P COM INC, DEF 14A, 1998-04-29

P COM INC
DEF 14A, 1998-04-29
RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT

Previous: SCHUYLKILL ENTERPRISES INC, 8-A12G, 1998-04-29

Next: SEFTON FUNDS, 485BPOS, 1998-04-29

<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [_]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

P-COM, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

P-COM, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

-------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

-------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

-------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

-------------------------------------------------------------------------

(5) Total fee paid:

-------------------------------------------------------------------------

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

-------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

-------------------------------------------------------------------------

(3) Filing Party:

-------------------------------------------------------------------------

(4) Date Filed:

-------------------------------------------------------------------------

Notes:

<PAGE>

[P-COM LOGO APPEARS HERE]

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 18, 1998

TO THE STOCKHOLDERS OF P-COM, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of P-COM,
Inc., a Delaware corporation (the "Company"), will be held on Monday, May 18,
1998 at 9:00 a.m. Pacific Daylight Saving Time at the Doubletree Hotel, 2050
Gateway Place, San Jose, California 95110, for the following purposes, as more
fully described in the Proxy Statement accompanying this Notice:

1. To elect a director to serve for a three-year term ending in the year
2001 or until his successor is duly elected and qualified;

2. To approve an amendment to the Company's 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan") to increase the number of shares of
Common Stock authorized for issuance over the term of the 1995 Plan by
an additional 3,500,000 shares;

3. To approve an amendment to the Company's Employee Stock Purchase Plan
(the "Purchase Plan") to increase the number of shares of Common Stock
authorized for issuance over the term of the Purchase Plan by an
additional 250,000 shares;

4. To ratify the appointment of Price Waterhouse LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998;
and

5. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.

Only stockholders of record at the close of business on April 1, 1998 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting
will be available for inspection at the executive offices of the Company.

All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.

Sincerely,

/s/ GEORGE P. ROBERTS
George P. Roberts
Chief Executive Officer and
Chairman of the Board of Directors

Campbell, California
April 27, 1998

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>

P-COM, INC.

3175 SOUTH WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA 95008

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 18, 1998

GENERAL

The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of P-COM, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on Monday, May 18, 1998 (the
"Annual Meeting"). The Annual Meeting will be held at 9:00 a.m. at the
Doubletree Hotel, 2050 Gateway Place, San Jose, California 95110. These proxy
solicitation materials were mailed on or about April 27, 1998, to all
stockholders entitled to vote at the Annual Meeting.

VOTING

The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On April 1, 1998, the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting,
43,095,745 shares of the Company's common stock, par value $0.0001 ("Common
Stock"), were issued and outstanding. No shares of the Company's preferred
stock, par value $0.0001, were outstanding. Each stockholder is entitled to
one vote for each share of Common Stock held by such stockholder on April 1,
1998. Stockholders may not cumulate votes in the election of directors.

All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Directors are elected by a plurality vote.
All other proposals will be decided by an affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled
to vote on such matter. Abstentions and broker non-votes are counted as
present for purposes of determining the presence or absence of a quorum for
the transaction of business. Abstentions will be counted towards the
tabulations of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes, whereas broker non-votes will not be
counted for purposes of determining whether a proposal has been approved.

PROXIES

If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election
of the director proposed by the Board unless the authority to vote for the
election of such director is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 1, 2, 3 and 4
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the
Chief Financial Officer of the Company at the Company's principal executive
offices at 3175 South Winchester Boulevard, Campbell, California 95008, a
notice of revocation or another signed Proxy with a later date. You may also
revoke your Proxy by attending the Annual Meeting and voting in person.

ALL SHARE NUMBERS WHICH APPEAR IN THIS PROXY STATEMENT HAVE BEEN ADJUSTED TO
REFLECT THE 2-FOR-1 SPLIT OF THE COMMON STOCK EFFECTED ON SEPTEMBER 25, 1997
THROUGH A DIVIDEND OF ONE SHARE OF COMMON STOCK FOR EACH OUTSTANDING SHARE OF
COMMON STOCK.
<PAGE>

SOLICITATION

The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. The
Company has retained the services of Beacon Hill Partners, Inc. ("Beacon") to
assist in the solicitation of proxies. Beacon will receive a fee from the
Company of approximately $5,000 plus out-of-pocket expenses. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or other means by directors, officers or employees of the
Company. No additional compensation will be paid to these individuals for any
such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS

Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1999 Annual Meeting must be received no
later than December 23, 1998 in order that they may be included in the proxy
statement and form of proxy relating to that meeting.

2
<PAGE>

MATTERS TO BE CONSIDERED AT ANNUAL MEETING

PROPOSAL ONE

ELECTION OF DIRECTOR

GENERAL

The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-
year terms, with each class consisting, as nearly as possible, of one-third of
the total number of directors. The Board currently consists of five persons.
The class whose term of office expires at the Annual Meeting currently
consists of one director. The director elected to this class will serve for a
term of three years, expiring at the 2001 annual meeting of stockholders or
until his successor has been duly elected and qualified. The nominee listed
below is currently a director of the Company. If this proposal is approved,
the Board will consist of five persons, with two classes consisting of two
directors each and the third class consisting of one director.

The nominee for election has agreed to serve if elected, and management has
no reason to believe that such nominee will be unavailable to serve. In the
event the nominee is unable or declines to serve as a director at the time of
the Annual Meeting, the proxies will be voted for any nominee who may be
designated by the present Board of Directors to fill the vacancy. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the nominee named below.

NOMINEE FOR TERM ENDING UPON THE 2001 ANNUAL MEETING OF STOCKHOLDERS

M. Bernard Puckett, 52, has served as a Director of the Company since May
1994. Since January 1996 From June 1995 to January 1996, he was President and
Chief Executive Officer of Mobile Telecommunication Technologies Corp.
("Mtel"), a telecommunications corporation. From January 1994 to May 1995, Mr.
Puckett was President and Chief Operating Officer of Mtel. From June 1993 to
December 1993, Mr. Puckett was Senior Vice President, Corporate Strategy and
Development for IBM. Between September 1967 and June 1993, Mr. Puckett served
in various management and marketing positions at IBM. Mr. Puckett currently
serves as a director of Cognizant Corp., R.R. Donnelley & Sons and Oacis
Healthcare. Mr. Puckett holds a B.S. in Mathematics from the University of
Mississippi.

CONTINUING DIRECTORS FOR TERM ENDING UPON THE 2000 ANNUAL MEETING OF
STOCKHOLDERS

John A. Hawkins, 37, has served as a Director of the Company since September
1991. Since August 1995, Mr. Hawkins has been a General Partner of Generation
Capital Partners, L.P., a private equity firm. From May 1992 to July 1995, he
was a general partner of certain venture capital funds associated with Burr,
Egan, Deleage & Co., a venture capital company. From November 1987 to May
1992, Mr. Hawkins was an Associate with Burr, Egan, Deleage & Co. He is
currently a limited partner of certain venture capital funds associated with
Burr, Egan, Deleage & Co. Mr. Hawkins serves as a director of PixTech, Inc., a
manufacturer of flat panel displays, and one private company. Mr. Hawkins
holds an M.B.A. from the Harvard Graduate School of Business Administration
and a B.A. in English Literature from Harvard University.

James J. Sobczak, 56, has served as a Director of the Company since April
1997. Since 1991, Mr. Sobczak has been the President of Telecommunications
Education and Research Network, Inc. ("TERN"), a non-profit company that
manages a broadband network providing research and education support to over
35 universities. Additionally, since 1993 Mr. Sobczak has taught graduate
courses in telecommunications at the University of Pittsburgh and from 1993 to
1995 was a lecturer in the Carnegie Mellon University executive education
program. Between 1970 and 1990 he served in various management and marketing
positions at Bank of America, Ford Motor Co., Contel ASC and Westinghouse
Communications. Mr. Sobczak serves on the Board of Directors of one private
company. Mr. Sobczak holds an M.B.A. and a B.S. in Electrical Engineering from
the University of Detroit.

3
<PAGE>

CONTINUING DIRECTORS FOR TERM ENDING UPON THE 1999 ANNUAL MEETING OF
STOCKHOLDERS

George P. Roberts, 65, is a founder of the Company and has served as Chief
Executive Officer and a Director since October 1991. From October 1991 to
December 1996, Mr. Roberts served as President of the Company. Since September
1993, he has also served as Chairman of the Board of Directors. From May 1989
to August 1991, Mr. Roberts was Chief Operating Officer for Digital Microwave
Corporation, a wireless communications company. From October 1984 to May 1989,
Mr. Roberts was President of American Satellite Company, a wholly owned
subsidiary of Contel, an independent telecommunications company. Mr. Roberts
serves as a director of one private company. Mr. Roberts holds a B.S. in
Electrical Engineering from the University of Arizona and has completed
graduate business studies at the University of Arizona and the University of
California--Los Angeles.

Gill Cogan, 46, has served as a Director of the Company since November 1993.
Since January 1994, Mr. Cogan has been a Principal of Weiss, Peck & Greer,
L.L.C., an investment company, and since 1990, he has been a general partner
of Weiss, Peck & Greer Venture Partners, L.P., a private venture capital
investment firm. From August 1986 to November 1990, Mr. Cogan was a partner of
Adler & Company, a venture capital group specializing in technology-related
investments. From 1983 to 1985, Mr. Cogan was Chairman and Chief Executive
Officer of Formtek, an imaging and data management computer company. Mr. Cogan
serves as a director of Electronics for Imaging, Inc.; Integrated Packaging
Assembly Corporation; Number Nine Visual Technology Corporation; Visigenic
Software, Inc.; and several private companies. Mr. Cogan holds a B.S. in
Physics and an M.B.A. from the Graduate School of Management at the University
of California--Los Angeles.

BOARD COMMITTEES AND MEETINGS

The Board of Directors held six (6) meetings and acted by unanimous written
consent four (4) times during the fiscal year ended December 31, 1997 (the
"1997 Fiscal Year"). The Board of Directors has an Audit Committee and a
Compensation Committee. Each director attended or participated in 75% or more
of the aggregate of (i) the total number of meetings of the Board of Directors
and (ii) the total number of meetings held by all committees of the Board on
which such director served during the 1997 Fiscal Year.

The Audit Committee currently consists of two directors, Mr. Cogan and Mr.
Puckett, and is primarily responsible for approving the services performed by
the Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls.
The Audit Committee held three (3) meetings during the 1997 Fiscal Year.

The Compensation Committee currently consists of two directors, Mr. Cogan
and Mr. Hawkins and is primarily responsible for reviewing and approving the
Company's general compensation policies and setting compensation levels for
the Company's executive officers. The Compensation Committee also has the
exclusive authority to administer the Company's Employee Stock Purchase Plan
and the Company's 1995 Stock Option/Stock Issuance Plan and to make option
grants thereunder. The Compensation Committee held three (3) meetings and
acted by unanimous written consent twenty-nine (29) times during the 1997
Fiscal Year.

DIRECTOR COMPENSATION

Board members who are employees of the Company do not receive cash
compensation for their services as directors.

Under the Automatic Option Grant Program under the Company's 1995 Stock
Option/Stock Issuance Plan (the "1995 Plan"), each individual who first joins
the Board as a non-employee director any time after February 1, 1996 will also
receive, at the time of such initial election or appointment, an automatic
option grant, to purchase 40,000 shares of Common Stock, provided such person
has not previously been in the Company's employ. In addition, on the date of
each annual stockholders meeting, each individual who continues to serve as a
non-employee Board member, whether or not such individual is standing for
reelection at that particular Annual Meeting, will be granted an option to
purchase 4,000 shares of Common Stock, provided such individual has not

4
<PAGE>

received an option grant under the Automatic Option Grant Program within the
preceding six months. Each grant under the Automatic Option Grant Program will
have an exercise price per share equal to the fair market value per share of
the Company's Common Stock on the grant date, and will have a maximum term of
ten (10) years, subject to earlier termination should optionee cease to serve
as a Board of Directors member.

Upon his appointment to the Board on April 14, 1997, Mr. Sobczak received an
option grant to purchase 40,000 shares of Common Stock. The exercise price per
share in effect under such option is $13.75, the fair market value per share
of Common Stock on the grant date. In addition, each of the other non-employee
Board members, Messrs. Cogan, Hawkins and Puckett, received on May 29, 1997 an
automatic option grant to purchase 4,000 shares of Common Stock. The exercise
price per share in effect under each such option is $17.25, the fair market
value per share of Common Stock on the grant date. Each of the options, the
40,000-share grant to Mr. Sobczak and the 4,000-share grant to each of the
other non-employee Board members, is immediately exercisable for all the
option shares, but any shares purchased under the option will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each option grant will vest in a series of eight (8)
successive equal quarterly installments upon the optionee's completion of each
successive three (3)-month period of Board service over the twenty-four (24)-
month period measured from the grant date. Please see the description of the
Automatic Grant Program under Proposal Two for further information concerning
the remaining terms and provisions of these automatic option grants.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEE LISTED ABOVE.

5
<PAGE>

PROPOSAL TWO

APPROVAL OF AMENDMENTS TO THE
1995 STOCK OPTION/STOCK ISSUANCE PLAN

The Company's stockholders are being asked to approve an amendment to the
Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") that will
increase the maximum number of shares of the Common Stock authorized for
issuance over the term of the 1995 Plan by an additional 3,500,000 shares,
from 9,219,625 shares to 12,719,625 shares of Common Stock. This proposed
share increase is designed to assure that a sufficient reserve of Common Stock
is available under the 1995 Plan to allow the Company to continue to utilize
equity incentives in order to attract and retain the services of key
individuals essential to the Company's long-term growth and success. The
Company relies significantly on equity incentives in the form of stock option
grants in order to attract and retain key employees in the market in which the
Company competes for such talented individuals. Option grants will be made
under the 1995 Plan to newly-hired and continuing employees on the basis of
competitive market factors and individual performance levels. In addition, the
Company's work force has grown by 272% from the end of the 1996 fiscal year to
April 1, 1998 both from acquisitions and internal growth. Since the end of the
fiscal year ended December 31, 1996, the Company has made six acquisitions. On
February 24, 1997, the Company acquired 100% of the equity of Technosystem
S.p.A., an Italy-based company. On March 7, 1997, the Company acquired
substantially all of the assets of Columbia Spectrum Management, L.P., a
Delaware Limited Partnership. On May 29, 1997, the Company acquired all of the
outstanding shares of capital stock of Control Resources Corporation, a New
Jersey-based company. On November 27, 1997, the Company acquired all of the
outstanding shares of capital stock of RT Masts, a United Kingdom-based
company and Telematics, a Virginia-based company. On March 28, 1998, the
Company purchased the Wireless Communications Group of Cylink Corporation. The
Company believes that equity incentives such as those offered under the 1995
Plan are necessary for the Company to remain competitive in the marketplace
for executive talent and other key employees.

