<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1998
REGISTRATION NO. 333-45463
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
P-COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<S> <C>
DELAWARE 77-0289371
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
3175 S. WINCHESTER BOULEVARD, CAMPBELL, CALIFORNIA 95008
(408) 866-3666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
GEORGE P. ROBERTS
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
P-COM, INC.
3175 S. WINCHESTER BOULEVARD
CAMPBELL, CALIFORNIA 95008
(408) 866-3666
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
WARREN T. LAZAROW, ESQ.
BROBECK, PHLEGER & HARRISON LLP
TWO EMBARCADERO PLACE
2200 GENG ROAD
PALO ALTO, CALIFORNIA 94303
(650) 424-0160
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------------------
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT
TITLE OF SECURITIES TO BE AGGREGATE PRICE AGGREGATE OF REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
4 1/4% Convertible
Subordinated Notes due
2002 (the "Notes")... $100,000,000 100% $100,000,000 $29,500 (3)
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Common Stock, $0.0001
par value per share
("Common Stock")...... 3,641,660(2) -- -- -- (4)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such number represents the number of shares of Common Stock as are
initially issuable upon conversion of the Notes registered hereunder and,
pursuant to Rule 416 under the Securities Act, such additional
indeterminate number of shares as may become issuable upon conversion of
the Notes being registered hereunder as a result of adjustments to the
conversion price.
(3) Previously paid.
(4) Pursuant to Rule 457(i) there is no filing fee with respect to shares of
Common Stock issuable on conversion of the Notes because no additional
consideration will be received in connection with the exercise of the
conversion privilege.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THE SECURITIES DESCRIBED HEREIN HAS BEEN +
+FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT +
+BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION +
+STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO +
+SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF +
+THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR +
+SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE +
+SECURITIES LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 27, 1998
PROSPECTUS
$100,000,000
P-COM, INC.
4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE 2002
INTEREST PAYABLE MAY 1 AND NOVEMBER 1
AND SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
This prospectus (the "Prospectus") relates to $100,000,000 aggregate
principal amount of 4 1/4% Convertible Subordinated Notes due 2002 (the
"Notes") of P-Com, Inc., a Delaware corporation (together with its
subsidiaries, "P-Com" or the "Company"), and the shares of common stock, par
value of $.0001 per share, of the Company (the "Common Stock") which are
issuable upon conversion of the Notes (the "Shares"). The Notes and the Shares
that are being registered hereby are to be offered for the account of the
holders thereof (the "Selling Securityholders"). The Notes were issued and sold
in November 1997 in transactions exempt from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act") to "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act and
referred to as "Qualified Institutional Buyers"), "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act and
referred to as "Institutional Accredited Investors") who are not Qualified
Institutional Buyers or outside the United States to certain persons in
offshore transactions in reliance on Regulation S under the Securities Act. See
"Plan of Distribution."
The Notes will mature on November 1, 2002. Interest on the Notes will be paid
semi-annually on May 1 and November 1 of each year, commencing May 1, 1998. The
Notes are convertible at the option of the holder at any time on or after the
90th day following the latest date of initial issuance of the Notes and on or
prior to maturity, unless previously redeemed or repurchased, into shares of
Common Stock, at a conversion price of $27.46 per share (equivalent to a
conversion rate of 36.4166 shares per $1,000 principal amount of Notes),
subject to adjustment in certain events. The Common Stock is traded on the
Nasdaq National Market under the symbol PCMS. On April 13, 1998, the last sale
price as reported on the Nasdaq National Market was $18.875 per share.
The Notes are not redeemable prior to November 5, 2000. On or after November
5, 2000, the Notes are redeemable upon 30 days' notice at the option of the
Company, in whole, or from time to time, in part, at the redemption prices set
forth in this Prospectus, plus accrued and unpaid interest to the date of
redemption. In addition, upon a Change of Control (as defined herein), holders
of the Notes will have the right, subject to certain restrictions and
conditions, to require the Company to repurchase the holder's Notes, in whole
or in part, at a purchase price equal to 100% of the principal amount thereof
together with accrued and unpaid interest, if any, to the date of repurchase.
The Notes are unsecured obligations of the Company and are subordinated to
all existing and future Senior Indebtedness (as defined herein) of the Company,
and structurally subordinated to all liabilities of the Company's subsidiaries.
The Indenture (as defined herein) contains no limitations on the incurrence of
additional indebtedness or other liabilities by the Company. As of December 31,
1997, the Company had approximately $0.6 million in indebtedness outstanding
that would have constituted Senior Indebtedness. See "Description of Notes--
Subordination."
For a description of certain tax consequences to holders of the Notes, see
"Certain United States Federal Tax Consequences."
Upon their original issuance in November 1997, the Notes became eligible for
trading in the Private Offerings, Resales, and Trading through Automatic
Linkages ("PORTAL") Market. The Notes and the Shares are being registered to
permit public secondary trading after the date of this Prospectus from time to
time in transactions (which may include block transactions in the case of the
Shares) on any exchange or market on which such securities are listed or
quoted, as applicable, in negotiated transactions, through a combination of
such methods of sale, or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices. It should be noted, however, that the
Notes sold pursuant to this Prospectus will no longer be eligible for trading
on the PORTAL Market. No assurance can be given that an active market for the
Notes will develop or as to the liquidity or sustainability of any such market.
See "Risk Factors--Absence of Public Market." A Selling Securityholder may
offer and sell the Notes or Shares directly or to or through broker-dealers,
who may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders and/or the purchasers of the Notes
or Shares for whom such broker-dealers may act as agents or to whom they may
sell as principals, or both (which compensation as to a particular broker-
dealer might be in excess of customary commissions). The Company will not
receive any of the proceeds from the sale of the Notes or Shares by the Selling
Securityholders. The Company has agreed to pay all expenses incident to the
offer and sale of the Notes and Shares offered by the Selling Securityholders
hereby, except that the Selling Securityholders will pay all underwriting
discounts and selling commissions, if any. See "Plan of Distribution."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy materials and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
materials and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a Web site at http://www.sec.gov that contains P-
Com's reports, proxy materials and other information that have been filed
since P-Com began to file electronically with the Commission in August 1996.
The Common Stock of the Company is quoted on the Nasdaq National Market, and
such material may also be inspected at the offices of Nasdaq Operations, 1735
K Street, N.W., Washington, D.C. 20006.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-3 (the "Registration Statement") filed by the Company with the
Commission under the Securities Act, omits certain of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Notes and the
Shares offered hereby, reference is made to the Registration Statement and the
exhibits and schedules filed as a part thereof. Statements made in this
Prospectus as to the contents of any referenced contract, agreement or other
document are not necessarily complete, and each such statement shall be deemed
qualified in its entirety by reference thereto. Copies of documents relating
to the Company which are publicly filed pursuant to the Exchange Act may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the office of the Commission or at the Commission's
Web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-25356) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. The Company's Current Report filed on Form 8-K on January 23, 1998,
the Company's Current Report filed on Form 8-K on March 16, 1998, the
Company's Current Report filed on Form 8-K on April 9, 1998, the Company's
Current Report filed on Form 8-K on April 17, 1998 and the Company's
Current Report filed on Form 8-K/A on April 17, 1998.
3. The description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A filed with the Commission on
January 12, 1995, as amended on February 16, 1995, and the description of
the Company's Series A Junior Participating Preferred Stock contained in
the Company's Registration Statement on Form 8-A filed with the Commission
on October 9, 1997; and
4. All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus but prior to the termination of the offering of the Notes.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document that also is incorporated herein modifies or replaces such statement.
Any statement so modified or superseded shall not be deemed, in its unmodified
form, to constitute a part of this Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
therein). Requests should be submitted in writing or by telephone at (408)
866-3666 to Michael J. Sophie, Chief Financial Officer, 3175 S. Winchester
Boulevard, Campbell, California 95008.
2
<PAGE>
SUMMARY
Some of the information set forth or incorporated by reference in this
Prospectus contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, which are
subject to the "safe harbor" created by those sections. All such forward-
looking statements are necessarily only estimates of future results, and there
can be no assurances that actual results will not materially differ from
expectations. Specific reference is made to the risks and uncertainties
described under "Risk Factors."
THE COMPANY
P-Com supplies equipment and services for access to worldwide
telecommunications and broadcast networks. The Company's Tel-Link(R) systems
are used as wireless digital links in applications that include interconnecting
base stations and mobile switching centers in microcellular and personal
communications services ("PCN/PCS") networks and for providing local telephone
company ("telco") connectivity in the local loop. The integrated architecture
and high software content of the Company's systems are designed to offer cost-
effective, high-performance products with a high degree of flexibility and
functionality. Additionally, the Company offers turnkey microwave relocation
services, engineering, program management, installation and maintenance of
communication systems to new licensees of radio spectrum who first remove
existing users from the frequencies before implementing new systems and
provides equipment for wireless network access applications. The Company is
currently field testing and further developing a range of point-to-multipoint
radio systems for use in both the telecommunications and broadcast industries.
P-Com's Tel-Link(R) wireless radios utilize a common architecture for systems
in multiple millimeter wave and spread spectrum microwave frequencies including
2.4 GHz, 5.7 GHz, 7 GHz, 13 GHz, 14 GHz, 15 GHz, 18 GHz, 23 GHz, 24 GHz, 26
GHz, 38 GHz and 50 GHz. The Company's systems are designed to be highly
reliable, cost effective and simple to install and maintain. Software embedded
in the Company's systems allows the user to easily configure and adjust system
settings such as frequency, power and capacity with minimal manual tuning and
mechanical adjustments. The Company also markets a full line of Windows and
Simple Network Management Protocol ("SNMP")-based software products that are
complementary to its systems as sophisticated diagnostic, maintenance and
system configuration tools.
The Company's radio systems are sold internationally through strategic
partners, system providers, original equipment manufacturers ("OEMs") and
distributors as well as directly to end-users, and domestically primarily
through its direct sales force. The Company's radio system customers include
Advanced Radio Telecom, Corp. ("ART"), Bosch Telecom GmbH, Grupo Iusacell S.A.
de C.V., Lucent Technologies, Inc. (including the entities formerly known as
AT&T Network Systems Deutschland GmbH and AT&T Network Systems Nederland BV),
Mercury Communications Ltd., Mercury Personal Communications, Orange Personal
Communications Ltd., Italtel S.p.A. (formerly known as Siemens
Telecommunicazioni, S.p.A.), Ericsson, Ltd., Fujitsu Limited, Northern Telecom,
Ltd. and WinStar Wireless, Inc. (collectively with its subsidiary WinStar
Equipment Corp., "WinStar"). The Company's customers for microwave relocation
services include Sprint Spectrum, AT&T Wireless, PrimeCo Personal
Communications, BellSouth, Omnipoint and South Carolina Public Service
Authority ("SCPSA").
In December 1993, P-Com received its initial ISO 9001 registration, a
standard established by the International Organization for Standardization that
provides a methodology by which manufacturers can obtain quality certification.
In accordance with ISO 9001 requirements, the Company's ISO 9001 registration
was subsequently recertified. The Company also completed ISO 9001 registration
for its United Kingdom sales and customer support facility, Geritel facility in
Italy in 1996 and Technosystem facility in Italy in 1997. The Company is in the
process of obtaining ISO 9001 registration for its other facilities outside of
the United States.
P-Com was incorporated in the State of Delaware on August 23, 1991. Its
executive offices are located at 3175 S. Winchester Boulevard, Campbell,
California 95008, and its telephone number is (408) 866-3666.
3
<PAGE>
THE OFFERING
Securities Offered.......... $100,000,000 principal amount of 4 1/4% Convert-
ible Subordinated Notes due 2002 and the Common
Stock issuable upon conversion thereof.
Maturity Date............... November 1, 2002.
Interest Payment Dates...... May 1 and November 1, commencing May 1, 1998.
Conversion Rights........... The Notes are convertible into shares of Common
Stock at any time on or after the 90th day fol-
lowing the latest date of initial issuance of
Notes and on or prior to maturity, unless previ-
ously redeemed or repurchased, at a Conversion
Price of $27.46 per share (equivalent to a con-
version rate of 36.4166 shares per $1,000 princi-
pal amount of Notes), subject to adjustment in
certain events. See "Description of Notes--Con-
version Rights."
Optional Redemption......... The Notes are not redeemable prior to November 5,
2000. On or after November 5, 2000, the Notes are
redeemable upon 30 days' notice at the option of
the Company, in whole, or from time to time, in
part, at the redemption prices set forth in this
Prospectus, plus accrued and unpaid interest
through the date of redemption. See "Description
of Notes--Optional Redemption by the Company."
Change of Control........... In the event of a Change of Control (as defined),
each Holder of Notes may, subject to certain re-
strictions and limitations, require the Company
to repurchase its Notes, in whole or in part, at
a purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. See
"Description of Notes--Repurchase of Notes at the
Option of Holders Upon a Change of Control."
Subordination............... The Notes are unsecured obligations of the Com-
pany and are subordinated to all existing and fu-
ture Senior Indebtedness (as defined herein) of
the Company, and structurally subordinated to all
liabilities of the Company's subsidiaries. The
indenture contains no limitations on the
incurrence of additional indebtedness or other
liabilities by the Company. As of December 31,
1997, the Company had approximately $0.6 million
of indebtedness outstanding that would have con-
stituted Senior Indebtedness. See "Description of
Notes--Subordination."
Use of Proceeds............. The Company will not receive any of the proceeds
from the sale by the Selling Securityholders of
the Notes or the Shares.
4
<PAGE>
RISK FACTORS
This Prospectus contains and incorporates by reference forward-looking
statements that involve numerous risks and uncertainties. The statements
contained in this Prospectus or incorporated by reference herein pursuant to
the Registration Statement of which this Prospectus forms a part that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this Prospectus or incorporated by reference herein pursuant to
the Registration Statement of which this Prospectus is a part are based on
information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this Prospectus
or incorporated by reference herein pursuant to the Registration Statement of
which this Prospectus forms a part. In evaluating the Company's business,
prospective investors should consider carefully the following factors in
addition to the other information presented in this Prospectus.
SIGNIFICANT FLUCTUATIONS IN RESULTS OF OPERATIONS
The Company has experienced and will in the future continue to experience
significant fluctuations in sales, gross margins and operating results. The
procurement process for most of the Company's current and potential customers
is complex and lengthy, and the timing and amount of sales is difficult to
predict reliably. The sale and implementation of the Company's products and
services generally involves a significant commitment of the Company's senior
management, sales force and other resources. The sales cycle for the Company's
products and services typically involves a significant technical evaluation
and commitment of cash and other resources, with the attendant delays
frequently associated with, among other things: (i) existing and potential
customers' seasonal purchasing and budgetary cycles; (ii) educating customers
as to the potential applications of, and product-life cost savings associated
with, using the Company's products and services; (iii) complying with
customers' internal procedures for approving large expenditures and evaluating
and accepting new technologies that affect key operations; (iv) complying with
governmental or other regulatory standards; (v) difficulties associated with
each customer's ability to secure financing; and (vi) negotiating purchase and
service terms for each sale. Orders for the Company's products have typically
been strongest towards the end of the calendar year, with a reduction in
shipments occurring during the summer months, as evidenced in the third
quarter of fiscal year 1997, due primarily to the inactivity of the European
market, the Company's major current customer base, at such time. To the extent
such seasonality continues, the Company's results of operations will fluctuate
from quarter to quarter.
