<PAGE>
As filed with the Securities and Exchange Commission on January 21, 1999
Registration No. 333-xxxxx
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933, as amended
---------------
P-COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0289371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3175 S. Winchester Boulevard, Campbell, CA 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 and Chief Executive Officer
P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
(408) 866-3666
(Name and address, including zip code, and telephone number, including area
code, of agent for service)
---------------
Copy to:
Warren T. Lazarow, Esq.
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, California 94303
(650) 424-0160
---------------
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, other than securities offered only in connection with
dividend or interest reinvestment plans, 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 of 1933, as amended, check the
following box and list the Securities Act of 1933, as amended, 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 of 1933, as amended, check the following box and list
the Securities Act of 1933, as amended, 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Amount Maximum Proposed
Title of Securities to be Offering Price Aggregate Amount of
to be Registered Registered Per Share(1) Offering Price(1) Registration Fee
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.0001 par
value per share "Common
Stock".................... 13,000,000(2) $7.14065 $92,828,450.00 $25,806.31
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the high and low sale prices per share of the
Company's Common Stock on the Nasdaq National Market as of January 15,
1999.
(2) Includes shares of Common Stock which may be offered pursuant to this
registration statement issuable upon conversion of 15,000 shares of Series
B Convertible Preferred Stock (the "Series B Preferred Stock") and upon
exercise of warrants to purchase up to 1,242,257 shares of Common Stock
(the "Warrants").The aggregate number of shares listed above also includes
shares of Common Stock which may be issued upon payment of premiums,
failures to satisfy certain obligations, interest and anti-dilution
adjustments on the Series B Preferred Stock and Warrants. Pursuant to Rule
416, this registration statement also registers an indeterminate number of
shares of Common Stock as may be issued or become issuable upon conversion
of Series B Preferred Stock and exercise of the Warrants in accordance with
their respective terms to prevent dilution resulting from stock splits,
stock dividends or similar transactions.
---------------
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 of 1933, as amended, or until this registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRELIMINARY PROSPECTUS
(SUBJECT TO COMPLETION, DATED JANUARY 21, 1999)
13,000,000 Shares
P-COM, INC.
----------------
COMMON STOCK
($0.0001 PAR VALUE)
----------------
This prospectus relates to the resale by the Selling Stockholders listed
herein of shares of our Common Stock. The number of shares offered consists of
shares of Common Stock (1) as may be issued upon conversion of 15,000 shares of
our Series B Preferred Stock, (2) as may be issued upon exercise of Warrants to
purchase up to 1,242,257 shares of our Common Stock issued in connection with
the sale of the Series B Preferred Stock and (3) as may be issued upon the
payment of premiums, failures to satisfy certain obligations, interest and
anti-dilution adjustments on the Series B Preferred Stock and Warrants. In
addition, pursuant to Rule 416, this prospectus relates to the resale of such
indeterminate number of shares of our Common Stock as may be issued or become
issuable in accordance with the terms of the Series B Preferred Stock and the
Warrants to prevent dilution resulting from stock splits, stock dividends or
similar transactions. The aggregate proceeds to the Selling Stockholders will
be the purchase price at which such shares are sold less the aggregate agents'
commissions and underwriters' discounts, if any. The prices at which such
Selling Stockholders may sell their shares will be determined by the prevailing
market price for the shares or in negotiated transactions. We will not receive
any of the proceeds from sales of the shares. Pursuant to a Registration Rights
Agreement, dated December 21, 1998, we have agreed to pay all of the expenses
of registration of the Common Stock, excluding underwriting discounts and
commissions, if any. We have also agreed to indemnify the Selling Stockholders
against liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
Our Common Stock is traded on the Nasdaq National Market (Nasdaq Symbol:
PCMS). On January 20, 1999, the closing price of the Company's Common Stock was
$7.9063.
See "Risk Factors" commencing on page 4 for a discussion of certain factors
that should be considered by prospective investors.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is , 1999.
Information in this prospectus is not complete and may be changed. A
registration statement relating to the securities to be offered and sold
hereunder has been filed with the Securities and Exchange Commission. The
Selling Stockholders may not sell or accept an offer to buy these securities
until that registration statement becomes effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
1
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from our web site at http://ittinfo.com or at the SEC's web site
at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings made with the SEC under Section
13a, 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended,
until our offering is complete.
(i) the Company's Annual Report on Form 10-K for the year ended December 31,
1997, filed as of March 31, 1998;
(ii) the Company's amended Annual Report on Form 10-K/A for the year ended
December 31, 1997, filed as of May 6, 1998;
(iii) the Company's quarterly reports on Form 10-Q for the quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998, filed as of May 15, 1998,
August 14, 1998 and November 13, 1998, respectively;
(iv) the Company's current reports on Form 8-K filed as of January 23, 1998,
March 16, 1998, April 9, 1998, April 17, 1998, July 17, 1998, September 11,
1998, September 25, 1998, October 15, 1998, October 23, 1998, December 23,
1998, December 24, 1998, December 31, 1998 and January 4, 1998 (two separate
filings), and Form 8-K/A dated as of April 17, 1998, June 12, 1998, September
11, 1998 and January 6, 1999;
(v) the descriptions of the Company's Common Stock and Series A Preferred
Stock contained in the Company's registration statements on Form 8-A filed as
of January 12, 1995 and Form 8-A/A filed as of February 16, 1995, October 9,
1997, December 22, 1998 and December 24, 1998; and
(vi) all future reports and other documents filed by us pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act shall be deemed to be
incorporated by reference herein and to be a part of this prospectus from the
date of filing of such reports and documents. Any statement incorporated herein
may modify or supersede information or statements in this prospectus.
Upon request, we will provide without charge a copy of this prospectus, and
a copy of any and all of the information that has been or may be incorporated
by reference in this prospectus. Requests for such copies should be directed to
P-Com, Inc., 3175 S. Winchester Boulevard, Campbell, California 95008
(telephone (408) 866-3666).
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have authorized no
one to provide you with different information. We are not making an offer of
these securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of this document.
2
<PAGE>
THE COMPANY
P-Com, Inc. develops, manufactures and markets network access systems for
the worldwide wireless telecommunications market. The point-to-point, spread
spectrum and point-to-multipoint radio links provided by P-Com are designed to
satisfy the network requirements of cellular and personal communications
services, corporate communications, public utilities and local governments. In
addition, P-Com provides comprehensive network services including system and
program planning and management, path design and installation. P-Com also
provides network performance monitoring devices.
Our 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 our direct
sales force. Our customers include AT&T Corp., Bell Atlantic Corp., BellSouth
Corp., Bank of China, Bosch Telecom GmbH, Embratel Particiacoes S.A., Far
Eastone Telecommunications Co., Ltd., Lucent Technologies, Inc., Mercury
one2one, Orange PLC Group, Siemens A.G., Fujitsu Limited, Telekom S.A. Ltd.,
Tellabs Inc., TransAsia Telecomm, Inc., U.S. West Inc., WinStar Communications
Corp., MCI Worldcom Inc., and Post & Telecomm Corp. of Zimbabwe.
In December 1993, we received our initial ISO 9001 registration, a standard
established by the International Organization for Standardization that provides
a methodology by which manufacturers can obtain quality certification of their
design and manufacturing process. In accordance with ISO 9001 requirements, our
ISO 9001 registration was subsequently recertified. We also completed ISO 9001
registration for our United Kingdom sales and customer support facility in
1996, Geritel facility in Italy in 1996 and Technosystem facility in Italy in
1997 and are in the process of obtaining ISO 9001 registration for our other
facilities outside of the United States.
P-Com, Inc. was incorporated in the State of Delaware on August 23, 1991.
Our executive offices are located at 3175 S. Winchester Boulevard, Campbell,
California 95008, and our telephone number is (408) 866-3666.