The 1995 Plan was adopted by the Board of Directors in January 1995 and was
approved by the stockholders in February 1995. The 1995 Plan became effective
on March 2, 1995 in connection with the initial public offering of the
Company's Common Stock, and serves as successor to the Company's 1992 Stock
Option Plan (the "1992 Plan"). All outstanding options under the 1992 Plan
have been incorporated into the 1995 Plan. In February 1996, the Board amended
the 1995 Plan to increase the shares of Common Stock available for issuance
under the 1995 Plan by an additional 1,600,000 shares and to enhance the
benefit and eligibility provisions of the Automatic Option Grant Program under
the 1995 Plan. The stockholders approved those amendments at the 1996 Annual
Meeting. In April 1997, the Board approved a series of amendments to the 1995
Plan, including (i) an increase of 3,000,000 shares of Common Stock in the
share reserve available for issuance under the 1995 Plan, (ii) an automatic
annual increase feature pursuant to which the number of shares available for
issuance under the 1995 Plan automatically increases on the first trading day
of each calendar year, beginning with the 1998 calendar year and continuing
through calendar year 2001, by an amount equal to one and six-tenths percent
(1.6%) of the total number of shares outstanding on the last trading day of
the immediately preceding calendar year and (iii) a series of technical
amendments to facilitate plan administration. The amendments were approved by
the stockholders at the 1997 Annual Meeting. On March 11, 1998, the Board
approved the 3,500,000-share increase in the maximum number of shares
available for issuance under the 1995 Plan that is the subject of this
Proposal.

The following is a summary of the principal features of the 1995 Plan, as
most recently amended. This summary does not, however, purport to be a
complete description of all the provisions of the 1995 Plan. Any stockholder
of the Company who wishes to obtain a copy of the actual plan document may do
so upon written request to the Company's Chief Financial Officer at the
Company's principal executive offices in Campbell, California.

ALL SHARE NUMBERS WHICH APPEAR IN THIS PROPOSAL REFLECT THE 2-FOR-1 SPLIT OF
THE COMMON STOCK EFFECTED ON SEPTEMBER 25, 1997 THROUGH A DIVIDEND OF ONE
SHARE OF COMMON STOCK FOR EACH OUTSTANDING SHARE OF COMMON STOCK.

6
<PAGE>

EQUITY INCENTIVE PROGRAMS

The 1995 Plan consists of three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The principal features of each of these
programs are described below. The Compensation Committee of the Board
administers the provisions of the 1995 Plan (other than the Automatic Option
Grant Program) with respect to all officers and directors of the Company
subject to the short-swing trading restrictions of the federal securities laws
("Section 16 Insiders"). With respect to all other participants, the 1995 Plan
may be administered by either the Compensation Committee or a special stock
option committee (the "Secondary Committee") comprised of one or more Board
members appointed by the Board or by the entire Board itself. Each entity,
whether the Compensation Committee, the Secondary Committee or the Board, will
be referred to in this summary as the Plan Administrator with respect to its
particular administrative functions under the 1995 Plan, and each Plan
Administrator will have complete discretion (subject to the provisions of the
1995 Plan) to authorize option grants and direct stock issuances under the
1995 Plan within the scope of its administrative jurisdiction. However, all
grants under the Automatic Option Grant Program will be made in strict
compliance with the provisions of that program, and no administrative
discretion will be exercised by any Plan Administrator with respect to the
grants made under such program.

SHARE RESERVE

12,719,625 shares of Common Stock have been reserved for issuance over the
ten (10)-year term of the 1995 Plan, including the 683,737-share increase
effected on January 2, 1998 pursuant to the automatic annual share increase
feature of the 1995 Plan and the 3,500,000-share increase that is the subject
of this Proposal. The number of shares available for issuance under the 1995
Plan will automatically increase on the first trading day of each calendar
year, through calendar year 2001, by an amount equal to one and six-tenths
percent (1.6%) of the total number of shares of Common Stock outstanding on
the last trading day of the immediately preceding calendar year.

Should any option terminate prior to exercise in full, the shares subject to
the unexercised portion of that option will be available for subsequent option
grants. In addition, any unvested shares issued under the Plan and
subsequently repurchased by the Company at the option exercise or direct issue
price paid per share pursuant to the Company's repurchase rights under the
Plan will be added back to the number of shares of Common Stock reserved for
issuance under the Plan and will accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances made
under the Plan. However, shares subject to any option surrendered in
accordance with the stock appreciation right provisions of the 1995 Plan will
not be available for subsequent issuance.

In no event may any one participant in the 1995 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 1,600,000 shares in the aggregate under the 1995 Plan.
Stockholder approval of this Proposal will also constitute re-approval of such
share limitation.

CHANGES IN CAPITALIZATION

In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will
be made to (i) the maximum number and class of securities issuable under the
1995 Plan, (ii) the maximum number and class of securities for which any one
participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the 1995 Plan, (iii) the
number and class of securities for which option grants will subsequently be
made under the Automatic Option Grant Program to each newly-elected or
continuing non-employee Board member and (iv) the number and class of
securities and the exercise price per share in effect under each outstanding
option under the Plan. All such adjustments will be designed to preclude the
enlargement or dilution of participant rights and benefits under the 1995
Plan.

7
<PAGE>

ELIGIBILITY

Employees, non-employee Board members, and independent consultants and
advisors to the Company and its subsidiaries (whether now existing or
subsequently established) will be eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs. Non-employee members of the Board
will also be eligible to participate in the Automatic Option Grant Program.

As of April 1, 1998, six (6) executive officers, four (4) non-employee Board
members and approximately 924 other employees were eligible to participate in
the Discretionary Option Grant and Stock Issuance Programs, and the four (4)
non-employee Board members were also eligible to participate in the Automatic
Option Grant Program.

VALUATION

The fair market value per share of Common Stock on any relevant date under
the 1995 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On April 1, 1998, the closing selling price of the
Company's Common Stock was $19.75 per share.

DISCRETIONARY OPTION GRANT PROGRAM

GRANTS

The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants or stock issuances, the time or times when such grants or
issuances are to be made, the number of shares subject to each such grant or
issuance, the status of any granted option as either an incentive stock option
or a nonstatutory option under the federal tax laws, the vesting schedule (if
any) to be in effect for the option grant or stock issuance and the maximum
term for which any granted option is to remain outstanding. All expenses
incurred in administering the 1995 Plan will be paid by the Company.

PRICE AND EXERCISABILITY

The exercise price per share for options granted under the Discretionary
Option Grant Program may not be less than eighty-five percent (85%) of the
fair market value per share of Common Stock on the option grant date. No
option will have a term in excess of ten (10) years, and each option will
generally become exercisable in one or more installments over the optionee's
period of service with the Company. However, one or more options may be
granted which are immediately exercisable for all the option shares, but any
shares acquired under those options will be subject to repurchase by the
Company, at the exercise price paid per share, upon the optionee's cessation
of service with the Company prior to vesting in those shares. The Plan
Administrator may at any time cancel the Company's outstanding repurchase
rights with respect to any such unvested shares and thereby accelerate the
vesting of those shares.

The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale
of the shares purchased under the option and pay over to the Company, out of
the sale proceeds available on the settlement date, sufficient funds to cover
the exercise price for the purchased shares plus all applicable withholding
taxes.

No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members
of the optionee's immediate family or to a trust established exclusively for
one or more such family members, to the extent such transfer or assignment is
in furtherance of the optionee's estate plan.

8
<PAGE>

TERMINATION OF SERVICE

Upon the optionee's cessation of employment or service, the optionee will
have a limited period of time in which to exercise his or her outstanding
options for any shares in which the optionee is vested at that time. However,
at any time while the options remain outstanding, the Plan Administrator will
have complete discretion to extend the period following the optionee's
cessation of employment or service during which his or her outstanding options
may be exercised. The Plan Administrator will also have complete discretion to
accelerate the exercisability or vesting of those options in whole or in part
at any time.

STOCK APPRECIATION RIGHTS

The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:

Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.

Limited stock appreciation rights may be provided to one or more Section
16 insiders as part of their option grants. Any option with such a limited
stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting stock. In return for the
surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the highest price per share of Common Stock paid in
connection with the tender offer over (b) the exercise price payable for
such share.

CANCELLATION/REGRANT PROGRAM

The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of the Common Stock
and to issue replacement options with an exercise price based on the market
price of Common Stock at the time of the new grant. The Company has no present
plans to effect such cancellation/regrant program. The Company believes that
it is in the best interests of its stockholders to retain key employees. The
ability to cancel and regrant options under the Discretionary Option Grant
Program may prove to be an important factor in retaining key employees.

STOCK ISSUANCE PROGRAM

Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty-five percent (85%) of their fair market value, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued as a bonus for past services.

The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a
vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the 1995 Plan.

9
<PAGE>

AUTOMATIC OPTION GRANT PROGRAM

TERMS

Under the Automatic Option Grant Program, nonemployee Board members will
receive option grants at specified intervals over their period of Board
service. All grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of such program. Stockholder
approval of this Proposal will also constitute approval of each option granted
on or after the date of the 1998 Annual Meeting pursuant to the provisions of
the Automatic Option Grant Program summarized below and the subsequent
exercise of that option in accordance with such provisions.

1. Each individual serving as a non-employee Board member on February 1,
1996 was automatically granted on that date a non-statutory option to purchase
40,000 shares of Common Stock. Each individual who first becomes a non-
employee Board member after February 1, 1996, whether through election by the
stockholders or appointment by the Board, will automatically be granted, at
the time of such initial election or appointment, a non-statutory option to
purchase 40,000 shares of Common Stock, provided such individual has not
previously been in the Company's employ.

2. On the date of each Annual Meeting, beginning with the 1997 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
member, whether or not such individual is standing for re-election at that
particular Annual Meeting, will automatically be granted a non-statutory
option to purchase 4,000 shares of Common Stock, provided such individual has
not received an option grant under the Automatic Option Grant Program within
the preceding six (6) months. There will be no limit on the number of such
4,000-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the Company's employ will be eligible to receive one or
more of those annual grants.

3. Each automatic option grant will have an exercise price per share equal
to 100% of the fair market value per share of Common Stock on the grant date.
The option will have a maximum term of ten (10) years, subject to earlier
termination at the end of the twelve (12)-month period measured from the date
of the optionee's cessation of Board service. Each option will be immediately
exercisable for all of the option shares. However, any shares purchased under
the option will be subject to repurchase by the Company, at the exercise price
paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The shares of Common Stock subject to each option
grant, whether the initial 40,000-share grant or the annual 4,000-share grant,
will vest in a series of eight (8) successive equal quarterly installments
upon the optionee's completion of each successive three (3)-month period of
Board service over the twenty (24)-month period measured from the grant date.

4. Each automatic option will remain exercisable for a twelve (12)-month
period following the optionee's cessation of service as a Board member. In no
event, however, may the option be exercised after the expiration date of the
option term. During the applicable post-service exercise period, the option
may not be exercised for more than the number of option shares (if any) in
which the Board member is vested at the time of his or her cessation of Board
service.

5. The shares subject to each automatic option grant will immediately vest
upon (i) the optionee's death or permanent disability while a Board member,
(ii) an acquisition of the Company by merger or asset sale, (iii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iv) a change in the majority of the Board
effected through one or more proxy contests for Board membership.

6. Upon the successful completion of a hostile tender offer for more than
50% of the Company's outstanding voting stock, each outstanding automatic
option grant may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer over
(b) the exercise price payable for such share. Stockholder approval of this
Proposal will also constitute pre-approval of each option granted with such a
surrender right on or after the date of the 1998 Annual Meeting and the
subsequent exercise of that right in accordance with the foregoing terms.

10
<PAGE>

The remaining terms and conditions of each automatic option grant will in
general conform to the terms summarized above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.

GENERAL PROVISIONS

ACCELERATION

In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not
to be assumed by the successor corporation will automatically accelerate in
full, and all unvested shares under the Discretionary Option Grant and Stock
Issuance Programs will immediately vest, except to the extent the Company's
repurchase rights with respect to those shares are to be assigned to the
successor corporation. Any options which are assumed in connection with such
acquisition will immediately become exercisable for all the option shares, and
any unvested shares which do not vest at the time of such acquisition will
immediately vest in full, in the event the optionee's service with the Company
or any successor entity is subsequently terminated within eighteen (18) months
after the acquisition. However, the Plan Administrator has the authority to
grant options which will immediately vest upon an acquisition of the Company,
whether or not those options are assumed by the successor corporation. The
Plan Administrator also has the discretionary authority to provide for the
full and immediate vesting of all outstanding stock options and unvested
shares under the Discretionary Option Grant and Stock Issuance Programs in
connection with a change in control of the Company (whether by successful
tender offer for more than fifty percent (50%) of the outstanding voting stock
or a change in the majority of the Board by reason of one or more proxy
contests for the election of Board members), with such vesting to occur either
at the time of such change in control or upon the subsequent termination of
the individual's service.

The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.

FINANCIAL ASSISTANCE

The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase
of shares under the Discretionary Option Grant or Stock Issuance Program. The
Plan Administrator will have complete discretion to determine the terms of any
such financial assistance. However, the maximum amount of financing provided
any individual may not exceed the cash consideration payable for the issued
shares plus all applicable taxes. Any such financing may be subject to
forgiveness in whole or in part, at the discretion of the Plan Administrator,
over the participant's period of service.

STOCK AWARDS

The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock subject to
options granted under the 1995 Plan between the January 1, 1997 and April 1,
1998, together with the weighted average exercise price payable per share. No
direct stock issuances have been made to date under the 1995 Plan.

