Guarantors absent manifest error. The allocation and right of
contribution among the Guarantors set forth in this Section 2.10 shall not be
construed to limit in any way the liability of any Guarantor under this
Guaranty.
SECTION 2.11 Joint and Several Obligation. This Guaranty and all
----------------------------
liabilities of each Guarantor hereunder shall be the joint and several
obligation of each Guarantor and may be freely enforced against each Guarantor,
for the full amount of the Guaranteed
9
<PAGE>
Obligations (subject to Section 2.9), without regard to whether enforcement is
sought or available against any other Guarantor.
ARTICLE III
MISCELLANEOUS PROVISIONS
SECTION 3.1 Condition of the Borrower. Each Guarantor is fully aware
-------------------------
of the financial condition of the Borrower and its Subsidiaries and is executing
and delivering this Guaranty based solely upon such Guarantor's own independent
investigation of all matters pertinent hereto and is not relying in any manner
upon any representation or statement by any Lender or the Agent. Each Guarantor
represents and warrants that it is in a position to obtain, and each Guarantor
hereby assumes full responsibility for obtaining, any additional information
concerning the financial condition of the Borrower and each of its Subsidiaries
and any other matter pertinent hereto as such Guarantor may desire, and such
Guarantor is not relying upon or expecting Agent or any Lender to furnish to
such Guarantor any information now or hereafter in the possession of Agent or
any Lender concerning the same or any other matter. By executing this Guaranty,
each Guarantor knowingly accepts the full range of risks encompassed within a
contract of this type, which risks each Guarantor acknowledges. No Guarantor
shall have the right to require Agent or any Lender to obtain or disclose any
information with respect to the Guaranteed Obligations, the financial condition
or prospects of the Borrower or any Subsidiary of the Borrower, the ability of
the Borrower or any Subsidiary of the Borrower to pay or perform the Guaranteed
Obligations, the existence, perfection, priority or enforceability of any
collateral security for any or all of the Guaranteed Obligations, the existence
or enforceability of any other guaranties of all or any part of the Guaranteed
Obligations, any action or non-action on the part of any Lender, Agent, the
Borrower, any Subsidiary of the Borrower or any other Person, or any other
event, occurrence, condition or circumstance whatsoever.
SECTION 3.2 Amendments.
----------
(a) Amendment to Guaranty. No amendment or waiver of any provision of
---------------------
this Guaranty, no consent to any departure by any Guarantor herefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Majority Lenders under the Credit Agreement, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given, except that no amendment, waiver or consent shall, unless in
writing and signed by all Lenders under the Credit Agreement (i) reduce or
discharge the liability of any Guarantor hereunder, or (ii) postpone any date
fixed for payment hereunder.
(b) Amendment or Modification of Other Loan Documents. The other Loan
-------------------------------------------------
Documents may be amended, modified or supplemented in accordance with their
terms
10
<PAGE>
without notice to or consent or agreement by any Guarantor, including, without
limitation, so as to (i) alter, compromise, modify, accelerate, extend, renew,
refinance or change the time or manner for making of Loans, provision of other
financial accommodations, or the payment or performance of all or any portion of
the Guaranteed Obligations, (ii) increase or reduce the rate of interest or
amount of principal payable on the Guaranteed Obligations, (iii) release or
discharge the Borrower, any other Loan Party or any other Person as to all or
any portion of the Guaranteed Obligations, or (iv) release, substitute or add
any one or more guarantors or endorsers, accept additional or substituted
security for payment or performance of the Guaranteed Obligations, or release or
subordinate any security therefor.
SECTION 3.3 Notices. All notices and other communications provided
-------
for hereunder shall be in writing (including telecopier, telegraphic, telex or
cable communication) and mailed, telecopied, telegraphed, telexed, cabled or
delivered, if to any Guarantor, c/o P-Com, Inc., 3175 S. Winchester Blvd.,
Campbell, California 95008, Attention: Chief Financial Officer, and if to Agent,
at its address specified in the Credit Agreement, or, as to any party, at such
other address as shall be designated by such party in a written notice to each
other party. All such notices and other communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, be effective when deposited in the
mails, telecopied, delivered to the telegraph company, confirmed by telex
answerback or delivered to the cable company, respectively.
SECTION 3.4 Right of Set off. If any Loans become immediately due
----------------
and payable pursuant to Section 7.1 of the Credit Agreement, any Lender or
Agent, shall have the right at any time, and from time to time thereafter, to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other liability at any time owing by any Lender or Agent to or for the credit or
the account of any Guarantor against any and all liability of such Guarantor
under this Guaranty, whether or not such Lender or Agent shall have made any
demand under this Guaranty and even though such deposit or liability may then be
unmatured. The rights of Agent and Lenders under this Section 3.4 are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which Agent and Lenders may have.
SECTION 3.5 Successors and Assigns. This Guaranty is binding upon
----------------------
and enforceable against each Guarantor, its successors and assigns, and shall
inure to the benefit of, and be enforceable by, the Agent, Lenders and their
representatives, successors and assigns.
SECTION 3.6 No Inquiry. Agent and Lenders may rely, without further
----------
inquiry, on the power and authority of each Guarantor, the Borrower and each of
its Subsidiaries and on the authority of all officers, directors and agents
acting or purporting to act on their behalf.
11
<PAGE>
SECTION 3.7 Involuntary Proceedings. So long as any Lender is
-----------------------
obligated to extend credit under the Credit Agreement or any Guaranteed
Obligations are outstanding, no Guarantor will, without the prior written
consent of all Lenders under the Credit Agreement, commence or join with any
other Person in commencing any Bankruptcy, Insolvency or Liquidation Proceeding
against the Borrower or any of its Subsidiaries.
SECTION 3.8 Payments Free and Clear of Taxes.
---------------------------------------------
(a) Payment. Each Guarantor agrees to pay any and all present or
-------
future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto which arise from any payment made hereunder or
from the execution, delivery or registration of, or otherwise with respect to,
this Guaranty, excluding taxes imposed on the Agent's or Lenders' income and
franchise taxes (such nonexcluded items being, collectively, the "Guaranty
Taxes").
(b) Indemnity. Each Guarantor hereby indemnifies Agent and each
---------
Lender for the full amount of Guaranty Taxes (including, without limitation, any
Guaranty Taxes imposed by any jurisdiction on amounts payable under this Section
3.8) paid by Agent or any Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto (plus interest
on any amounts due hereunder from such Guarantor and not paid within thirty days
from the date written demand is made therefor at a rate equal to the rate
payable under the Credit Agreement on Base Rate Loans during the continuance of
a default in the repayment of Loans), whether or not such Guaranty Taxes were
correctly or legally asserted; provided, however, that if any such Agent or
Lender subsequently recoups all or any part of such amount from the relevant
taxation authority or other authority, then such Agent or Lender shall identify
and remit the amount of the recoupment to such Guarantor within five Business
Days after it receives the recoupment.
(c) Survival. Without prejudice to the survival of any other
--------
agreement of any Guarantor hereunder, the agreements and obligations of each
Guarantor contained in this Section 3.8 shall survive the full and final payment
and performance of the Guaranteed Obligations.
(d) Receipt. Within 30 days after the date of any payment of Guaranty
-------
Taxes by any Guarantor, such Guarantor shall furnish to the Agent a receipt for
any Guaranty Taxes paid by such Guarantor pursuant to this Section 3.8.
SECTION 3.9 No Waiver; Remedies. No failure on the part of Agent or
-------------------
any Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof, and no single or partial exercise of any right
hereunder shall preclude any other or further exercise of any other right or of
the same right as to any other matter or on a subsequent occasion.
12
<PAGE>
SECTION 3.10 Remedies Cumulative. All rights, powers and remedies of
-------------------
any Lender or Agent under this Guaranty, under any other agreement now or at any
time hereafter in effect between the Agent, Lenders and any Guarantor (whether
relating to the Guaranteed Obligations or otherwise) or now or hereafter
existing at law or in equity or by statute or otherwise, shall be cumulative and
concurrent and not alternative and each such right, power and remedy may be
exercised independently of, and in addition to, each other such right, power or
remedy.
SECTION 3.11 Severally Enforceable. This Guaranty may be enforced
---------------------
severally and successively in one or more actions, whether independent,
concurrent, joint, successive or otherwise.
SECTION 3.12 Counterparts. This Guaranty may be executed in
------------
counterparts, and each such counterpart for all purposes shall be deemed an
original and all such counterparts together shall constitute but one and the
same agreement.
SECTION 3.13 Severability. If any provision hereof or the
------------
application thereof in any particular circumstance is held to be unlawful or
unenforceable in any respect, all other provisions hereof and such provision in
all other applications shall nevertheless remain effective and enforceable to
the maximum extent lawful.
SECTION 3.14 Integration. This Guaranty and the other Loan Documents
-----------
to which any Guarantor is party are intended as an integrated and final
expression of the entire agreement of such Guarantor with respect to the subject
matter hereof and thereof. No representation, understanding, promise or
condition concerning the subject matter hereof and thereof shall be binding upon
any Lender or Agent unless expressed herein or therein, and no course of prior
dealing or usage of trade, and no parol or extrinsic evidence of any nature,
shall be admissible to supplement, modify or vary any of the terms hereof or
thereof. Acceptance of or acquiescence in a course of performance rendered
under this Guaranty or any other dealings between any Guarantor and any Lender
or Agent shall not be relevant to determine the meaning of this Guaranty even
though the accepting or acquiescing party had knowledge of the nature of the
performance and opportunity for objection.
13
<PAGE>
SECTION 3.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF
----------------------------------------------------
JURY TRIAL; WAIVER OF DAMAGES.
- -----------------------------
(a) GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
(b) SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH
--------------------------
RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COUNTY OF SAN FRANCISCO OR SANTA CLARA, STATE OF
CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH PARTY HERETO
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF
THOSE COURTS. EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
---------
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
- ----------
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT
RELATED HERETO. SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS MAY BE MADE
BY ANY MEANS PERMITTED BY CALIFORNIA LAW.