3
<PAGE>
RISK FACTORS
This prospectus contains forward-looking statements that involve numerous
risks and uncertainties. The statements contained in this prospectus or that
are incorporated by reference herein pursuant to the registration statement
that are not purely historical are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended. Such statements include, for example, our expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this prospectus are based on information available to us on today's
date, and we assume no obligation to update any such forward-looking
statements. Our actual results could differ materially from those anticipated,
including those set forth in the following risk factors and elsewhere in this
prospectus or the registration statement of which this prospectus is part. In
evaluating our business, you should consider carefully the following factors in
addition to the other information presented.
Limited Operating History; Recent Losses
P-Com, Inc. was founded in August 1991 and remained in the development stage
until October 1993 when commercial shipments of our first product began. Due to
our limited operating history and limited resources, among other factors,
profitability or significant revenues on a quarterly or annual basis may not
occur in the future. We are subject to all of the risks inherent in the
operation of a new business enterprise, and may not be able to successfully
address these risks.
From inception to the end of the third quarter of fiscal 1998, we generated
a cumulative net loss of approximately $40.6 million. From the end of 1997
through the third quarter of 1998, our net loss was attributable primarily to
(i) an acquired in-process research and development charge of approximately
$33.9 million recorded in the first quarter of 1998 related to the acquisition
of the assets of the Wireless Communications Group of Cylink Corporation,
referred to herein as the "Cylink Wireless Group," and (ii) a net loss of $42.1
million in the third quarter of 1998, which included restructuring and other
one-time charges of $26.6 million (comprising a $16.9 million charge to cost of
goods sold (including $14.5 million in inventory write downs related to our
existing core business and $2.4 million in other one-time charges to inventory
relating to the elimination of product lines), a $5.4 million charge to general
and administrative expenses and a $4.3 million charge (including severance
benefits, facilities and fixed assets impairments and goodwill impairments) to
restructuring and other one-time charges).
From October 1993 through September 30, 1998, we generated sales of
approximately $607.2 million, of which $373.0 million, or 61.4% of such amount,
was generated in the year ended December 31, 1997 and the first three quarters
of 1998. However, we do not believe such growth rates are indicative of future
operating results. Revenues may not remain at or increase from the levels
experienced in 1997 or in the first three quarters of 1998 and sales may
decline. In fact, during the first nine months of 1998, we experienced our
lowest rates of sequential sales growth since we became a public company. In
addition, during the third quarter of 1998, we experienced a decrease in
revenue as compared to the first two quarters of 1998, due principally to the
market slowdown for the Company's Tel Link product line and for the industry
segment in general. Net sales for the third quarter of 1998 (which included
sales from many newly acquired businesses that did not contribute to revenues
in the comparable period of 1997) were approximately 50% less than our sales
for the comparable period in 1997. We expect our sales growth in the near
future to be significantly below recent comparable periods of growth. In recent
quarters, we also experienced higher than historical product price declines.
The decline in prices, along with one-time inventory write-downs, has had a
significant downward impact on the Company's gross margin. We expect pricing
pressures to continue for the next several quarters. We also expect gross
margins as a percentage of revenues to continue to be below comparable periods
for the next several quarters.
During 1997 and the first three quarters of 1998, operating expenses
increased more rapidly than we had anticipated and these increases also
contributed to net losses. Nonetheless, we plan to continue our investments in
operations, particularly to support product development and the marketing and
sales of recently introduced
4
<PAGE>
products. In parallel, we have undertaken cost-cutting efforts in other areas.
However, if sales do not increase, our results of operations, business and
financial condition may be materially adversely affected. Accordingly, we may
not achieve profitability for the next several quarters. We believe we will
likely report an operating loss during the fourth quarter of fiscal year 1998
and could report a net loss for such quarter.
Significant Customer Concentration
To date, approximately four hundred customers have accounted for
substantially all of our sales. However, in 1997, two customers, Orange
Personal Communications Ltd. and Winstar Communications Corp., accounted for
16% and 11% of our 1997 sales, respectively. During the first three quarters of
1998, four customers accounted for an aggregate of 44.7% of sales and as of
September 30, 1998, seven customers accounted for 46.1% of the backlog
scheduled for shipment in the twelve months subsequent to September 30, 1998.
Many of our major customers are located in foreign countries, primarily in the
United Kingdom and Europe. We anticipate continuing to sell products and
services to existing customers and adding new customers, most of which we
expect to continue to be located outside of the United States.
Similarly, several of our subsidiaries are dependent on a few customers.
Some of these customers are implementing new networks and are themselves in the
early stages of development. They may require additional capital to fully
implement their planned networks, which may be unavailable to them on an as-
needed basis.
The inability of any customer to finance its purchases of our or our
subsidiaries' products or services may materially adversely affect our
business, operations and financial condition. Financial difficulties of
existing or potential customers may also limit the overall demand for our
products and services. Specifically, both current customers and potential
future customers in the telecommunications industry have reportedly undergone
financial difficulties and may therefore limit their future orders. Our ability
to achieve sales in the future will depend in significant part upon our ability
to:
. obtain and fulfill orders from, maintain relationships with and provide
support to existing and new customers;
. manufacture systems in volume on a timely and cost-effective basis; and
. meet stringent customer performance and other requirements and shipment
delivery dates.
Our success will also depend in part on the financial condition, working
capital availability and success of our customers. As a result, any
cancellation, reduction or delay in orders by or shipments, for example, as a
result of manufacturing or supply difficulties or a customer's inability to
finance it purchases of our products or services, may adversely affect our
business. Some difficulties of this nature have occurred in the past and we
believe they will occur in the future.
Finally, acquisitions in the communications industry are common, which
further concentrates the customer base and may cause some orders to be delayed
or cancelled. No assurance can be given that our sales will increase in the
future or that we will be able to support or attract customers. See "--
Significant Fluctuations in Results of Operations."
Significant Fluctuations in Results of Operations
We have experienced and will continue to experience significant fluctuations
in sales, gross margins and operating results. The procurement process for most
of our current and potential customers is complex and lengthy. As a result, the
timing and amount of sales is often difficult to predict reliably. The sale and
implementation of our products and services generally involves a significant
commitment of senior management, as well as our sales force and other
resources. The sales cycle for our products and services typically involves
technical evaluation and commitment of cash and other resources and delays
often occur. Delays are frequently associated with, among other things:
5
<PAGE>
. customers' seasonal purchasing and budgetary cycles;
. education of customers as to the potential applications of our products and
services, as well as product-life cost savings associated therewith;
. compliance with customers' internal procedures for approving large
expenditures and evaluating and accepting new technologies;
. compliance with governmental or other regulatory standards;
. difficulties associated with customers' ability to secure financing;
. negotiation of purchase and service terms for each sale; and
. price decreases required to secure purchase orders.
Orders for 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 years 1997 and 1998. Such
slow down is primarily related to inactivity in the European market, currently
our major customer base, during such period. To the extent such seasonality
continues, the results of operations will fluctuate from quarter to quarter.
Also, a single customer's order scheduled for shipment in a quarter can also
represent a large portion of our potential sales for such quarter. We have 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, our operating results for a particular period have
been and could in the future be materially adversely affected by a delay,
rescheduling or cancellation of even one purchase order. In addition, our
operating results may be affected by an inability to obtain such large orders
from single customers in the future.
Although much of the anticipated growth in the telecommunications
infrastructure is expected to result from the entrance of new service
providers, many new providers do not have the financial resources of existing
service providers. If these new service providers are unable to adequately
finance their operations, they may cancel or delay orders. Moreover, purchase
orders are often received and accepted far in advance of shipment and, as a
result, we typically permit orders to be modified or canceled with limited or
no penalties. Indeed, most of the backlog scheduled for shipment in the twelve
months subsequent to September 30, 1998 can be cancelled. As a result, backlog
does not necessarily indicate future sales for any particular period. In
addition, any failure to reduce actual costs to the extent anticipated when an
order is received substantially in advance of shipment or an increase in
anticipated costs before shipment could materially adversely affect our gross
margin for such orders.