In addition, a single customer's order scheduled for shipment in a quarter
can represent a significant portion of the Company's potential sales for such
quarter. There can be no assurance that the Company will be able to obtain
such large orders from single customers in the future. The Company has at
times failed to receive expected orders, and delivery schedules have been
deferred as a result of changes in customer requirements and commitments,
among other factors. As a result, the Company's operating results for a
particular period have in the past been and will in the future be materially
adversely affected by a delay, rescheduling or cancellation of even one
purchase order. Much of the anticipated growth in telecommunications
infrastructure, if any, is expected to result from the entrance of new service
providers, many of which do not have the financial resources of existing
service providers. To the extent these new service providers are unable to
adequately finance their operations, they may cancel orders. Moreover,
purchase orders are often received and accepted substantially in advance of
shipment, and the failure to reduce actual costs to the extent anticipated or
an increase in anticipated costs before shipment could materially adversely
affect the gross margins for such orders, and as a result, the Company's
results of operations. Moreover, most of the Company's backlog scheduled for
shipment in the twelve months subsequent to December 31, 1997 can be canceled
since orders are often made substantially in advance of shipment, and the
Company's contracts typically provide that orders may be canceled with limited
or no penalties. As a result, backlog is not necessarily indicative of future
sales for any particular period. In
5
<PAGE>
addition, the Company's customers have increasingly been requiring shipment of
products at the time of ordering rather than submitting purchase orders far in
advance of expected dates of product shipment. Furthermore, most of the
Company's sales in recent quarters have been realized near the end of each
quarter. Accordingly, a delay in a shipment near the end of a particular
quarter, as the Company has been experiencing recently, due to, for example,
an unanticipated shipment rescheduling, a cancellation or deferral by a
customer, competitive or economic factors, unexpected manufacturing or other
difficulties, delays in deliveries of components, subassemblies or services by
suppliers, or the failure to receive an anticipated order, may cause sales in
a particular quarter to fall significantly below the Company's expectations
and may materially adversely affect the Company's operating results for such
quarter.
In connection with its efforts to ramp-up production of products and
services, the Company expects to continue to make substantial capital
investments in equipment and inventory, recruit and train additional personnel
and possibly invest in additional manufacturing facilities. The Company
anticipates that these expenditures will be made in advance of, and in
anticipation of, increased sales and, therefore, that its gross margins will
be adversely affected from time-to-time due to short-term inefficiencies
associated with the addition of equipment and inventory, personnel or
facilities, and that each cost category may increase as a percentage of
revenues from time-to-time on a periodic basis. In addition, as the Company's
customers increasingly require shipment of products at the time of ordering,
the Company must forecast demand for each quarter and build up inventory
accordingly. Such increases in inventory could materially adversely affect the
Company's operations if such inventory were not utilized or becomes obsolete.
A large portion of the Company's expenses are fixed and difficult to reduce
should revenues not meet the Company's expectations, thus magnifying the
material adverse effect of any revenue shortfall. Furthermore, announcements
by the Company or its competitors of new products, services and technologies
could cause customers to defer or cancel purchases of the Company's systems
and services, which would materially adversely affect the Company's business,
financial condition and results of operations. Additional factors that have
caused and will continue to cause the Company's sales, gross margins and
results of operations to vary significantly from period to period include: new
product introductions and enhancements, including related costs; the Company's
ability to manufacture and produce sufficient volumes of systems and meet
customer requirements; manufacturing capacity, efficiencies and costs; mix of
sales through direct efforts or through distributors or other third parties;
mix of systems and related software tools sold and services provided;
operating and new product development expenses; product discounts; accounts
receivable collection, in particular those acquired in recent acquisitions,
especially outside of the United States; changes in pricing by the Company,
its customers or suppliers; inventory writeoffs, as the Company recently
experienced in the second and third quarters for a relatively immaterial
amount in each such quarter, which the Company may experience again in the
future; inventory obsolescence; natural disasters; market acceptance by the
Company's customers and the timing of availability of new products and
services by the Company or its competitors; acquisitions, including costs and
expenses; usage of different distribution and sales channels; fluctuations in
foreign currency exchange rates; delays or changes in regulatory approval of
its systems and services; warranty and customer support expenses;
customization of systems; and general economic and political conditions. In
addition, the Company's results of operations have been and will continue to
be influenced significantly by competitive factors, including the pricing and
availability of, and demand for, competitive products and services. All of the
above factors are difficult for the Company to forecast, and these or other
factors could materially adversely affect the Company's business, financial
condition and results of operations. As a result, the Company believes that
period-to-period comparisons are not necessarily meaningful and should not be
relied upon as indications of future performance. Due to all of the foregoing
factors, it is likely that in some future quarter the Company's operating
results will be below the expectations of public market analysts and
investors. In such event, the price of the Company's Common Stock may be
materially adversely affected.
SIGNIFICANT CUSTOMER CONCENTRATION
For the year ended December 31, 1997, approximately seventy-five customers
accounted for substantially all of the Company's sales, and two customers,
each of which individually accounted for over 10% of the
6
<PAGE>
Company's 1997 sales, accounted for over 27% of the Company's sales. Sales to
Orange Personal Communications Ltd. and WinStar accounted for approximately
16% and 11% of the Company's sales, respectively, in 1997. Sales to Orange
Personal Communications Ltd., WinStar, Bosch Telecom GmbH, Ericsson Limited
and ART accounted for approximately 18%, 12%, 11%, 11% and 11% of the
Company's sales, respectively, in 1996. As of December 31, 1997, seven
customers accounted for over 64% of the Company's backlog scheduled for
shipment in the twelve months subsequent to December 31, 1997. The Company
anticipates that it will continue to sell its products and services to a
changing but still relatively small group of customers. Several of the
Company's subsidiaries are dependent on one or a few customers. Some companies
implementing new networks are at early stages of development and may require
additional capital to fully implement their planned networks. The Company's
ability to achieve sales in the future will depend in significant part upon
its ability to obtain and fulfill orders from, maintain relationships with and
provide support to existing and new customers, to manufacture systems in
volume on a timely and cost-effective basis and to meet stringent customer
performance and other requirements and shipment delivery dates, as well as the
condition, working capital availability and success of its customers. As a
result, any cancellation, reduction or delay in orders by or shipments to any
customer, as a result of manufacturing or supply difficulties or otherwise, or
the inability of any customer to finance its purchases of the Company's
products or services, as has been the case with certain customers
historically, may materially adversely affect the Company's business,
financial condition and results of operations. In addition, financial
difficulties of any existing or potential customers may limit the overall
demand for the Company's products and services (for example, certain potential
customers in the telecommunications industry have been reported to have
undergone financial difficulties and may therefore limit their future orders).
In addition, acquisitions in the communications industry are common, which
further concentrates the customer base and may cause orders to be delayed or
cancelled. There can be no assurance that the Company's sales will increase in
the future or that the Company will be able to support or attract customers.
ACQUISITIONS
Since April 1996, the Company has acquired nine complementary companies and
businesses. Integration of these companies into the Company's business is
currently ongoing, and no assurance may be made that the Company will be able
to successfully complete this process. Risks commonly encountered in such
transactions include the difficulty of assimilating the operations and
personnel of the combined companies, the potential disruption of the Company's
ongoing business, the inability to retain key technical and managerial
personnel, the inability of management to maximize the financial and strategic
position of the Company through the integration of acquired businesses,
additional expenses associated with amortization of acquired intangible
assets, dilution of existing stockholders, the maintenance of uniform
standards, controls, procedures, and policies, the impairment of relationships
with employees and customers as a result of any integration of new personnel,
risks of entering markets in which the Company has no or limited direct prior
experience, and operating companies in different geographical locations with
different cultures. All of the Company's acquisitions to date (the
"Acquisitions"), except Control Resources Corporation ("CRC"), R T Masts
Limited ("R T Masts") and Telematics, Inc., ("Telematics"), have been
accounted for under the purchase method of accounting, and as a result, a
significant amount of goodwill is being amortized as set forth in the
Company's consolidated financial statements. This amortization expense may
have a significant effect on the Company's financial results. There can be no
assurance that the Company will be successful in overcoming these risks or any
other problems encountered in connection with such acquisitions, or that such
transactions will not materially adversely affect the Company's business,
financial condition, or results of operations.
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products or technologies and to enter into
joint ventures and strategic alliances with other companies. The Company is
currently pursuing numerous acquisitions; however, no material acquisition has
become the subject of any definitive agreement, letter of intent or agreement
in principle. The Company is unable to predict whether and when any
prospective acquisition candidate will become available or the likelihood that
any acquisition will be completed. The Company competes for acquisition and
expansion opportunities with many entities that have substantially greater
resources than the Company. There can be no assurance that the Company will be
able to successfully identify suitable acquisition candidates, complete
acquisitions, or expand into new
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markets. Once integrated, acquired businesses may not achieve comparable
levels of revenues, profitability, or productivity as the existing business of
the Company or otherwise perform as expected. In addition, as commonly occurs
with mergers of technology companies, during the pre-merger and integration
phases, aggressive competitors may undertake formal initiatives to attract
customers and to recruit key employees through various incentives. If the
Company proceeds with one or more significant acquisitions in which the
consideration consists of cash, a substantial portion of the Company's
available cash could be used to consummate the acquisitions. Many business
acquisitions must be accounted for as a purchase for financial reporting
purposes. Most of the businesses that might become attractive acquisition
candidates for the Company are likely to have significant goodwill and
intangible assets, and acquisition of these businesses, if accounted for as a
purchase, would typically result in substantial amortization of goodwill
charges to the Company. The occurrence of any of these events could have a
material adverse effect on the Company's workforce, business, financial
condition and results of operations. See "--No Assurance of Successful
Expansion of Operations; Management of Growth."
DEPENDENCE ON CONTRACT MANUFACTURERS; RELIANCE ON SOLE OR LIMITED SOURCES OF
SUPPLY
The Company's internal manufacturing capacity is very limited. The Company
utilizes contract manufacturers such as Remec, Inc., Sanmina Corporation, SPC
Electronics Corp., GSS Array Technology, Celeritek, Inc. and Senior Systems
Technology, Inc. to produce its systems, components and subassemblies and
expects to rely increasingly on these and other manufacturers in the future.
The Company also relies on outside vendors to manufacture certain other
components and subassemblies. There can be no assurance that the Company's
internal manufacturing capacity and that of its contract manufacturers will be
sufficient to fulfill the Company's orders. Failure to manufacture, assemble
and ship systems and meet customer demands on a timely and cost-effective
basis could damage relationships with customers and have a material adverse
effect on the Company's business, financial condition and operating results.
Certain necessary components, subassemblies and services necessary for the
manufacture of the Company's systems are obtained from a sole supplier or a
limited group of suppliers. In particular, Eltel Engineering S.r.L. and
Associates, Milliwave, Scientific Atlanta and Xilinx, Inc. each are sole
source or limited source suppliers for critical components used in the
Company's radio systems.
The Company's reliance on contract manufacturers and on sole suppliers or a
limited group of suppliers and the Company's increasing reliance on contract
manufacturers and suppliers involves several risks, many of which the Company
has been experiencing, including an inability to obtain an adequate supply of
finished products and required components and subassemblies, and reduced
control over the price, timely delivery, reliability and quality of finished
products, components and subassemblies. The Company does not have long-term
supply agreements with most of its manufacturers or suppliers. Manufacture of
the Company's products and certain of these components and subassemblies is an
extremely complex process, and the Company has from time to time experienced
and may in the future continue to experience problems in the timely delivery
and quality of products and certain components and subassemblies from vendors.
Certain of the Company's suppliers have relatively limited financial and other
resources. Any inability to obtain timely deliveries of components and
subassemblies of acceptable quality or any other circumstance that would
require the Company to seek alternative sources of supply, or to manufacture
its finished products or such components and subassemblies internally, could
delay the Company's ability to ship its systems, which could damage
relationships with current or prospective customers and have a material
adverse effect on the Company's business, financial condition and results of
operations.
NO ASSURANCE OF SUCCESSFUL EXPANSION OF OPERATIONS; MANAGEMENT OF GROWTH
Recently, the Company has significantly expanded the scale of its operations
to support increased sales and to address critical infrastructure and other
requirements. This expansion has included the leasing of additional space, the
opening of branch offices and subsidiaries in the United Kingdom, Italy,
Germany and Singapore, the opening of design centers and manufacturing
operations throughout the world, the acquisition of a significant amount of
inventory (the Company's inventory increased from approximately $32.9 million
at December 31, 1996 to approximately $58.0 million at December 31, 1997) and
accounts receivable, recent acquisitions,
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significant investments in research and development to support product
development and services, including the recently introduced products and the
development of point-to-multipoint systems, and the hiring of additional
personnel in all functional areas, including in sales and marketing,
manufacturing and operations and finance, and has resulted in significantly
higher operating expenses. Currently, the Company is devoting significant
resources to the development of new products and technologies and is
conducting evaluations of these products and will continue to invest
significant additional resources in plant and equipment, inventory, personnel
and other costs, to begin production of these products and to provide the
marketing and administration, if any, required to service and support these
new products. Accordingly, there can be no assurance that gross profit margin
and inventory levels will not be adversely impacted in the future by start-up
costs associated with the initial production and installation of these new
products. These start-up costs include, but are not limited to, additional
manufacturing overhead, additional allowance for doubtful accounts, inventory
and warranty reserve requirements and the creation of service and support
organizations. In addition, the increases in inventory on hand for new product
development and customer service requirements may increase the risk of
inventory write-offs. As a result, the Company anticipates that its operating
expenses will continue to increase significantly. If the Company's sales do
not correspondingly increase, the Company's results of operations would be
materially adversely affected. See "--Limited Operating History."
Expansion of the Company's operations and its acquisitions have caused and
are continuing to impose a significant strain on the Company's management,
financial, manufacturing and other resources and have disrupted the Company's
normal business operations. The Company's ability to manage the recent and any
possible future growth, should it occur, will depend upon a significant
expansion of its manufacturing, accounting and other internal management
systems and the implementation and subsequent improvement of a variety of
systems, procedures and controls, including improvements relating to inventory
control. For a number of reasons, the Company has not been able to fully
consolidate and integrate the operations of certain acquired businesses. This
inability may cause inefficiencies, additional operational complexities and
expenses and greater risks of billing delays, inventory write-offs and
financial reporting difficulties. The Company must establish and improve a
variety of systems, procedures and controls to more efficiently coordinate its
activities in its acquired (and to be acquired) companies and their facilities
in Rome and Milan, Italy, France, Poland, the United Kingdom, New Jersey,
Florida and Virginia and elsewhere. There can be no assurance that significant
problems in these areas will not re-occur. Any failure to expand these areas
and implement and improve such systems, procedures and controls, including
improvements relating to inventory control, in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition and results of operations. In
particular, the Company must successfully manage the transition to higher
internal and external volume manufacturing, including the establishment of
adequate facilities, the control of overhead expenses and inventories, the
development, introduction, marketing and sales of new products, the management
and training of its employee base, the integration and coordination of a
geographically and ethnically diverse group of employees and the monitoring of
its third party manufacturers and suppliers. Although the Company has
substantially increased the number of its manufacturing personnel and
significantly expanded its internal and external manufacturing capacity, there
can be no assurance that the Company will not experience manufacturing or
other delays or problems that could materially adversely affect the Company's
business, financial condition or results of operations.
In this regard, any significant sales growth will be dependent in
significant part upon the Company's expansion of its marketing, sales,
manufacturing and customer support capabilities. This expansion will continue
to require significant expenditures to build the necessary infrastructure.
There can be no assurance that the Company's attempts to expand its marketing,
sales, manufacturing and customer support efforts will be successful or will
result in additional sales or profitability in any future period. As a result
of the expansion of its operations and the significant increase in its
operating expenses, as well as the difficulty in forecasting revenue levels,
the Company will continue to experience significant fluctuations in its
revenues, costs, and gross margins, and therefore its results of operations.
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LIMITED OPERATING HISTORY
P-Com was founded in August 1991 and was in the development stage until
October 1993 when it began commercial shipments of its first product. From
inception to the end of fiscal 1997, the Company generated a cumulative net
profit of approximately $18.4 million. From October 1993 through December 31,
1997, the Company generated sales of approximately $454.9 million, of which
$220.7 million, or 49% of such amount, was generated in the year ended
December 31, 1997. The Company does not believe recent growth rates are
indicative of future operating results. Due to the Company's limited operating
history and limited resources, among other factors, there can be no assurance
that profitability or significant revenues on a quarterly or annual basis will
occur in the future. During both 1996 and 1997, both the Company's sales and
operating expenses increased more rapidly than the Company had anticipated.