(c) WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ALL RIGHTS TO A
--------------------
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS GUARANTY, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE, AND AGREES
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, EACH PARTY FURTHER AGREES THAT ITS RIGHT
TO A TRIAL BY JURY IS HEREBY WAIVED AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND THE OTHER LOAN
DOCUMENTS.
SECTION 3.16 Acceptance and Notice. Each Guarantor acknowledges
---------------------
acceptance hereof and reliance hereon by the Agent and Lenders and waives,
irrevocably and forever, all notice thereof.
14
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
CONTROL RESOURCES CORPORATION
By: /s/ Bruce O'Pray
-------------------------------
Name: Bruce O'Pray
Title: CEO
P-COM NETWORK SERVICES, INC.
By: /s/ Caroline Baldwin Kahl
-------------------------------
Name: Caroline Baldwin Kahl
Title: Secretary
P-COM FINANCE CORPORATION
By: /s/ Warren T. Lazarow
-------------------------------
Name: Warren T. Lazarow
Title: Secretary
P-COM UNITED KINGDOM, INC.
By: /s/ Warren T. Lazarow
-------------------------------
Name: Warren T. Lazarow
Title: Secretary
TELEMATICS, INC.
By: /s/ William L. Welch Jr.
-------------------------------
Name: William L. Welch Jr.
Title: Secretary
15
<PAGE>
EXHIBIT 10.35
JOINT DEVELOPMENT AND LICENSE
AGREEMENT
BETWEEN
SIEMENS AKTIENGESELLSCHAFT
AND
P-COM, INC.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TABLE OF CONTENTS
Parties
Recitals Page
Article 1 Definitions 1
Article 2 Joint Products 4
2.1 Initial Joint Products 4
2.2 Additional Joint Products 4
Article 3 Joint Development 5
3.1 Management Steering Committee (MSC) 5
3.2 Operational Management 6
3.3 Supply and Use of Documentation, Updated
Documentation and Labeling 7
3.4 License to Enable Use of Joint Results and
Documentation 7
3.5 Joint Ownership, Use and Disposition of Joint
Results 8
3.6 Default, Failure, Inability to Perform, Breach and
License 9
3.7 Field Trials and Demonstrations 9
3.8 Title and Risk of Loss 10
3.9 Technical Assistance and Training 10
3.10 Compliance 10
3.11 Samples for Siemens Tests 10
Article 4 Trademarks Excluded 11
Article 5 Payments 11
Article 6 Representations and Warranties 11
6.1 P-Com Representations and Warranties 11
6.2 Siemens Representations and Warranties 12
6.3 Warranties 13
6.4 Design Liability Indemnification 14
6.5 Patent Indemnification 14
Article 7 Term and Termination 16
Article 8 Effect of Termination 17
Article 9 General Indemnification 17
Article 10 Limitation of Liability 17
Article 11 Governing Law 18
Article 12 Non-Assignable 18
Article 13 Notices 18
i
<PAGE>
Article 14 Independent Contractors 19
Article 15 Force Majeure and Delays 19
Article 16 No Waiver of Rights 20
Article 17 Serverability of Provisions 20
Article 18 Publicity 20
Article 19 Entire Agreement 20
Article 20 Arbitration 21
Article 21 EEC Notification/Registration 22
Article 22 Non-Disclosure of Confidential Information 22
Article 23 Export Controls 23
Article 24 Incorporation of APPENDICES 23
Article 25 Counterparts 23
ii
<PAGE>
THIS JOINT DEVELOPMENT AND LICENSE AGREEMENT ("JDL AGREEMENT") is made and
entered into as of this 30th day of June 1998 ("EFFECTIVE DATE") by and between
SIEMENS AKTIENGESELLSCHAFT, a corporation organized under the laws of Federal
Republic of Germany, represented through its public telecommunications network
division ON, having its principal place of business at Hofmannstrasse 51, 81359
Munich, Germany ("SIEMENS"), and P-COM, INC., a Delaware corporation, having its
principal place of business at 3175 Winchester Boulevard, Campbell, California
95008 USA. ("P-COM").
RECITALS
WHEREAS, P-Com develops, manufactures and supplies certain wireless access
products; and
WHEREAS, Siemens develops, manufactures and supplies telecommunications
systems and solutions, including ATM products; and
WHEREAS, due to the complementary core competencies of P-Com and Siemens,
the Parties desire to enter into a strategic business relationship consisting of
(1) this JDL Agreement for the joint development pursuant to this JDL Agreement
of Joint Products (defined below) designed to be integrated and configured into
PTM Transmission Systems (defined below) marketed by each of the Parties, and
(2) a separate OEM Agreement for the sale and supply of Siemens and P-Com
products by Siemens and P-Com to each other for resale and integration and
configuration into PTM Transmission Systems; and (3) a separate agreement for
the sale by P-Com to Siemens of P-Com's point-to-point radio products;
WHEREAS, for purposes of this JDL Agreement, a PTM Transmission System
consists of a P-Com Radio System (defined below), a Siemens Asynchronous
Transfer Mode (ATM) switch, network management and Joint Products together which
provides local transport of information between shared central locations and
multiple remote locations;
NOW THEREFORE, the Parties, for valuable consideration, receipt of which is
hereby acknowledged and in consideration of the premises, covenants and
agreements, contained herein, mutually agree as follows:
ARTICLE 1 - DEFINITIONS
Wherever used in this JDL Agreement, the following capitalized terms
(singular or plural) shall have the following meanings:
1.1 "JDL AGREEMENT" shall mean this JOINT DEVELOPMENT AND LICENSE AGREEMENT,
including any and all APPENDICES hereto, as amended from time to time by
mutual agreement of the Parties in accordance with the terms of this JDL
Agreement.
1
<PAGE>
1.2 "ADDITIONAL JOINT PRODUCTS" shall mean Joint Products added to APPENDIX 2.2
as attached hereto, and as amended by mutual agreement of the Parties after
the Effective Date.
1.3 "ENGINEERING DOCUMENTATION" shall mean all written and machine readable
information agreed to be provided by P-Com, relating to the design of Joint
Products and Improvements including that generally listed in APPENDIX 1.3
1.4 "FIRMWARE" shall mean the software programs, which are stored in machine
executable form within non-volatile memory and operate embedded processors
within Joint Products.
1.5 "FIRMWARE SOURCE CODE" shall mean the program statements in human readable
form and written in a high level or assembly language which is compiled or
assembled to create Firmware.
1.6 "GENERAL KNOW-HOW" shall mean technical or functional data and information,
unpatented inventions, technical specifications or data (including
requirement, functional or design specifications), designs, drawings,
processes, techniques, methods, computer programming techniques, programmer
notes and instructions, algorithms, Software, Software Source Code,
Firmware, Firmware Source Code, test plans and test results, including all
corrections, modifications, changes, whether tangible, intangible, oral,
written or otherwise, regardless of media. "General Know-How" does not
include "Joint Results".
1.7 "IMPROVEMENTS" shall mean modifications, enhancements, improvements,
revisions and new versions, including but not limited to those made
pursuant to engineering change orders which remedy defects, and those which
add features or abilities to Joint Products.
1.8 "INITIAL JOINT PRODUCTS" shall mean the Joint Products listed in APPENDIX
2.1.1.
1.9 "JOINT PRODUCTS" shall mean those products (including Initial Joint
Products and Additional Joint Products) which are jointly developed by the
Parties pursuant to this JDL Agreement for integration into and
installation of PTM Transmission Systems. APPENDIX 1.9 lists the Joint
Products, including the identifying capabilities of each Joint Product, and
the minimum differences in design, function and feature necessary for a
product developed by a Party with the same identifying capabilities to not
be considered a Joint Product.
1.10 "JOINT RESULTS" shall mean all information relating to the design,
manufacture, installation, integration, service, support, maintenance, and
use of the Joint Products which is created by a Party pursuant to this JDL
Agreement, including the Engineering Documentation, Manufacturing
Documentation, User Documentation, unpatented inventions, Patents or works,
techniques, methods, computer programming techniques,
2
<PAGE>
algorithms, and including all corrections, modifications, and changes,
whether tangible or intangible, written or oral.
1.11 "MANAGEMENT STEERING COMMITTEE" ("MSC") shall mean the group of
individuals designated by the Parties to serve as described in Article 3 of
this JDL Agreement.
1.12 "MANUFACTURING DOCUMENTATION" shall mean all written or machine readable
information necessary for the manufacture of a Joint Product agreed to be
provided by P-Com including that described in APPENDIX 1.12.
1.13 "PARTIES" shall mean both P-Com and Siemens collectively, and "PARTY"
shall mean either P-Com or Siemens.
1.14 "PATENTS" shall mean patents and patent applications, including all
divisions, continuations, continuations-in-part, reissues and
reexaminations of the foregoing, and any corresponding patent applications
and patents, worldwide, including any renewals and extensions thereof;
copyright and maskwork rights and registrations; all other statutory rights
and protections worldwide, in any and all jurisdictions, including all
renewals and extensions thereof. "Patents" does not include any rights in
trademarks or trade names, and does not include any trademark registrations
or applications for registration of trademarks, in any jurisdiction,
worldwide.
1.15 "PTM RADIO SYSTEM" shall mean the point to multi-point radio system
described in APPENDIX 1.16.
1.16 "PTM TRANSMISSION SYSTEM" shall mean the point to multi-point wireless
transmission system identified in APPENDIX 1.16 to this JDL Agreement,
consisting of interconnected hardware, software, and the Joint Products,
which transports information between a shared central location and multiple
remote locations.
1.17 "SOFTWARE" shall mean software programs which operate on commercially
available computing equipment in machine executable form.
1.18 "SOFTWARE SOURCE CODE" shall mean the program statements in human readable
form and written in a high level or assembly language which is compiled or
assembled to create Software.
1.19 "SUBSIDIARIES" shall mean any entity (incorporated or unincorporated)
which is directly or indirectly controlling, controlled by, or under direct
or indirect common control with either Party hereto; "control" for purposes
of this JDL Agreement means ownership of 50% or more of the securities or
the ownership interest in such entity, having the right to vote for the
election of directors or otherwise having the power to direct the
management and policies of such entity (such as by contract) as long as
such control exists.