Our customers have also increasingly been requiring product shipment upon
ordering rather than submitting purchase orders far in advance of expected
shipment dates. This requires us to keep inventory on hand for immediate
shipment. Given the variability of customer need and purchasing power, it is
hard to predict the amount of inventory needed to satisfy customer demand. If
we over- or under-estimate inventory requirements, our results of operations
could continue to be adversely affected. In particular, increases in inventory
could materially adversely affect operations if such inventory is not used or
becomes obsolete.
Finally, most of our 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 for any reason may cause sales in a particular quarter to
fall significantly below our expectations. Such delays have occurred in the
past due to, for example, unanticipated shipment rescheduling, pricing
concessions to customers, cancellations or deferrals by customers, competitive
and economic factors, unexpected manufacturing or other difficulties, delays in
deliveries of components, subassemblies or services by suppliers and failure to
receive anticipated orders. We cannot determine whether similar or other delays
might occur in the future, but expect that some or all of such problems might
recur.
Magnifying the effects of any revenue shortfall, a material portion of our
expenses are fixed and difficult to reduce should revenues not meet
expectations. The failure to reduce actual costs to the extent anticipated, or
6
<PAGE>
an increase in anticipated costs before shipment of an order or orders could
affect the gross margins for such orders. Announcements by the Company or our
competitors of new products, services and technologies could cause customers to
defer or cancel purchases of our systems and services. Additional factors have
caused and will continue to cause our performance to vary significantly from
period to period. These factors include:
. new product introductions and . changes in our pricing or
enhancements and related costs; customers' or suppliers' pricing;
. weakness in Asia and Latin . inventory write-downs and
America, resulting in overcapacity obsolescence;
for microwave industry; . market acceptance by customers and
. ability to manufacture and produce timing of availability of new
sufficient volumes of systems and products and services provided by
meet customer requirements; us or our competitors;
. manufacturing efficiencies and . acquisitions, including costs and
costs; expenses;
. customer confusion due to impact . use of different distribution and
of actions of competitors; sales channels;
. variations in mix of sales through . fluctuations in foreign currency
direct efforts or through exchange rates;
distributors or other third . delays or changes in regulatory
parties; approval of systems and services;
. variations in mix of systems and . warranty and customer support
related software tools sold and expenses;
services provided; . severance costs;
. operating and new product . consolidation and other
development expenses; restructuring costs;
. product discounts; . the pending stockholder class
. accounts receivable collection, in action lawsuits;
particular those acquired in . need for additional financing;
recent acquisitions, especially . customization of systems;
outside of United States; . general economic and political
conditions; and
. natural disasters.
Our results of operations have been and will continue to be influenced by
competitive factors, including pricing, availability and demand for other
competitive products and services. All of the above factors are difficult for
us to forecast, and could materially adversely affect our business, condition
and results of operations. We believe that period-to-period comparisons are
thus not necessarily meaningful and should not be relied upon as indications of
future performance. Due to all of the foregoing factors, in some future quarter
or quarters our operating results may continue to be below those projected by
public market analysts, and the price of our Common Stock may be materially
adversely affected. Indeed, based on current market conditions, we presently
expect that net sales for the three month period ending December 31, 1998 will
be significantly lower than net sales in the comparable period in 1997. Due to
lack of order visibility and the current trend of order delays, deferrals and
cancellations, we can give no assurance that we will be able to achieve or
maintain our current sales levels. We believe we will likely report an
operating loss for the quarter ending December 31, 1998 and could report a net
loss for such quarter. Should current market conditions continue to
deteriorate, we may also incur operating and net losses in subsequent periods.
Additionally, management continues to evaluate market conditions in order to
assess the need to take further action to more closely align our cost structure
with anticipated revenues. Any subsequent actions could result in restructuring
charges, inventory write-downs and provisions for the impairment of long-lived
assets, which could materially adversely affect our business, financial
condition and results of operations.
Acquisitions
Since April 1996, we have acquired nine complementary companies and
businesses. Integration and management of these companies into our business is
ongoing. Risks commonly encountered in such transactions include:
. difficulty of assimilating . inability to retain key technical
operations and personnel of and managerial personnel;
combined companies;
. potential disruption of ongoing
business;
7
<PAGE>
. inability of management to . impairment of relationships with
maximize financial and strategic employees and customers as result
position through integration of of integration of new personnel;
acquired businesses; . risks of entering markets in which
. additional expenses associated we have no or limited direct prior
with amortization of acquired experience; and
intangible assets; . operation of companies in
. dilution to existing stockholders; different geographical locations
. maintenance of uniform standards, with different cultures.
controls, procedures and policies;
We may not be successful in overcoming any or all of these risks or any other
problems encountered in connection with such acquisitions, and such
transactions may materially adversely affect our business, condition and
results of operations or require divestment of one or more business units.
As part of our overall strategy, we plan to continue acquisitions of or
investments in complementary companies, products or technologies and to
continue entering into joint ventures and strategic alliances with other
companies. Our success in future acquisition transactions may, however, be
limited. We compete for acquisition and expansion opportunities against many
entities that have substantially greater resources. We may not be able to
successfully identify suitable candidates, pay for or complete acquisitions, or
expand into new markets. Once integrated, acquired businesses may not achieve
comparable levels of revenues, profitability, or productivity to our existing
business, or the stand alone acquired company, or otherwise perform as
expected. Also, as commonly occurs with mergers of technology companies during
the pre-merger and integration phases, aggressive competitors may also
undertake formal initiatives to attract customers and to recruit key employees
through various incentives. Moreover, if we proceed with acquisitions in which
the consideration consists of cash, a substantial portion of our available cash
could be used to consummate the acquisitions, as was the case with the
acquisition of the Cylink Wireless Group. The occurrence of any of these events
could have a material adverse effect on our workforce, business, financial
condition and results of operations. See "--No Assurance of Successful
Expansion of Operations; Management of Growth."
In addition, many business acquisitions must be accounted for under the
purchase method of accounting for financial reporting purposes. Many of the
attractive acquisition candidates for P-Com are high technology companies which
tend to have insignificant amounts of tangible assets and significant goodwill.
Acquisition of these businesses, if accounted for as a purchase would typically
result in substantial charges related to the amortization of goodwill. For
example, all of our past acquisitions to date (the "Acquisitions"), except the
acquisitions of Control Resources Corporation ("CRC"), RT Masts Limited ("RT
Masts") and Telematics, Inc. ("Telematics") have been accounted for under the
purchase method of accounting, and as a result, a significant amount of
goodwill is being amortized as set forth in our consolidated financial
statements. This amortization expense may have a significant effect on our
financial results. Although we believe the accounting for past acquisitions has
been appropriate, in general the Securities and Exchange Commission has
recently been reviewing more closely the accounting for acquisitions and the
resulting charges for "in-process" research and development costs. Any
resulting restatement of the "in-process" research and development charge we
recognized in conjunction with any of our acquisitions, including the Cylink
Wireless Group acquisition, could result in a lesser charge to income for "in-
process" technology and the creation of a higher recorded value of goodwill or
other intangible assets. The allocation of the purchase price to such
additional intangible assets would have the effect of increasing amortization
expense, which could have a material adverse effect on results of operations,
business and financial condition.
Dependence on Contract Manufacturers; Reliance on Sole or Limited Sources of
Supply
Our internal manufacturing capacity is very limited. We use contract
manufacturers such as Celeritek, Inc., GSS Array Technology, Remec, Inc.,
Sanmina Corporation, Senior Systems Technology, Inc. and SPC Electronics Corp.
to produce our systems, components and subassemblies and expect to rely
increasingly on these and other manufacturers in the future. We also rely on
outside vendors to manufacture certain other
8
<PAGE>
components and subassemblies. Our internal manufacturing capacity and that of
our contract manufacturers may not 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 our business, condition and
results of operations.