There can be no assurance that the Company's revenues will continue to remain
at or increase from the levels experienced in 1996 or 1997 or that sales will
not decline. The Company intends to continue to invest significant amounts in
its operations, particularly to support product development and the marketing
and sales of recently introduced products, and operating expenses will
continue to increase significantly in absolute dollars. If the Company's sales
do not correspondingly increase, the Company's results of operations would be
materially adversely affected. Accordingly, there can be no assurance that the
Company will achieve profitability in future periods. The Company is subject
to all of the risks inherent in the operation of a new business enterprise,
and there can be no assurance that the Company will be able to successfully
address these risks.
DECLINING AVERAGE SELLING PRICES
The Company believes that average selling prices and gross margins for its
systems and services will decline in the long term as such systems mature, as
volume price discounts in existing and future contracts take effect and as
competition intensifies, among other factors. To offset declining average
selling prices, the Company believes that it must successfully introduce and
sell new systems on a timely basis, develop new products that incorporate
advanced software and other features that can be sold at higher average
selling prices and reduce the costs of its systems through contract
manufacturing, design improvements and component cost reduction, among other
actions. To the extent that new products are not developed in a timely manner,
do not achieve customer acceptance or do not generate higher average selling
prices, and the Company is unable to offset declining average selling prices,
the Company's gross margins will decline, and such decline will have a
material adverse effect on the Company's business, financial condition and
results of operations.
TRADE ACCOUNT RECEIVABLES
The Company is subject to credit risk in the form of trade account
receivables. The Company may in certain circumstances be unable to enforce a
policy of receiving payment within a limited number of days of issuing bills,
especially in the case of customers that are in the early phases of business
development. In addition, many of the Company's foreign customers are granted
longer terms than those typically existing in the United States. The Company
has experienced difficulties in the past in receiving payment in accordance
with the Company's policies, particularly from customers awaiting financing to
fund their expansion and from customers outside of the United States and the
days outstanding of receivables have increased recently. There can be no
assurance that such difficulties will not continue in the future, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company typically does not require collateral
or other security to support customer receivables. The Company has in the past
and may from time to time in the future sell its receivables, as part of an
overall customer financing program, with immaterial recourse to the Company.
There can be no assurance that the Company will be able to locate parties to
purchase such receivables on acceptable terms, or at all. See "--Significant
Fluctuations in Results of Operations" and "--International Operations; Risks
of Doing Business in Developing Countries."
NO ASSURANCE OF PRODUCT QUALITY, PERFORMANCE AND RELIABILITY
The Company has limited experience in producing and manufacturing its
systems and contracting for such manufacture. The Company's customers require
very demanding specifications for quality, performance and
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reliability. There can be no assurance that problems will not occur in the
future with respect to the quality, performance and reliability of the
Company's systems or related software tools. If such problems occur, the
Company could experience increased costs, delays in or cancellations or
reschedulings of orders or shipments, delays in collecting accounts receivable
and product returns and discounts, any of which would have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, in order to maintain its ISO 9001 registration, the
Company periodically must undergo a recertification assessment. Failure to
maintain such registration could materially adversely affect the Company's
business, financial condition and results of operations. The Company completed
ISO 9001 registration for its United Kingdom sales and customer support
facility, its Geritel facility in Italy in 1996, and its Technosystem facility
in Italy in 1997 and other facilities will also be attempting ISO 9001
registration. There can be no assurance that such registration will be
achieved.
UNCERTAINTY OF MARKET ACCEPTANCE
The future operating results of the Company depend to a significant extent
upon the continued growth and increased availability and acceptance of
microcellular, PCN/PCS and wireless local loop access telecommunications
services in the United States and internationally. There can be no assurance
that the volume and variety of wireless telecommunications services or the
markets for and acceptance of such services will continue to grow, or that
such services will create a demand for the Company's systems. Because these
markets are relatively new, it is difficult to predict which segments of these
markets will develop and at what rate these markets will grow, if at all. If
the short-haul millimeter wave or spread spectrum microwave wireless radio
market and related services for the Company's systems fails to grow, or grows
more slowly than anticipated, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, the
Company has invested a significant amount of time and resources in the
development of point-to-multipoint radio systems. Should the point-to-
multipoint radio market fail to develop, or should the Company's products fail
to gain market acceptance, the Company's business, financial condition and
results of operations could be materially adversely affected. Certain sectors
of the communications market will require the development and deployment of an
extensive and expensive communications infrastructure. In particular, the
establishment of PCN/PCS networks will require very large capital
expenditures. There can be no assurance that communications providers have the
ability to or will make the necessary investment in such infrastructure or
that the creation of this infrastructure will occur in a timely manner.
Moreover, one potential application of the Company's technology, use of the
Company's systems in conjunction with the provision by wireless
telecommunications service providers of alternative wireless access in
competition with the existing wireline local exchange providers, is dependent
on the pricing of wireless telecommunications services at rates competitive
with those charged by wireline telephone companies. Rates for wireless access
are currently substantially higher than those charged by wireline companies,
and there can be no assurance that rates for wireless access will generally be
competitive with rates charged by wireline companies. If wireless access rates
are not competitive, consumer demand for wireless access will be materially
adversely affected. If the Company allocates its resources to any market
segment that does not grow, it may be unable to reallocate its resources to
other market segments in a timely manner, which may curtail or eliminate its
ability to enter such market segments.
Certain of the Company's current and prospective customers are currently
delivering products and technologies which utilize competing transmission
media such as fiber optic and copper cable, particularly in the local loop
access market. To successfully compete with existing products and
technologies, the Company must, among many actions, offer systems with
superior price/performance characteristics and extensive customer service and
support, supply such systems on a timely and cost-effective basis in
sufficient volume to satisfy such prospective customers' requirements and
otherwise overcome any reluctance on the part of such customers to transition
to new technologies. Any delay in the adoption of the Company's systems may
result in prospective customers utilizing alternative technologies in their
next generation of systems and networks, which would have a material adverse
effect on the Company's business, financial condition and results of
operations. There can be no assurance that prospective customers will design
their systems or networks to include the Company's systems,
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that existing customers will continue to include the Company's systems in
their products, systems or networks in the future, or that the Company's
technology will to any significant extent replace existing technologies and
achieve widespread acceptance in the wireless telecommunications market.
Failure to achieve or sustain commercial acceptance of the Company's currently
available radio systems or to develop other commercially acceptable radio
systems would materially adversely affect the Company's business, financial
condition and results of operations. In addition, there can be no assurance
that industry technical standards will remain the same or, if emerging
standards become established, that the Company will be able to conform to
these new standards in a timely and cost-effective manner.
INTENSELY COMPETITIVE INDUSTRY
The wireless communications market is intensely competitive. The Company's
wireless-based radio systems compete with other wireless telecommunications
products and alternative telecommunications transmission media, including
copper and fiber optic cable. The Company has experienced increasingly intense
competition worldwide from a number of leading telecommunications companies
that offer a variety of competitive products and services and broader
telecommunications product lines, including Adtran, Inc., Alcatel Network
Systems, California Microwave, Inc., Digital Microwave Corporation, Ericsson
Limited, Harris Corporation--Farinon Division, Innova International Corp.,
Larus Corporation, Nokia Telecommunications, Philips T.R.T. and Western
Multiplex Corporation, many of which have substantially greater installed
bases, financial resources and production, marketing, manufacturing,
engineering and other capabilities than the Company. The Company faces actual
and potential competition not only from these established companies, but also
from start-up companies that are developing and marketing new commercial
products and services. The Company may also face competition in the future
from new market entrants offering competing technologies. In addition, the
Company's current and prospective customers and partners, certain of which
have access to the Company's technology or under some circumstances are
granted the right to use the technology for purposes of manufacturing, have
developed, are currently developing or could develop the capability to
manufacture products competitive with those that have been or may be developed
or manufactured by the Company. The Company's results of operations may depend
in part upon the extent to which these customers elect to purchase from
outside sources rather than develop and manufacture their own radio systems.
There can be no assurance that such customers will rely on or expand their
reliance on the Company as an external source of supply for their radio
systems. The principal elements of competition in the Company's market and the
basis upon which customers may select the Company's systems include price,
performance, software functionality, ability to meet delivery requirements and
customer service and support. Recently, certain of the Company's competitors
have announced the introduction of competitive products, including related
software tools and services, and the acquisition of other competitors and
competitive technologies. The Company expects its competitors to continue to
improve the performance and lower the price of their current products and
services and to introduce new products and services or new technologies that
provide added functionality and other features. New product and service
offerings and enhancements by the Company's competitors could cause a
significant decline in sales or loss of market acceptance of the Company's
systems, or make the Company's systems, services or technologies obsolete or
noncompetitive. The Company has experienced significant price competition, and
expects such competition to intensify, which may materially adversely affect
its gross margins and its business, financial condition and results of
operations. The Company believes that to be competitive, it will continue to
be required to expend significant resources on, among other items, new product
development and enhancements. In marketing its systems and services, the
Company will face competition from vendors employing other technologies and
services that may extend the capabilities of their competitive products beyond
their current limits, increase their productivity or add other features. There
can be no assurance that the Company will be able to compete successfully in
the future.
REQUIREMENT FOR RESPONSE TO RAPID TECHNOLOGICAL CHANGE AND REQUIREMENT FOR
FREQUENT NEW PRODUCT INTRODUCTIONS
The communications market is subject to rapid technological change, frequent
new product introductions and enhancements, product obsolescence, changes in
end-user requirements and evolving industry standards. The Company's ability
to be competitive in this market will depend in significant part upon its
ability to successfully
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develop, introduce and sell new systems and enhancements and related software
tools, including its point-to-multipoint systems currently under development,
on a timely and cost-effective basis that respond to changing customer
requirements. Recently, the Company has been developing point-to-multipoint
radio systems. Any success of the Company in developing new and enhanced
systems, including its point-to-multipoint systems currently under
development, and related software tools will depend upon a variety of factors,
including new product selection, integration of the various elements of its
complex technology, timely and efficient completion of system design, timely
and efficient implementation of manufacturing and assembly processes and its
cost reduction program, development and completion of related software tools,
system performance, quality and reliability of its systems and development and
introduction of competitive systems by competitors. The Company has
experienced and is continuing to experience delays from time to time in
completing development and introduction of new systems and related software
tools, including products acquired in the acquisitions. Moreover, there can be
no assurance that the Company will be successful in selecting, developing,
manufacturing and marketing new systems or enhancements or related software
tools. There can be no assurance that errors will not be found in the
Company's systems after commencement of commercial shipments, which could
result in the loss of or delay in market acceptance, as well as significant
expenses associated with re-work of previously delivered equipment. The
inability of the Company to introduce in a timely manner new systems or
enhancements or related software tools that contribute to sales could have a
material adverse effect on the Company's business, financial condition and
results of operations.
INTERNATIONAL OPERATIONS; RISKS OF DOING BUSINESS IN DEVELOPING COUNTRIES
Most of the Company's sales to date have been made to customers located
outside of the United States. In addition, to date, the Company has acquired
two Italy-based companies and two United Kingdom-based companies and one U.S.-
based company with substantial international operations. These companies
currently sell their products and services primarily to customers in Europe,
the Middle East and Africa. The Company anticipates that international sales
will continue to account for a majority of its sales for the foreseeable
future. Historically the Company's international sales have been denominated
in British pounds sterling or United States currencies. With recent
acquisitions of foreign companies, certain of the Company's international
sales may be denominated in other foreign currencies. A decrease in the value
of foreign currencies relative to the United States dollar could result in
losses from transactions denominated in foreign currencies. With respect to
the Company's international sales that are United States dollar-denominated,
such a decrease could make the Company's systems less price-competitive and
could have a material adverse effect upon the Company's business, financial
condition and results of operations. The Company has in the past mitigated its
currency exposure to the British pound sterling through hedging measures.
However, any future hedging measures may be limited in their effectiveness
with respect to the British pound sterling and other foreign currencies.
Additional risks inherent in the Company's international business activities
include changes in regulatory requirements, costs and risks of localizing
systems in foreign countries, delays in receiving components and materials,
availability of suitable export financing, timing and availability of export
licenses, tariffs and other trade barriers, political and economic
instability, difficulties in staffing and managing foreign operations,
branches and subsidiaries, difficulties in managing distributors, potentially
adverse tax consequences, foreign currency exchange fluctuations, the burden
of complying with a wide variety of complex foreign laws and treaties and the
difficulty in accounts receivable collections. Many of the Company's customer
purchase and other agreements are governed by foreign laws, which may differ
significantly from U.S. laws. Therefore, the Company may be limited in its
ability to enforce its rights under such agreements and to collect damages, if
awarded. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
International telephone companies are in many cases owned or strictly
regulated by local regulatory authorities. Access to such markets is often
difficult due to the established relationships between a government owned or
controlled telephone company and its traditional indigenous suppliers of
telecommunications equipment. The successful expansion of the Company's
international operations in certain markets will depend on its ability to
locate, form and maintain strong relationships with established companies
providing communication services and equipment in targeted regions. The
failure to establish regional or local relationships
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or to successfully market or sell its products in international markets could
significantly limit the Company's ability to expand its operations and would
materially adversely affect the Company's business, financial condition and
results of operations. The Company's inability to identify suitable parties
for such relationships, or even if such parties are identified, to form and
maintain strong relationships with such parties could prevent the Company from
generating sales of its products and services in targeted markets or
industries. Moreover, even if such relationships are established, there can be
no assurance that the Company will be able to increase sales of its products
and services through such relationships.
Some of the Company's potential markets consist of developing countries that
may deploy wireless communications networks as an alternative to the
construction of a limited wired infrastructure. These countries may decline to
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons, in which event any demand for the
Company's systems in those countries will be similarly limited or delayed. In
doing business in developing markets, the Company may also face economic,
political and foreign currency fluctuations that are more volatile than those
commonly experienced in the United States and other areas.
EXTENSIVE GOVERNMENT REGULATION
Radio communications are subject to extensive regulation by the United
States and foreign laws and international treaties. The Company's systems must
conform to a variety of domestic and international requirements established
to, among other things, avoid interference among users of radio frequencies
and to permit interconnection of equipment. Each country has a different
regulatory process. Historically, in many developed countries, the
unavailability of frequency spectrum has inhibited the growth of wireless
telecommunications networks. In order for the Company to operate in a
jurisdiction, it must obtain regulatory approval for its systems and comply
with different regulations in each jurisdiction. Regulatory bodies worldwide
are continuing the process of adopting new standards for wireless
communications products. The delays inherent in this governmental approval
process may cause the cancellation, postponement or rescheduling of the
installation of communications systems by the Company and its customers, which
in turn may have a material adverse effect on the sale of systems by the
Company to such customers. The failure to comply with current or future
regulations or changes in the interpretation of existing regulations could
result in the suspension or cessation of operations. Such regulations or such
changes in interpretation could require the Company to modify its products and
services and incur substantial costs to comply with such time-consuming
regulations and changes. In addition, the Company is also affected to the
extent that domestic and international authorities regulate the allocation and
auction of the radio frequency spectrum. Equipment to support new services can
be marketed only if permitted by suitable frequency allocations, auctions and
regulations, and the process of establishing new regulations is complex and
lengthy. To the extent PCS operators and others are delayed in deploying these
systems, the Company could experience delays in orders. Failure by the
regulatory authorities to allocate suitable frequency spectrum could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, delays in the radio frequency spectrum
auction process in the United States could delay the Company's ability to
develop and market equipment to support new services. These delays could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The regulatory environment in which the Company operates is subject to
significant change. Regulatory changes, which are affected by political,
economic and technical factors, could significantly impact the Company's
operations by restricting development efforts by the Company and its
customers, making current systems obsolete or increasing the opportunity for
additional competition. Any such regulatory changes, including changes in the
allocation of available spectrum, could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
might deem it necessary or advisable to modify its systems and services to
operate in compliance with such regulations. Such modifications could be
extremely expensive and time-consuming.