3
<PAGE>
1.20 "TECHNICAL SPECIFICATIONS" shall mean a document which the Parties agree
describes a Joint Product or Improvements, including but not limited to
functionality and performance criteria.
1.21 "TERM" shall be as defined in Section 7.1
1.22 "USER DOCUMENTATION" shall mean information necessary to sell, install,
configure, and maintain the Joint Products, including installation,
operation, and maintenance manuals; and, if available, engineering and
planning guides, user guides, quick reference guides, technical bulletins,
system descriptions, and marketing brochures.
1.22 Wherever used in this JDL Agreement, "includes" or "including" are words
of inclusion not exclusion and shall be interpreted and construed as though
followed by the words "but not limited to".
ARTICLE 2 - JOINT PRODUCTS
2.1 INITIAL JOINT PRODUCTS
2.1.1 Siemens and P-Com agree to jointly develop the Initial Joint
Products listed in APPENDIX 2.1.l
2.1.2 APPENDIX 2.1.2 sets forth the milestones for the development work,
which shall be met by each Party in performing its Initial
Development responsibilities and obligations. The milestones may not
be modified except pursuant to prior written agreement of the MSC.
2.1.3 APPENDIX 2.1.3 sets forth the mutually agreed upon Technical
Specifications for the Initial Joint Products. The Technical
Specifications for the Initial Joint Products may be modified only
pursuant to the prior written agreement of the Parties.
2.2 ADDITIONAL JOINT PRODUCTS
2.2.1 From time to time during the Term of this JDL Agreement, the Parties
shall discuss the joint development of other components or products
for use in PTM Transmission Systems or other wireless transmission
systems. Such joint development may include development of
Improvements or development of Additional Joint Products.
2.2.2 If the Parties agree to jointly develop an Additional Joint Product
or Improvement, the Parties shall negotiate and agree on: the
Technical Specifications for the Improvements or Additional Joint
Products; the responsibilities and obligations of each Party for the
development work to be performed; the milestones to be met; and the
manner in which the development
4
<PAGE>
work will be funded by the Parties. Upon such agreement, APPENDIX
2.2 shall be added to include such Improvements or Additional Joint
Products and associated Technical Specifications, obligations of the
Parties, milestones to be met, and method of funding. In addition,
APPENDIX 1.9 shall be revised to include descriptions of how each
Additional Joint Product shall cease to be considered a Joint
Product for the purposes of Section 3.5.4 and 3.5.5 .
ARTICLE 3 - JOINT DEVELOPMENT
3.1 MANAGEMENT STEERING COMMITTEE (MSC)
3.1.1 The Parties hereby establish a Management Steering Committee whose
responsibilities for Initial Joint Products shall consist of: (i)
monitoring and reviewing the Technical Specifications and any and
all changes to the Technical Specifications, (ii) monitoring and
reviewing the progress of the development in accordance with the
milestones, and all changes to development schedules, and (iii)
periodic reviews of all work performed and results to date. All
changes to the Technical Specifications, any changes to the
development schedules, and any other modifications or changes, which
are amendments or modifications to any agreement between the Parties
including this JDL Agreement or any APPENDICES hereto or thereto,
shall require the prior written consent and agreement of the Parties
hereto or thereto. Neither Party shall be obligated or required to
grant power or authority to its designee(s) on the Management
Steering Committee to bind it to any agreement or understanding or
any amendments to any agreement including this JDL Agreement or any
APPENDICES hereto. The Parties shall indicate their votes or written
consent on any matters in three (3) business days.
3.1.2 The Management Steering Committee's responsibilities for development
of Improvements and Additional Joint Products shall include: (i)
reviewing and monitoring of Technical Specifications and any changes
thereto, (ii) reviewing and monitoring the progress of the
development in accordance with the Milestones and all changes to the
development schedules and (iv) periodic reviews of all work
performed and results to date. All changes to the Technical
Specifications, any changes to the development schedules, and any
other modifications or changes, which are amendments or
modifications to any Agreement between the Parties, including this
JDL Agreement, or any APPENDICES hereto or thereto, shall require
the prior written consent and agreement of the Parties hereto or
thereto. Neither Party shall be obligated or required to grant power
or authority to its designee(s) on the Management Steering Committee
to bind it to any agreement or understanding, or any amendments to
any agreement including this JDL Agreement or any APPENDICES hereto.
The Parties shall indicate their votes or written consents on any
matters in three (3) business days.
5
<PAGE>
3.1.3 The MSC shall consist of two (2) designees designated by Siemens and
two (2) designated by P-Com. The initial members of the MSC are:
P-Com: Pier Antoniucci and Ed Gerhardt
Siemens: Mike Beaule and Ulrich Wieland
Each Party may replace its designee and designate other persons to
serve on the MSC upon written notice to the other Party.
3.1.4 The MSC may only meet and conduct business if at least one (1)
Siemens designee and one (1) P-Com designee are present. Meetings of
the MSC shall take place by telephone or in person at mutually
agreed upon locations and times, but in no case later than three (3)
business days after the requisite written notice of and request for
a meeting is provided by one Party to the other Party.
3.2 OPERATIONAL MANAGEMENT
3.2.1 Day to day responsibility for the development activities associated
with the Initial Joint Products and Additional Joint Products shall
reside in P-Com with such responsibilities to include operational
supervision, oversight, and management of the (i) project
organization, (ii) development process and progress, (iii) selection
of technical staff (including outside contractors, if any) and
supervision and monitoring of results, (iii) qualification and
selection of hardware and software components, (iv) implementation
of day to day design/feature tradeoffs, (v) conduct of development
meetings and reviews, (vi) expenditure of budgeted funds, and (vii)
performance of conformance testing.
3.2.2 Conformance Testing. P-Com will provide conformance tests procedures
which shall be used to verify that each Joint Product is in
conformance with the applicable Technical Specifications as part of
the material required for the design review milestone referenced in
APPENDIX 2.1.1 or 2.2 as the case may be. Siemens may propose and
insist upon additions or modifications to such conformance test
procedures inclusion of which will not be unreasonably refused by P-
Com. P-Com will provide timely notice of scheduled conformance
testing of Improvements and Joint Products with associated test
procedures provided to Siemens in advance and Siemens may provide
designees or representatives to participate in such conformance
testing Disputes regarding such conformance test procedures or test
results shall be referred to the MSC. Such participation by Siemens
shall not relieve P-Com of its responsibilities for the development
described herein.
3.2.3 Siemens or its Subsidiary shall have the right, from time to time at
Siemens' option, to assign up to five individuals to assist in the
development of the Initial Joint Products or Additional Joint
Products and further that such individuals shall
6
<PAGE>
(i) have responsibilities which are mutually agreed to by the
Parties, (ii) have their day to day work supervised by P-Com
management in a manner equivalent to P-Com employees or sub-
contractors that perform similar work, (iii) have minimum
educational qualifications of a bachelors degree in electrical
engineering or computer science, (iv) have a minimum of five years
work experience in electronic design, (v) be available for the time
necessary to complete assigned tasks, and (vi) speak the English
language fluently, and further, P-Com may terminate the
participation of any such individuals in such Joint Product
development if, in P-Com's reasonable opinion, such individuals are
not providing the quality, quantity, or timeliness of work agreed
upon by the Parties per (i) above; and in this event Siemens shall
have the option of replacing any such terminated individuals.
Siemens shall indemnify P-Com against any injury, damage or expense
(including reasonable attorney's fees and costs) resulting from any
act or omission by any such Siemens' employee in the performance of
his/her activities pursuant to this Section 3.2.3 absent any
negligence, omission, or willful misconduct or any participation
therein on the part of P-Com or its employees or agents.
3.3 SUPPLY AND USE OF DOCUMENTATION, UPDATED DOCUMENTATION, AND LABELING
3.3.1 P-Com shall prepare and supply Siemens with one (1) timely,
complete, and up-to-date set of the Engineering Documentation,
Manufacturing Documentation and User Documentation for each of the
Joint Products, Improvements, or Additional Joint Products within
thirty (30) days of the production availability milestone as set
forth in APPENDIX 2.1.2. Subsequent to delivery to Siemens of such
Documentation, P-Com shall prepare and supply Siemens with one
timely, complete and up to date set of any and all additions,
corrections, modifications, and changes made by P-Com to such
Documentation for any reason including additions, corrections,
modifications or changes to the Joint Product.
3.3.2 Both Parties may use, modify, copyright, and reproduce such
Engineering Documentation, Manufacturing Documentation and User
Documentation of Joint Products in any manner subject to the terms
and conditions of this JDL Agreement. Such Documentation and the
information contained therein shall not be used in breach of the
terms set forth in this JDL Agreement.
3.4 LICENSE TO ENABLE USE OF JOINT RESULTS AND DOCUMENTATION
Subject to Sections 3.5.4 and 3.5.5 hereof, each Party (Licensor) grants to
the other Party (Licensee) a non-exclusive, non-assignable and non-
transferable license under its Patents and its General Know-How to use such
Patents or General Know-How of Licensor incorporated into and contained in
the Joint Products and Joint Results, to develop, have developed,
manufacture, have manufactured, use, market, distribute and sell Joint
Products (including any modifications, enhancements, derivatives, new
versions or future generations thereof). The rights, licenses and
obligations granted hereunder by P-Com to
7
<PAGE>
Siemens shall extend to Siemens' Subsidiaries who are engaged in the
development, manufacture, marketing, service and support of the Joint
Products.
3.5 JOINT OWNERSHIP, USE AND DISPOSITION OF JOINT RESULTS
3.5.1 The Joint Results shall be jointly owned by Siemens and P-Com [*].
3.5.2 Each joint owner agrees to cooperate with the other owner in the
enforcement of any jointly owned Patent rights against any third
party infringes by joining in such action or providing such rights
and authorizations as may be required by law to enable the other
owner to bring an action and recover for infringement against a
third party; where one party (and its Subsidiaries) to such action
or proceedings elects not to share or for any reason does not share
in any recoveries or settlements resulting therefrom, its costs and
expenses (including reasonable attorneys fees) shall be paid for by
the other party to such action or proceeding who is entitled to all
recoveries or settlements resulting therefrom.