In addition, certain components, subassemblies and services necessary for
the manufacture of our systems are obtained from a sole supplier or a limited
group of suppliers. In particular, Eltel Engineering S.r.L. and Associates and
Xilinx, Inc. both are sole source or limited source suppliers for critical
components used in our radio systems.
Our reliance on contract manufacturers and on sole suppliers or a limited
group of suppliers and increasing reliance on contract manufacturers and
suppliers involves risks. We have experienced 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. We do not have long-term
supply agreements with most of our manufacturers or suppliers. We have
experienced problems in the timely delivery and quality of products and certain
components and subassemblies from vendors. Some 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 would require us to seek alternative sources of supply, or to
manufacture finished products or components and subassemblies internally. As
manufacture of our products and certain of our components and subassemblies is
an extremely complex process, finding and educating new vendors could delay our
ability to ship our systems, which could damage relationships with current or
prospective customers and materially adversely affect our business, condition
and results of operations.
No Assurance of Successful Expansion of Operations; Management of Growth
Recently, in response to market declines and poor performance in our sector
generally and our lower than expected performance over the last several
quarters, we introduced measures to reduce operating expenses, including
reductions in our workforce in July, September and November 1998. However,
prior to such measures, we had significantly expanded the scale of our
operations to support then anticipated continuing increased sales and to
address critical infrastructure and other requirements. This expansion included
the leasing of additional space, the opening of branch offices and subsidiaries
in the United Kingdom, Italy, Germany, Mexico, Dubai and Singapore, the opening
of design centers in the United Kingdom and the United States, the acquisition
of a large amount of inventory (inventory increased from approximately $58.0
million at December 31, 1997 to approximately $83.2 million at September 30,
1998) and accounts receivable, and nine acquisitions. We had also significantly
invested in research and development to support product development and
services, including the recently introduced products and the development of
point-to-multipoint systems. Further, we had hired additional personnel in all
functional areas, including in sales and marketing, manufacturing and
operations and finance. Such expansion resulted in significantly higher
operating expenses than in prior years, a material portion of which remain
significant fixed costs.
In addition, in order to prepare for the future, we are required to continue
to invest resources in our acquired and new businesses. Currently, we are
devoting significant resources to the development of new products and
technologies and are conducting evaluations of these products. We will continue
to invest additional resources in plant and equipment, inventory, personnel and
other items, to begin production of these products and to provide any necessary
marketing and administration to service and support these new products.
Accordingly, in addition to the effect our recent performance has had on gross
profit margin and inventory levels, gross profit margin and inventory levels
may be further adversely impacted in the future by start-up costs associated
with the initial production and installation of these new products. Start-up
costs may include additional manufacturing overhead, additional allowance for
doubtful accounts, inventory and warranty reserve requirements and the creation
of service and support organizations. Additional inventory on hand for new
product development and customer service requirements also increases the risk
of inventory write-downs.
9
<PAGE>
Based on the foregoing, if our sales do not increase, our results of operations
will continue to be materially adversely affected. See "--Limited Operating
History; Recent Losses."
Expansion of our operations and acquisitions have caused and continue to
impose a significant strain on our management, financial, manufacturing and
other resources and have disrupted our normal business operations. Our ability
to manage any possible future growth may depend upon significant expansion of
our manufacturing, accounting and other internal management systems and the
implementation of a variety of systems, procedures and controls, including
improvements relating to inventory control. In particular, we must successfully
manage the control of overhead expenses and inventories, the development,
introduction, marketing and sales of new products, the management and training
of our employee base, the integration and coordination of a geographically and
ethnically diverse group of employees and the monitoring of third party
manufacturers and suppliers. We cannot be certain that attempts to manage or
expand our marketing, sales, manufacturing and customer support efforts will be
successful or result in future additional sales or profitability. We must also
more efficiently coordinate activities in our companies and facilities in Rome
and Milan, Italy, France, Poland, the United Kingdom, Mexico, Dubai, New
Jersey, Florida, Virginia, Washington and elsewhere. For a number of reasons,
we have in the past and may continue to experience significant problems in
these areas. As a result of the foregoing, as well as difficulty in forecasting
revenue levels, we will continue to experience fluctuations in revenues, costs,
and gross margins.
Any failure to efficiently implement, coordinate and improve systems,
procedures and controls, including improvements relating to inventory control
and coordination with our subsidiaries, at a pace consistent with our business,
could cause continued inefficiencies, additional operational complexities and
expenses, greater risk of billing delays, inventory write-downs and financial
reporting difficulties. Such problems could have a material adverse effect on
our business, condition and results of operations.
A significant ramp-up production of products and services could require us
to make substantial capital investments in equipment and inventory, in
recruitment and training additional personnel and possibly in investment in
additional manufacturing facilities. If under-taken we anticipate these
expenditures would be made in advance of increased sales. In such event, gross
margins would be adversely affected from time-to-time due to short-term
inefficiencies associated with the addition of equipment and inventory,
personnel or facilities, and cost categories may periodically increase as a
percentage of revenues.
Declining Average Selling Prices
We believe that average selling prices and possibly gross margins for our
systems and services will decline in the long term. Reasons for such decline
may include the maturation of such systems, the effect of volume price
discounts in existing and future contracts and the intensification of
competition. To offset declining average selling prices, we believe we must
take a number of steps, including:
. successfully introducing and selling new systems on a timely basis;
. developing new products that incorporate advanced software and other features
that can be sold at higher average selling prices; and
. reducing the costs of our systems through contract manufacturing, design
improvements and component cost reduction, among other actions.
If new products are not developed in a timely manner, fail to achieve customer
acceptance or do not generate higher average selling prices, and we are
therefore unable to offset declining average selling prices, then our gross
margins will decline. See "--Significant Fluctuations in Results of
Operations."
Trade Account Receivables
We are subject to credit risk in the form of trade account receivables. We
may in certain circumstances be unable to enforce a policy of receiving payment
within a limited number of days of issuing bills, especially for
10
<PAGE>
customers in the early phases of business development. In addition, many of our
foreign customers are granted longer payment terms than those typically
existing in the United States. We typically do not require collateral or other
security to support customer receivables, but in some instances we have
required down payments or letters of credit from a customer before booking
their order. We have had difficulties in the past in receiving payment in
accordance with our policies, particularly from customers awaiting financing to
fund their expansion and from customers outside of the United States. The days
sales outstanding of receivables have also recently increased. Such
difficulties may continue in the future, which could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Our bank line of credit currently permits us to sell up to $25 million of
our receivables at any one time to a limited group of purchasers on a non-
recourse basis. We have in the past utilized such sales and may continue from
time to time to sell our receivables, as part of an overall customer financing
program. However, we may not 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
We have limited experience in producing and manufacturing systems and
contracting for such manufacture. Our customers require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to the quality, performance and reliability of
our systems or related software tools. If such problems occur, we 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 our
business, condition and results of operations.
In addition, to maintain our ISO 9001 registration, we must periodically
undergo certification assessment. Failure to maintain such registration could
materially adversely affect our business. We completed ISO 9001 registration
for our United Kingdom sales and customer support facility in 1996, our Geritel
facility in Italy in 1996, and its Technosystem facility in Italy in 1997.
Other of our facilities are also attempting to obtain ISO 9001 registration.
Such registrations may not be achieved and we may be unable to maintain those
registrations we have already completed. Any such failure could have a material
adverse effect on our business, condition and results of operations.