11
<PAGE>

OPTION TRANSACTIONS

<TABLE>
<CAPTION>
OPTIONS
GRANTED WEIGHTED AVERAGE
(NUMBER OF EXERCISE PRICE OF
NAME SHARES) GRANTED OPTIONS ($)
---- ---------- -------------------
<S> <C> <C>
George P. Roberts
Chief Executive Officer and Chairman of the
Board of Directors........................... 300,000 18.00
Pier Antoniucci
President and Chief Operating Officer......... 200,000 18.00
Michael Sophie
Chief Financial Officer and Vice President,
Finance and Administration................... 150,000 18.00
John R. Wood
Senior Vice President, Engineering............ 10,000 18.28
Kenneth E. Bean, II
Senior Vice President, Quality Assurance...... 60,000 14.78
M. Bernard Puckett
Director...................................... 4,000 17.25
John A. Hawkins
Director...................................... 4,000 17.25
Gill Cogan
Director...................................... 4,000 17.25
James Sobczak
Director...................................... 40,000 13.75
All current executive officers as a group (6
persons)....................................... 820,000 17.65
All current non-employee directors as a group (4
persons)....................................... 52,000 14.56
All employees, including current officers who
are not executive officers, as a group (676
persons)....................................... 2,628,356 17.67
</TABLE>

As of April 1, 1998, options covering 5,856,744 shares of Common Stock were
outstanding under the 1995 Plan, 3,684,541 shares remained available for
future option grant or direct issuance (assuming stockholder approval of the
3,500,000-share increase which is the subject of this Proposal), and 3,178,340
shares have been issued pursuant to the exercise of outstanding options under
the 1995 Plan.

SPECIAL TAX ELECTION

The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.

NEW PLAN BENEFITS

As of April 1, 1998, no options have been granted, and no direct stock
issuances have been made, on the basis of the 3,500,000-share increase which
is the subject of this Proposal No. Two. At the 1998 Annual Meeting, each
individual who will continue to serve as a non-employee Board member will
receive an option grant under the Automatic Option Grant Program to purchase
4,000 shares of Common Stock at an exercise price per share equal to the fair
market value per share of Common Stock on the grant date.

12
<PAGE>

AMENDMENT AND TERMINATION

The Board may amend or modify the 1995 Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law
or regulation. The Board may terminate the 1995 Plan at any time, and the 1995
Plan will in all events terminate on January 10, 2005.

FEDERAL INCOME TAX CONSEQUENCES

Options granted under the 1995 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:

Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of a taxable disposition. For Federal tax purposes, dispositions
are divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two (2) years after the option grant date
and more than one (1) year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will
result.

Upon a qualifying disposition, the optionee will recognize longterm capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then
the excess of (i) the fair market value of those shares on the exercise date
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain or loss recognized upon the
disposition will be recognized as a capital gain or loss by the optionee.

If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.

Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.

If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.

The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.

STOCK APPRECIATION RIGHTS

An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the
ordinary income is recognized by the optionee.

13
<PAGE>

DIRECT STOCK ISSUANCE

The tax principles applicable to direct stock issuances under the 1995 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory options granted with exercise prices equal to
the fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to
certain executive officers of the Company. Accordingly, all compensation
deemed paid under the 1995 Plan will remain deductible by the Company without
limitation under Code Section 162(m).

ACCOUNTING TREATMENT

Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or direct stock issuances with an exercise or issue price per share equal to
100% of fair market value of the shares at the time of grant or issuance will
not result in any direct charge to the Company's earnings. However, the fair
value of those options must be disclosed in the notes to the Company's
financial statements, in the form of pro-forma statements to those financial
statements, the impact those options would have upon the Company's reported
earnings were the value of those options at the time of grant treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.

Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to the
Company's earnings.

STOCKHOLDER APPROVAL

The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1998 Annual Meeting
is required for approval of the amendments to the 1995 Plan. Should such
stockholder approval not be obtained, then the 3,500,000-share increase to the
share reserve will not be implemented, any stock options granted on the basis
of the 3,500,000-share increase to the 1995 Plan will immediately terminate
without becoming exercisable for the shares of Common Stock subject to those
options, and no additional options will be granted on the basis of such share
increase. The 1995 Plan will, however, continue to remain in effect, and
option grants and direct stock issuances may continue to be made pursuant to
the provisions of the 1995 Plan in effect prior to the amendments summarized
in this Proposal, until the available reserve of Common Stock as last approved
by the stockholders has been issued pursuant to option grants and direct stock
issuances made under the 1995 Plan.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
3,500,000-SHARE INCREASE TO THE RESERVE AVAILABLE FOR ISSUANCE UNDER THE 1995
PLAN.

14
<PAGE>

PROPOSAL THREE

APPROVAL OF AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN

The Company's stockholders are being asked to approve an amendment to the
Company's Employee Stock Purchase Plan (the "Purchase Plan") which will
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Purchase Plan by an additional 250,000 shares to
1,150,000 shares.

The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary
interest in the Company through participation in a payroll-deduction based
employee stock purchase plan under Section 423 of the Internal Revenue Code.

The Purchase Plan was adopted by the Board of Directors in January 1995 and
approved by the Company's stockholders in February 1995. The Purchase Plan
became effective on March 2, 1995 in connection with the initial public
offering of the Company's Common Stock. In February 1996, the Board amended
the Purchase Plan to increase the shares of Common Stock available for
issuance under the Purchase Plan by an additional 200,000 shares, and the
stockholders approved that amendment at the 1996 Annual Meeting. In April 1997
the Board amended the Purchase Plan to increase the shares of Common Stock
available for issuance under the Purchase Plan by an additional 300,000
shares, and the stockholders approved that amendment at the 1997 Annual
Meeting. On March 11, 1998, the Board of Directors adopted the amendment to
the Purchase Plan to increase the share reserve by additional 250,000 shares,
and that share increase is the subject of this Proposal.

The following is a summary of the principal features of the Purchase Plan,
as amended. This summary does not, however, purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder who
wishes to obtain a copy of the actual plan document may do so by written
request to the Company's Chief Financial Officer at the Company's executive
offices in Campbell, California.

ADMINISTRATION

The Purchase Plan is currently administered by the Compensation Committee of
the Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.

SECURITIES SUBJECT TO THE PURCHASE PLAN

1,150,000 shares of Common Stock have been reserved for issuance over the
ten (10)-year term of the Purchase Plan, including the 250,000-share increase
for which stockholder approval is sought under this Proposal. The shares may
be made available from authorized but unissued shares of the Company's Common
Stock or from shares of Common Stock repurchased by the Company, including
shares repurchased on the open market.

In the event that any change is made to the Company's outstanding Common
Stock (whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without the Company's receipt of consideration), appropriate
adjustments will be made to (i) the class and maximum number of securities
issuable over the term of the Purchase Plan, (ii) the class and maximum number
of securities purchasable per participant on any one semi-annual purchase date
and (iii) the class and number of securities and the price per share in effect
under each outstanding purchase right.

15
<PAGE>

OFFERING PERIODS AND PURCHASE RIGHTS

Shares of Common Stock will be offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of twenty-
four (24) months. The first offering period began on March 2, 1995, in
connection with the initial public offering of the Common Stock, and ended on
the last business day in January 1997. The next offering period started on the
first business day in February 1997 and will end on the last business day of
January 1999. Subsequent offering periods will begin as designated by the Plan
Administrator.

At the time the participant joins the offering period, he or she will be
granted a purchase right to acquire shares of Common Stock at semi-annual
intervals over the remainder of that offering period. The purchase dates will
occur on the last business day in January and July each year, and all payroll
deductions collected from the participant for the period ending with each such
semi-annual purchase date will automatically be applied to the purchase of
Common Stock.

ELIGIBILITY AND PARTICIPATION

Any individual who is employed on a basis under which he or she is expected
to work for more than 20 hours per week for more than five (5) months per
calendar year in the employ of the Company or any participating parent or
subsidiary corporation (including any corporation which subsequently becomes
such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.

An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time or on any subsequent semi-
annual entry date (the first business day in February or August each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any semi-annual
entry date within that offering period on which he or she is an eligible
employee.

As of April 1, 1998, 451,091 shares of Common Stock had been issued under the
Purchase Plan, and 698,909 shares were available for future issuance, assuming
approval of this Proposal. As of April 1, 1998, approximately seven (7)
employees, including six (6) executive officers, were eligible to participate
in the Purchase Plan.

PURCHASE PRICE

The purchase price of the Common Stock acquired on each semi-annual purchase
date will be equal to 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 or
(ii) the fair market value on the semi-annual purchase date. However, the
clause (i) amount for any participant whose entry date is other than the start
date of the offering period will not be less than the fair market value per
share of Common Stock on that start date.

The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the closing selling price per share
on such date on the Nasdaq National Market. On April 1, 1998, the fair market
value per share of Common Stock determined on such basis was $19.75 per share.

16
<PAGE>

PAYROLL DEDUCTIONS AND STOCK PURCHASES

Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 15%) of his or her base salary each offering period
to be applied to the acquisition of Common Stock on each semi-annual purchase
date. The payroll deductions of each participant will automatically be applied
on each semi-annual purchase date (the last business day in January and July
of each year) to the purchase of whole shares of Common Stock at the purchase
price in effect for the participant for that purchase date.

SPECIAL LIMITATIONS

The Purchase Plan imposes certain limitations upon a participant's right to
acquire Common Stock, including the following:

. Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.

. Purchase rights granted to a participant may not permit such individual
to purchase more than $25,000 worth of Common Stock (valued at the time
each purchase right is granted) for each calendar year those purchase
rights are outstanding at any time.

. No participant may purchase more than 4,000 shares of Common Stock on
any semi-annual purchase date.

TERMINATION OF PURCHASE RIGHTS

The participant may withdraw from the Purchase Plan at any time, and his or
her accumulated payroll deductions will, at the participant's election, either
be refunded immediately or applied to the purchase of Common Stock on the next
semi-annual purchase date.

The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.

STOCKHOLDER RIGHTS

No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased
on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date
of such purchase.

ASSIGNABILITY

No purchase rights will be assignable or transferable by the participant,
and the purchase rights will be exercisable only by the participant.

CHANGE IN CONTROL

In the event the Company is acquired by merger or asset sale, all
outstanding purchase rights will automatically be exercised immediately prior
to the effective date of such acquisition. The purchase price will be equal to
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 acquisition
occurs or (ii) the fair market value per share of Common Stock immediately
prior to the effective date of such acquisition, but in no event will the
clause (i) fair market value be less than the fair market value per share of
Common Stock on the start date of the offering period in which such
acquisition occurs.

17
<PAGE>

SHARE PRO-RATION

Should the total number of shares of Common Stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares at the time available for issuance under the Purchase Plan, then the
Plan Administrator will make a pro-rata allocation of the available shares on
a uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable
for the Common Stock allocated to such individual, will be refunded.

AMENDMENT AND TERMINATION

The Purchase Plan will terminate upon the earliest of (i) the last business
day in January 2005, (ii) the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase rights or (iii) the date on
which all purchase rights are exercised in connection with an acquisition of
the Company.

The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan or the maximum number of
shares purchasable per participant on any one semi-annual purchase date,
except in connection with certain changes in the Company's capital structure,
(ii) alter the purchase price formula so as to reduce the purchase price or
(iii) materially increase the benefits accruing to participants under the
Purchase Plan or modify the requirements for eligibility to participate in the
Purchase Plan.

FEDERAL TAX CONSEQUENCES

The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan which so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the
purchased shares.

If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the
participant will recognize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the
purchase date exceeded the purchase price paid for those shares, and the
Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal in amount to such excess.

If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lower of (i) the amount by which
the fair market value of the shares on the sale or disposition date exceeded
the purchase price paid for those shares or (ii) fifteen percent (15%) of the
fair market value of the shares on the participant's entry date into that
offering period. Any additional gain upon the disposition will be taxed as a
long-term capital gain. The Company will not be entitled to an income tax
deduction with respect to such disposition.

If the participant still owns the purchased shares at the time of death, his
or her estate will recognize ordinary income in the year of death equal to the
lower of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired.

18
<PAGE>

ACCOUNTING TREATMENT

The issuance of Common Stock under the Purchase Plan will not result in a
direct compensation expense chargeable against the Company's reported
earnings. However, the Company must disclose, in pro-forma statements to the
Company's financial statements, the impact the purchase rights granted under
the Purchase Plan would have upon the Company's reported earnings were the
value of those purchase rights treated as compensation expense.

STOCK ISSUANCES

The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock purchased under
the Purchase Plan between the March 2, 1995 effective date of the Purchase
Plan and the most recent January 30, 1998 purchase date, together with the
weighted average purchase price paid per share.

PURCHASE PLAN TRANSACTIONS

<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
PURCHASED PURCHASE
NAME SHARES PRICE ($)
---- --------- ---------
<S> <C> <C>
George P. Roberts........................................ 17,748 4.36
Chairman of the Board and Chief Executive Officer
Pier Antoniucci.......................................... 16,357 4.96
President and Chief Operating Officer
Michael Sophie........................................... 10,961 5.09
Chief Financial Officer and Vice President, Finance and
Administration
John R. Wood............................................. 877 4.48
Senior Vice President, Engineering
Kenneth E. Bean, II...................................... 1,329 4.72
Senior Vice President, Quality Assurance
All current executive officers as a group (6 persons).... 47,272 4.75
All current non-employee directors as a group (4 per-
sons)................................................... 0 0.00
All employees, including current officers who are not
executive officers, as a group (347 persons)............ 403,819 6.54
</TABLE>

NEW PLAN BENEFITS

No purchase rights have been granted, and no shares of Common Stock have
been issued, under the Purchase Plan on the basis of the 250,000-share
increase for which stockholder approval is sought under this Proposal.

STOCKHOLDER APPROVAL

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
AMENDMENT TO THE PURCHASE PLAN.

19
<PAGE>

PROPOSAL FOUR

RATIFICATION OF INDEPENDENT AUDITORS

The Board of Directors has appointed the firm of Price Waterhouse LLP,
independent public auditors for the Company during the 1997 Fiscal Year, to
serve in the same capacity for the year ending December 31, 1998, and is
asking the stockholders to ratify this appointment. The affirmative vote of a
majority of the shares represented and voting at the Annual Meeting is
required to ratify the selection of Price Waterhouse LLP.

In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified,
the Board of Directors in its discretion may direct the appointment of a
different independent auditing firm at any time during the year if the Board
of Directors believes that such a change would be in the best interests of the
Company and its stockholders.