3.5.3 Each Party agrees to share equally in all costs of applying for,
obtaining, maintaining and renewing Patents relating to inventions
or works resulting from development activities conducted under
Article 2 of this JDL Agreement, and agrees to cooperate with the
other Party by providing such information as it may have regarding
such inventions or works. Refusal or failure of either Party to pay
its share of such costs and expenses, shall not constitute a
material breach of this JDL Agreement entitling the non-breaching
Party to terminate this JDL Agreement; however, the non-breaching
Party shall have the right to pursue such other rights and remedies
as it may have against the breaching Party, at law, by contract, or
otherwise.
3.5.4 P-Com grants to Siemens a license under P-Com General Know-How other
than that licensed under Section 3.4 to interface Joint Products
solely with P-Com PTM Radio Systems and further, P-Com grants to
Siemens a non-exclusive license to sell Joint Products directly to
an End Purchaser and [*].
Provided, however, if P-Com is in material breach or default of this
JDL Agreement or the OEM Agreement, or P-Com fails to provide
Siemens with P-Com OEM Product, or makes an arrangement with
creditors or a filing in bankruptcy or is insolvent, then this
condition [*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
8
<PAGE>
[*].
3.5.5 [*].
3.6 DEFAULT, FAILURE, INABILITY TO PERFORM, BREACH, AND LICENSE
In the event that (i) P-Com fails, is unable or unwilling to complete the
development of any Initial Joint Products as provided in this JDL
Agreement, (ii) Siemens terminates as provided in Section 7.2 of this JDL
Agreement, and (iii) Siemens does not exercise its rights under Section 8.1
of this JDL Agreement, Siemens shall have the right to elect to complete or
have completed such development, and to manufacture, have manufactured,
use, market, distribute and sell the Joint Products in PTM Transmission
Systems. Upon Siemens election to exercise such right, P-Com agrees to
promptly deliver to Siemens any and all Engineering Documentation and Joint
Results in written or machine readable form, regardless of media, including
but not limited to design documentation prepared in accordance with P-Com's
ISO 9000 certified procedures, which is available at P-Com at the time of
such exercise by Siemens. P-Com hereby grants to Siemens a non-exclusive
license under its Patents and in its General Know-How to complete such
development, and to develop, manufacture, have manufactured, use, market,
distribute and sell the Joint Products in PTM Transmission Systems,
including any modifications, enhancements, derivatives, new versions, or
future generations of such Joint Products. The rights, licenses and
obligations granted hereunder to Siemens shall extend to Siemens'
Subsidiaries. Furthermore, P-Com agrees that P-Com will provide at no
charge to Siemens reasonable access to P-Com's design staff to support
Siemens in completing such Joint Product design.
3.7 FIELD TRIALS AND DEMONSTRATIONS
In the event of field trials or demonstrations in which Joint Products are
installed and used, each Party shall make its own arrangements for the
manufacture and supply of Joint
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
9
<PAGE>
Products for use for such purposes. P-Com agrees, upon request of Siemens,
particularly where Siemens has not yet received the Engineering
Documentation, Manufacturing Documentation and User Documentation or
commenced commercial manufacture of the Joint Products, to manufacture and
supply Joint Products to Siemens for Siemens' conducted field trials or
demonstrations; the Parties shall discuss and agree upon reasonable price
and terms for such quantities as Siemens may require for such Siemens field
trials or demonstrations.
3.8 TITLE AND RISK OF LOSS
Title to prototypes, samples, any other deliverables deliverable by P-Com
to Siemens, shall pass to Siemens from P-Com upon their coming into being.
Title to tangible and intangible Joint Results under this JDL Agreement
shall vest in P-Com and Siemens as joint owners upon such tangible and
intangible Joint Results first coming into being. Risk of loss or damage
to tangibles such as prototypes, samples, any Documentation (Engineering,
Manufacturing, or User) deliverable by P-Com to Siemens, shall pass upon
delivery in hand, personally, by P-Com (or Siemens' designated carrier) to
a Siemens' representative.
3.9 TECHNICAL ASSISTANCE AND TRAINING
In the course of the development process, P-Com agrees to provide technical
assistance and training to facilitate technology transfer from P-Com to
Siemens with respect to the Joint Results and Joint Products. P-Com
provided technical assistance and training will include adequate training
materials with respect to the Joint Products including their use, service,
support and maintenance. Technical assistance and training shall also be
conducted in parallel with the development process as reasonably necessary
to enable Siemens to prepare for introduction, marketing, sale, service,
support and maintenance of the Joint Products and PTM Transmission Systems.
The details of such training, e.g. date, duration, location, cost to
Siemens, number of trainees, etc. will be agreed upon on a case by case
basis by P-Com and Siemens.
3.10 COMPLIANCE
3.10.1 P-Com represents and warrants that the Joint Products when
completed will qualify for the approvals listed in APPENDIX 3.10.1,
and that no modifications are necessary for the Joint Products to
qualify for such approvals. In the event of any breach of this
representation and warranty, P-Com shall, upon request of Siemens,
promptly perform all modifications and changes necessary to correct
the same, at its cost and expense.
3.10.2 P-Com shall promptly provide Siemens with all information necessary
for Siemens to obtain any approvals which Joint Products are
qualified for in APPENDIX 3.10.1.
10
<PAGE>
3.11 SAMPLES FOR SIEMENS TESTS
Upon request of Siemens, P-Com shall at its own expense deliver to Siemens
free of charge one (1) sample of each Joint Product for testing purposes.
If Siemens requests additional samples, P-Com agrees to provide such
samples at a price which will be [*] of the P-Com's list price. Each sample
shall be accompanied by appropriate information, instructions, and User
Documentation, and shall not be resold by Siemens.
ARTICLE 4 - TRADEMARKS EXCLUDED
No rights or licenses whatsoever are granted or required to be granted by
either Party or its Subsidiaries to the other Party or its Subsidiaries
with respect to any trademarks or tradenames pursuant to this JDL
Agreement.
ARTICLE 5 - PAYMENTS
5.1 In consideration of the rights and licenses granted by P-Com to Siemens
pursuant to this JDL Agreement, Siemens agrees to pay to P-Com the sum of
[*] which shall be due and payable in [*] installments as follows: (i) P-
Com shall invoice Siemens for [*] upon execution of this JDL Agreement by
both Parties and such invoice shall be due and payable on or before [*];
and (ii) P-Com shall invoice Siemens for [*] on or after [*]. Such invoice
shall be due and payable within seventy-five (75) days after date of such
invoice
5.2 All monies due and payable at any time pursuant to this JDL Agreement shall
be effected in U.S. Dollars.
5.3 All payments more than thirty (30) days past due shall accrue interest
thereon commencing on the 31st day, at the rate of [*] on the past due
balance, up to the maximum rate permitted under applicable law, until paid
in full.
5.4 The effectiveness of this JDL Agreement will not be affected by the
introduction of the EURO.
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES
6.1 P-COM REPRESENTATIONS AND WARRANTIES.
P-Com represents and warrants to Siemens as follows:
6.1.1 P-Com is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has full power
and authority to enter into, execute, and deliver this JDL
Agreement, and to perform its obligations
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE>
under this JDL Agreement and to consummate the transactions
contemplated herein.
6.1.2 The execution and delivery by P-Com of this JDL Agreement and the
performance of its obligations hereunder and the consummation of the
transactions contemplated by this JDL Agreement have been duly
authorized and no other corporate action is required by P-Com.
6.1.3 This JDL Agreement constitutes the valid and legally binding
obligation of P-Com, enforceable in accordance with its terms
against P-Com.
6.1.4 There are no bankruptcy, insolvency, or other similar proceedings,
or arrangements with creditors, anticipated, contemplated or pending
by P-Com.
6.1.5 As of the Effective Date there are no outstanding rights, options,
agreements or other commitments giving any person any current or
future right to require P-Com or its Subsidiaries to license, sell,
or deliver to such person or third parties any right or license to
use or any ownership interests in the Joint Products or P-Com
General Know-How which are inconsistent with the terms and
conditions of this JDL Agreement.
6.1.6 The execution, delivery and performance of this JDL Agreement will
not violate the articles of incorporation, bylaws, or any agreement
of P-Com.
6.1.7 To the best knowledge of P-Com, no consent, approval, or
authorization of, or declaration, filing, or registration with, any
governmental body or any other person is required to be made or
sought in connection with the execution, delivery and performance of
this JDL Agreement by P-Com.
6.1.8 To the best knowledge of P-Com, there is no litigation, arbitration,
or other proceeding or governmental body investigation or proceeding
pending, which relates to the subject matter of this JDL Agreement
or any General Know-How, Joint Results or Patents of P-Com, and
there is no basis for such litigation, arbitration or other
proceedings or investigation, nor is there any basis for claims
alleging or claiming violations of applicable law.
6.1.9 There are no facts of which P-Com or its Subsidiaries are aware that
would materially adversely affect the value of the rights and
licenses granted to Siemens and set forth in this JDL Agreement.
6.2 SIEMENS REPRESENTATIONS AND WARRANTIES.
Siemens represents and warrants to P-Com as follows:
12
<PAGE>
6.2.1 Siemens is a corporation duly organized, validly existing and in
good standing under the laws of the Federal Republic of Germany, and
has full power and authority to enter into, execute, and deliver this
JDL Agreement, and to perform its obligations under this JDL Agreement
and to consummate the transactions contemplated herein.
6.2.2 The execution and delivery by Siemens of this JDL Agreement and the
performance of its obligations hereunder and the consummation of the
transactions contemplated by this JDL Agreement have been duly
authorized and no other corporate action is required by Siemens.
6.2.3 This JDL Agreement constitutes the valid and legally binding
obligation of Siemens, enforceable in accordance with its terms
against Siemens.
6.2.4 There are no bankruptcy, insolvency, or other similar proceedings,
or arrangements with creditors, anticipated, contemplated or pending
by Siemens.