Changes in Financial Accounting Standards
We prepare our financial statements in conformity with generally accepted
accounting principles ("GAAP"). GAAP is subject to interpretation by the
American Institute of Certified Public Accountants, the Securities and Exchange
Commission and various bodies formed to interpret and create appropriate
accounting policies. A change in these policies can have a significant effect
on our reported results, and may even affect our reporting of transactions
completed before a change is announced. Accounting policies affecting many
other aspects of our business, including rules relating to software and license
revenue recognition, purchase and pooling-of-interests accounting for business
combinations, employee stock purchase plans and stock option grants have
recently been revised or are under review by one or more groups. Changes to
these rules, or the questioning of current practices, may have a material
adverse effect on our reported financial results or in the way we conduct our
business.
In addition, the preparation of financial statements in conformity with GAAP
requires us to make estimates and assumptions that affect the recorded amounts
of assets and liabilities, disclosure of those assets and liabilities at the
date of the financial statements and the recorded amounts of expenses during
the reporting period. A change in the facts and circumstances surrounding these
estimates could result in a change to the estimates and impact future operating
results.
11
<PAGE>
Uncertainty of Market Acceptance
Our future operating results depend 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.
The volume and variety of wireless telecommunications services or the markets
for and acceptance of such services may not continue to grow as expected. The
growth of such services may also fail to create anticipated demand for our
systems. Because these markets are relatively new, predicting which segments of
these markets will develop and at what rate these markets will grow is
difficult. In addition to our other products, we have recently invested
significant time and resources in the development of point-to-multipoint radio
systems. If the licensed millimeter wave, spread spectrum microwave radio or
point-to-multipoint microwave radio market and related services for our systems
fails to grow, or grows more slowly than anticipated, our business, condition
and results of operations will 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. Communications providers may not make the necessary
investment in such infrastructure, and the creation of this infrastructure may
not occur in a timely manner. Moreover, one potential application of our
technology--use of our systems in conjunction with the provision of alternative
wireless access in competition with the existing wireline local exchange
providers--depends on the pricing of wireless telecommunications services at
rates competitive with those charged by wireline telephone companies. Rates for
wireless access must become competitive with rates charged by wireline
companies for this approach to be successful. If wireless access rates are not
competitive, consumer demand for wireless access will be materially adversely
affected. If we allocate resources to any market segment that does not grow, we
may be unable to reallocate resources to other market segments in a timely
manner, ultimately curtailing or eliminating our ability to enter such
segments.
Certain current and prospective customers are delivering services and
features which use 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, we must offer systems with superior
price/performance characteristics and extensive customer service and support.
Additionally, we must 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 our systems may result in
prospective customers using alternative technologies in their next generation
of systems and networks. Prospective customers may not design their systems or
networks to include our systems. Existing customers may not continue to include
our systems in their products, systems or networks in the future. Our
technology may not replace existing technologies and achieve widespread
acceptance in the wireless telecommunications market. Failure to achieve or
sustain commercial acceptance of our currently available radio systems or to
develop other commercially acceptable radio systems would materially adversely
affect the Company. Also, industry technical standards may change or, if
emerging standards become established, we may not 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. Our wireless-
based radio systems compete with other wireless telecommunications products and
alternative telecommunications transmission media, including copper and fiber
optic cable. We are experiencing intense competition worldwide from a number of
leading telecommunications companies. Such companies offer a variety of
competitive products and services and broader telecommunications product lines,
and include Adtran, Inc., Alcatel Network Systems, California Microwave, Inc.,
Digital Microwave Corporation (which has recently acquired other competitors,
including Innova International Corp. and MAS Technology, Ltd.), Ericsson
Limited ("Ericsson"), Harris Corporation-Farinon Division, Larus Corporation,
Nokia Telecommunications ("Nokia"), Lucent T.R.T., Utilicom and Western
Multiplex Corporation. Many of such companies have greater installed bases,
financial
12
<PAGE>
resources and production, marketing, manufacturing, engineering and other
capabilities than we do. In early 1998, we acquired the Cylink Wireless Group
which competes with a large number of companies in the wireless communications
markets, including U.S. local exchange carriers and foreign telephone
companies. The most significant competition for Cylink Wireless Group's
products in the wireless market is from telephone companies that offer leased
line data services. We face 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.
We may also compete in the future with other market entrants offering
competing technologies. Some of our current and prospective customers and
partners have developed, are currently developing or could manufacture products
competitive with ours. Nokia and Ericsson have recently developed new
competitive radio systems.
The principal elements of competition in our market and the basis upon which
customers may select our systems include price, performance, software
functionality, ability to meet delivery requirements and customer service and
support. Recently, certain competitors have announced the introduction of new
competitive products, including related software tools and services, and the
acquisition of other competitors and competitive technologies. We expect
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 our competitors could cause a decline
in sales or loss of market acceptance of our systems. New offerings could also
make our systems, services or technologies obsolete or non-competitive. We are
experiencing significant price competition and expect such competition to
intensify. We believe that to be competitive, we will need to expend
significant resources on, among other items, new product development and
enhancements. In marketing our systems and services, we will compete with
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. We may not be able to
compete successfully in the future.
Requirement for Response to Rapid Technological Change and Requirement for
Frequent New Product Introductions
Rapid technological change, frequent new product introductions and
enhancements, product obsolescence, changes in end-user requirements and
evolving industry standards characterize the communications market. Our ability
to compete in this market will depend upon successful development, introduction
and sale of new systems and enhancements and related software tools, on a
timely and cost-effective basis, in response to changing customer requirements.
Recently, we have been developing point-to-multipoint radio systems. Any
success in developing new and enhanced systems, including point-to-multipoint
systems, and related software tools will depend upon a variety of factors. Such
factors include:
. new product selection; . development and completion of
. integration of various elements of related software tools, system
complex technology; performance, quality and
. timely and efficient reliability of systems;
implementation of manufacturing . development and introduction of
and assembly processes and cost competitive systems; and
reduction programs; . timely and efficient completion of
system design.
We have experienced and continue to experience delays in customer
procurement and in completing development and introduction of new systems and
related software tools, including products acquired in
13
<PAGE>
acquisitions. Moreover, we may not be successful in selecting, developing,
manufacturing and marketing new systems or enhancements or related software
tools. Also, errors could be found in our systems after commencement of
commercial shipments. Such errors could result in the loss of or delay in
market acceptance, as well as expenses associated with re-work of previously
delivered equipment. Our inability 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 our business, condition and results of operations.
International Operations; Risks of Doing Business in Developing Countries
In doing business in international markets, we face economic, political and
foreign currency fluctuations that are more volatile than those commonly
experienced in the United States and other areas. Most of our sales to date
have been made to customers located outside of the United States. We have also
acquired three Italy-based companies, two United Kingdom-based companies and
four U.S. companies with substantial international operations. These companies
sell their products and services primarily to customers in Europe, the Middle
East and Africa. We anticipate that international sales will continue to
account for a majority of our sales for the foreseeable future. Historically,
our international sales have been denominated in British pounds sterling or
United States dollars. With recent acquisitions of foreign companies, certain
of our international sales are denominated in other foreign currencies,
including Italian Lira. A decrease in the value of foreign currencies relative
to the United States dollar could result in decreased margins from those
transactions. For international sales that are United States dollar-
denominated, such a decrease could make our systems less price-competitive and
could have a material adverse effect upon our financial condition. We have in
the past mitigated 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 are inherent in our international business
activities. Such risks include:
. changes in regulatory . difficulties in managing
requirements; distributors, potentially adverse
. costs and risks of localizing tax consequences, foreign currency
systems in foreign countries; exchange fluctuations, the burden
. delays in receiving components and of complying with a wide variety
materials; of complex foreign laws and
. availability of suitable export treaties;
financing, timing and availability . the difficulty in accounts
of export licenses, tariffs and receivable collections; and
other trade barriers; . political and economic
. difficulties in staffing and instability.
managing foreign operations,
branches and subsidiaries;
In addition, many of our customer purchase and other agreements are governed by
foreign laws, which may differ significantly from U.S. laws. Therefore, we may
be limited in our ability to enforce our rights under such agreements and to
collect damages, if awarded.