A representative of Price Waterhouse LLP is expected to be present at the
Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF PRICE WATERHOUSE LLP TO SERVE AS THE
COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.

OTHER MATTERS

The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.

20
<PAGE>

OWNERSHIP OF SECURITIES

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
February 28, 1998, by (i) all persons who are beneficial owners of five
percent (5%) or more of the Company's Common Stock, (ii) each director and
nominee for director, (iii) the executive officers named in the Summary
Compensation Table of the Executive Compensation and Related Information
section of this Proxy Statement and (iv) all current directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws, where applicable.

<TABLE>
<CAPTION>
PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER OWNED (#) OWNED(1)
---------------- ------------ ------------
<S> <C> <C>
Entities deemed to be affiliated with American Cen-
tury Companies, Inc.(2)
9500 Main Street
Kansas City, MO 64111............................. 3,222,900 7.49
Pilgrim Baxer & Associates, Ltd.(3)
825 DuPortail Road
Wayne, PA 19087................................... 3,109,860 7.23
George P. Roberts(4)................................ 1,173,102 2.66
Pier Antoniucci(5).................................. 766,648 1.76
Michael J. Sophie(6)................................ 377,123 *
Alan Wright(7)...................................... 101,000 *
John R. Wood(8)..................................... 88,864 *
Kenneth E. Bean, II(9).............................. 101,958 *
M. Bernard Puckett(10).............................. 77,332 *
Gill Cogan(11)...................................... 58,292 *
John A. Hawkins(12)................................. 26,000 *
James J. Sobczak(13)................................ 40,000 *
All current directors and executive officers as a
group (10 persons)(14)............................. 5,920,179 13.08
</TABLE>
- --------
* Less than one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 43,035,164 shares of Common Stock
outstanding on February 28, 1998. Shares of Common Stock subject to stock
options which are currently exercisable or will become exercisable within
60 days after February 28, 1998 are deemed outstanding for computing the
percentage of the person or group holding such options, but are not
deemed outstanding for computing the percentage of any other person or
group.
(2) Pursuant to a Schedule 13G dated February 4, 1998 filed with the
Securities and Exchange Commission, American Century Companies, Inc., on
its behalf and on behalf of American Century Investment Management, Inc.,
American Century Mutual Funds, Inc. and James E. Stowers, Jr. has
reported that as of February 4, 1998 had sole voting power over all
3,222,900 shares and sole dispositive power over all shares.
(3) Pursuant to a Schedule 13G dated February 13, 1998, filed with the
Securities and Exchange Commission, Pilgrim Baxter & Associates, Ltd.
reported that as of December 31, 1997 it had sole voting power over all
2,487,960 shares and sole dispositive power over all 3,109,860 shares.
(4) Includes 1,023,332 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(5) Includes 489,668 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(6) Includes 306,851 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(7) Includes 100,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(8) Includes 60,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.

21
<PAGE>

(9) Includes 87,224 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(10) Represents 77,332 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(11) Includes 4,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(12) Includes 26,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(13) Represents 40,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.
(14) Includes 2,214,407 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1998.

EXECUTIVE COMPENSATION AND RELATED INFORMATION

The following table provides certain information summarizing the
compensation earned, by (i) the Company's Chief Executive Officer and (ii)
each of the Company's other four executive officers whose salary and bonus for
the 1997 Fiscal Year was in excess of $100,000, for services rendered in all
capacities to the Company and its subsidiaries for each of the last three
fiscal years. No other executive officer who would otherwise have been
included in such table on the basis of salary and bonus earned for the 1997
Fiscal Year resigned or terminated employment during that fiscal year.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL NUMBER OF
COMPENSATION SECURITIES
-------------------------- ------------
LONG-TERM
NAME AND PRINCIPAL POSITION COMPENSATION
UNDERLYING OPTIONS (#) YEAR SALARY($)(1) BONUS($) AWARDS
--------------------------- ---- ------------ -------- ------------
<S> <C> <C> <C> <C>
George P. Roberts(2)............................... 1997 330,069 358,000 300,000
Chairman of the Board of Directors 1996 250,000 162,500 285,000
and Chief Executive Officer 1995 207,923 125,000 20,000
Pier Antoniucci(3)................................. 1997 244,962 165,000 200,000
President and Chief 1996 165,769 81,900 150,000
Operating Officer 1995 176,282 54,250 20,000
Michael Sophie(4).................................. 1997 175,673 109,000 150,000
Chief Financial Officer, 1996 117,308 48,750 110,000
Vice President, Finance & Administration 1995 89,615 25,000 26,000
John Wood(5)....................................... 1997 147,421 28,980 10,000
Senior Vice President, 1996 138,000 44,850 5,000
Technology 1995 120,177 32,000 20,000
Kenneth E. Bean, II(4)............................. 1997 109,462 25,000 60,000
Senior Vice President, 1996 93,000 30,225 0
Quality Assurance 1995 87,455 23,250 35,000
</TABLE>
- --------
(1) Includes the amounts deferred under the Company's 401(k) Plan.
(2) Mr. Roberts resigned from the position of President effective as of
January 1, 1997.
(3) Mr. Antoniucci was promoted from Executive Vice President to Chief
Operating Officer on July 18, 1996 and to President on December 13, 1996,
which was effective as of January 1, 1997.
(4) Mr. Sophie was elected as Chief Financial Officer by resolution of the
Board of Directors on April 14, 1996.
(5) Mr. Wood was promoted from Vice President of Engineering to Senior Vice
President, Technology in January 1997.
(6) Mr. Bean was promoted from Vice President of Manufacturing to Vice
President of Operations in January 1997.

22
<PAGE>

OPTION GRANTS IN 1997 FISCAL YEAR

The following table contains information concerning the stock option grants
made to each of the executive officers named in the Summary Compensation Table
for the 1997 Fiscal Year. No stock appreciation rights were granted to these
individuals during such fiscal year.
<TABLE>
<CAPTION>
INDIVIDUAL GRANT
--------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM (1)
GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------
NAME (#) YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------- ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
George P. Roberts....... 5,555(2) .18 18.00 08/10/07 62,883 159,358
294,445(2) 9.33 18.00 08/10/07 3,333,144 8,446,838
Pier Antoniucci......... 5,555(3) .18 18.00 08/10/07 62,883 159,358
194,445(3) 6.16 18.00 08/10/07 2,201,135 5,578,106
Michael Sophie.......... 5,555(3) .18 18.00 08/10/07 62,883 159,358
144,445(3) 4.58 18.00 08/10/07 1,635,131 4,143,740
John R. Wood............ 10,000(3) .32 18.28125 07/17/07 114,970 291,356
Kenneth E. Bean, II..... 18,028(3) .57 13.3125 04/24/07 150,933 382,494
11,972(3) .38 13.3125 04/24/07 100,231 254,006
20,000(3) .63 17.0625 07/02/07 214,610 543,865
10,000(3) .32 14.625 12/18/07 91,976 233,084
</TABLE>
- --------
(1) There can be no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
(2) The option is immediately exercisable for all of the option shares, but
any shares purchased under the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should Mr. Roberts
cease service with the Company prior to vesting in those shares. The
option shares will vest in a series of eight (8) successive equal
quarterly installments upon his completion of each successive 3-month
period of service measured from the August 11, 1997 grant date of the
option. The shares subject to the option will immediately vest in full
should (i) the Company be acquired by merger or asset sale in which the
option is not assumed or replaced by the acquiring entity or should (ii)
Mr. Roberts' employment terminate within twenty-four (24) months after
certain changes in control or ownership of the Company.
(3) Each option is immediately exercisable for all the option shares, but any
shares purchased under the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should the
individual cease service with the Company prior to vesting in those
shares. Twenty-five percent (25%) of the option shares will vest upon the
optionee's continuation in service through one year following the grant
date and the balance of the shares will vest in thirty-six (36) successive
equal monthly installments upon the optionee's completion of each of the
next thirty-six 36 months of service thereafter. The shares subject to the
option will immediately vest in full should (i) the Company be acquired by
merger or asset sale in which the option is not assumed or replaced by the
acquiring entity or should (ii) the optionee's employment be involuntarily
terminated within twenty-four (24) months after certain changes in control
or ownership of the Company. The grant date for Mr. Antoniucci's 5,555-
share option grant, Mr. Antoniucci's 144,445-share option grant, Mr.
Sophie's 5,555-share option grant and Mr. Sophie's 144,445-share option
grant is August 11, 1997. The grant date for Mr. Wood's 10,000-share
option grant is July 18, 1997. The grant date for Mr. Bean's 18,028-share
option grant and his 11,972 share option grant is April 25, 1997, the
grant date for his 20,000-share option grant is July 3, 1997 and the grant
date for his 10,000-share option grant is December 19, 1997.

23
<PAGE>

AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES

The table below sets forth certain information with respect to the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table concerning the exercise of options during the 1997 Fiscal
Year and unexercised options held by such individuals as of the end of such
fiscal year. No SARs were exercised during the 1997 Fiscal Year, nor were any
SARs outstanding at the end of such fiscal year.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
AGGREGATE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES VALUE OPTIONS AT FY-END(#) FY-END(1)
ACQUIRED ON REALIZED ---------------------------- -------------------------------
NAME EXERCISE(#) ($)(2) EXERCISABLE(3) UNEXERCISABLE EXERCISABLE($) UNEXERCISABLE($)
---- ----------- --------- -------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George P. Roberts....... -- -- 708,957 314,375 4,796,428 2,416,758
Pier Antoniucci......... 136,456 2,072,047 365,293 184,375 1,883,333 1,417,383
Michael Sophie.......... 51,757 699,868 262,529 105,000 1,049,696 807,188
John R. Wood............ 53,333 1,028,841 103,332 10,000 1,473,786 --
Kenneth E. Bean, II..... 31,946 376,195 33,126 60,000 316,466 140,625
</TABLE>
- --------
(1) Based on the fair market value of the option shares at the 1997 Fiscal
Year-end ($17.125 per share based on the closing selling price on the
Nasdaq National Market) less the exercise price.
(2) Based on the fair market value of the shares on the exercise date less the
exercise price paid for those shares.
(3) Options are immediately exercisable for all the option shares, but any
shares purchased under the options will be subject to repurchase by the
Company, at the original exercise price per share, upon the optionee's
cessation of service prior to vesting in such shares. As of December 31,
1997, the following number of shares were unvested and subject to the
Company's repurchase right: Mr. Roberts--671,320; Mr. Antoniucci--420,903
shares; Mr. Sophie--314,875 shares; Mr. Wood--32,014 shares; Mr. Bean--
88,819 shares.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS

The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1995 Stock Option/Stock Issuance Plan, has the authority to provide for
accelerated vesting of the shares of Common Stock subject to any outstanding
options held by the Chief Executive Officer and any other executive officer or
any unvested share issuances actually held by such individual, in connection
with certain changes in control of the Company or the subsequent termination
of the officer's employment following the change in control event.

The Company has entered into severance agreements (the "Agreements") with
George Roberts, Chairman of the Board of Directors and Chief Executive
Officer, Pier Antoniucci, President and Chief Operating Officer and Michael
Sophie, Chief Financial Officer and Vice President, Finance and Administration
(individually, the "Officer" and collectively the "Officers") each dated
December 15, 1997. Each of these Agreements provide for the following benefits
should the Officer's employment terminate, either voluntarily or
involuntarily, for any reason within twenty-four (24) months following a
Change in Control: (a) a severance payment in an amount equal to two (2) times
his annual rate of base salary; (b) a bonus in an amount equal to the greater
of either (i) two (2) times the full amount of the Officer's target bonus for
the fiscal year in which the termination occurs or (ii) two (2) times the full
amount of his target bonus for the fiscal year in which a Change in Control
occurs; (c) the shares subject to each outstanding option held by the Officer
(to the extent not then otherwise fully vested) will automatically vest so
that each such option will become immediately exercisable for all the option
shares as fully-vested shares; and (d) the Company will, at its own expense,
provide (i) both Messrs. Sophie and Antoniucci and their respective dependents
with continued health care coverage for a period of up to twenty-four months
following their termination of employment, and (ii) Mr. Roberts and his
dependents continued health care coverage for life. A Change in Control will
be deemed to occur under the Agreements upon: (a) a merger or consolidation in
which securities possessing fifty percent (50%) or more of the total combined
voting power of the Company's outstanding securities are transferred to person
or persons different from the persons holding those securities immediately
prior to such transaction, (b) the sale, transfer or other disposition of all
or substantially all of the assets of the Company in complete liquidation or
dissolution of the Company; (c) a hostile

24
<PAGE>

take-over of the Company, whether effected through a tender offer for more
than twenty-five percent (25%) of the Company's outstanding voting securities
or a change in the majority of the Board by one or more contested elections
for Board membership; or (d) the acquisition, directly or indirectly by any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company), of beneficial ownership (within the meaning of Rule 13d-3
of the 1934 Act) of securities possessing more than thirty percent (30%) of
the total combined voting power of the Company's outstanding securities
pursuant to a tender or exchange offer made directly to the Company's
stockholders. In addition, each Officer will be entitled to a full tax gross-
up to the extent one or more of the severance benefits provided under his
Agreement are deemed to constitute excess parachute payments under the federal
income tax laws.

The Company does not have any existing agreements with the Chief Executive
Officer or any other executive officer named in the Summary Compensation Table
which establish a specific term of employment for them, and their employment
may accordingly be terminated at any time at the discretion of the Board of
Directors. The Compensation Committee of the Board of Directors has the
authority as Plan Administrator of the 1995 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding
options held by the Company's executive officers, whether granted under that
plan or any predecessor plan, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following
certain changes in control or ownership of the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Company's Board of Directors currently
consists of Mr. Cogan and Mr. Hawkins. Neither of these individuals was an
officer or employee of the Company at any time during the 1997 Fiscal Year or
at any other time.

No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.

25
<PAGE>

REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board of Directors is responsible for
establishing the base salary and incentive cash bonus programs for the
Company's executive officers. The Committee also has the exclusive
responsibility for the administration of the Company's 1995 Stock Option/Stock
Issuance Plan, under which grants may be made to executive officers and other
key employees of the Company.