6.2.5 As of the Effective Date, there are no outstanding rights, options,
agreements or other commitments giving any person any current or
future right to require Siemens or its Subsidiaries to license, sell,
or deliver to such person or third parties any right or license to use
or any ownership interests in the Joint Products which are
inconsistent with the terms and conditions of this JDL Agreement.
6.2.6 The execution, delivery and performance of this JDL Agreement will
not violate the articles of incorporation, bylaws, or any agreement of
Siemens.
6.2.7 To the best knowledge of Siemens, no consent, approval, or
authorization of, or declaration, filing, or registration with, any
governmental body or any other person is required to be made or sought
in connection with the execution, delivery and performance of this JDL
Agreement by Siemens.
6.2.8 To the best knowledge of Siemens, there is no litigation,
arbitration, or other proceeding or governmental body investigation or
proceeding pending, which relates to Siemens and the subject matter of
this JDL Agreement or Siemens interest in any Joint Results and there
is no basis for such litigation, arbitration or other proceedings or
investigation, nor is there any basis for claims alleging or claiming
violations of applicable law.
6.2.9 There are no facts of which Siemens or its Subsidiaries are aware
that would materially adversely affect the value of the rights and
licenses granted to P-Com and set forth in this JDL Agreement.
13
<PAGE>
6.3 WARRANTIES
P-Com warrants to Siemens that each and every Joint Product and Improvement
designed and developed by P-Com pursuant to this JDL Agreement, and the
Documentation (Engineering, Manufacturing and User) provided to Siemens by
P-Com, is free from design and engineering defects, errors and omissions
and conforms to the Technical Specifications. The Joint Results are and
shall be free of any security interest, lien or any other encumbrance
whatsoever. All Joint Results agreed to be provided or provided by P-Com
to Siemens shall at date of delivery be up to date and complete,
technically correct and ready for use for the purposes set forth in this
JDL Agreement. P-Com further warrants that all Joint Products shall be Year
2000 compliant i.e. able to recognize, compute, process, compare and
correlate, date sensitive data, between dates in the 20th century and dates
in the 2lst and centuries following thereafter, including leap year data,
and there will be no Firmware or Software failure or error related to
processing and correlating date sensitive data between and transitioning
from the 20th century to the 21st century. In the event any defect, error,
omission, or deficiency is discovered, P-Com will correct the Joint Results
promptly at P-Com's cost and expense.
6.4 DESIGN LIABILITY INDEMNIFICATION
[*]. P-Com shall have no liability hereunder with respect to any
modifications made to Joint Products or modifications made to Documentation
(Engineering, Manufacturing, or User) by Siemens or other parties, to which
P-Com was not a party.
6.5 PATENT INDEMNIFICATION
P-Com agrees to defend against any claims asserted by a third party or any
action brought by a third party against P-Com, Siemens, and/or any
Subsidiaries of Siemens asserting that manufacture, sale, use or
distribution of any Joint Product or component thereof or any Documentation
(Manufacturing, Engineering, or User) as delivered by P-Com pursuant to
this JDL Agreement, infringes a U.S. or foreign patent of such third party
or violates the proprietary rights of such third party; and:
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
[*]
(ii) where (i) if this Section 6.5 does not apply, P-Com and Siemens shall
share voice, power and control in the handling of the defense against any
such third party claim that the manufacture, sale, use or distribution of
any Joint Product or component thereof or Documentation (Manufacturing,
Engineering, or User as delivered by P-Com, infringes a U.S. or foreign
patent or the proprietary rights of such third party) and as between
themselves shall be responsible for payment of all costs of defense, and
costs and damages awarded in a non-appealable court decision or final
alternative dispute resolution (e.g., arbitration) award in a claim against
Siemens, P-Com and Siemens, Siemens and any Siemens Subsidiary, and/or P-
Com and any Subsidiaries of Siemens, or any settlement agreed to by P-Com
and Siemens or P-Com and such Siemens Subsidiary, in the following manner
and shared as follows:
Where
A = total number of infringing units sold by P-COM to date of all
Joint Product that is alleged to infringe in such third party claim
and proceedings
B = total number of infringing units sold by Siemens (and/or Siemens
Subsidiary) to date of all Joint Product that is alleged to infringe
in such third party claim and proceedings
Then
P-Com's share shall be the amount resulting from the following calculation:
[*]
And
Siemens (and its Subsidiary's combined) share shall be the amount resulting
from the following calculation:
[*]
Each Party agrees to give the other timely notice of any claims of
infringement and to provide such information as it may have regarding such
claim. P-Com agrees to cooperate with Siemens and provide such information
and assistance as may be reasonably necessary to defend against such claim.
Neither Party shall have any liability or obligation pursuant to this
Section 6.5 to the other Party with respect to any third party infringement
claims, and costs incurred in the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE>
defense thereof, and/or costs, expenses, or damages awarded or any
settlement, where such third party infringement claim arises solely out of
a modification, adaption, alteration or change in a Joint Product by or for
either Party or its Subsidiary or any other person beyond and outside the
scope of the joint development efforts of the Parties under this JDL
Agreement (or beyond or outside any warranty or support and maintenance
obligations or agreements with respect to the Joint Product if manufactured
by it for the other Party).
ARTICLE 7 - TERM AND TERMINATION
7.1 The term of this JDL Agreement shall commence on the Effective Date and
shall, subject to earlier termination as provided herein, continue in
effect thereafter for a period of [*] calendar years (the "Term").
7.2 This JDL Agreement may be terminated as follows:
7.2.1 In the event of a material breach by a Party (or its Subsidiary) of
any of its obligations under this JDL Agreement, the other (non-
breaching) Party shall have the right to terminate this JDL
Agreement by giving written notice to the breaching Party specifying
such breach; and if the breach is remediable, the breaching Party
shall have ninety (90) days from date of receipt of such notice to
remedy such breach. If such breach is not remedied within such
ninety (90) days, this JDL Agreement shall automatically terminate
at the end of such ninety (90) day period. If such breach is
remedied within such ninety (90) days, such notice shall expire and
have no further force or effect and this JDL Agreement shall
continue in full force and effect and continue to bind the Parties.
It being understood and agreed, however, without limiting Article
10, that neither Party shall be liable to the other Party for any
indirect, punitive, special or consequential damages including lost
profits howsoever arising out of any such breach even if it has been
advised of the possibility thereof.
7.2.2 A Party shall have the right to terminate this JDL Agreement in the
event the other Party is unable to meet its debts and obligations to
creditors when due and enters into an arrangement with its creditors
with respect to the payment of its debts and obligations which
arrangement is not terminated within thirty (30) days, makes a
general assignment for the benefit of creditors, voluntarily files a
petition in bankruptcy or has such a petition involuntarily filed
against it (which petition is not discharged within thirty (30) days
after filing), or is placed in an insolvency proceeding, or if an
order is issued appointing a receiver, liquidator, trustee, or
assignee in bankruptcy or in insolvency covering all or
substantially all of such Party's property relating to this JDL
Agreement, seeks reorganization under any bankruptcy act, consents
to a petition seeking such reorganization, has a decree or a levy or
attachment made against a substantial portion of its assets which
order
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
16
<PAGE>
shall not be vacated, or set aside within thirty (30) days from
date of issuance, or if any assignment for the benefit of its
creditors is made.
7.2.3 If Siemens is then in good standing under this JDL Agreement,
Siemens and/or its Subsidiaries shall have the right to make such
elections as may be provided for under Section 365(n) of the USA
Bankruptcy Code and enjoy its licenses held pursuant to this JDL
Agreement.
7.2.4 In the event a Party materially breaches its obligations under the
OEM Agreement entered into this same date between Siemens and P-Com,
in that it fails to perform its obligations under Article 12 of said
OEM Agreement, the non-breaching Party shall have the right to
suspend performance of its obligations under this JDL Agreement.
ARTICLE 8 - EFFECT OF TERMINATION
8.1 In the event of a material breach of this JDL Agreement by P-Com or the
occurrence of the conditions in Section 7.2.2 prior to completion of
development and commercial availability of the Initial Joint Products or
the sale of P-Com's PTM business unit, all monies paid pursuant to this JDL
Agreement by Siemens to P-Com including the sums paid pursuant to Article 5
herein shall become immediately and unconditionally due and repayable by P-
Com to Siemens, together with interest on unpaid balance at the rate of
[*] per annum until repaid in full; and Siemens may elect to terminate this
JDL Agreement and upon such election by Siemens, all licenses granted to or
held by Siemens (and its Subsidiaries) under this JDL Agreement shall
terminate. Whether or not Siemens exercises its right to terminate the JDL
Agreement, Siemens has the right to use its [*] or rights or any other
right as defined in either the JDL Agreement or OEM Agreement to recover
any unpaid balance of the monies paid to P-Com plus interest for said
License Agreement.
8.2 The following Sections shall survive any termination of this JDL Agreement:
3.4, 3.5.1, 3.5.2, 3.5.3, 3.5.4, 3.5.5, 3.6, 3.8, 3.10.1, 6.3, 6.4, 6.5,
8.1, 8.2, Articles 9, 10, 11, 12 10, 13, 15, 20, 22, 23.
ARTICLE 9 - GENERAL INDEMNIFICATION
Subject to the limitations provided in Article 10 (Limitation of
Liability), each Party agrees to indemnify and hold harmless the other
Party, and its owners, officers, directors, agents, representatives,
designees, Subsidiaries, affiliates and employees, from and against any and
all claims, losses, penalties, forfeitures, damages, judgments, causes of
action, suits, liabilities, costs and expenses, including, but not limited
to, court costs, costs of settlement, litigation costs and reasonable
attorneys' fees arising out of or related to (i) the intentional breach by
such Party of any of the terms and conditions of this JDL Agreement , and
(ii) any gross negligence, willful, act or omission to act by the
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
17
<PAGE>
indemnifying Party in the performance of its obligations under this JDL
Agreement. Such liabilities shall include, but not be limited to, those
which are attributable to injury to persons, sickness, disease or death;
and/or from injury to or destruction of real or tangible personal property
including loss of use thereof, theft, misuse or misappropriation.