In many cases, local regulatory authorities own or strictly regulate
international telephone companies. Access to such markets is often difficult
due to established relationships between government owned or controlled
telephone companies and their traditional indigenous suppliers of
telecommunications equipment. The successful expansion of our international
operations in certain markets will depend on our ability to locate, form and
maintain strong relationships with established companies providing
communication services and equipment in targeted regions. The failure to
establish regional or local relationships or to successfully market or sell our
products in international markets could limit our ability to expand operations.
Our inability to identify suitable parties for such relationships, or even if
identified, to form and maintain strong relationships could prevent us from
generating sales of products and services in targeted markets or industries.
Moreover, even if such relationships are established, we may be unable to
increase sales of products and services through such relationships.
Some of our 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
14
<PAGE>
construct wireless telecommunications systems or construction of such systems
may be delayed for a variety of reasons. If such events occur, any demand for
our systems in these countries will be similarly limited or delayed. Also, in
developing markets, economic, political and foreign currency fluctuations may
be much more volatile than conditions in the United States and other developed
areas. Such volatility could have a material adverse effect on our ability to
develop or continue to do business in such countries.
Extensive Government Regulation
Radio communications are extensively regulated by the United States, foreign
laws and international treaties. Our 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. Historically, in many developed countries, the
limited availability of radio frequency spectrum has inhibited the growth of
wireless telecommunications networks. Each country's regulatory process
differs. In order for us to operate in a jurisdiction, we must obtain
regulatory approval for our systems and comply with differing regulations.
Regulatory bodies worldwide continue to adopt 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 us and our 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 us to modify
products and services and incur substantial costs to comply with such
regulations and changes.
In addition, we are also affected by domestic and international authorities'
regulation of the allocation and auction of the radio frequency spectrum.
Equipment to support new systems and services can be marketed only if permitted
by governmental regulations and if suitable frequency allocations are auctioned
to service providers. Establishing new regulations and obtaining frequency
allocation at auction is a complex and lengthy process. If PCS operators and
others are delayed in deploying new systems and services, we could experience
delays in orders. Similarly, failure by regulatory authorities to allocate
suitable frequency spectrum could have a material adverse effect on our
results. In addition, delays in the radio frequency spectrum auction process in
the United States could delay our ability to develop and market equipment to
support new services.
We operate in a regulatory environment subject to significant change.
Regulatory changes, which are affected by political, economic and technical
factors, could significantly impact our operations by restricting our
development efforts and those of our customers, making current systems obsolete
or increasing competition. Any such regulatory changes, including changes in
the allocation of available spectrum, could have a material adverse effect on
our business, financial condition and results of operations. It might also
prove necessary or advisable to modify systems and services to operate in
compliance with such regulations. Such modifications could be extremely
expensive and time-consuming.
Future Capital Requirements
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 research and development efforts,
expansion of marketing and sales efforts, and the status of competitive
products. Additional financing may not be available in the future on acceptable
terms, or at all. In this regard, as a result of the continued existence of a
substantial amount of indebtedness incurred through the issuance of our 4 1/4%
convertible promissory notes due 2002 (the "Notes") and the incurrence of debt
under our second bank line of credit, we could be severely limited in our
ability to raise additional financing. Given the recent price for our Common
Stock, if additional funds are raised by issuing equity securities, significant
dilution to our stockholders could result. In this regard, we have recently
retired approximately $22 million of our Notes in exchange for approximately
3.7 million shares of our Common Stock. We may exchange additional Notes for
shares of Common Stock or, alternatively, refinance or
15
<PAGE>
exchange the remainder of the Notes and/or the bank debt. We have also recently
issued 15,000 shares of Series B Preferred Stock and Warrants to purchase up to
1,242,257 shares of our Common Stock in exchange for a $15 million investment.
These transactions have had and may continue to have a substantial dilutive
effect on our stockholders and may make it difficult for us to obtain
additional future financing, if needed. See "--Risks Associated with Preferred
Stock Financing."
If adequate funds are not available, we may be required to restructure or
refinance our debt or delay, scale back or eliminate research and development,
acquisition or manufacturing programs. We may also need to obtain funds through
arrangements with partners or others that may require us to relinquish rights
to certain of our technologies or potential products or other assets.
Pending Class Action Litigation
On September 23, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leonard Vernon and
Gayle M. Wing on behalf of themselves and other stockholders of the Company who
purchased or otherwise acquired the Company's Common Stock between April 15,
1997 and September 11, 1998. The plaintiffs allege various state securities
laws violations by the Company and certain of its officers and directors. The
complaint seeks unquantified compensatory, punitive and other damages,
attorneys' fees and injunctive and/or equitable relief.
On October 16, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Terry Sommer on behalf
of herself and other stockholders of the Company who purchased or otherwise
acquired the Company's Common Stock between April 1, 1998 and September 11,
1998. The plaintiff alleges various state securities laws violations by the
Company and certain of its officers. The complaint seeks unquantified
compensatory and other damages, attorneys' fees and injunctive and/or equitable
relief.
On October 20, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Leo Rubin on behalf of
himself and other stockholders of the Company who purchased or otherwise
acquired the Company's Common Stock between April 15, 1997 and September 11,
1998. This complaint is identical in all relevant respects to that filed on
September 23, 1998, which is described above, other than the fact that the
plaintiffs are different.
On October 26, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Betty B. Hoigaard and
Steve Pomex on behalf of themselves and other stockholders of the Company who
purchased or otherwise acquired the Company's Common Stock between April 15,
1997 and September 11, 1998. This complaint is identical in all relevant
respects to that filed on September 23, 1998, which is described above, other
than the fact that the plaintiffs are different.
On October 27, 1998, a putative class action complaint was filed in the
Superior Court of California, County of Santa Clara, by Judith Thurman on
behalf of herself and other stockholders of the Company who purchased or
otherwise acquired the Company's Common Stock between April 15, 1997 and
September 11, 1998. This complaint is identical in all relevant respects to
that filed on September 23, 1998, which is described above, other than the fact
that the plaintiffs are different.
On December 3, 1998, the Superior Court of California, County of Santa
Clara, entered an order consolidating all of the above complaints. On January
15, 1999, the plaintiffs filed a consolidated amended class action complaint
superceding all of the foregoing complaints.
On November 13, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert
Schmidt on behalf of himself and other stockholders of the Company who
purchased or otherwise acquired the Company's Common Stock between April 15,
1997 and September 11, 1998. The plaintiff alleges violations of the Securities
Exchange Act of 1934 by the Company and certain
16
<PAGE>
of its officers and directors. The complaint seeks unquantified compensatory
damages, attorneys' fees and injunctive and/or equitable relief.
On December 15, 1998, the Company made a motion for protective order in the
Schmidt action, asking the United States District Court, Northern District of
California, to limit allegedly improper communications by class counsel who
have repeatedly filed press releases related to the lawsuit. On December 18,
1998, this motion was denied without prejudice.
On December 3, 1998, a putative class action complaint was filed in the
United States District Court, Northern District of California, by Robert Dwyer
on behalf of himself and other stockholders of the Company who purchased or
otherwise acquired the Company's Common Stock between April 15, 1997 and
September 11, 1998. The plaintiff alleges violations of the Securities Exchange
Act of 1934 by the Company and certain of its officers and directors. The
complaint seeks unquantified compensatory damages, attorneys' fees and
injunctive and/or equitable relief. On December 22, 1998, the plaintiff
voluntarily dismissed this action.
All of these proceedings are at a very early stage and we are unable to
speculate as to their ultimate outcomes. However, we believe the claims in the
complaints are without merit and intend to defend against them vigorously. An
unfavorable outcome in any or all of them could have a material adverse effect
on our business, prospects, financial condition and results of operations. Even
if all of the litigation is resolved in our favor, the defense of such
litigation will entail considerable cost and the significant diversion of
efforts of management, either of which are likely to have a material adverse
effect on our business, prospects, financial condition and results of
operations.