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FUTURE CAPITAL REQUIREMENTS
The Company's future capital requirements will depend upon many factors,
including the development of new products and related software tools,
potential acquisitions, requirements to maintain adequate manufacturing
facilities and contract manufacturing agreements, the progress of the
Company's research and development efforts, expansion of the Company's
marketing and sales efforts, and the status of competitive products. There can
be no assurance that additional financing will be available to the Company on
acceptable terms, or at all. As a result of recent securities offerings by the
Company, including the issuance of the Notes in the initial private placement
in November 1997, the Company may be limited in its ability to raise
additional debt financing. If additional funds are raised by issuing equity
securities, further dilution to the existing stockholders will result. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its research and development, acquisition or manufacturing
programs or obtain funds through arrangements with partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products or other assets. Accordingly, the inability to obtain such
financing could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY REGARDING PROTECTION OF PROPRIETARY RIGHTS
The Company relies on a combination of patents, trademarks, trade secrets,
copyrights, and a variety of other measures to protect its intellectual
property rights. The Company generally enters into confidentiality and
nondisclosure agreements with its service providers, customers and others, and
attempts to limit access to and distribution of its proprietary rights. The
Company also enters into software license agreements with its customers and
others. However, there can be no assurance that such measures will provide
adequate protection for the Company's trade secrets or other proprietary
information, that disputes with respect to the ownership of its intellectual
property rights will not arise, that the Company's trade secrets or
proprietary technology will not otherwise become known or be independently
developed by competitors or that the Company can otherwise meaningfully
protect its intellectual property rights. There can be no assurance that any
patent owned by the Company will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future
patent applications will be issued with the scope of the claims sought by the
Company, if at all. Furthermore, there can be no assurance that others will
not develop similar products or software, duplicate the Company's products or
software or design around the patents owned by the Company or that third
parties will not assert intellectual property infringement claims against the
Company. In addition, there can be no assurance that foreign intellectual
property laws will adequately protect the Company's intellectual property
rights abroad. The failure of the Company to protect its proprietary rights
could have a material adverse effect on its business, financial condition and
results of operations.
Litigation may be necessary to enforce the Company's patents, copyrights and
other intellectual property rights, to protect the Company's trade secrets, to
determine the validity of and scope of the proprietary rights of others or to
defend against claims of infringement or invalidity. Such litigation could
result in substantial costs and diversion of resources and could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that infringement,
invalidity, right to use or ownership claims by third parties or claims for
indemnification resulting from infringement claims will not be asserted in the
future or that such assertions will not materially adversely affect the
Company's business, financial condition and results of operations. If any
claims or actions are asserted against the Company, the Company may seek to
obtain a license under a third party's intellectual property rights. There can
be no assurance, however, that a license will be available under reasonable
terms or at all. In addition, should the Company decide to litigate such
claims, such litigation could be extremely expensive and time consuming and
could materially adversely affect the Company's business, financial condition
and results of operations, regardless of the outcome of the litigation.
DEPENDENCE ON KEY PERSONNEL
The Company's future operating results depend in significant part upon the
continued contributions of its key technical and senior management personnel,
many of whom would be difficult to replace. The Company's
15
<PAGE>
future operating results also depend in significant part upon its ability to
attract and retain qualified management, manufacturing, quality assurance,
engineering, marketing, sales and support personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will be
successful in attracting or retaining such personnel. There may be only a
limited number of persons with the requisite skills to serve in these
positions and it may be increasingly difficult for the Company to hire such
personnel over time. The loss of any key employee, the failure of any key
employee to perform in his or her current position, the Company's inability to
attract and retain skilled employees as needed or the inability of the
officers and key employees of the Company to expand, train and manage the
Company's employee base could materially adversely affect the Company's
business, financial condition and results of operations.
The Company has experienced and may continue to experience employee turnover
due to several factors, including an expanding economy within the geographic
area in which the Company maintains its principal business offices, making it
more difficult for the Company to retain its employees. Due to this and other
factors, the Company has experienced and may continue to experience high
levels of employee turnover, which could adversely impact the Company's
business, financial condition and results of operations. The Company is
presently addressing these issues and will pursue solutions designed to retain
its employees and to provide performance incentives.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four-digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. The Company
has commenced, for all of its information systems and software contained in
the products it sells, a year 2000 date conversion project to address
necessary code changes, testing and implementation. Significant uncertainty
exists concerning the potential effects associated with such compliance. The
Company expects such modifications will be made on a timely basis and does not
believe that the cost of such modifications will have a material effect on the
Company's operating results. There can be no assurance, however, that the
Company and/or its vendors will be able to modify timely and successfully such
products, services and systems to comply with year 2000 requirements, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
SUBSTANTIAL LEVERAGE
In connection with the initial private placement of the Notes in November
1997, the Company incurred $100 million of indebtedness. As a result, the
Company's total indebtedness and stockholders' equity, as of December 31,
1997, was approximately $101.7 million and approximately $148.3 million,
respectively. The Company's ability to make scheduled payments of the
principal of, or interest on, its indebtedness will depend on its future
performance, which is subject to economic, financial, competitive and other
factors beyond its control.
SUBORDINATION OF NOTES
The Notes are unsecured and subordinated in right of payment to all Senior
Indebtedness (as defined herein) of the Company. As of December 31, 1997, the
Company had approximately $0.6 million of Senior Indebtedness outstanding. In
addition, because a portion of the Company's operations is conducted through
its subsidiaries, claims of holders of indebtedness of such subsidiaries will
have priority with respect to the assets and earnings of such subsidiaries
over the claims of creditors of the Company, including holders of the Notes.
As of December 31, 1997, the aggregate indebtedness and other liabilities
outstanding (other than liabilities of a type not required to be reflected in
the balance sheet in accordance with generally accepted accounting principles
and intercompany indebtedness) of such subsidiaries was approximately $2.0
million. The Indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness or pari passu indebtedness, that the Company or
any of its subsidiaries can create, incur, assume or guarantee. During the
continuance of any default
16
<PAGE>
(beyond any applicable grace period) in the payment of principal, premium,
interest on Senior Indebtedness or certain non-payment defaults on Designated
Senior Indebtedness (as defined herein), no payment of principal or interest
on the Notes may be made by the Company. In addition, upon any distribution of
assets of the Company upon any dissolution, winding up, liquidation or
reorganization, the payment of the principal and interest on the Notes will be
subordinated to the extent provided in the Indenture to the prior payment in
full of all Senior Indebtedness. By reason of this subordination, in the event
of the Company's dissolution, holders of Senior Indebtedness may receive more,
ratably, and Holders of the Notes may receive less, ratably, than the other
creditors of the Company.
ABSENCE OF FINANCIAL COVENANTS
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of indebtedness, including Senior
Indebtedness, by the Company or the issuance or repurchase of securities by
the Company. The Indenture contains no covenants or other provisions to afford
protection to Holders of the Notes in the event of a highly leveraged
transaction or a change in control of the Company except to the extent
described under "Description of Notes--Repurchase of Notes at the Option of
Holders upon a Change of Control."
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
If a Change of Control (as defined herein) were to occur, there can be no
assurance that the Company would have sufficient financial resources, or would
be able to arrange financing to pay the repurchase price in cash for all Notes
tendered by Holders thereof. The Company's ability to repurchase Notes may
also be limited or prohibited by the terms of its then existing borrowing
arrangements and by law. Moreover, any future credit agreements or other
agreements relating to other indebtedness (including other Senior
Indebtedness) to which the Company becomes a party may contain restrictions on
or prohibitions of the repurchase of the Notes by the Company. In the event a
Change of Control occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of the lenders to the
repurchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company would remain prohibited from repurchasing
the Notes. In such case, the Company's failure to repurchase the Notes would
constitute an Event of Default (as defined herein) under the Indenture whether
or not payment of the repurchase price is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness of the Company. Moreover, the occurrence of a Change
of Control in and of itself may constitute an event of default under Senior
Indebtedness of the Company. As a result, in either case, payment of the
repurchase price of the Notes with cash would, absent a waiver, be prohibited
under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "Description of Notes--Subordination" and
"--Subordination of Notes."
No Notes may be repurchased at the option of Holders upon a Change of
Control if there has occurred and is continuing an Event of Default described
under "Description of Notes--Events of Default and Remedies" (other than a
default in the payment of the repurchase price with respect to such Notes on
the repurchase date).
LIMITATIONS ON DIVIDENDS
Since its incorporation in 1991, the Company has not declared or paid cash
dividends on its Common Stock, and the Company anticipates that any future
earnings will be retained for investment in its business. Any payment of cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends.
VOLATILITY OF NOTES AND STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, developments in the Asia/Pacific region,
announcements of technological innovations or new products
17
<PAGE>
or enhancements by the Company or its competitors, sales by competitors,
including sales to the Company's customers, sales of the Company's Common
Stock into the public market, including by members of management, developments
in the Company's relationships with its customers, partners, lenders,
distributors and suppliers, shortfalls or changes in revenues, gross margins,
earnings or losses or other financial results that differ from analysts'
expectations (as recently experienced upon announcement of third quarter
results), regulatory developments, fluctuations in results of operations and
general conditions in the Company's market or the markets served by the
Company's customers or the economy, could cause the price of the Company's
Notes or Common Stock to fluctuate, perhaps substantially. In addition, future
trading prices of the Notes will depend on other factors, such as prevailing
interest rates, perceptions of the Company's creditworthiness and the market
for similar securities, and the market price of the Notes may trade at a
discount from their principal amount based on such factors. In recent years
the stock market in general, and the market for shares of small capitalization
and technology stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Many companies in the telecommunications industry,
including the Company, have recently experienced historic highs in the market
price of their Common Stock. There can be no assurance that the market price
of the Company's Common Stock will not decline substantially from its historic
highs, or otherwise continue to experience significant fluctuations in the
future, including fluctuations that are unrelated to the Company's
performance. Such fluctuations could materially adversely affect the market
price of the Company's Notes and Common Stock.
GLOBAL MARKET RISKS
Countries in the Asia/Pacific region have recently experienced weaknesses in
their currency, banking and equity markets. These weaknesses could adversely
affect demand for the Company's products, the availability and supply of
product components to the Company and, ultimately, the Company's consolidated
results of operations.
ABSENCE OF PUBLIC MARKET
Upon their original issuance, the Notes became eligible for trading on the
PORTAL Market. The Notes sold pursuant to this Prospectus, however, will no
longer be eligible for trading on the PORTAL Market. There can be no assurance
that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or at what price holders of the Notes will be able to sell
their Notes. Future trading prices of the Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities. The Company does not intend to apply for listing of the Notes on
any securities exchange or quotation system.
CONTROL BY EXISTING STOCKHOLDERS; EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS
Members of the Board of Directors and the executive officers of the Company,
together with members of their families and entities that may be deemed
affiliates of or related to such persons or entities, beneficially own
approximately 5% of the outstanding shares of Common Stock of the Company.
Accordingly, these stockholders are able to influence the election of the
members of the Company's Board of Directors and influence the outcome of
corporate actions requiring stockholder approval, such as mergers and
acquisitions. This level of ownership, together with the Company's Stockholder
Rights Agreement, certificate of incorporation, equity incentive plans, bylaws
and Delaware law, may have a significant effect in delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Although the Company has no present plans to
issue shares of preferred stock, the Board of Directors has authorized Series
A Junior Participating Preferred Stock that may be issued pursuant to the
Stockholder
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Rights Agreement upon the occurrence of certain triggering events. In general,
the Stockholder Rights Agreement provides a mechanism by which the Board of
Directors and stockholders may act to substantially dilute the share position
of any takeover bidder that acquires 15% or more of the Common Stock. See
"Description of Capital Stock."
POSSIBLE ADVERSE EFFECT ON MARKET PRICE FOR COMMON STOCK OF SHARES ELIGIBLE
FOR FUTURE SALE AFTER THE OFFERING
Sales of the Company's Common Stock into the market could materially
adversely affect the market price of the Company's Common Stock. Shares of
Common Stock sold in the initial public offering in March 1995 and follow-on
offerings in August 1995 and May 1996, 2,134,590 shares registered on a shelf
registration statement on Form S-3 effective in July 1997 covering shares of
Common Stock issued in the acquisitions of Columbia Spectrum Management L.P.
and CRC, 140,000 shares issued in connection with the acquisition of Atlantic
Communication Sciences, Inc., 1,014,366 shares registered on a shelf
registration statement on Form S-3 effective in February 1998 covering shares
of Common Stock issued in the acquisitions of R T Masts and Telematics and
option shares registered on the Company's registration statements covering
employee compensation plans are also, or will be in the near future, eligible
for immediate and unrestricted sale in the public market at any time.
Substantially all of the other shares of the Company's Common Stock are not
restricted and are freely tradeable in the public market.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Notes
or the Shares by the Selling Securityholders. See "Selling Securityholders"
for a list of those persons and entities receiving proceeds from sales of
Notes or Shares.
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on shares of its Common
Stock. The Company currently anticipates that it will retain any available
funds for use in the operation of its business, and does not anticipate paying
any cash dividends in the foreseeable future.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio (deficiency) of earnings to fixed charges for each of
the periods indicated is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
-- -- 5.93x 9.63x 9.17x
</TABLE>
- --------
(1) For purposes of calculating the ratio (deficiency) of earnings to fixed
charges, (i) "earnings" consist of income (loss) before income taxes plus
fixed charges, and (ii) "fixed charges" consist of interest expense
incurred, including with respect to capital leases, amortization of
interest costs and the portion of rental expense under operating leases
deemed by the Company to be representative of the interest factor.
Earnings did not cover fixed charges by $5.15 million in 1993 and $5.97
million in 1994.
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<PAGE>
DESCRIPTION OF NOTES
The Notes were issued pursuant to an indenture (the "Indenture"), dated as
of November 1, 1997, between the Company and State Street Bank and Trust
Company of California, N.A., as trustee (the "Trustee"). The following summary
of the Notes, the Indenture and the Registration Rights Agreement (as defined
below) does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all of the provisions of the Notes, the
Indenture and the Registration Rights Agreement, including the definitions
therein. The Indenture, the Registration Rights Agreement and a form of the
Notes have been filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions." Capitalized terms used herein without definition have
the meanings ascribed to them in the Indenture. As used in this Description of
Notes, the "Company" refers only to P-Com, Inc. and does not, unless the
context otherwise indicates, include any of its subsidiaries.
GENERAL
The Notes are unsecured obligations of the Company, limited in aggregate
principal amount to $100 million and will mature on November 1, 2002. The
Notes will bear interest at 4 1/4% from the date of initial issuance, or from
the most recent date to which interest has been paid or provided for, payable
in arrears on May 1 and November 1 of each year commencing on May 1, 1998, to
Holders of record of the Notes on the immediately preceding April 15 and
October 15. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Principal, premium, if any, interest and Liquidated Damages, if any, on the
Notes will be payable at the office or agency of the Company maintained for
such purpose within the city of New York or, at the option of the Company,
payment of interest and Liquidated Damages, if any, may be made by check
mailed to the Holders of the Notes at their respective addresses set forth in
the register of Holders of Notes; provided that all payments with respect to
Notes the Holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the Holders thereof. Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose.
The Notes are issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
The Indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of Senior Indebtedness or issuance or
repurchase of securities of the Company. The Indenture contains no covenants
or other provisions to afford protection to Holders of the Notes in the event
of a highly leveraged transaction or a change in control of the Company except
to the extent described under "--Repurchase of Notes at the Option of Holders
Upon a Change of Control."
CONVERSION RIGHTS
Each Holder of Notes has the right, on or prior to maturity, unless
previously redeemed or repurchased, at the Holder's option, to convert any
portion of the principal amount hereof that is an integral multiple of $1,000
into shares of Common Stock at any time at the conversion price of $27.46 per
share (subject to adjustment as described below.) The right to convert a Note
called for redemption or delivered for repurchase will terminate at the close
of business on the Business Day immediately prior to the Redemption Date or
Repurchase Date for such Note, unless the Company subsequently fails to pay
the applicable Redemption Price or Repurchase Price, as the case may be.