ARTICLE 10 - LIMITATION OF LIABILITY
NEITHER PARTY NOR ITS SUBSIDIARIES NOR THEIR RESPECTIVE EMPLOYEES, AGENTS,
OFFICERS OR DIRECTORS SHALL BE LIABLE TO THE OTHER IN ANY WAY WHATSOEVER,
WHETHER AS A RESULT OF A CLAIM OR ACTION IN CONTRACT OR IN TORT OR
OTHERWISE FOR ANY INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING LOST PROFITS, LOST BUSINESS REVENUES, LOST BUSINESS, FAILURE TO
REALIZE EXPECTED SAVINGS OR OTHER COMMERCIAL OR ECONOMIC LOSS OF ANY KIND
WHATSOEVER, WHETHER OR NOT SUCH DAMAGES ARE FORESEEABLE, AND WHETHER OR NOT
THE PARTY, ITS EMPLOYEES, AGENTS, OFFICERS OR DIRECTORS HAVE BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGES. PROVIDED, HOWEVER, EACH PARTY MAY BE
LIABLE TO THE OTHER OR THE SUBSIDIARIES OF THE OTHER FOR SUCH PURSUANT TO
AN OBLIGATION TO INDEMNIFY AND HOLD HARMLESS AGAINST SUCH DAMAGES AWARDED
TO A THIRD PARTY BY A COURT.
ARTICLE 11 - GOVERNING LAW
This JDL Agreement shall be governed in all respects by the substantive
laws of the State of New York, USA, without regard to its conflicts of law
provisions. The Parties agree that the United Nations Convention on
Contracts for the International Sale of Goods (1980) shall not be
applicable to this JDL Agreement.
ARTICLE 12 - NON-ASSIGNABLE
Neither Party may sell, assign or transfer this JDL Agreement or any of its
rights or obligations hereunder, whether voluntarily or by operation of
law, without the prior written consent of the other Party, which consent
shall not be unreasonably withheld or delayed, and any attempted assignment
in violation of the foregoing shall be null and void. Provided however,
Siemens, as a part of any corporate restructuring, may sublicense, sell,
assign, and/or transfer this JDL Agreement and/or its rights or obligations
hereunder in whole or in part to any Subsidiary which has sufficient
financial reserves to discharge its obligations under this JDL Agreement,
upon delivery of written notice to P-Com, provided such assignment shall
not release Siemens from liability hereunder. Subject to the foregoing,
this JDL Agreement will inure to the benefit of and be binding upon its
successors, assigns and Subsidiaries of the Parties.
ARTICLE 13 - NOTICES
13.1 All notices or reports permitted or required under this JDL Agreement
shall be in writing and shall be delivered by personal delivery, facsimile
transmission confirmed by certified
18
<PAGE>
or registered airmail, return receipt requested, and shall be deemed given
upon personal delivery, or upon acknowledgment or confirmation of receipt.
Notices shall be sent to the following addresses of the Parties:
13.2 If to Siemens:
Siemens Aktiengesellschaft OEN Group
Hofmannstrasse 51
D - 81359 Munich
Germany
Attention: Bernhard Schlesinger
with a copy to:
Siemens Telecom Networks
Attention: Henry Fendrich, Legal Counsel
900 Broken Sound Boulevard
Boca Raton, Florida 33487
13.3 If to P-Com:
P-Com, Inc.
3175 South Winchester Boulevard
Campbell, California 95008
USA
Attn: President
Tel: (408) 866-3666
Fax: (408) 866-3655
Or to such other addresses as may be indicated by such party from time to
time by notice given in such manner.
ARTICLE 14 - INDEPENDENT CONTRACTORS
Nothing contained herein shall be construed as creating any agency,
partnership, or other form of joint enterprise between the Parties. The
Parties' relationship is one of independent contractors. All individuals
furnished by one Party to the other Party to provide services hereunder
shall be considered solely as and remain that Party's employees or agents,
and that Party shall be responsible for payment of all their unemployment,
social security and other payroll taxes, including employee benefit
contributions as required by law.
ARTICLE 15 FORCE MAJEURE AND DELAYS
15.1 A Party shall not be liable for breach,for delay or nonperformance of the
terms of this JDL Agreement, to the extent its delay or nonperformance is
due to inability to perform due to Force Majeure (which shall be defined as
any cause outside such Party's
19
<PAGE>
reasonable control and not due to its fault or negligence, including
strikes, shortages, riots, insurrection, fires, flood, storm, explosions,
acts of God, war, governmental action, labor conditions, earthquake,
embargoes, or any other cause which is beyond the reasonable control of
such Party. The affected Party shall give the other Party reasonable notice
of the occurrence of any Force Majeure that materially delays or affects
its performance or which will foreseeably materially delay or affect its
future performance under this JDL Agreement. Upon the expiration or
termination of the Force Majeure the affected Party shall perform the
affected obligations as soon as possible.
15.2 Notwithstanding any other provision in this JDL Agreement to the contrary,
no Party shall be liable for breach , for any delay or failure in the
performance of its obligations under this JDL Agreement that directly
results from any failure of the other Party to perform its obligations
under this JDL Agreement.
ARTICLE 16 - NO WAIVER OF RIGHTS
The failure of either Party to require performance by the other Party of
any provision hereof shall not affect the right to require such performance
at any time thereafter; nor shall the waiver by either Party of a
particular breach of any provision hereof be taken or held to be a
continuing waiver or a waiver of the provision itself or of other breaches
thereof.
ARTICLE 17 - SEVERABILITY OF PROVISIONS
In the event that any provision of this JDL Agreement shall be held to be
unenforceable or invalid under any applicable law by a court of competent
jurisdiction, such un-enforceability or invalidity shall not render this
JDL Agreement unenforceable or invalid as a whole, and, in such event, such
provision shall be deemed amended so as to comply with applicable law
without prejudicing the balance of the mutual rights and obligations of the
Parties under this JDL Agreement.
ARTICLE 18 - PUBLICITY
18.1 Neither Party shall disclose any of the terms of this JDL Agreement, or
any discussions, negotiations, or activities of the Parties pursuant to
this JDL Agreement, except as permitted under the terms of this JDL
Agreement, or mutually agreed to in advance by both Parties.
18.2 Any and all press releases and publicity announcements by either Party
will be submitted to the other Party five (5) calendar days in advance, for
review and comments prior to release. Any advertising, sales and marketing
promotions, relating to this JDL Agreement which references the other Party
will be submitted to the other Party, five calendar days prior to releasing
such publicity, for review and comments. Notwithstanding the foregoing, the
Parties agree to make every reasonable effort to
20
<PAGE>
promptly submit its comments to the other Party, and to agree upon and
consent to the publication of a mutually acceptable press release.
ARTICLE 19 - ENTIRE AGREEMENT
19.1 This JDL Agreement and the APPENDICES attached hereto and incorporated
herein by reference constitute the entire agreement between the Parties
with respect to the subject matter hereof. This JDL Agreement supersedes
any and all prior discussions, negotiations, representations,
communications, and agreements with respect to the subject matter hereof.
19.2 This JDL Agreement may only be amended by a writing that has been signed
by the duly authorized representatives of both Parties hereto.
ARTICLE 20 - ARBITRATION
20.1 In the event of any claim and dispute between the Parties or their
Subsidiaries with respect to this JDL Agreement, the Parties shall make a
reasonable effort to resolve the same amicably. Senior executives of both
Parties shall meet to attempt to resolve the same. Either Party shall have
the right to request voluntary mediation of such dispute. In the event such
claim and dispute is not resolved within thirty days after the commencement
of such efforts, such claim and dispute arising out of or in connection
with this JDL Agreement, including any question regarding its existence,
validity, termination, interpretation or breach, shall be finally resolved
by binding arbitration under and in accordance with the International
Arbitration Rules of the American Arbitration Association in New York City
("Rules") by three arbitrators selected in accordance with the Rules.
20.2 Regardless of whether they are direct or the sole parties to the dispute,
Siemens and P-Com shall each select one arbitrator. Both arbitrators shall
agree on the third arbitrator within thirty (30) days. Should the two
arbitrators fail, within the above time limit, to reach agreement on the
third arbitrator, a third arbitrator shall be appointed by the American
Arbitration Association.
20.3 The seat of arbitration shall be New York, New York, USA. The procedural
law of this place shall apply where the Rules are silent.
20.4 The language to be used in the arbitration proceeding shall be English.
20.5 P-Com now and forever, on behalf of itself and its Subsidiaries, [*].
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
21
<PAGE>
20.6 The award of the arbitrator shall be final and binding. Enforcement of the
award may be sought in any court of competent jurisdiction. Either party
may seek to obtain in any court of competent jurisdiction any interim
relief or provisional remedy, including injunctive relief. Seeking or
obtaining such interim relief or provisional remedy in a court shall not be
considered to be a waiver of the agreement to arbitrate hereunder. This
agreement to arbitrate shall survive any termination of this JDL
Agreement.
20.7 Subject to the foregoing, the Parties, on their own behalf and on behalf
of their Subsidiaries, waive the right to trial by jury with respect to
matters relating to this JDL Agreement.
ARTICLE 21 - EEC NOTIFICATION/REGISTRATION
If required by applicable law, the Parties will send notification of this
JDL Agreement to the EEC Commission for antitrust clearance as soon as
practicable after the Effective Date.
ARTICLE 22 - NON DISCLOSURE OF CONFIDENTIAL INFORMATION
22.1 Siemens and P-Com each undertake to receive and maintain in confidence
the confidential information disclosed to it by the other Party and to
observe the same degree of care with respect to protecting and maintaining
the confidence thereof, which they use to protect and maintain the
confidentiality of their own respective confidential proprietary
information (but not less than reasonable care). Confidential information
shall be marked with notices such as "confidential" or "confidential and
proprietary" at the time it is disclosed and furnished by one Party to the
other under this JDL Agreement; confidential information disclosed orally
shall be deemed confidential information only if summarized in writing by
the disclosing party within thirty (30) days after disclosure and
identified as "confidential" or "confidential and proprietary". Subject to
such rights and licenses granted elsewhere in this JDL Agreement or in
other agreements between the Parties, a Party shall not use the other
Party's confidential information for any purpose other than in furtherance
of the purposes of this JDL Agreement. These restrictions and requirements
with respect to confidential information shall apply during the term of
this JDL Agreement and for a period of five (5) years after termination of
such five-(5) year term. Siemens and P-Com may disclose such confidential
information to those employees, consultants, customers, agents and
representatives having a need to know such confidential information, and
solely in furtherance of the purposes of this JDL Agreement, only if such
persons agree in writing in advance of disclosure receive and maintain the
same in confidence.