COMPENSATION PHILOSOPHY

Since the initial public offering of the Company's common stock in March
1995, it has been the Committee's policy and objective to provide the
Company's executive officers and other key employees with competitive
compensation opportunities based upon their contribution to the financial
success of the Company, the enhancement of corporate and stockholder values,
the market levels of compensation in effect at companies with which the
Company competes for executive talent and the personal performance of such
individuals. The primary factors that the Committee considered in establishing
the compensation levels of the executive officers for the 1997 fiscal year are
summarized below. The Committee may, however, in its discretion, apply
different factors in setting executive compensation for future fiscal years.

It is the Committee's current objective to have a significant portion of
each officer's compensation contingent upon the Company's performance as well
as upon the officer's own level of performance. Accordingly, the compensation
package for each executive officer and key employee is comprised of three
elements: (i) base salary which reflects individual performance and is
designed primarily to be competitive with salary levels in effect at a select
group of companies with which the Company competes for executive talent, (ii)
annual performance awards payable in cash and based upon the Company's
financial performance and the market performance of the Company's common stock
and (iii) long-term equity incentive awards with overlapping vesting schedules
which strengthen the mutuality of interests between the executive officers and
the Company's stockholders while fostering retention of existing personnel.

The Committee recognizes that the highly-specialized industry sector in
which the Company operates is both extremely competitive and globally-
challenging, with the result that there is substantial demand for high-
caliber, seasoned executives with a high level of industry-specific knowledge
and industry contacts, especially overseas contacts. It is crucial that the
Company reward and be assured of retaining the executive personnel essential
to the attainment of the Company's performance goals. For these reasons, the
Committee believes the Company's executive compensation arrangements must
remain competitive with those offered by other companies of similar magnitude,
complexity and performance records (the "peer group") in order to provide
adequate incentive to the Company's executive officers to continue to provide
services to the Company.

In evaluating and determining the 1997 fiscal year compensation packages for
executive officers, the Committee took specific note of several factors,
including the Company's revenue growth and profitability for the 1997 fiscal
year, the increase in the market value of the Company's common stock during
1997, and the Company's completion of five successful business acquisitions
during the fiscal year.

CASH COMPENSATION

A key objective of the Company's current executive compensation program is
to position its key executives to earn annual cash compensation (base salary
plus bonus) equaling or exceeding that which the executive would earn at other
peer group companies. During 1997, the Committee reviewed and relied on
technology industry compensation surveys in its assessment of appropriate
compensation levels.

26
<PAGE>

The fiscal year 1997 base salaries for the named executive officers are
based upon a number of factors, including the Company's sustained revenue
growth and increased profit margins, each executive's performance and
contribution to overall Company performance and the levels of base salary in
effect for comparable positions with the peer group companies. Base salary
decisions are made as part of a formal review process. Generally, the base
salaries of the Company's executive officers for the 1997 fiscal year ranged
from the 50th percentile to the 75th percentile of the salaries surveyed for
comparable positions at the peer group companies.

For purposes of the stock price performance graph which appears later in
this Proxy Statement, the Company has selected the Standard and Poors 500
Communications Equipment Manufacturers Index as the industry index. Several of
the companies included in that index were also among the companies which the
Committee surveyed as part of the peer group for comparative compensation
purposes. However, in selecting companies to survey for such compensation
purposes, the Committee focused primarily on whether those companies were
actually competitive with the Company in seeking executive talent and whether
those companies had a management style and corporate culture and annual
revenues similar to the Company's. For this reason, the number of companies
surveyed for compensation data was substantially less than the number of
companies included in the Standard and Poors 500 Communications Equipment
Manufacturers Index.

The annual incentive compensation provided to the Company's executive
officers is in the form of cash bonuses based on the Committee's assessment of
the Company's financial performance for the year and the individual officer's
contribution to that performance. For the 1997 fiscal year, the Committee took
into account the following measures of financial performance: the Company's
revenue growth and profitability for such fiscal year, the increase in the
market value of the Company's common stock during the year, the Company's
completion of five successful business acquisitions during that fiscal year
and a convertible subordinated note financing completed in November 1997. The
bonuses to the executive officers reflected in the Summary Compensation Table
for the 1997 Fiscal Year were based upon the Committee's evaluation of each
officer's contribution to the Company's achievement of those 1997 financial
results.

STOCK OPTIONS

Equity incentives are provided primarily through stock option grants under
the 1995 Plan. The grants are designed to align the interests of each
executive officer with those of the stockholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual
to acquire shares of the Company's common stock at a fixed price per share
(the market price on the grant date) over a specified period of time (up to 10
years). The shares subject to each option generally vest in installments over
a two-to-four-year period, contingent upon the executive officer's continued
employment with the Company. Accordingly, the option will provide a return to
the executive officer only if the executive officer remains employed by the
Company during the applicable vesting period, and then only if the market
price of the underlying shares appreciates over the option term.

The number of shares subject to each option grant will be set at a level
intended to create a meaningful opportunity for stock ownership based on the
officer's current position with the Company, the base salary associated with
that position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's
personal performance in recent periods. The Committee will also take into
account the executive officer's existing holdings of the Company's common
stock and the number of vested and unvested options held by that individual in
order to maintain an appropriate level of equity incentive. However, the
Committee does not intend to adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers.

27
<PAGE>

CHIEF EXECUTIVE OFFICER PERFORMANCE AND COMPENSATION

The base salary established for Mr. Roberts for fiscal 1997 slightly exceeds
the median base salary levels in effect for the chief executive officers at
the peer group companies surveyed by the Committee.

In determining Mr. Roberts' performance bonus for the 1997 fiscal year, the
Committee took note of the Company's performance factors noted above and
determined that Mr. Roberts, in his capacity as Chairman of the Board,
President and Chief Executive Officer, significantly contributed to the
Company's financial success for the year. Accordingly, the Committee awarded
him a cash performance bonus of $358,000 for the 1997 fiscal year.

The Committee also granted Mr. Roberts options to purchase an additional
300,000 shares of the Company's common stock during the 1997 fiscal year. The
shares subject to those options will vest in a series of installments over his
continued period of employment with the Company and are accordingly designed
to serve as a meaningful incentive to remain in the Company' employ and to
further align his interests with those of the stockholders.

It is the Committee's view that the total compensation package provided Mr.
Roberts for the 1997 fiscal year is competitive with the typical compensation
packages awarded to chief executive officers in the Company's peer group.

CHANGE IN CONTROL AGREEMENTS

In December 1997, the Company entered into severance agreements with Messrs.
Roberts, Antoniucci, and Sophie, pursuant to which each such officer will be
entitled to receive severance benefits in the event his employment terminates
within a designated period following certain changes in control of the
Company. Accordingly, upon such officer's termination of employment within two
years after such a change in control, including his officer's voluntary
resignation for any reason, involuntary dismissal or discharge or his death or
disability, the officer will be entitled to receive a severance payment in an
amount equal to the sum of (i) two times his annual base salary plus (ii) the
greater of (a) two times the full amount of the target bonus payable to such
officer with respect to the fiscal year in which the officer's employment
terminates or (b) two times the full amount of the target bonus payable to him
in the fiscal year in which the change in control occurs. In addition, each of
the officer's outstanding options will automatically accelerate at the time of
his termination of employment following the change in control, so that each
such option will become fully vested and immediately exercisable for the total
number of shares of the Company's common stock at the time subject to each
such option. The Company will also, at its expense, provide continued health
care coverage under the Company's medical/dental plans to each of the officers
and their eligible dependents for up to twenty-four (24) months or, in the
case of Mr. Roberts, for his life and the lives of his dependents. Each
officer will also be entitled to a full tax gross-up to the extent one or more
of his severance benefits are deemed to constitute an excess parachute payment
under the federal income tax laws.

Each of these severance agreements also imposes certain non-competition and
non-solicitation covenants following the officer's termination of employment
following a change in control other than a hostile-take over. Further
information concerning these severance agreements may be found in the section
of this Proxy Statement entitled "Employment Contracts, Termination of
Employment Arrangements and Change in Control Agreements."

The Committee designed these severance agreements to provide each of the
selected officers with an overall compensation package which will be highly
competitive with the compensation arrangements, including severance benefits,
in effect for officers at comparable positions in the industry. The Committee
believes that the level of financial security which the new agreements will
provide the selected officers in the event of a change in control is fair and
equitable in light of the valuable contribution those officers have made to
the Company's financial success during their tenure to date as executive
officers and will allow each of them to continue to concentrate his efforts
and attention to the business and affairs of the Company without undue concern
for his individual financial situation.

28
<PAGE>

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)

Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1996 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1998
will exceed that limit. The Company's 1995 Plan is structured so that any
compensation deemed paid to an executive officer in connection with the
exercise of option grants made under that plan will qualify as performance-
based compensation which will not be subject to the $1 million limitation.
Because it is very unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided at this time not to take
any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.

It is the opinion of the Compensation Committee that the executive
compensation policies and programs in effect for the Company's executive
officers provide an appropriate level of total remuneration which properly
aligns the Company's performance and the interests of the Company's
stockholders with competitive and equitable executive compensation in a
balanced and reasonable manner, for both the short and long-term.

Gill Cogan
Member, Compensation Committee
John A. Hawkins
Member, Compensation Committee

29
<PAGE>

STOCK PERFORMANCE GRAPH

The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company, the Standard and Poors 500 Index and the Standard and
Poors Communications Equipment Manufacturers' Index.

[STOCK PERFORMANCE GRAPH APPEARS HERE]

CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>

S&P 500 Communication
Date P-Com, Inc. Index Equipment 500 Index
----------- ------- -------------------
<S> <C> <C> <C>
03/02/95 100.00 100.00 100.00
03/31/95 128.32 103.21 107.12
06/30/95 128.32 113.06 126.67
09/30/95 298.32 122.05 146.66
12/31/95 266.67 129.40 148.09
03/31/96 268.32 136.34 154.82
06/30/96 420.00 142.46 178.36
09/30/96 330.00 146.86 162.08
12/31/96 394.99 159.11 173.44
03/31/97 346.67 163.37 182.55
06/30/97 440.00 191.89 238.48
09/30/97 638.32 206.27 250.33
12/31/97 460.00 212.98 225.98
</TABLE>
- --------
(1) The graph covers the period from March 2, 1995, the commencement date of
the Company's initial public offering of shares of its Common Stock to
December 31, 1997.
(2) The graph assumes that $100 was invested in the Company on March 2, 1995,
in the Company's Common Stock and in each index, and that all dividends
were reinvested. No cash dividends have been declared on the Company's
Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.

Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated
by reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.

30
<PAGE>

CERTAIN TRANSACTIONS

In addition to the indemnification provisions contained in the Company's
Restated Certificate of Incorporation and Bylaws, the Company has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require the Company, among other things, to indemnify such
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such
individual's status or service as a director or officer of the Company (other
than Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.

Mr. Roberts' adult son and Mr. Antoniucci's adult daughter each holds a
minority interest in a private company that supplies synthesizers to the
Company for use in its products. Until March 31, 1997, this supplier subleased
real property from the Company at the Company's principal executive offices in
Campbell, California. The terms of the lease agreement with the supplier were
no less favorable to the Company than could be obtained from an unaffiliated
third party. To date, the Company has purchased approximately $9.2 million of
synthesizers from such supplier, including approximately $2.3 million in 1997
down from $4.8 million in 1996. Sales of synthesizers to the Company have
accounted for 53% of the sales of such supplier. The terms of the Company's
purchase agreement with such supplier are no less favorable to the Company
than could be obtained from an unaffiliated third party supplier. The Company
also purchases synthesizers from Geritel S.p.A. and Communication Techniques,
Inc. at competitive prices approximately equal to those of the supplier. In
addition, SPC Electronics Corp. and Celeritek, Inc. are developing
competitively priced synthesizers using the Company's design. Each adult is
financially independent of his or her parent and resides at a different
address from his or her parent.

All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.

31
<PAGE>

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10% of the Company's outstanding Common Stock
are subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended, which requires them to file reports with
respect to their ownership of the Common Stock and their transactions in such
Common Stock. Based upon (i) the copies of Section 16(a) reports which the
Company received from such persons for their 1997 Fiscal Year transactions in
the Common Stock and their Common Stock holdings, and (ii) the written
representations received from one or more of such persons that no annual Form
5 reports were required to be filed by them for the 1997 Fiscal Year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its directors, executive officers
and greater than ten percent beneficial owners .

ANNUAL REPORT

A copy of the Annual Report of the Company for the 1997 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy
solicitation material.

FORM 10-K

The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 31, 1998. Stockholders may obtain a copy
of this report, without charge, by writing to Mr. Michael Sophie, Chief
Financial Officer and Vice President, Finance and Administration of the
Company, at the Company's principal executive offices located at 3175 South
Winchester Boulevard, Campbell, California 95008.

THE BOARD OF DIRECTORS OF P-COM,
INC.

Dated: April 27, 1998

32
<PAGE>

ANNEX A

P-COM, INC.

1995 STOCK OPTION/STOCK ISSUANCE PLAN

(AS AMENDED AND RESTATED EFFECTIVE AS OF MARCH 11, 1998)

ARTICLE ONE

General Provisions

I. PURPOSE OF THE PLAN

This 1995 Stock Option/Stock Issuance Plan is intended to promote the
interests of P-COM, Inc., a Delaware corporation, by providing eligible
persons with the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Corporation as an incentive for
them to remain in the service of the Corporation.

Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.

II. STRUCTURE OF THE PLAN

A. The Plan shall be divided into three separate equity programs:

(i) the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,

(ii) the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a
bonus for services rendered the Corporation (or any Parent or Subsidiary),
and

(iii) the Automatic Option Grant Program under which Eligible Directors
shall automatically receive option grants at periodic intervals to purchase
shares of Common Stock.

B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.

III. ADMINISTRATION OF THE PLAN

A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Except to the extent the Primary Committee is
granted sole and exclusive authority under one or more specific provisions of
the Plan, administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in these
programs may, at the Board's discretion, be vested in the Primary Committee or
a Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons. The members of the Secondary
Committee may be individuals who are Employees eligible to receive
discretionary option grants or direct stock issuances under the Plan or any
stock option, stock appreciation, stock bonus or other stock plan of the
Corporation (or any Parent or Subsidiary).

B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.

C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem

A-1
<PAGE>

appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding
options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant or Stock Issuance Program under its
jurisdiction or any option or stock issuance thereunder.