Uncertainty Regarding Protection of Proprietary Rights
We rely on a combination of patents, trademarks, trade secrets, copyrights
and other measures to protect our intellectual property rights. We generally
enter into confidentiality and nondisclosure agreements with service providers,
customers and others, and attempt to limit access to and distribution of
proprietary rights. We also enter into software license agreements with
customers and others. However, such measures may not provide adequate
protection for our trade secrets or other proprietary information for a number
of reasons. For example, our trade secrets or proprietary technology may
otherwise become known or be independently developed by competitors, and we may
not be able to otherwise meaningfully protect intellectual property rights. Any
patent owned by the Company could be invalidated, circumvented or challenged,
or the rights granted thereunder may not provide competitive advantages to us.
Any of our pending or future patent applications might not be issued with the
scope of the claims sought, if at all. Furthermore, others may develop similar
products or software or duplicate our products or software. Similarly, others
might design around the patents owned by us or third parties may assert
intellectual property infringement claims against us. In addition, foreign
intellectual property laws may not adequately protect our intellectual property
rights abroad. A failure to protect proprietary rights could have a material
adverse effect on its business, financial condition and results of operations.
Even if our intellectual property rights are adequately protected,
litigation may also be necessary to enforce patents, copyrights and other
intellectual property rights, to protect our trade secrets, to determine the
validity of and scope of proprietary rights of others or to defend against
claims of infringement or invalidity. We have, through our acquisition of the
Cylink Wireless Group, been put on notice from a variety of third parties that
the Group's products may be infringing the intellectual property rights of
other parties. Any such intellectual property litigation could result in
substantial costs and diversion of resources and could have a material adverse
effect on our business, financial condition and results of operations.
Litigation, even if wholly without merit, could result in substantial costs and
diversion of resources, regardless of the outcome. Infringement, invalidity,
right to use or ownership claims by third parties or claims for indemnification
resulting from infringement claims could be asserted in the future and such
assertions may materially adversely affect us. If any claims or actions are
asserted against us, we may seek a license under a third party's intellectual
property rights. However, such a license may not be available under reasonable
terms or at all.
17
<PAGE>
Dependence on Key Personnel
Our future operating results depend in significant part upon the continued
contributions of key technical and senior management personnel, many of whom
would be difficult to replace. Future operating results also depend upon
ability to attract and retain qualified management, manufacturing, quality
assurance, engineering, marketing, sales and support personnel. Competition for
such personnel is intense, and we may not be successful in attracting or
retaining such personnel. Only a limited number of persons with the requisite
skills to serve in these positions may exist and it may be increasingly
difficult for us to hire such personnel. We have experienced and may continue
to experience employee turnover due to several factors, including an expanding
economy within the geographic area in which we maintain our principal business
offices. Such turnover could adversely impact our business. We are presently
addressing these issues and intend to pursue solutions designed to provide
performance incentives and thereby retain employees. The loss of any key
employee, the failure of any key employee to perform in his or her position,
our 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 our employee base could all materially adversely affect our business.
Year 2000 Compliance
Numerous 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 one year, many companies' software and computer systems and/or software
used by many companies may need to be upgraded or replaced in order to comply
with such Year 2000 ("Y2K") requirements. We have embarked on a global program
to address our readiness for the century change. The Y2K readiness program
involves the assessment of products, services, internal systems and critical
suppliers and, if required, development of plans for upgrades to or replacement
of products, business systems, suppliers and services that impact our Y2K
readiness and/or development of contingency plans. We have not yet established
a comprehensive contingency plan with respect to the Y2K problem, but intend to
establish such a plan by the end of the second quarter of 1999 as part of our
ongoing Y2K compliance effort.
In November of 1998, we initiated a new Y2K-ready internal business system
at our corporate headquarters. The cost of the upgrade was approximately
$250,000. Further business system upgrades will occur in our CRC, Technosystem
and Geritel subsidiaries by the end of the third quarter of 1999. Based on
evaluation performed to date, we believe that all "mission critical" internal
systems are stable and current, in terms of Y2K readiness. However, the failure
of any internal system to achieve Year 2000 readiness could result in material
disruption to our operations. Test and assessment of all of our current radio
products has been completed, with the exception of Technosystem and CRC
products, and Y2K certification has been achieved. However, the inability of
any of our products to properly manage and manipulate data in the year 2000
could result in increased warranty costs, customer satisfaction issues,
potential lawsuits and other material costs and liabilities. All Technosystem
and CRC products are expected to complete their Y2K assessment and testing by
the end of the first quarter of 1999.
Critical suppliers will undergo Y2K site evaluations between January 1 and
the end of June 1999. In November of 1998, we requested a Y2K readiness
statement and progress report from critical suppliers. We expect to obtain all
Y2K readiness statements by the end of the third quarter 1999, and intend to
emphasize obtaining an early response from those suppliers which cannot be
easily replaced. We are aware of the risk posed by single source or large
volume suppliers that may not be addressing their Y2K readiness. Even where
assurances are received from third parties, a risk remains that failure of
systems and products of other companies on which we rely could have a material
adverse effect on our results.
Our budget for the Y2K Program is expected to be an aggregate of
approximately $2 million. Of such amount, we have incurred approximately
$400,000 to date, including the $250,000 disclosed above. The foregoing
statements are based upon management's best estimates at the present time,
which were derived using numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. These estimates may be incorrect and actual results could differ
18
<PAGE>
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to:
. the availability and cost of . success of external customers and
personnel trained in this area; suppliers in addressing the Year
. the rate and magnitude of related 2000 issue; and
labor and consulting costs; . the ability to locate and correct
. the nature and amount of all relevant computer codes.
programming required to upgrade or
replace each of the affected
programs;
Our evaluation is on-going and we expect that new and different information
will become available to us as that evaluation continues. Consequently, we
cannot guarantee that all material elements will be Y2K ready in time.
Volatility of Stock Price
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. Such fluctuations have often been unrelated to the
operating performance of affected companies. We believe that factors such as
announcements of developments related to our business, announcements of
technological innovations or new products or enhancements by us or our
competitors, developments in the Asia/Pacific region, sales by competitors,
including sales to our customers, sales of our Common Stock into the public
market, including by members of management, developments in our relationships
with customers, partners, lenders, distributors and suppliers, shortfalls or
changes in revenues, gross margins, earnings or losses or other financial
results that differ from analysts' expectations (as recently experienced),
regulatory developments, fluctuations in results of operations and general
conditions in our market or markets served by our customers or the economy,
could cause the price of our Common Stock to fluctuate, sometimes reaching
extreme and unexpected lows. There can be no assurance that the market price of
our Common Stock will not continue to decline substantially, or otherwise
continue to experience significant fluctuations in the future, including
fluctuations that are unrelated to our performance. Such fluctuations could
continue to materially adversely affect the market price of our Common Stock.
Substantial Leverage
In November 1997, in connection with the private placement of Notes, we
incurred $100 million of indebtedness. In December 1998 and January 1999, we
retired approximately $22 million of such indebtedness in exchange for
approximately 3.7 million shares of our Common Stock. As of September 30, 1998,
our total indebtedness including current liabilities was approximately $201.6
million and our stockholder's equity was approximately $92.8 million.
Our bank line of credit provides for borrowings of approximately $50
million, which as of December 31, 1998 had been almost fully utilized. The line
of credit requires us to comply with several financial covenants, including the
maintenance of specific minimum ratios. At periods in time since June 30, 1998,
we have amended our existing bank line of credit to prevent defaults with
respect to several financial covenants. Had these amendments not been made, we
would have defaulted on those covenants in our bank line, which would have
triggered cross defaults in the Notes and other debt instruments.