22.2 The obligations of this Article 22 with respect to confidential
information shall not apply to information which:
22.2.1 is known to or in the possession of the receiving Party or its
Subsidiaries prior to transmission by the disclosing party;
22
<PAGE>
22.2.2 becomes available to the receiving Party from a source other than
the disclosing Party or is in or passes into the public domain
other than by breach of this JDL Agreement;
22.2.3 is developed independently by the receiving Party or its
Subsidiaries without use of the confidential information of the
disclosing Party; or
22.2.4 is authorized to be disclosed by the disclosing Party;
22.3 It shall not be a breach of these non-disclosure of confidential
information provisions where disclosure is made of confidential information
disclosed by the other Party to a governmental agency or body where failure
and refusal to disclose such information would result in violation of
applicable law.
22.4 The foregoing provisions and any other provision of this JDL Agreement
notwithstanding, each Party and its Subsidiaries shall have the right to
use and to continue to use at any time, including during the term hereof
and after termination or expiration of this JDL Agreement, without the
consent, license, or permission of the other Party or any accounting to the
other Party, any information (including confidential information) retained
in human memory by its employees, officers, or representatives;
"information retained in human memory" is information recalled without
assistance such as by refreshment of memory using notes or with the
assistance of other persons who also had access to such.
ARTICLE 23 - EXPORT CONTROLS
Each Party and its respective Subsidiaries shall comply with the applicable
export laws and regulations of the USA, Federal Republic of Germany and
other countries and obtain such licenses which are required, prior to
export or re-export of commodities and technical data and the results
thereof.
ARTICLE 24 - INCORPORATION OF APPENDICES
Attached to this JDL Agreement are the following APPENDICES:
1.3 Description of Engineering Documentation for Joint Products and
Improvements
1.12 Description of Manufacturing Documentation
1.16 PTM Transmission System
2.1.1 Initial Joint Products-list, description
2.1.2 Milestones for development of Initial Joint Products
2.1.3 Technical Specifications for the Joint Products
2.2 Additional Joint Products and Improvements- list, description,
Technical Specifications, obligations of the Parties,
milestones, method of funding, etc.
23
<PAGE>
3.10.1 Approvals for which Joint Products will qualify (US and
Worldwide)
all of which are incorporated herein by this reference and constitute a
part of this JDL Agreement.
ARTICLE 25 - COUNTERPARTS
This JDL Agreement may be signed in three or more counterparts, each of
which is an executed original but all of which taken together shall
constitute only one instrument.
IN WITNESS WHEREOF, EACH PARTY HERETO HAVE CAUSED THIS JDL AGREEMENT TO BE
EXECUTED IN TRIPLICATE ORIGINALS BY IT'S DULY AUTHORIZED REPRESENTATIVES:
............(Place) ..........(Date) ............(Place) ..........(Date)
SIEMENS AKTIENGESELLSCHAFT P-COM, INC.
/s/ A. Maher /s/ Frederick R. Fromm /s/ George P. Roberts
..................................... .....................................
By: By: George P. Roberts
Title: Title: Chairman, President and Chief
Executive Officer
24
<PAGE>
JDL APPENDICES
The following JDL APPENDICES are in this file:
1.3 Engineering Documentation
1.12 Manufacturing Documentation
2.1.1 Initial Joint Products
2.1.2 Initial Joint Product Milestones
2.2 Additional Joint Products
3.10.1 Approvals
The following JDL APPENDICES are stored as follows:
1.16 PTM Transmission System (stored as JDL116)
2.1.3 PTM: CPT ATM Support (stored as JDL213a)
Document No. 78086, Revision 0
P-Com/Siemens OC-3 Interface Module (stored as JDL213b)
Document No. 78087, Revision 0
<PAGE>
APPENDIX 1.3 ENGINEERING DOCUMENTATION
Engineering Documentation includes all written information which P-Com retains
after production release of a product. This will vary based upon the type and
complexity of each particular assembly, but will at a minimum include all
documentation required by P-Com's ISO certified engineering process. Typical
Engineering Documentation consists of:
(a) Functional Requirements
(b) Design Specifications
(c) Logic and Schematic Diagrams
(d) PC Artwork
(e) Mechanical Drawings
(f) Parts Lists
(g) ASIC Masks
(h) Source Files for Programmable Logic
(i) Binary Programming Information for Programmable Parts
(j) Software Source Code
(k) Firmware Source Code
(l) Identity and revision of Hardware and Software tools
(m) Identity and Revision of Licensed or Purchased Software
(n) Engineering Notebook (notes from design reviews, meetings, and lab
tests)
(o) Conformance Test Plan
(p) Conformance Test Results
<PAGE>
APPENDIX 1.12 MANUFACTURING DOCUMENTATION
Manufacturing Documentation includes all written information which P-Com retains
after production release of a product. This will vary based upon the type and
complexity of each particular assembly, but will at a minimum include all
documentation required by P-Com's ISO certified process. Typical Manufacturing
Documentation consists of:
(a) Parts Lists (including vendor specific part numbers and control
drawings with qualified vendor list for custom parts)
(b) PC Artwork and Associated Fabrication Drawings (including machine
readable form)
(c) Mechanical Fabrication Drawings
(d) Assembly Drawings
(e) ATE Program Description, Fixture Drawing, and Custom Component Library
(f) Schematic and Logic Drawings
(g) Firmware Source and Object Files
(h) Programming Information for Programmable Logic Devices
(i) Unit Test Specification
(j) Unit Test Procedures
(k) Unit Test Fixture Specification
(l) Unit Test Fixture Assembly Package (necessary data to fabricate and
maintain Unit Test Fixture)
(m) Procedure for transferring, controlling, and implementing Engineering
Change Orders
<PAGE>
APPENDIX 1.16 -- PTM TRANSMISSION SYSTEM
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
APPENDIX 2.1.1 INITIAL JOINT PRODUCTS
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
APPENDIX 2.1.2 - INITIAL JOINT PRODUCT MILESTONES
<TABLE>
<CAPTION>
Milestone Description [*]
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Technical Describes required functions and regulatory [*] [*] [*] [*] [*] [*]
Specifications compliance
- ----------------------------------------------------------------------------------------------------------------------------
Design Review Verify conformance of paper design to Technical [*] [*] [*] [*] [*] [*]
specifications
- ----------------------------------------------------------------------------------------------------------------------------
Hardware Initial hardware with software test routines [*] [*] [*] [*] [*] [*]
Prototypes
- ----------------------------------------------------------------------------------------------------------------------------
Functional Integrated hardware and software which conforms [*] [*] [*] [*] [*] [*]
Prototypes to Technical Specifications
- ----------------------------------------------------------------------------------------------------------------------------
Pre- Initial units through pilot manufacturing [*] [*] [*] [*] [*] [*]
Production process, includes manufacturing documentation and
Units manufacturing test procedures. Volume of 100 -
200 units per month suitable for field trials and
initial customer deployment.
- ----------------------------------------------------------------------------------------------------------------------------
Production Production units which may be manufactured in [*] [*] [*] [*] [*] [*]
Units volume by Siemens or P-Com
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
Appendix 2.1.3 - Initial Joint Product Technical Specification
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
i
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
6
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
7
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
8
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
9
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
10
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
11
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
12
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
13
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
14
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
15
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
16
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
17
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
18
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
19
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
20
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
21
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
22
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
23
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
24
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
25
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
26
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
i
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
ii
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
5
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
6
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
7
<PAGE>
[*]
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
APPENDIX 2.2 ADDITIONAL JOINT PRODUCTS
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
APPENDIX 3.10.1 REGULATORY COMPLIANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
[*] Safety Emissions
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
[*] P/O Radio Modem P/O Radio Modem
- ----------------------------------------------------------------------------------------------
[*] UL 1950 FCC Part 15, Class A
CSA 22.2
- ----------------------------------------------------------------------------------------------
[*] EN 60950 ETS 300-385
- ----------------------------------------------------------------------------------------------
[*] UL 1950 FCC Part 15, Class A
CSA 22.2
- ----------------------------------------------------------------------------------------------
[*] EN 60950 ETS 300-385
- ----------------------------------------------------------------------------------------------
[*] UL 1950 FCC Part 15, Class A
CSA 22.2 ETS 300-385
EN 60950
- ----------------------------------------------------------------------------------------------
[*] P/O Hub P/O Hub
- ----------------------------------------------------------------------------------------------
</TABLE>
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT 10.36
P-COM, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
------------------------------------------
I. PURPOSE OF THE PLAN
This International Employee Stock Purchase Plan is intended to promote
the interests of P-COM, Inc. by providing eligible employees of the
Corporation's Foreign Subsidiaries with the opportunity to acquire a proprietary
interest in the Corporation through the purchase of shares of Common Stock at
periodic intervals.