If any Note is converted between the Record Date for the payment of interest
and the next succeeding Interest Payment Date, such Note must be accompanied
by funds equal to the interest payable on such succeeding
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Interest Payment Date on the principal amount so converted (unless such Note
shall have been called for redemption, in which case no such payment shall be
required), and the interest on the principal amount of the Note being
converted will be paid on such next succeeding Interest Payment Date to the
registered Holder of such Note on the immediately preceding Record Date,
except as provided in the Indenture. A Note converted on an Interest Payment
Date need not be accompanied by any payment, and the interest on the principal
amount of the Note being converted will be paid on such Interest Payment Date
to the registered Holder of such Note on the immediately preceding Record
Date. Subject to the aforesaid right of the registered Holder to receive
interest, no payment or adjustment will be made on conversion for interest
accrued on the converted Note or for dividends on the Common Stock issued on
conversion. Fractional shares of Common Stock shall not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment based
upon the market price of the Common Stock on the first business day prior to
the day of conversion, as provided in the Indenture.
The Conversion Price is subject to adjustment upon the occurrence of certain
events, including (i) the issuance of shares of Common Stock as a dividend or
distribution on the Common Stock; (ii) the subdivision, combination or
reclassification of the outstanding Common Stock; (iii) the issuance to all or
substantially all holders of Common Stock of rights, warrants or options to
subscribe for or purchase Common Stock (or securities convertible into Common
Stock) at a price per share less than the then current market price per share,
as defined in the Indenture; (iv) the distribution of shares of Capital Stock
of the Company (other than Common Stock), evidences of indebtedness or other
assets (excluding dividends payable exclusively in cash) to all or
substantially all holders of Common Stock; (v) the distribution to all or
substantially all of the holders of Common Stock of rights or warrants to
subscribe for Capital Stock (other than Common Stock) at a price per share
less than the then current market price per share of such Capital Stock; (vi)
the issuance of Common Stock for a price per share less than the current
market price per share (determined as set forth below) on the date the Company
fixes the offering price of such additional shares (other than issuances of
Common Stock under certain employee benefit plans of the Company and certain
other issuances described in the Indenture); (vii) the distribution, by
dividend or otherwise, of cash (excluding any cash portion of a distribution
resulting in an adjustment pursuant to clause (iv) above) to all holders of
Common Stock in an aggregate amount that, combined together with (A) all other
distributions of cash that did not trigger a Conversion Price adjustment to
all holders of Common Stock within the 12 months preceding the date fixed for
determining the stockholders entitled to such distribution plus (B) any cash
and the fair market value of consideration that did not trigger a Conversion
Price adjustment payable in respect of any tender offer by the Company or any
of its subsidiaries for Common Stock (as described in clause (viii) below)
consummated within the 12 months preceding the date fixed for determining the
stockholders entitled to such distribution, exceeds 15% of the product of the
current market price per share (determined as set forth below) on the date
fixed for the determination of stockholders entitled to receive such
distribution times the number of shares of Common Stock outstanding on such
date; and (viii) the completion of a tender offer made by the Company or any
of its subsidiaries for Common Stock involving an aggregate consideration
that, together with (A) any cash and the fair market value of any
consideration that did not trigger a Conversion Price adjustment paid or
payable in respect of any previous tender offer by the Company or a subsidiary
for Common Stock consummated with the 12 months preceding the consummation of
such tender offer plus (B) the aggregate amount of any distribution of cash
that did not trigger a Conversion Price adjustment (as described in clause
(vii) above) to all holders of Common Stock within the 12 months preceding the
consummation of such tender offer, exceeds 15% of the product of the current
market price per share (determined as set forth below) immediately prior to
the expiration of such offer times the number of shares of Common Stock
outstanding at the expiration of such offer. In the event of a distribution to
all or substantially all holders of Common Stock of rights to subscribe for
additional shares of the Company's Capital Stock (other than those referred to
in clause (iii) above), the Company may, instead of making an adjustment in
the Conversion Price, make proper provisions so that each holder of a Note who
converts such Note after the record date for such distribution and prior to
the expiration or redemption of such rights shall be entitled to receive upon
such conversion, in addition to shares of Common Stock, an appropriate number
of such rights. No adjustment of the Conversion Price will be made until
cumulative adjustments amount to one percent or more of the Conversion Price
as last adjusted.
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Under the terms of the Company's Stockholder Rights Agreement, upon
conversion of the Notes into Common Stock, to the extent the Stockholder
Rights Agreement is still in effect upon such conversion, the holders of such
Notes will receive, in addition to the Common Stock, the rights described
therein (whether or not the rights have separated from the Common Stock at the
time of conversion), subject to certain limited exceptions. See "Description
of Capital Stock--Stockholder Rights Agreement."
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the Conversion Price, the
Holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce
the Conversion Price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such
decrease would be in the best interests of the Company, which determination
shall be conclusive. The Company may, at its option, make such reductions in
the Conversion Price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income tax purposes.
See "Certain Federal Income Tax Considerations."
In the Indenture, the "current market price" per share of Common Stock on
any date shall be deemed to be the average of the Daily Market Prices for the
shorter of (i) 30 consecutive Business Days ending on the last full trading
day on the exchange or market referred to in determining such Daily Market
Prices prior to the time of determination or (ii) the period commencing on the
date next succeeding the first public announcement of the issuance of such
rights or warrants or such distribution through such last full trading day
prior to the time of determination.
In case of any consolidation or merger of the Company with or into any other
corporation, or in the case of any consolidation or merger of another
corporation into the Company in which the Company is the surviving
corporation, involving in either case a reclassification, conversion, exchange
or cancellation of shares of Common Stock, or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of each Note shall,
after such consolidation, merger, sale or transfer, have the right to convert
such Note into the kind and amount of securities or other property, which may
include cash, which such Holder would have been entitled to receive upon such
consolidation, merger, sale or transfer if such Holder had held the Common
Stock issuable upon the conversion of such Note immediately prior to the
effective date of such consolidation, merger, sale or transfer.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not redeemable by the Company prior to November 5, 2000. On or
after November 5, 2000, the Notes are redeemable upon 30 days' notice at the
option of the Company, in whole, or from time to time, in part, at the
redemption prices set forth below (expressed as percentages of the principal
amount), in each case together with accrued and unpaid interest to, but
excluding, the date fixed for redemption. The Notes are not entitled to any
sinking fund.
If redeemed during the 12-month period beginning November 1 (November 5,
2000 through October 31, 2001 in the case of the first such period):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000.......................... 101.70%
2001.......................... 100.85
</TABLE>
and 100% on November 1, 2002; provided that any semi-annual payment of
interest becoming due on the date fixed for redemption shall be payable to the
Holders of record on the relevant record date of the Notes being
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<PAGE>
redeemed. Notwithstanding the foregoing, the Company may not redeem any Notes
unless all accrued and unpaid interest has been paid on all outstanding Notes
for all interest periods terminating on or prior to the last interest payment
date before the date of redemption.
If less than all of the outstanding Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in principal amounts of $1,000 or
multiples thereof by lot, pro rata or by a method the Trustee considers fair
and appropriate (as long as such method is not prohibited by the rules of any
United States national securities exchange or of an established automated
over-the-counter trading market in the United States on which the Notes are
then listed). If any Note is to be redeemed in part only, a new Note or Notes
in principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a Holder's Notes is selected for partial redemption
and such Holder converts a portion of such Notes, such converted portion shall
be deemed to be taken from the portion selected for redemption.
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL
The Indenture provides that in the event that a Change of Control (as
defined below) has occurred, each Holder will have the right, at such Holder's
option, pursuant to an irrevocable and unconditional offer by the Company (the
"Repurchase Offer"), to require the Company to repurchase all or any part of
such Holder's Notes (provided that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on the date (the "Repurchase Date")
that is no later than 90 days after the occurrence of such Change of Control
at a cash price equal to 100% of the principal amount thereof, together with
accrued and unpaid interest and Liquidated Damages, if any, to the Repurchase
Date (the "Repurchase Price"). The Repurchase Offer shall be made within 30
days following a Change of Control and shall remain open for a period
specified by the Company but not less than 20 Business Days following its
commencement (the "Repurchase Offer Period"). Upon expiration of the
Repurchase Offer Period, the Company shall purchase all Notes tendered in
response to the Repurchase Offer in the manner described below. If required by
applicable law, the Repurchase Date and the Repurchase Offer Period may be
extended to the extent required; however, if so extended, it shall
nevertheless constitute an Event of Default if the Repurchase Date does not
occur within 90 days of the Change of Control.
The Indenture provides that a "Change of Control" will be deemed to have
occurred when: (i) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or indirectly, of
shares representing more than 50% of the combined total voting power of the
then outstanding securities entitled to vote generally in elections of
directors of the Company ("Voting Stock"), (ii) the Company consolidates with
or merges into any other person or conveys, transfers or leases, whether
directly or indirectly, all or substantially all of its assets to any person,
or any other person merges into the Company, and, in the case of any such
transaction, the outstanding Common Stock of the Company is changed or
exchanged as a result, unless the stockholders of the Company immediately
before such transaction own, directly or indirectly immediately following such
transaction, at least a majority of the combined voting power of the
outstanding voting securities of the corporation resulting from such
transaction in substantially the same proportion as their ownership of the
Voting Stock immediately before such transaction, (iii) at any time the
Continuing Directors (as defined below) do not constitute the majority of the
Board of Directors of the Company (or, if applicable, a successor corporation
to the Company), or (iv) the Common Stock of the Company (or other common
stock into which the Notes are then convertible) is neither listed for trading
on a United States national securities exchange or approved for trading on an
established automatic over-the-counter trading market in the United States
during ten consecutive Trading Days; provided that a Change of Control shall
not be deemed to have occurred if either (x) the Daily Market Price of the
Common Stock for any five trading days during the ten trading days immediately
preceding the Change of Control is at least equal to 105% of the Conversion
Price in effect on such day or (y) in the case of a merger or consolidation
otherwise constituting a Change of Control, all of the consideration
(excluding cash payments for fractional shares) in such merger or
consolidation constituting the Change of Control consists of common stock
traded on a United States national securities exchange or quoted on the Nasdaq
National Market (or which will be so traded or quoted when issued or exchanged
in connection with such Change of Control) and
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as a result of such transaction or transactions such Notes become convertible
solely into such common stock. "Continuing Directors" means, as of any date of
determination, any member of the Board of Directors of the Company who (i) was
a member of the Board of Directors on November 5, 1997 or (ii) was nominated
for election or elected to such Board of Directors with the approval of a
majority of the Continuing Directors who were members of the Board of
Directors at the time of such nomination or election.
On or before the Repurchase Date, the Company will (i) accept for payment
Notes or portions thereof properly tendered pursuant to the Repurchase Offer,
(ii) deposit with the Paying Agent cash sufficient to pay the Repurchase Price
of all Notes so tendered and (iii) deliver to the Trustee all Notes or
portions thereof so accepted, together with an Officers' Certificate listing
the Notes or portions thereof being purchased by the Company. The Paying Agent
will promptly mail to the Holders of Notes so accepted payment in an amount
equal to the Repurchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any, to, but excluding, the Repurchase Date), and the
Trustee will promptly authenticate and mail or deliver to such Holders a new
Note or Notes equal in principal amount to any unpurchased portion of the
Notes surrendered. Any Notes not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Repurchase Offer on or as soon as practicable
after the Repurchase Date.
The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time,
and will be dependent on the facts and circumstances existing at such time. As
a result, there may be a degree of uncertainty in ascertaining whether a sale
or transfer of "all or substantially all" of the assets of the Company has
occurred. In addition, no assurances can be given that the Company will be
able to acquire the Notes tendered upon the occurrence of a Change of Control.
For purposes of the definition of Change of Control, (i) the terms "person"
and "group" shall have the meaning used for purposes of Rules 13d-3 and 13d-5
of the Exchange Act as in effect on the Issuance Date, whether or not
applicable; and (ii) the term "beneficial owner" shall have the meaning used
in Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the Issuance
Date, whether or not applicable, except that a "person" shall be deemed to
have "beneficial ownership" of all shares that any such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time or upon the occurrence of certain events.
The repurchase option upon a Change of Control may in certain circumstances
make more difficult or discourage a takeover of the Company and, thus, the
removal of incumbent management. The Change of Control repurchase feature,
however, is not the result of management's knowledge of any specific effort to
accumulate the Company's stock or to obtain control of the Company by means of
a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change
of Control repurchase feature resulted from negotiations among the Company and
the initial purchasers in the initial private placement of the Notes.
Management has no present intention to engage in a transaction involving a
Change of Control, although it is possible the Company could decide to do so
in the future. Subject to the limitations on mergers, consolidations and sale
of assets described herein, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness (including
Senior Indebtedness) outstanding at such time or otherwise affect the
company's capital structure or credit ratings. The payment of the repurchase
price in the event of a Change of Control is subordinated to the prior payment
of Senior Indebtedness as described under "--Subordination."
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act and the provisions of Regulation 14E and
any other tender offer rules under the Exchange Act and any other securities
laws, rules and regulations that may then be applicable to any offer by the
Company to purchase the Notes at the option of Holders upon a Change in
Control.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing to pay the repurchase price for all Notes tendered by
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holders thereof. The Company's ability to repurchase the Notes may also be
limited or prohibited by the terms of its then-existing borrowing arrangements
and applicable law. Moreover, any future credit agreements or other agreements
relating to other indebtedness (including Senior Indebtedness) to which the
Company becomes a party may contain restrictions on or prohibitions of the
repurchase of the Notes by the Company. In the event a Change of Control
occurs at a time when the Company is prohibited from repurchasing Notes, the
Company could seek the consent of its lenders to the repurchase of the Notes
or could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the
Company would remain prohibited from repurchasing the Notes. In such case, the
Company's failure to repurchase the Notes would constitute an Event of Default
under the Indenture whether or not payment of the repurchase price is
permitted by the subordination provisions of the Indenture. Any such default
may, in turn, cause a default under Senior Indebtedness of the Company.
Moreover, the occurrence of a Change of Control in and of itself may
constitute an event of default under Senior Indebtedness of the Company. As a
result, in either case, payment of the repurchase price of the Notes with cash
would, absent a waiver, be prohibited under the subordination provisions of
the Indenture until the Senior Indebtedness is paid in full. See "--
Subordination."
SUBORDINATION
The payment of principal, premium, if any, interest and Liquidated Damages,
if any, on the Notes is subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness, whether
outstanding on the date of the Indenture or thereafter incurred. Upon any
distribution to the creditors of the Company in a liquidation or dissolution
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of the Senior Indebtedness will be
entitled to receive payment in full of all obligations in respect of such
Senior Indebtedness before the Holders will be entitled to receive any payment
with respect to the Notes.
In the event of any acceleration of the Notes because of an Event of
Default, the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full of all obligations in respect of such Senior
Indebtedness before the Holders are entitled to receive any payment or
distribution in respect of the Notes. The Indenture further requires that the
Company promptly notify holders of Senior Indebtedness if payment of the Notes
is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the Notes if
(i) a default in the payment of the principal of, premium, if any, interest,
rent or other Obligations (as defined in "--Certain Definitions") in respect
of Senior Indebtedness (as defined in "--Certain Definitions") occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or other person
permitted to give such notice under the Indenture. Payments on the Notes may
and shall be resumed (a) in the case of a payment default, upon the date on
which such default is cured or waived or ceases to exist and (b) in the case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or ceases to exist or 179 days after the date on
which the applicable Payment Blockage Notice is received. No new period of
payment blockage may be commenced unless and until (i) 365 days shall have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice and (ii) all scheduled payments of principal, premium, if any, and
interest on the Notes that have come due have been paid in full in cash. No
nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis of
a subsequent Payment Blockage Notice.
By reason of the subordination provisions described above, in the event of
the Company's liquidation or insolvency, holders of Senior Indebtedness may
receive more, ratably, and Holders of the Notes may receive less, ratably,
than the other creditors of the Company. Such subordination will not prevent
the occurrences of any Event of Default under the Indenture.
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The Notes are obligations exclusively of the Company. Since certain
operations of the Company are conducted through its Subsidiaries (as defined
in "--Certain Definitions"), the cash flow and the consequent ability to
service debt, including the Notes, of the Company, may be dependent upon the
earnings of its Subsidiaries and the distribution of those earnings to, or
upon loans or other payments of funds by those Subsidiaries to, the Company.