D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary
Committee or the Secondary Committee shall be liable for any act or omission
made in good faith with respect to the Plan or any option grants or stock
issuances under the Plan.

E. Administration of the Automatic Option Grant Program shall be self-
executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to
option grants made thereunder.

IV. ELIGIBILITY

A. The persons eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs are as follows:

(i) Employees,

(ii) non-employee members of the Board or of the board of directors of
any Parent or Subsidiary, and

(iii) consultants or other independent advisors who provide services to
the Corporation (or any Parent or Subsidiary).

B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with
respect to the option grants under the Discretionary Option Grant Program,
which eligible persons are to receive option grants, the time or times when
such option grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or
a Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the
consideration to be paid by the Participant for such shares.

C. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with the Discretionary Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.

D. The individuals eligible to receive option grants under the Automatic
Option Grant Program shall be limited to (i) those individuals who were
serving as non-employee Board members on February 1, 1996, (ii) those
individuals who first become non-employee Board members after February 1,
1996, whether through appointment by the Board or election by the
Corporation's stockholders, and (iii) those individuals who continue to serve
as non-employee Board members at one or more Annual Stockholders Meetings held
after February 1, 1996. A non-employee Board member who has previously been in
the employ of the Corporation (or any Parent or Subsidiary) shall not be
eligible to receive an initial 40,000-share option grant under the Automatic
Option Grant Program at the time he or she first becomes a non-employee Board
member, but such individual shall be eligible to receive periodic option
grants under the Automatic Option Grant Program upon his or her continued
service as a non-employee Board member.

A-2
<PAGE>

V. STOCK SUBJECT TO THE PLAN

A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 12,719,625/1/
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the Plan Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders prior
to such date, including the shares subject to the outstanding options
incorporated into the Plan and any other shares which would have been
available for future option grants under the Predecessor Plan, (ii) an
additional increase of 640,000 shares of Common Stock previously authorized by
the Board and approved by the Corporation's stockholders prior to the Plan
Effective Date, (iii) an additional increase of 1,600,000 shares of Common
Stock authorized by the Board on February 1, 1996 and approved by the
Corporation's stockholders at the 1996 Annual Meeting, (iv) a further increase
of 3,000,000 shares of Common Stock authorized by the Board in April 1997 and
approved by the stockholders at the 1997 Annual Meeting, (v) the 683,737
shares of Common Stock added to the share reserve on January 2, 1998 by reason
of the automatic share increase provisions of Section V.B of this Article One
plus (vi) a further increase of 3,500,000 shares of Common Stock authorized by
the Board on March 11, 1998 and subject to stockholder approval at the 1998
Annual Meeting.

B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of each calendar
year, beginning with the 1998 calendar year and continuing through calendar
year 2001, by an amount equal to one and six-tenths percent (1.6%) of the
total number of shares of Common Stock outstanding on the last trading day of
the immediately preceding calendar year. No Incentive Options may be granted
on the basis of the additional shares of Common Stock resulting from such
annual increases.

C. No one person participating in the Plan may receive options, separately
exercisable stock appreciation rights and direct stock issuances for more than
1,600,000 shares of Common Stock in the aggregate over the term of the Plan.

D. Shares of Common Stock subject to outstanding options shall be available
for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation, at the original option exercise or direct
issue price paid per share, pursuant to the Corporation's repurchase rights
under the Plan shall be added back to the number of shares of Common Stock
reserved for issuance under the Plan and shall accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, should the exercise price of an option
under the Plan (including any option incorporated from the Predecessor Plan)
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the
gross number of shares for which the option is exercised or which vest under
the stock issuance, and not by the net number of shares of Common Stock issued
to the holder of such option or stock issuance.

E. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i)
- --------
1 All share numbers in this Plan reflect (i) the 1-for-3 reverse split of the
Common Stock effected prior to the Plan Effective Date, (ii) the 2-for-1
split of the Common Stock effected October 27, 1995 and (iii) the 2-for-1
split of the Common Stock effected on September 25, 1997 through a dividend
of one share of Common Stock distributed on each outstanding share of Common
Stock.

A-3
<PAGE>

the maximum number and/or class of securities issuable under the Plan, (ii)
the number and/or class of securities for which any one person may be granted
options, separately exercisable stock appreciation rights and direct stock
issuances over the term of the Plan, (iii) the number and/or class of
securities for which automatic option grants are to be subsequently made per
Eligible Director under the Automatic Option Grant Program and (iv) the number
and/or class of securities and the exercise price per share in effect under
each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.

ARTICLE TWO

Discretionary Option Grant Program

I. OPTION TERMS

Each granted option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.

A. Exercise Price.

1. The exercise price per share shall be fixed by the Plan Administrator
but shall not be less than eighty-five percent (85%) of the Fair Market
Value per share of Common Stock on the option grant date.

2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Five
and the documents evidencing the option grant, be payable in one or more of
the forms specified below:

(i) cash or check made payable to the Corporation,

(ii) shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or

(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to
(A) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares
plus all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of such
exercise and (B) the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to complete
the sale transaction.

Except to the extent such sale and remittance procedure is utilized, payment
of the exercise price for the purchased shares must be made on the Exercise
Date.

B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.

C. Effect of Termination of Service.

1. The following provisions shall govern the exercise of any options held
by the Optionee a t the time of cessation of Service or death:

(i) Any option outstanding at the time of the Optionee's cessation of
Service for any reason shall remain exercisable for such period of time
thereafter as shall be determined by the Plan Administrator

A-4
<PAGE>

and set forth in the documents evidencing the option, but no such
option shall be exercisable after the expiration of the option term.

(ii) Any option exercisable in whole or in part by the Optionee at
the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution.

(iii) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent it is not exercisable for
vested shares on the date of such cessation of Service.

(iv) Should the Optionee's Service be terminated for Misconduct, then
all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.

2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:

(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
period otherwise in effect for that option to such greater period of
time as the Plan Administrator shall deem appropriate, but in no event
beyond the expiration of the option term, and/or

(ii) permit the option to be exercised, during the applicable post-
Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested
had the Optionee continued in Service.

D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person
shall have exercised the option, paid the exercise price and become a holder
of record of the purchased shares.

E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall
be established by the Plan Administrator and set forth in the document
evidencing such repurchase right.

F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.

II. INCENTIVE OPTIONS

The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options.

A-5
<PAGE>

Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to the terms of this Section II.

A. Eligibility. Incentive Options may only be granted to Employees.

B. Exercise Price. The exercise price per share shall not be less than one
hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.

C. Dollar Limitation. The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under the Plan (or any other option plan of
the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of
such options as Incentive Options shall be applied on the basis of the order
in which such options are granted.

D. 10% Stockholder. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.

III. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for any or all of those shares as fully-vested shares of Common
Stock. However, an outstanding option shall not so accelerate if and to the
extent: (i) such option is, in connection with the Corporate Transaction,
either to be assumed by the successor corporation (or parent thereof) or to be
replaced with a comparable option to purchase shares of the capital stock of
the successor corporation (or parent thereof), (ii) such option is to be
replaced with a cash incentive program of the successor corporation which
preserves the spread existing on the unvested option shares at the time of the
Corporate Transaction and provides for subsequent payout in accordance with
the same vesting schedule applicable to such option or (iii) the acceleration
of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant. The determination of option
comparability under clause (i) above shall be made by the Plan Administrator,
and its determination shall be final, binding and conclusive.

B. All outstanding repurchase rights shall also terminate automatically, and
the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction
or (ii) such accelerated vesting is precluded by other limitations imposed by
the Plan Administrator at the time the repurchase right is issued.

C. The Plan Administrator shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Corporate Transaction, whether or
not those options are to be assumed or replaced in the Corporate Transaction.

D. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).

A-6
<PAGE>

E. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for
such securities shall remain the same. In addition, appropriate adjustments to
reflect the Corporate Transaction shall be made to (i) the class and number of
securities available for issuance over the remaining term of the Plan and (ii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances in the aggregate over the remaining term of the Plan.

F. Any options which are assumed or replaced in the Corporate Transaction
and do not otherwise accelerate at that time shall automatically accelerate
(and any of the Corporation's outstanding repurchase rights which do not
otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or
(ii) the expiration of the one (1)-year period measured from the effective
date of the Involuntary Termination.

G. The Plan Administrator shall have the discretion, exercisable either at
the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the
Optionee's Service within a specified period following the effective date of
such Change in Control. Any options accelerated in connection with a Change in
Control shall remain fully exercisable until the expiration of the option
term.

H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.

I. The grant of options under the Discretionary Option Grant Program shall
in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.

IV. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new option grant date.

V. STOCK APPRECIATION RIGHTS

A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.

A-7
<PAGE>

B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:

(i) One or more Optionees may be granted the right, exercisable upon such
terms as the Plan Administrator may establish, to elect between the
exercise of the underlying option for shares of Common Stock and the
surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (A) the Fair Market Value
(on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.

(ii) No such option surrender shall be effective unless it is approved by
the Plan Administrator. If the surrender is so approved, then the
distribution to which the Optionee shall be entitled may be made in shares
of Common Stock valued at Fair Market Value on the option surrender date,
in cash, or partly in shares and partly in cash, as the Plan Administrator
shall in its sole discretion deem appropriate.

(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee
had under the surrendered option (or surrendered portion thereof) on the
option surrender date and may exercise such rights at any time prior to the
later of (A) five (5) business days after the receipt of the rejection
notice or (B) the last day on which the option is otherwise exercisable in
accordance with the terms of the documents evidencing such option, but in
no event may such rights be exercised more than ten (10) years after the
option grant date.

C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:

(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.

(ii) Upon the occurrence of a Hostile Take-Over, each such individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30)-day
period following such Hostile Take-Over) to surrender each such option to
the Corporation, to the extent the option is at the time exercisable for
vested shares of Common Stock. In return for the surrendered option, the
Optionee shall receive a cash distribution from the Corporation in an
amount equal to the excess of (A) the Take-Over Price of the shares of
Common Stock which are at the time vested under each surrendered option (or
surrendered portion thereof) over (B) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.

(iii) The Plan Administrator shall pre-approve, at the time the limited
right is granted, the subsequent exercise of that right in accordance with
the terms of the grant and the provisions of this Section V. No additional
approval of the Plan Administrator or the Board shall be required at the
time of the actual option surrender and cash distribution.

(iv) The balance of the option (if any) shall continue in full force and
effect in accordance with the documents evidencing such option.

ARTICLE THREE

Stock Issuance Program

I. STOCK ISSUANCE TERMS

Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement
which complies with the terms specified below.

A. Purchase Price.

1. The purchase price per share shall be fixed by the Plan Administrator,
but shall not be less than eighty-five percent (85%) of the Fair Market
Value per share of Common Stock on the stock issuance date.

A-8
<PAGE>

2. Subject to the provisions of Section I of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for one or both
of the following items of consideration which the Plan Administrator may
deem appropriate in each individual instance:

(i) cash or check made payable to the Corporation, or

(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).

B. Vesting Provisions.

1. Shares of Common Stock issued under the Stock Issuance Program may, in
the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:

(i) the Service period to be completed by the Participant or the
performance objectives to be attained,

(ii) the number of installments in which the shares are to vest,

(iii) the interval or intervals (if any) which are to lapse between
installments, and

(iv) the effect which death, Permanent Disability or other event
designated by the Plan Administrator is to have upon the vesting
schedule,

shall be determined by the Plan Administrator and incorporated into the
Stock Issuance Agreement.

2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her
unvested shares of Common Stock by reason of any stock dividend, stock
split, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the
same vesting requirements applicable to the Participant's unvested shares
of Common Stock and (ii) such escrow arrangements as the Plan Administrator
shall deem appropriate.

3. The Participant shall have full stockholder rights with respect to any
shares of Common Stock issued to him or her under the Stock Issuance
Program, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and
to receive any regular cash dividends paid on such shares.

4. Should the Participant cease to remain in Service while holding one or
more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect
to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and
the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued
to the Participant for consideration paid in cash or cash equivalent
(including the Participant's purchase-money indebtedness), the Corporation
shall repay to the Participant the cash consideration paid for the
surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to such
surrendered shares.

5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other
assets attributable thereto) which would otherwise occur upon the non-
completion of the vesting schedule applicable to such shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation
of Service or the attainment or non-attainment of the applicable
performance objectives.

A-9
<PAGE>

II. CORPORATE TRANSACTION/CHANGE IN CONTROL

A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in
the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.

B. The Plan Administrator shall have the discretion, exercisable either at
the time the unvested shares are issued or at any time while the Corporation's
repurchase right remains outstanding, to provide for the automatic termination
of one or more of those outstanding rights and the immediate vesting of the
shares of Common Stock subject to such rights upon the occurrence of a
Corporate Transaction.

C. Any repurchase rights that are assigned in the Corporate Transaction
shall automatically terminate, and all the shares of Common Stock subject to
those terminated rights shall immediately vest in full, in the event the
Optionee's Service should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of such
Corporate Transaction.

D. The Plan Administrator shall have the discretion, exercisable either at
the time the unvested shares are issued or at any time while the Corporation's
repurchase right remains outstanding, to (i) provide for the automatic
termination of one or more of those outstanding rights and the immediate
vesting of the shares subject to such rights upon the occurrence of a Change
in Control or (ii) condition any such accelerated vesting upon the subsequent
Involuntary Termination of the Participant's Service within a specified period
following the effective date of such Change in Control.

III. SHARE ESCROW/LEGENDS

Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.

ARTICLE FOUR

Automatic Option Grant Program

I. OPTION TERMS

A. Grant Dates. Pursuant to the provisions of the February 1, 1996
restatement of this Article Four, option grants shall be made to Eligible
Directors in accordance with the grant date provisions specified below:

1. Each individual serving as an Eligible Director on February 1, 1996
was automatically granted on such date a Non-Statutory Option to purchase
40,000 shares of Common Stock.

2. Each individual who first becomes an Eligible Director after February
1, 1996 shall automatically be granted, on the date such individual is
first elected or appointed as a non-employee Board member, a Non-Statutory
Option to purchase 40,000 shares of Common Stock.