Capitalized terms herein shall have the meanings assigned to such
terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary. 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 in the aggregate over the term of the Plan and the U.S. Plan
shall not exceed One Million One Hundred Fifty Thousand (1,150,000) shares. Such
authorized share reserve is comprised of (i) the Four Hundred Thousand (400,000)
shares initially authorized for issuance under the U.S. Plan, (ii) an additional
increase of Two Hundred Thousand (200,000) shares of Common Stock authorized for
issuance by the Board on February 1, 1996 and approved by the stockholders at
the 1996 Annual Meeting, (iii) a further increase of Three Hundred Thousand
(300,000) shares authorized for issuance by the Board in April 1997, and
approved by the Corporation's stockholder at the 1997 Annual Meeting, and (iv)
an additional increase of Two Hundred Fifty Thousand (250,000) shares approved
by the Board on March 11,1998 and approved by the Corporation's stockholders at
the 1998 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 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 and the U.S. Plan, (ii) the maximum number and class of
securities purchasable per Participant on any one Semi-Annual Purchase Date and
(iii) the number
<PAGE>
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 shall
commence on August 1, 1998 and shall terminate on the last business day in
January 1999. The next offering period shall commence on the first business day
in February 1999, 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. However, any Employee of
a Foreign Subsidiary who is a participant in the U.S. Plan immediately prior to
the Effective Date shall automatically become a Participant in the Plan
effective as of August 1, 1998 and such individual's payroll deductions under
the Plan shall continue at the same rate authorized under the U.S. Plan
immediately prior to the Effective Date unless the Participant shall change such
rate in accordance with Section VI.D or otherwise withdraw from the Plan in
accordance with Section VII.F.
2.
<PAGE>
VI. PAYROLL DEDUCTIONS
A. Except to the extent otherwise provided in the Plan (or any
addendum thereto) or authorized by the Plan Administrator, the purchase price
for the shares of Common Stock acquired under the Plan shall be paid from
accumulated payroll deductions authorized by the Participant.
B. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Semi-Annual
Period of Participation within the offering period, up to a maximum of fifteen
percent (15%).
C. The payroll deduction authorized by the Participant shall be
collected in the currency in which paid by the Foreign Subsidiary. The payroll
deductions collected during each Semi-Annual Period of Participation shall be
converted into U.S. Dollars on the Semi-Annual Purchase Date for that Semi-
Annual Period of Participation on the basis of the exchange rate in effect on
such Semi-Annual Purchase Date. The Plan Administrator shall have the absolute
discretion to determine the applicable exchange rate to be in effect for each
Semi-Annual Purchase Date by any reasonable method which may be based on the
exchange rate actually available in the ordinary course of business on such
date. Any changes or fluctuations in the exchange rate at which the payroll
deductions collected on the Participant's behalf are converted into U.S. Dollars
on each Semi-Annual Purchase Date shall be borne solely by the Participant.
D. The rate of payroll deduction authorized by each Participant
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.
E. 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
3.
<PAGE>
under the Plan, initially in the currency in which paid by the Foreign
Subsidiary until converted into U.S. Dollars on the applicable Semi-Annual
Purchase Date. Except to the extent otherwise provided by the Plan (including
any addendum thereto) or by the Plan Administrator, (i) no interest shall be
paid on the balance from time to time outstanding in such accounts and (ii) 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.
F. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of Section
VII below.
G. 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 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),as converted into U.S. Dollars, 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 U.S.
Dollar purchase price in effect for the Participant for that Semi-Annual
Purchase Date.
4.
<PAGE>
C. PURCHASE PRICE. The U.S. Dollar 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), as
converted into U.S. Dollars, by the U.S. Dollar purchase price in effect for
that Semi-Annual Purchase Date. However, the maximum number of shares of Common
Stock purchasable 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 in the
currency in which collected by the Foreign Subsidiary.
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 in the currency in
which collected by the Foreign Subsidiary 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 in the currency in which collected by the Foreign Subsidiary.
5.
<PAGE>
(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
in the currency in which collected by the Foreign Subsidiary.
G. TRANSFER OF EMPLOYMENT. In the event that a Participant who is an
----------------------
Employee of a Foreign Subsidiary is transferred and becomes an Employee of the
Corporation during a Semi-Annual Period of Participation under the Plan, such
individual shall continue to remain a Participant in the Plan and payroll
deductions shall continue to be collected until the next Semi-Annual Purchase
Date as if the Participant had remained an Employee of the Foreign Subsidiary.
In the event that an Employee of the Corporation who is a participant
in the U.S. Plan is transferred and becomes an Employee of a Foreign Subsidiary
during a Semi-Annual Period of Participation in effect under the U.S. Plan, such
individual shall automatically become a Participant under the Plan for the
duration of the Semi-Annual Period of Participation in effect at that time under
the Plan and the balance in such individual's book account maintained under the
U.S. Plan shall be transferred as a balance to a book account opened for such
individual under the Plan. Such balance, together with all other payroll
deductions collected from such individual by the Foreign Subsidiary for the
remainder of the Semi-Annual Period of Participation under the Plan (as
converted into U.S. Dollars), shall be applied on the next Semi-Annual Purchase
Date to the purchase of shares under the Plan.
H. CORPORATE TRANSACTION. In the event of a Corporate Transaction
---------------------
during the offering period, each outstanding purchase right shall automatically
be exercised, immediately prior to the effective date of such Corporate
Transaction, by applying the payroll deductions of each Participant for the
Semi-Annual Period of Participation in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
-----
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable share limitations per Participant shall
continue to apply to any such purchase, and the clause (i) amount above shall
not, for any Participant whose Entry Date for the offering period is other than
the start date of
6.
<PAGE>
that offering period, be less than the Fair Market Value per share of Common
Stock on such start date. Payroll deductions not yet converted into U.S.
Dollars at the time of the Corporate Transaction shall be converted from the
currency in which paid by the Foreign Subsidiary into U.S. Dollars on the basis
of the exchange rate in effect at as determined by the Plan Administrator at the
time of the Corporate Transaction.
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.
I. 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 (and each participant in the U.S. Plan)
to the extent in excess of the aggregate purchase price payable for the Common
Stock pro-rated to such individual, shall be refunded.
J. 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.
K. 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 U.S. Dollars (U.S.$25,000) worth of stock of the Corporation or any
Corporate Affiliate (determined on the basis of the Fair Market Value of such
stock on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
7.
<PAGE>
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 U.S. Dollars (U.S.$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 on July 15, 1998 and became
effective on the Effective Date.
B. Unless sooner terminated by the Board, the Plan shall terminate
upon the earliest of (i) the last business day in January 2005, (ii) the date on
--------
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue the Plan
following the close of any Semi-Annual Period of Participation. However, the
Board may not, without the approval of the Corporation's stockholders, (i)
materially increase the number of shares issuable under the Plan or the maximum
number of shares purchasable per Participant on any one Semi-Annual Purchase
Date, except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares purchasable under the Plan, or
(iii) materially increase the benefits
8.
<PAGE>
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. Except to the extent otherwise provided in any addendum to the
Plan, 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.
D. A Foreign Subsidiary or the Corporation, as the case may be, shall
have the right to deduct from any payment to be made under this Plan, or to
otherwise require, prior to the issuance or delivery of any shares of Common
Stock or the payment of any cash, payment by each Participant, of any tax
required by applicable law to be withheld.
E. Additional provisions for individual Foreign Subsidiaries may be
incorporated in one or more Addenda to the Plan. Such Addenda shall have full
force and effect with respect to the Foreign Subsidiaries to which they apply.
In the event of a conflict between the provisions of such an Addendum and one or
more other provisions of the Plan, the provisions of the Addendum shall be
controlling.
9.
<PAGE>
SCHEDULE A
----------
CORPORATIONS PARTICIPATING IN P-COM, INC.
INTERNATIONAL EMPLOYEE STOCK PURCHASE PLAN
AS OF AUGUST 1, 1998
---------------------
P-Com GmbH
P-Com Services (UK) Limited
P-Com United Kingdom, Inc.
RT Masts Limited
P-Com Canada
<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 Foreign Subsidiaries during such individual's period
of participation in the Plan. 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 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 U.S. 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 (as determined in accordance with Code Section 424) of the
Corporation, 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.
H. EFFECTIVE DATE shall mean August 1, 1998. Any Foreign Subsidiary
--------------
which is approved by the Board to extend the benefits of the Plan to its
employees after such Effective Date shall designate a subsequent Effective Date
with respect to its employee-Participants.
A-1
<PAGE>
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
Foreign Subsidiary as an employee.
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 Date, 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 U.S. Dollar
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 U.S. Dollar 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 U.S. Dollar 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 U.S.
Dollar closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the U.S. Dollar closing selling price
on the last preceding date for which such quotation exists.
L. FOREIGN SUBSIDIARY shall mean any non-U.S. 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 Foreign Subsidiaries
participating in the Plan as of the Effective Date are listed in attached
Schedule A.
M. 1933 ACT shall mean the Securities Act of 1933, as amended.
--------
N. PARTICIPANT shall mean any Eligible Employee of a Foreign
-----------
Subsidiary who is actively participating in the Plan.
O. PLAN shall mean the Corporation's International Employee Stock
----
Purchase Plan, as set forth in this document.
A-2
<PAGE>
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
Q. SEMI-ANNUAL ENTRY DATE shall mean the first U.S. 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 Date.
R. 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. Semi-annual periods shall be
measured from the first U.S. business day of August in each calendar year to the
last U.S. business day of January in the succeeding calendar year and from the
first U.S. business day of February in each calendar year to the last U.S.
business day of July in that calendar year.
S. SEMI-ANNUAL PURCHASE DATE shall mean the last U.S. business day of
-------------------------
each Semi-Annual Period of Participation. The initial Semi-Annual Purchase Date
shall be January 31, 1999.
T. STOCK EXCHANGE shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
U. U.S. PLAN shall mean the P-Com, Inc. Employee Stock Purchase Plan.
---------
A-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,814
<SECURITIES> 4,174
<RECEIVABLES> 79,422
<ALLOWANCES> (4,600)
<INVENTORY> 78,618
<CURRENT-ASSETS> 203,915
<PP&E> 45,868
<DEPRECIATION> (19,695)
<TOTAL-ASSETS> 321,042
<CURRENT-LIABILITIES> 82,444
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 135,248
<TOTAL-LIABILITY-AND-EQUITY> 321,042
<SALES> 63,459
<TOTAL-REVENUES> 63,459
<CGS> 38,740
<TOTAL-COSTS> 61,494
<OTHER-EXPENSES> 22,754
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,721)
<INCOME-PRETAX> 523
<INCOME-TAX> 177
<INCOME-CONTINUING> 346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