The payment of dividends and the making of loans and advances to the Company
by its Subsidiaries may be subject to statutory or contractual restrictions,
are dependent upon the earnings of those Subsidiaries and are subject to
various business considerations.
Any right of the Company to receive assets of any of its Subsidiaries upon
their liquidation or reorganization (and the consequent right of the Holders
of the Notes to participate in those assets) is effectively subordinated to
the claims of that Subsidiary's creditors, except to the extent that the
Company is itself recognized as a creditor of such Subsidiary, in which case
the claims of the Company would still be subordinate to any security interests
in the assets of such Subsidiary and any indebtedness of such Subsidiary
senior to that held by the Company.
As of December 31, 1997, the Company had approximately $0.6 million of
indebtedness outstanding that would have constituted Senior Indebtedness, and
the Company's Subsidiaries had approximately $2.0 million of indebtedness and
other liabilities outstanding (other than liabilities of a type not required
to be reflected in a balance sheet in accordance with generally accepted
accounting principles and intercompany indebtedness) to which the Notes were
effectively subordinated. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company is
permitted to create, incur, assume or guarantee, nor does the Indenture limit
the amount of indebtedness and other liabilities which any Subsidiary is
permitted to create, incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any Holder
receives any payment or distribution of assets of the Company of any kind in
contravention of any of the terms of the Indenture, whether in cash, property
or securities, including, without limitation by way of set-off or otherwise,
in respect of the Notes before all Senior Indebtedness is paid in full, then
such payment or distribution will be held by the recipient in trust for the
benefit of holders of Senior Indebtedness, and will be immediately paid over
or delivered to the holders of Senior Indebtedness or their representative or
representatives to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment
or distribution, or provision therefor, to or for the holders of Senior
Indebtedness.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default": (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with the provisions described under the caption "--
Repurchase of Notes at the Option of Holders Upon a Change of Control;" (iv)
failure by the Company for 60 days after notice to comply with any of its
other agreements in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there is issued or by which
there is secured or evidenced any indebtedness for money borrowed by the
Company or any of its Significant Subsidiaries (as defined in "--Certain
Definitions") (or the payment of which is guaranteed by the Company or any of
its Significant Subsidiaries) whether such indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on
such indebtedness prior to the expiration of the grace period provided in such
indebtedness on the date of such default (a "Payment Default") or (b) results
in the acceleration of such indebtedness prior to its express maturity and, in
each case, the principal amount of any such indebtedness, together with the
principal amount of any other such indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, is an amount
which, in the aggregate, is equal to or greater than $15 million and
continuance of such default for 30 days after notice given in accordance with
the Indenture; (vi) failure by the Company or any of its Significant
Subsidiaries to pay final judgments in
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an amount which, in the aggregate, exceeds $15 million and which judgments are
not paid, discharged, bonded or stayed within 60 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the Company
or any of its Significant Subsidiaries.
If any Event of Default (other than pursuant to (vii) above with respect to
the Company) occurs and is continuing, the Trustee or the Holders of at least
25% in principal amount of the then outstanding Notes may declare all the
Notes to be due and payable immediately. Notwithstanding the foregoing, in the
case of an Event of Default arising from certain events of bankruptcy or
insolvency with respect to the Company, all outstanding Notes will become due
and payable without further action or notice. Holders of the Notes may not
enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of
the then outstanding Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the Notes notice of any
continuing Default (as defined in "--Certain Definitions") or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by notice to the Trustee, may on behalf of all Holders waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default to deliver to the Trustee a
statement specifying such Default or Event of Default.
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The Indenture provides that the Company may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company
is the surviving corporation, Person or entity formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; and
(iii) immediately after such transaction no Default or Event of Default
exists.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the Holders and the Trustee upon their request (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, an audit report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing).
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of the Company, as such, shall
have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of, or by
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reason of, such obligations or their creation. Each Holder, by accepting a
Note, waives and releases all such liability. The waiver and release are part
of the consideration for the issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed. The registered Holder of a Note will be treated as the owner of the
Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, the Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes, (iii) reduce the rate of or change the time for payment of interest
on any Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if any, on
the Notes (except a rescission of acceleration of the Notes by the Holders of
at least a majority in aggregate principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration), (v) make any Note
payable in money other than that stated in the Notes, (vi) make any change in
the provisions of the Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of, premium, if
any, interest or Liquidated Damages, if any, on the Notes, (vii) waive a
redemption payment or repurchase payment with respect to any Note, (viii)
modify the conversion or subordination provisions of the Indenture in a manner
adverse to the Holders of the Notes or (ix) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder, the
Company and the Trustee may amend or supplement the Indenture or the Notes to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company of California, N.A., is the Trustee
under the Indenture. The Indenture contains certain limitations on the rights
of the Trustee, should it become a creditor of the Company, to obtain payment
of claims in certain cases, or to realize on certain property received in
respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest it must eliminate such conflict within 90 days or apply
to the Commission for permission to continue or resign.
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The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
Notes sold pursuant to this Prospectus are generally represented by one or
more global Notes ("Global Notes") deposited with, by or on behalf of, the
Depositary Trust Company ("DTC") and registered in the name of DTC's nominee,
Cede & Co. (the "Global Note Holder"). DTC is a limited-purpose trust company
that was created to hold securities for its participating organizations
(collectively, the "Participants" or "DTC's Participants") and to facilitate
the clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. DTC's Participants include securities brokers and dealers, banks
and trust companies, clearing corporations and certain other organizations,
including depositaries for Cedel Bank and Euroclear ("Member Organizations"),
acting as DTC Participants on behalf of their respective participants outside
of the United States. Access to DTC's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively,
the "Indirect Participants" or "DTC's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either
directly or indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of DTC only through DTC's Participants or
DTC's Indirect Participants.
Pursuant to procedures established by DTC, ownership of the Notes evidenced
by the Global Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with respect to the
interests of the Depositary's Participants), DTC's Participants and DTC's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Notes. Beneficial owners of Notes evidenced
by the Global Notes will not be considered the owners or holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of DTC or for maintaining, supervising or reviewing any
records of DTC relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable Record Date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, interest and Liquidated
Damages, if any). The Company believes, however, that it is currently the
policy of DTC to immediately credit the accounts of the relevant Participants
with such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of DTC.
Payments by Participants and Indirect Participants to the beneficial owners of
Notes will be governed by standing instructions and customary practice and
will be the responsibility of Participants or Indirect Participants.
Purchasers of the Notes outside of the United States are advised that
because of time-zone differences, the securities accounts of Euroclear or
Cedel Bank participants purchasing an interest in a Global Note from a DTC
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Participant that is not a Member Organization will be credited during the
securities settlement processing day (which must be a business day for
Euroclear or Cedel Bank, as the case may be) immediately following the DTC
settlement date. Transactions in interests in a Global Note settled during any
securities settlement processing day will be reported to the relevant Member
Organization on the same day. Cash received in Euroclear or Cedel Bank as a
result of sales of interests in a Global Note by or through a Member
Organization to a DTC Participant that is not a Member Organization will be
received with value on the Depositary settlement date, but will not be
available in the relevant Euroclear or Cedel Bank cash account until the
business day following settlement at the Depositary.
Purchasers of the Notes are also advised if (i) the Company notifies the
Trustee in writing that DTC is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Global Notes in the form of Certificated
Notes under the Indenture, then, upon surrender by the Global Note Holder of
its Global Notes, Notes in such form will be issued to each person that the
Global Note Holder and DTC identify as being the beneficial owner of the
related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Notes and
the Company and the Trustee may conclusively rely on, and will be protected in
relying on, instructions from the Global Note Holder or DTC for all purposes.
PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to
the accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no
such account is specified, by mailing a check to each such Holder's registered
address.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement (the "Registration Rights
Agreement"), the Company agreed for the benefit of the Holders, to file, at
the Company's sole cost, the shelf registration statement (the "Shelf
Registration Statement") of which this Prospectus is a part with the
Commission with respect to resales of the Notes and the Common Stock issuable
upon conversion thereof. This Prospectus and the Registration Statement of
which it is a part have been filed by the Company pursuant to its obligations
under the Registration Rights Agreement. The Company has further agreed that
(i) it will use its best efforts to cause such Shelf Registration Statement to
be declared effective by the Commission no later than May 8, 1998 and (ii) it
will use its best efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act until, subject to certain
exceptions specified in the Registration Rights Agreement, November 10, 1999.
The Company will be permitted to suspend use of this Prospectus during certain
periods of time and in certain circumstances relating to pending corporate
developments and public filings with the Commission and similar events. If (a)
such Shelf Registration Statement is not declared effective by the Commission
on or prior to the date specified for such effectiveness (the "Effectiveness
Target Date") or (b) the Shelf Registration Statement is declared effective
but thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities (as defined in the Registration Rights
Agreement) for a period of time that shall exceed 90 days in the aggregate in
any period of 365 consecutive days (each such event referred to in clauses (a)
and (b) above a "Registration Default"), then the Company will pay Liquidated
Damages to each Holder of Notes, during the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to
$0.05 per week per $1,000 principal amount of Notes and, if applicable, on an
equivalent basis per share (subject to adjustment in the event of stock
splits, stock recombinations, stock dividends and the like) of Common Stock
constituting Transfer Restricted Securities held by such Holder. The rate of
accrual of the Liquidated Damages will increase by an additional $0.05 per
week per $1,000 principal amount of Notes and, if applicable, by an equivalent
30
<PAGE>
amount per week per share (subject to adjustments as set forth above) of
Common Stock constituting Transfer Restricted Securities for each subsequent
90-day period the applicable Shelf Registration Statement is declared
effective and becomes available for effecting sales of securities, or the
Shelf Registration Statement again becomes effective and becomes available for
effecting sales of securities, as the case may be, up to a maximum amount of
Liquidated Damages of $0.25 per week per $1,000 principal amount of Notes or
if applicable, an equivalent amount per week per share (subject to adjustment
set forth above) of Common Stock constituting Transfer Restricted Securities.
All accrued Liquidated Damages will be paid by the Company on each Interest
Payment Date in cash. Such payment will be made to the Holder of the Global
Notes by wire transfer of immediately available funds or by federal funds
check and to Holders of Certificated Notes, if any, by wire transfer to the
accounts specified by them or by mailing checks to their registered addresses
if no such accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
The Company is required to provide to each registered holder of the Notes,
or the Common Stock issuable upon conversion of the Notes, copies of each
draft of this Prospectus filed with the Commission, notify each such holder
when such Shelf Registration Statement for the Notes or the Common Stock
issuable upon conversion of the Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Notes or
the Common Stock issuable upon conversion of the Notes. A holder of Notes, or
the Common Stock issuable upon conversion of the Notes, that sells such
securities pursuant to the Shelf Registration Statement of which this
Prospectus is a part generally will be required to deliver this Prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification and contribution rights and
obligations). Holders of Notes (including holders who acquire Notes in the
open market pursuant to this Shelf Registration Statement) will be required to
deliver information to be used in connection with maintaining the
effectiveness of the Shelf Registration Statement of which this Prospectus is
a part in order to benefit from certain of the provisions regarding Liquidated
Damages set forth above.
GOVERNING LAW
The Indenture and, except as may otherwise be required by law, the Notes are
governed by and construed in accordance with the laws of the State of New
York, without giving effect to such state's conflicts of laws principles.
ABSENCE OF PUBLIC MARKET
Upon their original issuance, the Notes became eligible for trading on the
Portal Market. The Notes sold pursuant to this Prospectus, however, will no
longer be eligible for trading on the Portal Market. There can be no assurance
that an active trading market for the Notes will develop or as to the
liquidity or sustainability of any such market, the ability of the holders to
sell their Notes or at what price holders of the Notes will be able to sell
their Notes. Future trading prices of the Notes will depend upon many factors
including, among other things, prevailing interest rates, the Company's
operating results, the price of the Common Stock and the market for similar
securities. The Company does not intend to apply for listing of the Notes on
any securities exchange or quotation system.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture and the
Registration Rights Agreement. Reference is made to the Indenture and the
Registration Rights Agreement for a full disclosure of all such terms, as well
as any other capitalized terms used herein for which no definition is
provided.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
31
<PAGE>
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means any particular Senior Indebtedness
having an outstanding principal amount or commitment in excess of $15 million
with respect to which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness.)
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Indebtedness" means, with respect to any person, all obligations, whether
or not contingent, of such person (i)(a) for borrowed money (including, but
not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of the Company which is (1) given to secure all or
part of the purchase price of property subject thereto, whether given to the
vendor of such property or to another, or (2) existing on property at the time
of acquisition thereof), (b) evidenced by a note, debenture, bond or other
written instrument, (c) under a lease required to be capitalized on the
balance sheet of the lessee under GAAP, (d) in respect of letters of credit,
bank guarantees or bankers' acceptances (including reimbursement obligations
with respect to any of the foregoing), (e) with respect to Indebtedness
secured by a mortgage, pledge, lien, encumbrance, charge or adverse claim
affecting title or resulting in an encumbrance to which the property or assets
of such person are subject, whether or not the obligation secured thereby
shall have been assumed by or shall otherwise be such person's legal
liability, (f) in respect of the balance of deferred and unpaid purchase price
of any property or assets or (g) under interest rate or currency swap
agreements, cap, floor and collar agreements, spot and forward contracts and
similar agreements and arrangements; (ii) with respect to any obligation of
others of the type described in the preceding clause (i) or under clause (iii)
below assumed by or guaranteed in any manner by such person, contingent or
otherwise (and, without duplication, the obligations of such person under any
such assumptions, guarantees or other such arrangements); and (iii) any and
all deferrals, renewals, extensions, refinancings and refundings of, or
amendments, modifications or supplements to, any of the foregoing.
"Issuance Date" means November 10, 1997, the date on which the Notes are
originally issued and authenticated under the Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"person" or "Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
32
<PAGE>
"Senior Indebtedness" means the principal of, premium, if any, and interest
on, rent under, and any other amounts payable on or in respect of any other
secured Indebtedness of the Company (including, without limitation, any
Obligations in respect of such secured Indebtedness and any interest accruing
after the filing of a petition by or against the Company under any Bankruptcy
Law, whether or not allowed as a claim after such filing in any proceeding
under such Bankruptcy Law), whether outstanding on the date the Indenture
became effective or thereafter created, incurred, assumed, guaranteed or in
effect guaranteed by the Company (including all deferrals, renewals,
extensions or refundings of, or amendments, modifications or supplements to
the foregoing); provided, however, that Senior Indebtedness does not include
(u) unsecured Indebtedness of the Company, (v) Indebtedness evidenced by the
Notes, (w) any liability for federal, state, local or other taxes owed or
owing by the Company, (x) Indebtedness of the Company to any Subsidiary of the
Company, (y) trade payables of the Company, and (z) any particular
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which
the Company is a party) expressly provides that such Indebtedness shall not be
senior in right of payment to, or is pari passu with, or is subordinated or
junior to, the Notes.
"Significant Subsidiary" means any subsidiary of the Company that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act and the Exchange Act, as such
Regulation is in effect on the date of the Indenture.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 95,000,000 shares of
common stock, $0.0001 par value (the "Common Stock"), and 2,000,000 shares of
preferred stock, $0.0001 par value (the "Preferred Stock"), including 750,000
shares of which have been designated Series A junior participating preferred
stock (the "Series A Preferred Stock") pursuant to the Stockholder Rights
Agreement (see discussion below).
COMMON STOCK
As of April 13, 1998, there were 43,098,582 shares of Common Stock
outstanding which were held of record by approximately 314 stockholders. The
holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are fully paid and
nonassessable.
PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
2,000,000 shares of Preferred Stock, of which 750,000 shares have been
designated Series A Preferred Stock. The Board of Directors has the authority
to issue the remaining shares of Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company without further action by the stockholders and may adversely
affect the voting and other rights of the holders of Common Stock. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. At present, the Company has no plans to issue any of
the Preferred Stock, other than Series A Preferred Stock. The Series A
Preferred Stock is not redeemable. Each share of Series A Preferred Stock will
be entitled to an aggregate dividend of 100 times the dividend declared per
share of Common Stock (a "Common Share"). In the event of liquidation, the
holders of the Series A Preferred Stock will be entitled to an aggregate
payment of 100 times the payment made per Common Share. Each share of Series A
Preferred Stock will have 100 votes, voting together with the Common Shares.