3. On the date of each Annual Stockholders Meeting, beginning with the
1997 Annual Meeting, each individual who is to continue as an Eligible
Director shall automatically be granted, whether or not he or she is
standing for re-election as a Board member at that Annual Meeting, a Non-
Statutory Option to purchase an additional 4,000 shares of Common Stock,
provided such individual has not received an option grant pursuant to this
Automatic Option Grant Program within six (6) months prior to the date of
such Annual Meeting. There shall be no limit on the number of such 4,000-
share option grants any one Eligible Director may receive over his or her
period of Board service. The number of shares for which the automatic
option grants are to be made to each newly-elected or continuing Eligible
Director shall be subject to periodic adjustment pursuant to the applicable
provisions of Section V.D. of Article One.

A-10
<PAGE>

Stockholder approval of this 1998 Restatement at the 1998 Annual
Stockholders Meeting will constitute pre-approval of each option subsequently
granted on or after the date of such Annual Meeting pursuant to the express
terms of this Automatic Option Grant Program and the subsequent exercise of
that option in accordance with its terms.

B. Exercise Price.

1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option
grant date.

2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to
the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.

C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.

D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each option, whether
the initial 40,000-share grant or any annual 4,000-share grant, shall vest,
and the Corporation's repurchase right with respect to those shares shall
lapse, in a series of eight (8) successive equal quarterly installments upon
the Optionee's completion of each three (3) months of continued service as a
Board member over the twenty-four (24)-month period measured from the option
grant date.

E. Effect of Termination of Board Service. The following provisions shall
govern the exercise of any options held by the Optionee at the time the
Optionee ceases to serve as a Board member:

(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution) shall have a twelve (12)-month
period following the date of such cessation of Board service in which to
exercise each such option.

(ii) During the twelve (12)-month exercise period, the option may not be
exercised in the aggregate for more than the number of vested shares of
Common Stock for which the option is exercisable at the time of the
Optionee's cessation of Board service.

(iii) Should the Optionee cease to serve as a Board member by reason of
death or Permanent Disability, then all shares at the time subject to the
option shall immediately vest so that such option may, during the twelve
(12)-month exercise period following such cessation of Board service, be
exercised for all or any portion of such shares as fully-vested shares of
Common Stock.

(iv) In no event shall the option remain exercisable after the expiration
of the option term. Upon the expiration of the twelve (12)-month exercise
period or (if earlier) upon the expiration of the option term, the option
shall terminate and cease to be outstanding for any vested shares for which
the option has not been exercised. However, the option shall, immediately
upon the Optionee's cessation of Board service, terminate and cease to be
outstanding to the extent it is not exercisable for vested shares at that
time.

II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER

A. In the event of any Corporate Transaction, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and
may be exercised for all or any portion of such shares as fully-vested shares
of Common Stock. Immediately following the consummation of the Corporate
Transaction, each automatic option grant shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).

A-11
<PAGE>

B. In connection with any Change in Control, the shares of Common Stock at
the time subject to each outstanding option but not otherwise vested shall
automatically vest in full so that each such option shall, immediately prior
to the effective date of the Change in Control, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for the fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.

C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each automatic
option held by him or her. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time
vested in those shares) over (ii) the aggregate exercise price payable for
such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. Stockholder approval
of this 1998 Restatement at the 1998 Annual Meeting shall constitute pre-
approval of each option granted with such a surrender right under this
Automatic Option Grant Program on or after the date of that Annual Meeting and
the subsequent exercise of such right in accordance with the terms and
provisions of this Section II.C. No additional approval or consent of the Plan
Administrator or the Board shall be required at the time of the actual option
surrender and cash distribution.

D. The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.

III. REMAINING TERMS

The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.

ARTICLE FIVE

Miscellaneous

I. FINANCING

A. The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering
a promissory note payable in one or more installments. The terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. Promissory
notes may be authorized with or without security or collateral. In all events,
the maximum credit available to the Optionee or Participant may not exceed the
sum of (i) the aggregate option exercise price or purchase price payable for
the purchased shares plus (ii) any Federal, state and local income and
employment tax liability incurred by the Optionee or the Participant in
connection with the option exercise or share purchase.

B. The Plan Administrator may, in its discretion, determine that one or more
such promissory notes shall be subject to forgiveness by the Corporation in
whole or in part upon such terms as the Plan Administrator may deem
appropriate.

II. TAX WITHHOLDING

A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or stock appreciation rights or upon the issuance or
vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.

A-12
<PAGE>

B. The Plan Administrator may, in its discretion, provide any or all holders
of Non-Statutory Options or unvested shares of Common Stock under the Plan
(other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in
connection with the exercise of their options or the vesting of their shares.
Such right may be provided to any such holder in either or both of the
following formats:

(i) Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of
such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.

(ii) Stock Delivery: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes)
with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.

III. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan became effective on the date on which the Underwriting Agreement
was executed and the initial public offering price of the Common Stock was
established. The Plan serves as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan on the Plan
Effective Date have been incorporated into the Plan and treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.

B. The Plan was amended and restated by the Board, effective February 1,
1996 (the "February 1996 Restatement") to effect the following revisions: (i)
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Plan by an additional 1,600,000 shares to 5,535,888
shares and (ii) enhance the benefit and eligibility provisions of the
Automatic Option Grant Program in order to (A) effect an automatic option
grant for 40,000 shares of Common Stock on February 1, 1996 to each individual
serving as a non-employee Board member at that time, (B) increase the number
of shares for which an initial option grant is to be made under the Automatic
Option Grant Program to each newly-elected non-employee Board member to 40,000
shares, (C) authorize a series of automatic option grants to be made annually
to each non-employee Board member, in the amount of 4,000 shares per annual
grant, over that individual's period of continued service as a Board member
and (D) allow non-employee Board members who joined the Board prior to the
implementation of the Plan to qualify for such annual option grants. The
February 1996 Restatement became effective immediately upon adoption by the
Board and was approved by the Corporation's stockholders at the 1996 Annual
Meeting. All option grants made under the Plan prior to the February 1996
Restatement shall remain outstanding in accordance with the terms and
conditions of the respective instruments evidencing those options, and nothing
in the February 1996 Restatement shall be deemed to modify or in any way
affect those outstanding options.

C. In April 1997, the Board further amended and restated the Plan (the
"April 1997 Restatement") to effect the following revisions: (i) increase the
number of shares of Common Stock reserved for issuance over the term of the
Plan by an additional 3,000,000 shares to 8,535,888 shares, (ii) implement an
automatic share increase feature pursuant to which the number of shares
available for issuance under the 1995 Plan shall automatically increase on the
first trading day of each calendar year, beginning with the 1998 calendar year
and continuing through calendar year 2001, by an amount equal to one and six
tenths percent (1.6%) of the total number of shares of Common Stock
outstanding on the last trading day of the immediately preceding calendar
year, (iii) render the non-employee Board members eligible to receive option
grants under the Discretionary Option Grant and Stock Issuance Programs, (iv)
allow unvested shares issued under the Plan and subsequently repurchased by

A-13
<PAGE>

the Corporation at the option exercise or direct issue price paid per share to
be reissued under the Plan, (v) remove certain restrictions on the eligibility
of non-employee Board members to serve as Plan Administrator and (vi) effect a
series of additional changes to the provisions of the Plan (including the
stockholder approval requirements) in order to take advantage of the recent
amendments to Rule 16b-3 of the Securities and Exchange Commission which
exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. The
stockholders approved the April 1997 Restatement at the 1997 Annual Meeting.
All option grants made under the Plan prior to the April 1997 Restatement
shall remain outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options, and nothing in the April 1997
Restatement shall be deemed to modify or in any way affect those outstanding
options.

D. On March 11, 1998 the Board further amended and restated the Plan (the
"1998 Restatement") to increase the number of shares of Common Stock reserved
for issuance over the term of the Plan by an additional 3,500,000 shares to
12,719,625 shares of Common Stock. The 1998 Restatement is subject to
stockholder approval at the 1998 Annual Meeting, and no option grants made on
the basis of the 3,500,000-share increase under the 1998 Restatement shall
become exercisable in whole or in part unless and until the 1998 Restatement
is approved by the stockholders. Should such stockholder approval not be
obtained, then each option grant made pursuant to the 3,500,000-share increase
shall terminate and cease to remain outstanding without ever becoming
exercisable for those shares, and no additional option grants shall be made on
the basis of that share increase. All option grants and stock issuances made
prior to the 1998 Restatement shall remain outstanding in accordance with the
terms and conditions of the respective instruments evidencing those options or
issuances, and nothing in the 1998 Restatement shall be deemed to modify or in
any way affect those outstanding options or issuances. Subject to the
foregoing limitations, the Plan Administrator may make option grants and
direct stock issuances under the Plan at any time before the date fixed herein
for the termination of the Plan.

E. The option/vesting acceleration provisions of Article Two relating to
Corporate Transactions and Changes in Control may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the
Predecessor Plan which do not otherwise provide for such acceleration.

F. The Plan shall terminate upon the earliest of (i) January 10, 2005, (ii)
the date on which all shares available for issuance under the Plan shall have
been issued pursuant to the exercise of the options or the issuance of shares
(whether vested or unvested) under the Plan or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such Plan
termination, all options and unvested stock issuances outstanding on such date
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing such options or issuances.

IV. AMENDMENT OF THE PLAN

A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, (i) no such amendment or
modification shall adversely affect the rights and obligations with respect to
options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitations of that program. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.

B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any
excess shares actually issued under those programs are held in escrow until
there is obtained stockholder approval of an amendment sufficiently increasing
the number of shares of Common Stock available for issuance under the Plan. If
such stockholder approval is not obtained within twelve (12) months after the
date the first such excess grants or issuances are made, then (i) any
unexercised options granted on the basis of such excess shares shall terminate

A-14
<PAGE>

and cease to be outstanding and (ii) the Corporation shall promptly refund to
the Optionees and the Participants the exercise or purchase price paid for any
excess shares issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were
held in escrow, and such shares shall thereupon be automatically cancelled and
cease to be outstanding.

V. USE OF PROCEEDS

Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.

VI. REGULATORY APPROVALS

A. The implementation of the Plan, the granting of any option or stock
appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.

B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.

VII. NO EMPLOYMENT/SERVICE RIGHTS

Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.

A-15
<PAGE>

APPENDIX

The following definitions shall be in effect under the Plan:

A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under the Plan.

B. Board shall mean the Corporation's Board of Directors.

C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:

(i) the acquisition, directly or indirectly, by any person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by, or is under common control with, the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer ma de directly to the Corporation's
stockholders, or

(ii) a change in the composition of the Board over a period of thirty-six
(36) consecutive months or less such that a majority of the Board members
ceases, by reason of one or more contested elections for Board membership,
to be comprised of individuals who either (A) have been Board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (A) who were still in
office at the time such election or nomination was approved by the Board.

D. Code shall mean the Internal Revenue Code of 1986, as amended.

E. Common Stock shall mean the Corporation's common stock.

F. Corporate Transaction shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:

(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction; or

(ii) the sale, transfer or other disposition of all or substantially all
of the Corporation's assets in complete liquidation or dissolution of the
Corporation.

G. Corporation shall mean P-COM, Inc., a Delaware corporation.

H. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under the Plan.

I. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program in accordance with the
provisions of Section IV.E of Article One.

J. Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method
of performance.

K. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.

A-16
<PAGE>

L. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market or any successor system. If there is no closing selling price for
the Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation exists.

M. Hostile Take-Over shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such
stockholders to accept.

N. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.

O. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:

(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or

(ii) such individual's voluntary resignation following (A) a change in
his or her position with the Corporation which materially reduces his or
her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-
discretionary and objective-standard incentive payment or bonus award) by
more than fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation without
the individual's consent.

P. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary) or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation
(or any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of any Optionee, Participant or other person in the Service of the
Corporation (or any Parent or Subsidiary).

Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

R. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.

S. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.

T. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.

A-17
<PAGE>

U. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.

V. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.

W. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance Plan,
as set forth in this document and as amended from time to time.

X. Plan Administrator shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.

Y. Plan Effective Date shall mean the date on which the Underwriting
Agreement was executed and the initial public offering price was established.

Z. Predecessor Plan shall mean the Corporation's 1992 Stock Option Plan.

AA. Primary Committee shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.

AB. Secondary Committee shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant
and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.

AC. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.

AD. Section 12(g) Registration Date shall mean the first date on which the
Common Stock was registered under Section 12(g) of the 1934 Act.

AE. Service shall mean the provision of services to the Corporation (or any
Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.

AF. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

AG. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.

AH. Stock Issuance Program shall mean the stock issuance program in effect
under the Plan.

AI. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation in the unbroken chain (other than the last corporation) owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.

AJ. Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over.

A-18
<PAGE>

However, if the surrendered option is an Incentive Option, the Take-Over Price
shall not exceed the clause (i) price per share.

AK. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).

AL. Taxes shall mean the Federal, state and local income and employment tax
liabilities incurred by the holder of Non-Statutory Options or unvested shares
of Common Stock in connection with the exercise of such holder's options or
the vesting of his or her shares.

AM. Underwriting Agreement shall mean the agreement executed between the
Corporation and the underwriter or underwriters who managed the initial public
offering of the Common Stock.

A-19
<PAGE>

ANNEX B

P-COM, INC.

EMPLOYEE STOCK PURCHASE PLAN

(AS AMENDED AND RESTATED EFFECTIVE AS OF MARCH 11, 1998)

I. PURPOSE OF THE PLAN

This Employee Stock Purchase Plan is intended to promote the interests of P-
COM, Inc. by providing eligible employees with the opportunity to acquire a
proprietary interest in the Corporation through participation in a payroll-
deduction based employee stock purchase plan designed to qualify under Section
423 of the Code.

Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.

All share numbers in this document reflect (i) the 1-for-3 reverse split of
the Common Stock effected after the Board's adoption of the Plan but prior to
the Effective Time, (ii) the 2-for-1 forward split of the Common Stock
effected on October 27, 1995, and (iii) the 1-for-1 dividend of the Common
Stock effected on September 25, 1997.

II. ADMINISTRATION OF THE PLAN

The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.

III. STOCK SUBJECT TO PLAN

A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 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 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 Corporation's 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 stockholders at the 1997 Annual Meeting, and (iv) an
additional increase of 250,000 shares approved by the Board on March 11, 1998,
subject to stockholder approval 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, (ii) the maximum number and class of securities purchasable per
Participant on any one Semi-Annual Purchase Date and (iii) the number and
class of securities and the price per share in effect under each outstanding
purchase right in order to prevent the dilution or enlargement of benefits
thereunder.

IV. OFFERING PERIODS

A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.

B-1
<PAGE>

B. Each offering period shall have a maximum duration of twenty-four (24)
months. The duration of each offering period shall be designated by the Plan
Administrator prior to its start date. The initial offering period commenced
at the Effective Time and shall terminate on the last business day in January
1997. The next offering period shall commence on the first business day in
February 1997, and subsequent offering periods shall commence as designated by
the Plan Administrator.

V. ELIGIBILITY

A. Each Eligible Employee shall be eligible to participate in the Plan in
accordance with the following provisions:

(i) An individual who is an Eligible Employee on the start date of any
offering period shall be eligible to commence participation in that
offering period on such start date or on any subsequent Semi-Annual Entry
Date within that offering period on which he/she remains an Eligible
Employee.

(ii) An individual who first becomes an Eligible Employee after the start
date of any offering period may enter that offering period on the first
Semi-Annual Entry Date on which he/she is an Eligible Employee or on any
subsequent Semi-Annual Entry Date within that offering period on which
he/she remains an Eligible Employee.

B. To participate in the Plan for a particular offering period, the Eligible
Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.

VI. PAYROLL DEDUCTIONS

A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Semi-
Annual Period of Participation within the offering period, up to a maximum of
fifteen percent (15%). The deduction rate so authorized shall continue in
effect for the remainder of the offering period, except to the extent such
rate is changed in accordance with the following guidelines:

(i) The Participant may, at any time during a Semi-Annual Period of
Participation, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the
Plan Administrator. The Participant may not, however, effect more than one
(1) such reduction per Semi-Annual Period of Participation.

(ii) The Participant may, prior to the commencement of any new Semi-
Annual Period of Participation within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate form with
the Plan Administrator. The new rate (which may not exceed the fifteen
percent (15%) maximum) shall become effective as of the first day of the
first Semi-Annual Period of Participation following the filing of such
form.

B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.

C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of Section VII
below.

B-2
<PAGE>

D. The Participant's acquisition of Common Stock under the Plan on any Semi-
Annual Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Semi-Annual Purchase Date,
whether within the same or a different offering period.

VII. PURCHASE RIGHTS

A. Grant of Purchase Right. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the Participant's Entry Date into the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive semi-annual installments
over the remainder of such offering period, upon the terms set forth below.
The Participant shall execute a stock purchase agreement embodying such terms
and such other provisions (not inconsistent with the Plan) as the Plan
Administrator may deem advisable.

Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.

B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in successive semi-annual installments on each Semi-
Annual Purchase Date in an offering period, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than
Participants whose payroll deductions have previously been refunded in
accordance with the Termination of Purchase Right provisions below) on each
such date. The purchase shall be effected by applying the Participant's
payroll deductions for the Semi-Annual Period of Participation ending on such
Semi-Annual Purchase Date (together with any carryover deductions from the
preceding Semi-Annual Period of Participation) to the purchase of whole shares
of Common Stock (subject to the limitation on the maximum number of shares
purchasable per Participant on any one Semi-Annual Purchase Date) at the
purchase price in effect for the Participant for that Semi-Annual Purchase
Date.

C. Purchase Price. The purchase price per share at which Common Stock will
be purchased on the Participant's behalf on each Semi-Annual Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market
Value per share of Common Stock on that Semi-Annual Purchase Date. However,
for each Participant whose Entry Date is other than the start date of the
offering period, the clause (i) amount shall in no event be less than the Fair
Market Value per share of Common Stock on the start date of that offering
period.

D. Number of Purchasable Shares. The number of shares purchasable by a
Participant on each Semi-Annual Purchase Date during the offering period shall
be the number of whole shares obtained by dividing the amount collected from
the Participant through payroll deductions during the Semi-Annual Period of
Participation ending with that Semi-Annual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation)
by the purchase price in effect for that Semi-Annual Purchase Date. However,
the maximum number of shares of Common Stock purchasable 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.

B-3
<PAGE>

F. Termination of Purchase Right. The following provisions shall govern the
termination of outstanding purchase rights:

(i) A Participant may, at any time prior to the next Semi-Annual Purchase
Date in an offering period, terminate his or her outstanding purchase right
under the offering period by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions shall
be collected from the Participant with respect to the terminated purchase
right. Any payroll deductions collected during the Semi-Annual Period of
Participation in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on the
next Semi-Annual Purchase Date. If no such election is made at the time
such purchase right is terminated, then the payroll deductions collected
with respect to the terminated right shall be refunded as soon as possible.

(ii) The termination of such purchase right shall be irrevocable, and the
Participant may not subsequently rejoin the offering period for which the
terminated purchase right was granted. To resume participation in any
subsequent offering period, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) on or before the
date he or she is first eligible to join the new offering period.

(iii) Should the Participant cease to remain an Eligible Employee for any
reason (including death, disability or change in status) while his or her
purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Semi-Annual Period of Participation in which such cessation of Eligible
Employee status occurs shall be immediately refunded.

G. Corporate Transaction. In the event of a Corporate Transaction during the
offering period, each outstanding purchase right shall automatically be
exercised, immediately prior to the effective date of such Corporate
Transaction, by applying the payroll deductions of each Participant for the
Semi-Annual Period of Participation in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the Participant's Entry Date into the offering
period in which such Corporate Transaction occurs or (ii) the Fair Market
Value per share of Common Stock immediately prior to the effective date of
such Corporate Transaction. However, the applicable share limitations per
Participant shall continue to apply to any such purchase, and the clause (i)
amount above shall not, for any Participant whose Entry Date for the offering
period is other than the start date of that offering period, be less than the
Fair Market Value per share of Common Stock on such start date.

The Corporation shall use its best efforts to provide at least ten (10) days
prior written notice of the occurrence of any Corporate Transaction, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.

H. Proration of Purchase Rights. Should the total number of shares of Common
Stock which are to be purchased pursuant to outstanding purchase rights on any
particular date exceed the number of shares then available for issuance under
the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual,
shall be refunded.

I. Assignability. During the Participant's lifetime, the purchase right
shall be exercisable only by the Participant and shall not be assignable or
transferable by the Participant.

J. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until
the shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of
the purchased shares.

B-4
<PAGE>

VIII. ACCRUAL LIMITATIONS

A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right outstanding under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on
the date or dates such rights are granted) for each calendar year such rights
are at any time outstanding.

B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:

(i) The right to acquire Common Stock under each purchase right shall
accrue on each Semi-Annual Purchase Date for which the right remains
outstanding.

(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one (1) or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000) worth of Common Stock (determined on the basis of the Fair Market
Value of such stock on the date or dates of grant) for each calendar year
such rights were at any time outstanding.

C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Semi-Annual Period of
Participation, then the payroll deductions which the Participant made during
that Semi-Annual Period of Participation with respect to such purchase right
shall be promptly refunded.

D. In the event there is any conflict between the provisions of this article
and one or more provisions of the Plan or any instrument issued thereunder,
the provisions of this article shall be controlling.

IX. EFFECTIVE DATE AND TERM OF THE PLAN

A. The Plan was adopted by the Board in January 1995 and approved by the
stockholders in February 1995, and the Plan became effective at the Effective
Time. The 200,000-share increase to the share reserve available for issuance
under the Plan was authorized by the Board on February 1, 1996 and approved by
the Corporation's stockholders at the 1996 Annual Meeting. The 300,000-share
increase to the share reserve available for issuance under the Plan was
authorized by the Board in April 1997, and approved by the stockholders at the
1997 Annual Meeting. On March 11, 1998, the Board authorized an additional
increase of 250,000 shares in the reserve available for issuance under the
Plan. The March 11, 1998, share increase is subject to approval by the
Corporation's stockholders at the 1998 Annual Meeting. Should such stockholder
approval not be obtained, then the 250,000-share increase will not be
implemented, and any purchase rights granted on the basis of the 250,000-share
increase to the Plan will immediately terminate. No additional purchase rights
will be granted on the basis of such share increase, and the Plan will
terminate once the existing share reserve has been issued.

B. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest of (i) the last business day in January 2005, (ii) the date on which
all shares 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

B-5
<PAGE>

price payable for the shares purchasable under the Plan, or (iii) materially
increase the benefits accruing to Participants under the Plan or materially
modify the requirements for eligibility to participate in the Plan.

B. The Corporation shall have the right, exercisable in the sole discretion
of the Plan Administrator, to terminate all outstanding purchase rights under
the Plan immediately following the close of any Semi-Annual Period of
Participation. Should the Corporation elect to exercise such right, then the
Plan shall terminate in its entirety. No further purchase rights shall
thereafter be granted or exercised, and no further payroll deductions shall
thereafter be collected, under the Plan.

XI. GENERAL PROVISIONS

A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation.

B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with
or without cause.

C. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.

B-6
<PAGE>

SCHEDULE A

CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF APRIL 1997

P-COM, Inc.

P-COM United Kingdom,
Inc.

P-COM (Barbados) FSC
Limited

P-COM Finance
Corporation

Geritel Sp.A

P-COM Field Services,
Inc.

P-COM Merger Subsidiary,
Inc.

B-7
<PAGE>

APPENDIX

The following definitions shall be in effect under the Plan:

A. Base Salary shall mean the regular base salary paid to a Participant by
one or more Participating Companies during such individual's period of
participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code
Section 125 cafeteria benefit program now or hereafter established by the
Corporation or any Corporate Affiliate. The following items of compensation
shall NOT be included in Base Salary: (i) all overtime payments, bonuses,
commissions (other than those functioning as base salary equivalents), profit-
sharing distributions and other incentive-type payments and (ii) any and all
contributions (other than Code Section 401(k) or Code Section 125
contributions) made on the Participant's behalf by the Corporation or any
Corporate Affiliate under any employee benefit or welfare plan now or
hereafter established.

B. Board shall mean the Corporation's Board of Directors.

C. Code shall mean the Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation's common stock.

E. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.

F. Corporate Transaction shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:

(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 Time shall mean the time at which the Underwriting Agreement
was executed and finally priced. Any Corporate Affiliate which becomes a
Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.

I. Eligible Employee shall mean any person who is engaged, on a regularly-
scheduled basis of more than twenty (20) hours per week for more than five (5)
months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Section 3401(a) of the Code.

J. Entry Date shall mean the date an Eligible Employee first commences
participation in the offering period in effect under the Plan. The earliest
Entry Date under the Plan shall be the Effective Time, and subsequent Entry
Dates shall correspond with the Semi-Annual Entry Dates permitted under the
Plan.

K. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:

B-8
<PAGE>

system. If there is no closing selling price for the Common Stock on the
date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.

(iii) For purposes of the initial offering period which began at the
Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock was sold in the initial public
offering pursuant to the Underwriting Agreement.

L. 1933 Act shall mean the Securities Act of 1933, as amended.

M. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

N. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.

O. Participating Corporation shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan as of the Effective Time are listed in attached
Schedule A.

P. Plan shall mean the Corporation's Employee Stock Purchase Plan, as set
forth in this document.

Q. Plan Administrator shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.

R. Semi-Annual Entry Date shall mean the first business day of February and
August each calendar year within an offering period in effect under the Plan.
However, the earliest Semi-Annual Entry Date for the initial offering period
under the Plan shall be the Effective Time.

S. Semi-Annual Period of Participation shall mean each semi-annual period
for which the Participant participates in an offering period in effect under
the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. The first such semi-annual period
(which may be less than six (6) months for the initial offering period)
extended from the Effective Time through the last business day in July 1995.
Subsequent semi-annual periods shall be measured from the first business day
of August in each calendar year to the last business day of January in the
succeeding calendar year and from the first business day of February in each
calendar year to the last business day of July in that calendar year.

T. Semi-Annual Purchase Date shall mean the last business day of each Semi-
Annual Period of Participation. The initial Semi-Annual Purchase Date was July
31, 1995.

U. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.

V. Underwriting Agreement shall mean the agreement between the Corporation
and the underwriter or underwriters managing the initial public offering of
the Common Stock.

B-9
<PAGE>

- --------------------------------------------------------------------------------
P-COM, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 18, 1998

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned, hereby appoints George P. Roberts and Michael J. Sophie
and each of them as Proxies of the undersigned, with full power of substitution,
and hereby authorizes them to represent and to vote, as designated below, all of
the shares of Common Stock of P-Com, Inc. (the "Company"), held of record by the
undersigned on April 1, 1998 at the Annual Meeting of Stockholders of P-Com,
Inc. to be held on May 18, 1998, or at any adjournment or postponement thereof.

The Board of Directors recommends a vote FOR Proposal Nos. 1, 2, 3, 4
and 5. This Proxy, when properly executed, will be voted as specified on the
reverse side. This Proxy will be voted FOR Proposal Nos. 1, 2, 3, 4 and 5 if no
specification is made.

1. To elect one director to serve for the ensuing two years until the
expiration of his terms in 2001 or until his successor is elected and
qualified.

[_] FOR nominees [_] WITHHOLD AUTHORITY [_] EXCEPTIONS
listed below to vote for
nominee
M. Bernard Puckett

INSTRUCTION: To withhold authority to vote for any individual nominee mark the
"EXCEPTIONS" box, and strike a line through the nominee's name in the list
below:

2. To approve an amendment to the Company's 1995 Stock Option/Stock Issuance
Plan (the "1995 Plan") to increase the total number of shares of the
Company's Common Stock authorized for issuance under the 1995 Plan by
3,500,000 shares.

[_] FOR [_] AGAINST [_] ABSTAIN

(continued, and to be signed, on the other side)
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

3. To approve an amendment to the Company's Employee Stock Purchase Plan (the
"ESPP") to increase the total number of shares of the Company's Common Stock
authorized for issuance under the ESPP by 250,000 shares.

[_] FOR [_] AGAINST [_] ABSTAIN

4. To ratify the appointment of Price Waterhouse LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.

[_] FOR [_] AGAINST [_] ABSTAIN

5. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting, including the election of
any director if any of the above nominees is unable to serve or for good
cause will not serve.

Please sign exactly as your name(s) is (are) shown on the share certificate
to which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.

DATED: , 1998
----------------------------

--------------------------------------
Signature

--------------------------------------
(Additional signature if held jointly)

PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------