In the event of any merger, consolidation or other transaction in which the
Common Shares are exchanged, each share of Series A Preferred Stock will be
entitled to receive 100 times the amount received per Common Share. These
rights are protected by customary anti-dilution provisions. Because of the
nature of the dividend, liquidation and voting rights of the shares of Series
A Preferred Stock, the value of the one one-hundredth interest in a share of
Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one Common Share. See "--Stockholder Rights
Agreement."
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder,
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<PAGE>
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (for the
purposes of determining the number of shares outstanding, under Delaware law,
those shares owned (x) by persons who are directors and also officers and (y)
by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer are excluded from the calculation); or
(iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction which results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation which has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
Certain provisions of the Company's Stockholder Rights Plan, Amended and
Restated Certificate of Incorporation, equity incentive plans, Bylaws and
Delaware law may have a significant effect in delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of other holders of Common Stock. In particular, the
existence of the Company's classified Board of Directors and the ability of
the Board of Directors to issue blank check Preferred Stock without further
stockholder approval may have the effect of delaying, deferring or preventing
a change in control of the Company and may adversely affect the voting and
other rights of other holders of Common Stock.
STOCKHOLDER RIGHTS AGREEMENT
On September 26, 1997, the Board of Directors of the Company approved a
Stockholder Rights Agreement which was executed by the Company and BankBoston,
N.A., the Rights agent, on November 1, 1997. Pursuant to the Stockholder
Rights Agreement, rights (the "Rights") were distributed as a dividend at the
rate of one preferred share purchase right on each outstanding share of its
Common Stock held by stockholders of record as of the close of business on
November 3, 1997 and will be distributed at the same rate for each share of
Common Stock issued thereafter. Each Right will entitle stockholders to buy
one-hundredth of one share of Series A Preferred Stock at an exercise price of
$125.00 upon certain events. The Rights will expire on November 1, 2007.
The Rights will be exercisable only if a person or group acquires 15% or
more of the Company's Common Stock or announces a tender offer, the
consummation of which would result in ownership by a person or group of 15% or
more of the Company's Common Stock. If, after the Rights become exercisable,
the Company is acquired in a merger or other business combination transaction,
or sells 50% or more of its assets or earning power, each unexercised Right
will entitle its holder to purchase, at the Right's then-current exercise
price, a number of the acquiring company's common shares having a market value
at the time of twice the Right's exercise price. In addition, if a person or
group acquires 15% or more of the Company's outstanding Common Stock, each
Right will entitle its holder (other than such person or members of such
group) to purchase, at the Right's then-current exercise price, a number of
shares of the Company's Common Stock (or cash, other securities or property,
at the discretion of the Board of Directors) having a market value of twice
the Right's exercise price. At any time within ten days after the public
announcement that a person or group has acquired beneficial ownership of 15%
or more of the Company's Common Stock, the Board, in its sole discretion, may
redeem the Rights for $0.0001 per Right.
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<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Boston EquiServe
LLP, 289 San Antonio Road, Suite 100, Los Altos, California 94022. Its
telephone number is (650) 947-3226.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Article
VII of the Company's Bylaws provides for mandatory indemnification of its
directors and permissible indemnification of its officers, employees and other
agents to the maximum extent permitted by the Delaware General Corporation
Law. The Company has entered into Indemnification Agreements with its officers
and directors which are intended to provide the Company's officers and
directors with further indemnification to the maximum extent permitted by the
Delaware General Corporation Law.
36
<PAGE>
SELLING SECURITYHOLDERS
The Notes were originally issued by the Company and resold by the initial
purchasers in transactions exempt from the registration requirements of the
Securities Act to persons reasonably believed by such initial purchasers to be
"qualified institutional buyers" (as defined by Rule 144A under the Securities
Act and referred to as "Qualified Institutional Buyers"), "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities
Act and referred to as "Institutional Accredited Investors") who are not
Qualified Institutional Buyers or in transactions complying with the
provisions of Regulation S under the Securities Act. The Selling
Securityholders (which term includes their transferees, pledges, donees or
successors) may from time to time offer and sell pursuant to this Prospectus
any and all of the Notes and Shares.
Set forth below are the names of each Selling Securityholder, the principal
amount of Notes that may be offered by such Selling Securityholder pursuant to
this Prospectus and the number of Shares into which such Notes are
convertible. Unless set forth herein, none of the Selling Securityholders has
had a material relationship with the Company or any of its predecessors or
affiliates within the past three years.
The following table sets forth certain information based on a list of DTC
Participants provided as of January 21, 1998 and certain information
thereafter forwarded by beneficial holders of the Notes. Any or all of the
Notes or Shares listed below may be offered for sale pursuant to this
Prospectus by the Selling Securityholders from time to time. Accordingly, no
estimate can be given as to the amounts of Notes or Shares that will be held
by the Selling Securityholders upon consummation of any such sales. In
addition, the Selling Securityholders identified below may have sold,
transferred, or otherwise disposed of all or a portion of their Notes since
the date on which the information regarding their Notes was provided, in
transactions exempt from the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
AGGREGATE PRINCIPAL COMMON STOCK
AMOUNT OF NOTES PERCENTAGE OF THAT MAY
BENEFICIAL HOLDER THAT MAY BE SOLD NOTES OUTSTANDING BE SOLD (1)
----------------- ------------------- ----------------- ------------
<S> <C> <C> <C>
Allstate Insurance Company
(2)........................ 1,000,000 1.000% 36,416
Aloha Airlines Pilots Fixed
Benefit Retirement Trust... 100,000 * 3,641
Aloha Airlines Non-Pilots
Pension Trust.............. 175,000 * 6,372
BancAmerica Robertson
Stephens................... 2,360,000 2.360 85,943
Christian Science Trustees
For Gifts and Endowments... 275,000 * 10,014
Commerce Bank of Kansas
City, N.A.................. 500,000 * 18,208
David Lipscomb University... 85,000 * 3,095
Delaware PERS............... 500,000 * 18,208
Delaware State Employees'
Retirement Fund............ 3,635,000 3.635 132,374
Equitable Life Assurance
Separate Account
Convertibles............... 2,470,000 2.470 89,949
Equitable Life Assurance
Separate Account Balanced.. 140,000 * 5,098
First Church of Christ,
Scientist-Endowment........ 300,000 * 10,924
Forest Alternative
Strategies Fund II LP
Series B3.................. 250,000 * 9,104
Forest Global Convertible
Fund Series B-1............ 100,000 * 3,641
Forest Global Convertible
Fund Series B-5............ 175,000 * 6,372
Forest Global Convertible
Fund Series B-3............ 150,000 * 5,462
Forest Global Convertible
Fund Series B-2............ 125,000 * 4,552
Forest Performance Fund..... 100,000 * 3,641
Forest Performance
Greyhound.................. 165,000 * 6,008
Fox Family Portfolio
Partnership c/o Forest
Investment Management
Corp....................... 360,000 * 13,109
Fox Family FDN dtd 10/10/87
c/o Forest Investment
Management Corp............ 75,000 * 2,731
The Frist Foundation........ 330,000 * 12,017
General Motors Employees
Domestic Group Trust....... 12,045,000 7.315 438,638
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
AGGREGATE PRINCIPAL COMMON STOCK
AMOUNT OF NOTES PERCENTAGE OF THAT MAY
BENEFICIAL HOLDER THAT MAY BE SOLD NOTES OUTSTANDING BE SOLD (1)
----------------- ------------------- ----------------- ------------
<S> <C> <C> <C>
Hawaiian Airlines Employees
Pension Plan--IAM......... 100,000 * 3,641
Hawaiian Airlines Pension
Plan for Salaried
Employees................. 25,000 * 910
Hillside Capital
Incorporated Corporate
Account................... 300,000 * 10,924
Hudson River Trust Balanced
Account................... 1,355,000 1.355 49,344
Hudson River Trust Growth
Investors................. 1,095,000 1.095 39,876
Hudson River Trust Growth
Income Account............ 1,995,000 1.995 72,651
ICI American Holdings...... 200,000 * 7,283
J.P. Morgan & Co.
Incorporated (3).......... 5,000,000 5.000 182,083
Declaration of Trust for
the Defined Benefit Plans
of ICI American Holdings
Inc....................... 1,100,000 1.100 40,058
The J. W. McConnell Family
Foundation................ 500,000 * 18,208
Kapiolani Medical Center... 200,000 * 7,283
Kennilworth Partners LP.... 4,675,000 4.675 170,247
Lincoln National
Convertible Securities
Fund...................... 2,345,000 2.345 85,396
Memphis Light, Gas & Water
Retirement Fund........... 1,245,000 1.245 45,338
Nalco Chemical Company..... 100,000 * 3,641
Natwest Securities Limited. 13,000,000 13.000 473,415
Retirement Plan for Pilots
of Hawaiian Airlines,
Inc....................... 150,000 * 5,462
Societe Generale Secs.
Corp...................... 6,250,000 6.250 227,603
Spear, Leeds & Kellogg..... 1,000,000 1.000 36,416
Starvest Convertible
Securities Fund
Discretionary............. 500,000 * 18,208
State of Oregon PERS....... 5,000,000 5.000 182,083
Summer Hill Global Partners
L.P....................... 75,000 * 2,731
Surfboard and Co........... 8,000,000 8.000 291,332
Thermo Electron Balanced
Investment Fund........... 925,000 * 33,685
United National Insurance
Company................... 120,000 * 4,369
Walker Art Center.......... 285,000 * 10,378
Weirton Trust.............. 750,000 * 27,312
Zeneca Holdings............ 200,000 * 7,283
Declaration of Trust for
the Defined Benefit Plans
of ZENECA Holdings Inc.... 745,000 * 27,130
Other...................... 17,350,000 17.350 631,828
------------ ------- ---------
Total.................... $100,000,000 100.000% 3,641,635(4)
============ ======= =========
</TABLE>
- --------
* Less than 1%
(1) Assumes a conversion price of $27.46 per share and a cash payment in lieu
of any fractional share interest.
(2) Excludes an aggregate of 11,000 shares of the Company's Common Stock held
by certain pension plans maintained for the benefit of Allstate Insurance
Company's agents and employees. Allstate Insurance Company disclaims
beneficial ownership of such shares.
(3) Includes Notes held by J.P. Morgan Investment Management, Inc. and Morgan
Guaranty Trust Company of New York, each a subsidiary of J.P. Morgan & Co.
Incorporated. Excludes 566,900 shares of the Company's Common Stock held
by J.P. Morgan & Co. Incorporated and 182,085 shares which J.P. Morgan &
Co. Incorporated has the right to acquire upon conversion of the Notes.
(4) Total differs from the amount to be registered due to rounding down of
fractional shares.
The preceding table has been prepared based solely upon information
furnished to the Company by DTC, certain of its Participants and certain
beneficial holders of the Notes. From time to time, additional information
concerning ownership of the Notes and Shares may rest with certain holders
thereof not named in the preceding table, with whom the Company believes it
has no affiliation.
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<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the Notes
and the Shares offered hereby. The Notes and the Shares may be sold from time
to time to purchasers directly by the Selling Securityholders. Alternatively,
the Selling Securityholders may from time to time offer the Notes or the
Shares through brokers, dealers or agents who may receive compensation in the
form of discounts, concessions or commissions from the Selling Securityholders
and/or the purchasers of the Notes or the Shares for whom they may act as
agent. The outstanding Common Stock of the Company is listed for trading on
The Nasdaq National Market, and the Shares have been approved for listing
thereon. The Selling Securityholders and any such brokers, dealers or agents
who participate in the distribution of the Notes or the Shares may be deemed
to be "underwriters," and any profits on the sale of the Notes or the Shares
by them and any discounts, commissions or concessions received by any such
brokers, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. To the extent the Selling
Securityholders may be deemed to be underwriters, the Selling Securityholders
may be subject to certain statutory liabilities, including, but not limited
to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the
Exchange Act.
The Notes and the Shares offered hereby may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time
of sale, at varying prices determined at the time of sale or at negotiated
prices. The Notes and the Shares may be sold by one or more of the following
methods, without limitation: (a) a block trade in which the broker or dealer
so engaged will attempt to sell the Notes or the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; (d) an exchange distribution in accordance with the rules of such
exchange; (e) face-to-face transactions between sellers and purchasers without
a broker-dealer; (f) through the writing of options; and (g) such other
methods of distribution as are customary for securities of this type. At any
time a particular offer of the Notes or the Shares is made, a revised
Prospectus or Prospectus Supplement, if required, will be distributed which
will set forth the aggregate amount and type of Notes or the Shares being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, concessions and
other items constituting compensation from the Selling Securityholders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
Such Prospectus Supplement and, if necessary, a post-effective amendment to
the Registration Statement of which this Prospectus is a part, will be filed
with the Commission to reflect the disclosure of additional information with
respect to the distribution of the Notes and the Shares. In addition, the
Notes and the Shares covered by this Prospectus may be sold in private
transactions or under Rule 144 rather than pursuant to this Prospectus.
The Company will use its best efforts to keep the Registration Statement of
which this Prospectus is a part effective until November 10, 1999 or until the
Shelf Registration is no longer required for transfer of the Notes or the
Shares. The Company may prohibit offers and sales of Notes and Shares pursuant
to the registration statement to which this Prospectus relates at any time if
(A)(i) it is in possession of material non-public information, (ii) the Board
of Directors of the Company or the Executive Committee thereof determines
(based on advice of counsel) that such prohibition is necessary in order to
avoid a requirement to disclose such material non-public information and (iii)
the Board of Directors of the Company or the Executive Committee thereof
determines in good faith that disclosure of such material non-public
information would not be in the best interests of the Company and its
stockholders or (B) the Company has made a public announcement relating to an
acquisition or business combination transaction including the Company and/or
one or more of its subsidiaries (i) that is material to the Company and its
subsidiaries taken as a whole and (ii) the Board of Directors of the Company
or the Executive Committee thereof determines in good faith that offers and
sales of Notes and Shares pursuant to the registration statement to which this
Prospectus relates prior to the consummation of such transaction (or such
earlier date as the Board of Directors or the Executive Committee thereof
shall determine) is not in the best interests of the Company and its
stockholders.
To the best knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Notes
39
<PAGE>
and the Shares by the Selling Securityholders. There is no assurance that any
Selling Securityholder will sell any or all of the Notes or the Shares offered
by it hereunder or that any such Selling Securityholder will not transfer,
devise or gift such Notes or Shares by other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation,
Regulation M, which may limit the timing of purchases and sales of any of the
Notes and the Shares by the Selling Securityholders and any other such person.
Furthermore, Regulation M of the Exchange Act may restrict the ability of any
person engaged in the distribution of the Notes or the Shares to engage in
market-making activities with respect to the particular Notes or the Shares
being distributed for a period of up to five business days prior to the
commencement of such distribution. All of the foregoing may affect the
marketability of the Notes and the Shares and the ability of any person or
entity to engage in market-making activities with respect to the Securities.
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and
the Selling Securityholders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will
be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Notes and the Shares to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
40
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences expected to result to original Holders from the
purchase, ownership, conversion and disposition of the Notes and the
disposition of the Common Stock into which the Notes may be converted. This
summary is based upon current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury regulations, judicial authority
and administrative rulings and practice. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth below. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Moreover, no assurance can be offered that the
Internal Revenue Service (the "Service") will not take contrary positions, and
no rulings from the Service or opinions of counsel have been or will be
sought.
The following summary is for general information only. This summary does not
discuss all aspects of United States federal income taxation that may be
relevant to particular Holders in light of their specific circumstances or to
certain types of Holders that may be subject to special rules (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States). EACH INVESTOR SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF PURCHASING,
HOLDING, CONVERTING AND DISPOSING OF THE NOTES AND ACQUIRING, OWNING AND
DISPOSING OF THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
STATED INTEREST
Stated interest on the Notes will be reported to Holders and the Service,
and generally will be taxable to the Holders as ordinary income in accordance
with their methods of accounting for tax purposes. There are several
circumstances under which the Company could make a payment on a Note which
would affect the yield to maturity of a Note, including (as described under
"Description of Notes") the payment of Liquidated Damages, the redemption of a
Note by the Company, or the repurchase of a Note upon a Change in Control.
According to Treasury Regulations, the possibility of a change in the interest
rate will not affect the amount of interest income recognized by a holder (or
the timing of such recognition) if the likelihood of the change, as of the
date the debt obligations are issued, is remote. The Company intends to report
on the basis that the likelihood of a change in the interest rate on the Notes
is remote and does not intend to treat the possibility of a change in the
interest rate as affecting the yield to maturity of any Note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A Holder may be subject to backup withholding at the rate of 31% with
respect to interest paid on and gross proceeds from a sale of, the Notes,
unless (i) the Holder is a corporation or comes within certain other exempt
categories and, when required, demonstrates the relevant facts or (ii) the
Holder provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A Holder who does not
provide the Company with its correct taxpayer identification number may be
subject to penalties imposed by the Service. The Company will report to the
Holders and the Service the amount of any "reportable payments" (including
stated interest on the Notes) and any amount withheld with respect to the
Notes during the calendar year. Backup withholding is not an additional tax.
The amount of any backup withholding generally will be allowed as a credit
against the Holder's federal income tax liability, and excess withholdings may
entitle the Holder to a refund, provided that the required information is
furnished to the Service.
CONVERSION OF NOTES
A Holder should not recognize gain or loss on the conversion of a Note into
Common Stock, except to the extent the Common Stock is considered attributable
to accrued interest not previously included in income or with respect to cash
received in lieu of fractional shares. (To the extent the Notes converted are
subject to accrued
41
<PAGE>
market discount, the amount of the accrued market discount will carry over to
the Common Stock on conversion and will be treated as interest income on
disposition of the Common Stock.) The holding period of Common Stock received
upon conversion of a Note will include the period during which the Note was
held (provided the Note was a capital asset in the hands of the Holder prior
to the conversion), and the Holder's aggregate tax basis in the Common Stock
will be equal to its adjusted tax basis in the Note surrendered, less any tax
basis allocable to any fractional share that otherwise would have been
received.
A Holder will recognize taxable gain or loss on cash received in lieu of
fractional shares of Common Stock in an amount equal to the difference between
the amount of cash received and the portion of the Holder's adjusted tax basis
in the Notes allocable to the fractional shares. The gain or loss will be
capital gain or loss if the fractional shares are capital assets in the hands
of the holder. (For the tax rates applicable to net capital gain or net short-
term capital gain, see "Sale or Exchange of Notes or Shares of Common Stock.")
Adjustments in the conversion price of the Notes made pursuant to the anti-
dilution provisions to reflect distributions to holders of Common Stock may
result in constructive distributions to holders that could be taxable to them
as dividends pursuant to Section 305 of the Code.
Sale or Exchange of Notes or Shares of Common Stock. In general, subject to
the market discount rules discussed below, a Holder will recognize capital
gain or loss upon the sale, exchange, redemption, retirement or other
disposition of the Notes measured by the difference between the amount of cash
and the fair market value of any property received (except to the extent
attributable to the payment of accrued interest, which will be taxable as
ordinary interest income) and the Holder's adjusted tax basis in the Notes. A
Holder's tax basis in the Notes generally will equal the cost of the Notes to
the Holder increased by the amount of market discount, if any, previously
taken into income by the Holder or decreased by any bond premium theretofore
amortized by the Holder with respect to the Notes. In general, subject to the
market discount rules discussed below, each holder of Common Stock into which
the Notes have been converted will recognize capital gain or loss upon the
sale, exchange, redemption, or other disposition of the Common Stock. However,
special rules may apply to redemptions of the Common Stock which may result in
the amount paid being treated as a dividend. In the case of Holders who are
individuals, the maximum tax rate on net capital gains derived from securities
held for more than 18 months is 20%, and the maximum tax rate on net capital
gains derived from securities held for more than one year but not more than 18
months is 28%. Such Holders are subject to tax at ordinary income tax rates on
net short-term capital gains derived from securities held for one year or
less. Gains recognized by corporate Holders on the sale or other disposition
of securities are subject to tax at ordinary income tax rates, regardless of
the length of time such securities are held prior to disposition. (For the
basis and holding period of shares of Common Stock, see "Conversion of
Notes.")
MARKET DISCOUNT
A purchase at a market discount includes a purchase at the original issue at
a price below the issue price of the Note, or after the original issue at a
price below the stated redemption price at maturity. The market discount rules
generally provide that, subject to a statutorily-defined de minimis exception,
if a holder of a debt instrument purchases it at a market discount and later
recognizes gain upon final maturity, redemption or other disposition of the
debt instrument (including a gift), the lesser of the gain (or appreciation,
in the case of a gift) or the portion of the market discount that accrued
while the debt instrument was held by the holder will be treated as ordinary
interest income at the time of the disposition. The market discount rules also
provide that a holder who acquires a debt instrument at a market discount (and
who does not elect to include the market discount in income on a current
basis) may be required to defer a portion of any interest expense that may
otherwise be deductible on any indebtedness incurred or maintained to purchase
or carry that debt instrument until the holder disposes of the debt instrument
in a taxable transaction.
A holder of a debt instrument acquired at a market discount may elect to
have market discount accrue on a constant interest rate basis (as opposed to a
straight line basis). In addition, a holder of a debt instrument acquired at a
market discount may elect to include the market discount in income as the
discount accrues, either on a
42
<PAGE>
straight line basis or, if elected, on a constant interest rate basis. The
current inclusion election, once made, applies to all market discount
obligations acquired by the holder on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the Service. If a Holder elects to include market discount in
income in accordance with the preceding sentence, the rules described above
concerning the recognition of ordinary income on a sale or certain other
dispositions of such a Note and the deferral of interest deductions on
indebtedness related to such a Note would not apply.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset exceeds
the amount payable at maturity of the obligation, the excess (less any amount
attributable to the conversion features of the obligation) will constitute
amortizable bond premium that the holder may elect to amortize under the
constant interest rate method and deduct over the period from his or her
acquisition date to the obligation's maturity date (or, as discussed below,
until an earlier call date). If bond premium is amortized, the amount required
to be included in the Holder's income each year with respect to interest on
the Note will be reduced by the amount of amortizable bond premium allocable
to such year. A holder who elects to amortize bond premium must reduce its tax
basis in the related obligation by the amount of the aggregate deductions
allowable for amortizable bond premium. Under recently issued Treasury
Regulations (the "Regulations"), bond premium in excess of the stated interest
allocable to an accrual period will be allowed as a bond premium deduction.
However, the amount treated as a bond premium deduction is limited to the
amount by which the holder's total interest inclusions on the obligation in
prior accrual periods exceed the total amount treated by the holder as a bond
premium deduction on the obligation in prior accrual periods. The Regulations
apply to debt instruments acquired on or after March 2, 1998, except that if a
holder makes the election to amortize bond premium for the taxable year
containing March, 1998, or any subsequent taxable year, the Regulations apply
to debt instruments held on or after the first day of the taxable year in
which the election is made.
In the case of a debt instrument, such as a Note, that may be called at a
premium prior to maturity, an earlier call date of the debt instrument is
treated as the maturity date of the debt instrument and the amount of bond
premium is determined by treating the amount payable on that call date as the
amount payable at maturity if the calculation produces a smaller amortizable
bond premium than the method described in the preceding paragraph. If a holder
of a debt instrument is required to amortize and deduct bond premium by
reference to a certain call date, the debt instrument will be treated as
maturing on that date for the amount payable and, if not redeemed on that
date, the debt instrument will be treated as reissued on that date for the
amount so payable. If a debt instrument purchased at a premium is redeemed
prior to its maturity, a purchaser who has elected to deduct bond premium may
be permitted to deduct any remaining unamortized bond premium as an ordinary
loss in the taxable year of redemption.
An election to amortize bond premium will apply to amortizable bond premium
on all Notes and other bonds, the interest on which is includable in the
Holder's gross income, held at the beginning of the Holder's first taxable
year to which the election applies or thereafter acquired, and may be revoked
only with the consent of the Service.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES
TO HIM OR HER OF THE ACQUISITION, OWNERSHIP, CONVERSION AND DISPOSITION OF THE
NOTES AND THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes and the
validity of the Shares offered hereby are being passed upon for the Company by
Brobeck, Phleger & Harrison LLP, Palo Alto, California. As of the date of this
Prospectus, attorneys of Brobeck, Phleger & Harrison LLP and family members
thereof beneficially owned an aggregate of approximately 64,000 shares of the
Company's Common Stock.
43
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
SECURITYHOLDERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION FOR AN OFFER
TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Documents by Reference............................ 2
The Company................................................................ 3
The Offering............................................................... 4
Risk Factors............................................................... 5
Use of Proceeds............................................................ 19
Dividend Policy............................................................ 19
Ratio of Earnings to Fixed Charges......................................... 19
Description of Notes....................................................... 20
Description of Capital Stock............................................... 34
Selling Securityholders.................................................... 37
Plan of Distribution....................................................... 39
Certain United States Federal Income Tax Consequences...................... 41
Legal Matters.............................................................. 43
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
P-COM, INC.
4 1/4% CONVERTIBLE
SUBORDINATED NOTES
DUE 2002
AND
SHARES OF
COMMON STOCK
ISSUABLE UPON
CONVERSION THEREOF
-----------------
PROSPECTUS
-----------------
APRIL , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
All expenses incurred in connection with the issuance and distribution of
the securities being registered will be paid by the Registrant. The following
is an itemized statement of these expenses. All amounts are estimates except
the Securities and Exchange Commission registration fee and the Nasdaq listing
fee.
<TABLE>
<S> <C>
SEC registration fee............................................... $ 29,500
Nasdaq listing fee................................................. 17,500
Printing and engraving............................................. 10,000
Legal fees and expenses of the Registrant.......................... 30,000
Accounting fees and expenses....................................... 10,000
Trustee's fees and expenses........................................ 1,000
Miscellaneous...................................................... 12,000
--------
Total............................................................ $110,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145")
authorizes a court to award or a corporation's Board of Directors to grant
indemnification to directors and officers in terms sufficiently broad to
permit such indemnification under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities
Act. Article VII of the Registrant's Bylaws provides for mandatory
indemnification of its directors and permissible indemnification of its
officers, employees and other agents to the maximum extent permitted by the
Delaware General Corporation Law. The Registrant has entered into
Indemnification Agreements with its officers and directors which are intended
to provide the Registrant's officers and directors with further
indemnification to the maximum extent permitted by the Delaware General
Corporation Law. Reference is also made to the Underwriting Agreements, the
Purchase Agreements and/or Registration Rights Agreements entered into in
connection with the Company's three public offerings and the Company's eight
acquisitions and the sale of the Notes, each of which contains provisions
indemnifying officers and directors of the Company and other persons against
certain liabilities, including, in some cases, those arising under the
Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.1(1) Form of Common Stock Certificate
4.2 Indenture, dated as of November 1, 1997, between the Registrant
and State Street Bank and Trust Company of California, N.A., as
Trustee.*
4.3 Form of 4 1/4% Convertible Subordinated Note due 2002 (included in
Exhibit 4.2).*
4.4 Registration Rights Agreement, dated as of November 1, 1997 by and
among the Registrant and PaineWebber Incorporated, BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities, Inc. and
Pacific Growth Equities, Inc.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
12.1 Calculation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse LLP.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
24.1 Powers of Attorney (included in the signature page of this
Registration Statement).*
25.1 Statement of Eligibility of Trustee (Form T-1).*
</TABLE>
- --------
* Previously filed.
(1) Incorporated by reference to identically numbered exhibits included in the
Company's Registration Statement on Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining liability under the Securities
Act, each post-effective amendment shall be deemed to be a new registration
statement of the securities offered, and the offering of such securities at
that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate
of Incorporation or the Bylaws of the Registrant, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CAMPBELL, STATE OF CALIFORNIA ON THIS 27TH DAY OF
APRIL, 1998.
P-Com, Inc.
/s/ George P. Roberts
By: _________________________________
(George P. Roberts)
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George P. Roberts and Michael J. Sophie, and
each of them singly, as true and lawful attorneys-in-fact and agents with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule
462 and otherwise), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the foregoing, as full to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully
do or cause to be done by virtue hereof.
Witness our hands on the date set forth below.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
George P. Roberts Chairman of the Board and April 27, 1998
____________________________________ Chief Executive Officer and
(George P. Roberts) Director (Principal
Executive Officer)
* Chief Financial Officer and April 27, 1998
____________________________________ Vice President, Finance and
Michael J. Sophie Administration (Principal
Accounting and Financial
Officer)
* Director April 27, 1998
____________________________________
Gill Cogan
* Director April 27, 1998
____________________________________
John A. Hawkins
* Director April 27, 1998
____________________________________
M. Bernard Puckett
* Director April 27, 1998
____________________________________
James J. Sobczak
</TABLE>
*/s/ George P. Roberts
___________________________
George P. Roberts
Attorney-in-fact
II-4
<PAGE>
P-COM, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.1(1) Form of Common Stock Certificate
4.2 Indenture, dated as of November 1, 1997, between the Registrant
and State Street Bank and Trust Company of California, N.A., as
Trustee.*
4.3 Form of 4 1/4% Convertible Subordinated Note due 2002 (included in
Exhibit 4.2).*
4.4 Registration Rights Agreement, dated as of November 1, 1997 by and
among the Registrant and PaineWebber Incorporated, BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities, Inc. and
Pacific Growth Equities, Inc.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP.
12.1 Calculation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit
5.1).
24.1 Powers of Attorney (included in the signature page of this
Registration Statement).*
25.1 Statement of Eligibility of Trustee (Form T-1).*
</TABLE>
- --------
*Previously filed.
(1) Incorporated by reference to identically numbered exhibits included in the
Company's Registration Statement on Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
<PAGE>
EXHIBIT 5.1
April 27, 1998
P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
Ladies and Gentlemen:
We have acted as counsel to P-Com, Inc. (the "Company"), a Delaware
corporation, in connection with its registration of $100,000,000 in aggregate
principal amount of 4 1/4% convertible subordinated notes due 2002 (the
"Notes") and the shares of Common Stock issuable upon conversion thereof (the
"Common Stock") as described in the Company's Registration Statement on Form
S-3, as amended, filed with the Securities and Exchange Commission under the
Securities Act of 1933. The Notes and Common Stock consist of securities that
may be offered by certain stockholders of the Company or by pledgees, donees,
transferees or other successors in interest that receive such shares as a
gift, partnership distribution or other non-sale related transfer (the "Resale
Securities").
We are familiar with the corporate proceedings taken by the Company in
connection with the issuance and sale of the Resale Securities. It is our
opinion that the Resale Securities have been duly authorized and are validly
issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters"
in the Prospectus which is part of the Registration Statement, and in any
amendment thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
_____________________________________
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
Exhibit 12.1
COMPUTATION OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------------------------------------
1993 1994 1995 1996 1997
------ ------ ------ ------ ------
(in thousands except ratio data)
<S> <C> <C> <C> <C> <C>
Net income before tax (4,833) (5,370) 4,480 9,830 29,943
Minority interest in
net (loss) income of
subsidiary -- -- -- (15) (15)
Rental expense 234 322 496 862 1,606
Interest expense 82 285 413 275 2,059
------ ------ ------ ------ ------
Earnings before interest,
taxes, and fixed charges (4,517) (4,763) 5,389 10,952 33,593
====== ====== ====== ===== ======
Total fixed charges 316 607 909 1,137 3,665
Ratio of earnings to
fixed charges (14.29) (7.85) 5.93 9.63 9.17
Coverage surplus
(deficiency) (5,149) (5,977) 3,571 8,693 26,278
</TABLE>
Page 1
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated January 22, 1998 (except for Note 10 which is as of March 28, 1998)
which appears on page 39 of P-Com, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1997.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
April 24, 1998