Our ability to make scheduled payments of the principal and interest on
indebtedness will depend on future performance, which is subject in part to
economic, financial, competitive and other factors beyond our control. There
can be no assurance that we will be able to make payments on or restructure or
refinance our debt in the future, if necessary. See "--Risks Associated with
Preferred Stock Financing" and "--Trade Accounts Receivables."
19
<PAGE>
Limitations on Dividends
Since our incorporation in 1991, we have not declared or paid cash dividends
on Common Stock, and we anticipate that any future earnings will be retained
for investment in the business. We are required to pay a 6% per year premium on
the Series B Preferred Stock, payable in cash or Common Stock at our option.
Any payment of cash dividends in the future will be at the discretion of the
Board of Directors and will depend upon, among other things, our earnings,
financial condition, capital requirements, extent of indebtedness and
contractual restrictions with respect to the payment of dividends.
Global Stock Market Risks
Countries in the Asia/Pacific and Latin American regions have recently
experienced weaknesses in their currency, banking and equity markets. These
weaknesses have adversely affected and could continue to adversely affect
demand for products, the availability and supply of product components to us
and, ultimately, our consolidated results of operations.
Control by Existing Stockholders; Effects of Certain Anti-Takeover Provisions
Members of our Board of Directors and executive officers, together with
members of their families and entities that may be deemed affiliates of or
related to such persons or entities, beneficially own approximately 6% of the
outstanding shares of Common Stock. Accordingly, these stockholders are able to
influence the election of the members of the 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
stockholder rights agreement, certificate of incorporation, newly issued shares
Series B Preferred Stock, 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
the Series B Preferred Stock and any other preferred stock that may be issued
in the future, including the Series A Junior Participating Preferred Stock that
may be issued pursuant to the stockholder rights agreement upon the occurrence
of certain triggering events. In general, the stockholder rights agreement
provides a mechanism by which the Board of Directors and stockholders may act
to substantially dilute the share position of any takeover bidder that acquires
15% or more of the Common Stock. The holders of the Series B Preferred Stock
and Warrants and their transferees have been excluded from triggering the
provisions of the stockholder rights agreement. The issuance of the Series B
Preferred Stock or the future issuance of the Series A Preferred Stock or any
additional preferred stock could have the effect of making it more difficult
for a third party to acquire a majority of the Company's outstanding voting
stock. See "--Risks Associated with Preferred Stock Financing" and "Description
of Capital Stock--Rights Agreement."
Possible Adverse Effect on Market Price for Common Stock of Shares Eligible for
Future Sale After the Offering
Sales of the Common Stock into the market could materially adversely affect
the market price of the Common Stock. Substantially all of the shares of our
Common Stock are eligible for immediate and unrestricted sale in the public
market at any time, including the approximately 3.7 million shares of Common
Stock issued in exchange for approximately $22 million of our Notes and, once
the registration statement of which this prospectus forms a part is declared
effective, all shares of Common Stock issuable conversion of the Series B
Preferred Stock and exercise of the Warrants.
Risks Associated with Preferred Stock Financing
In December 1998, we raised gross proceeds of $15 million through the
issuance of 15,000 shares of a newly designated Series B Convertible
Participating Preferred Stock (the "Series B Preferred Stock") and Warrants to
purchase up to 1,242,257 shares of Common Stock. While the issuance of the
Series B Preferred Stock and Warrants provided us with additional working
capital required to fund continuing operations, the agreements with the
purchasers of the Series B Preferred Stock and Warrants contain terms and
covenants that could result in substantial dilution to our stockholders, could
render future financings and loans and merger and
20
<PAGE>
acquisition activities more difficult and could require us to expend
substantial amounts of cash, even if then unavailable at the time such
expenditure was required. See "Description of Capital Stock."
In particular, if we merge with a public company meeting certain threshold
criteria, the holders of the Series B Preferred Stock will be entitled to
receive in the merger the consideration they would have received had they
converted their stock the day before the public announcement of the merger. If
we merge with a private company or a public company not meeting the defined
threshold criteria, the holders of the Series B Preferred Stock will be
entitled, at their option, (1) to retain their preferred stock, which will
thereafter convert into common stock of the surviving company, or (2) receive
either the consideration they would have received had they converted their
stock the day before the public announcement of the merger or receive $1,250
per share of Series B Preferred Stock then outstanding, up to an aggregate of
$18,750,000, in cash, plus any accrued and unpaid premium and a default
interest rate, if applicable. Notwithstanding the foregoing, we are permitted
to acquire other companies without having to provide special consideration to
the holders of the Series B Preferred Stock so long as we do not issue more
than 20% of our Common Stock as merger consideration. The holders of the
Warrants are entitled to similar protections in the event of our merger or
consolidation with another company. We are also prohibited from selling or
transferring all or substantially all of our assets without prior approval by
the purchasers of the Series B Preferred Stock. These provisions may make an
acquisition of the Company or asset sale more difficult and expensive and could
discourage some potential purchasers.
Certain covenants made in connection with the issuance of the Series B
Preferred Stock may also have the effect of limiting our ability to obtain
additional financing and issue other securities. We have agreed, until December
22, 1999, not to issue or agree to issue any equity securities at a price less
than fair market value or any variably or re-setting priced securities, subject
to limited exceptions. In addition, the terms of the Series B Preferred Stock
financing agreements prohibit us from, among other things, altering, changing
or otherwise adversely affecting the terms of the Series B Preferred Stock;
creating or issuing any senior or pari passu securities; or redeeming or paying
any dividend on any junior securities.
The terms of the Series B Preferred Stock financing agreements also include
mandatory redemption features and payment provisions that are triggered in the
event we fail to satisfy certain obligations. Holders of the Series B Preferred
Stock may require redemption of their shares at a substantial premium, plus a
default interest rate, if applicable, upon the occurrence of certain events
deemed within our control. Upon the occurrence of certain other events deemed
outside of our control, including among others, our failure to obtain
stockholder approval (which we must solicit at our expense) of the potential
issuance of more than 20% of the Common Stock outstanding on December 22, 1998,
or 8,707,488 shares, at a price less than the greater of book value or fair
market value (the "20% Limit"), we may be required to make significant payments
to the holders of Series B Preferred Stock and Warrants. All such payments are
capped at $4,950,000 plus a default interest rate, if applicable, and are in
lieu of redemption for these provisions. If the holders of Series B Preferred
Stock demand redemption or if we are required to make significant payments to
such stockholders, we may not be able to fund such redemption or payments, and
even if funding is available, the expenditures required to fund such redemption
or payments could have a material adverse effect on our financial condition.
The Series B Preferred Stock is convertible into shares of our Common Stock
at variable rates based on future trading prices of our Common Stock and events
that may occur in the future. The number of shares of Common Stock that may
ultimately be issued upon conversion is therefore presently indeterminable and
could fluctuate significantly based on the issuance by us of other securities.
Also, the Warrants are subject to anti-dilution protection and thus may require
the issuance of more shares than originally anticipated. These factors may
result in substantial future dilution to the holders of our Common Stock.
In addition to the foregoing, the redemption rights, liquidated damages
provisions, cross default provisions to our debt instruments and other terms of
the Series B Preferred Stock, under certain circumstances, could lead to a
significant accounting charge to earnings and could materially adversely affect
our business, results of
21
<PAGE>
operations and condition. The Series B Preferred Stock will be classified as
mandatorily redeemable preferred stock. As a result, on December 22, 1998, we
recognized in our earnings (loss) per share calculation the fair value of
Warrants issued and the accretion of the Series B Preferred Stock to its fair
value. During the period of conversion of the Series B Preferred Stock, we will
be required to recognize in our earnings (loss) per share calculation any
accretion of the Series B Preferred Stock to its redemption value as a dividend
to the holders of the Series B Preferred Stock. Consequently, we will be
required to take a charge of approximately $1.5 million to our accumulated
deficit for the fourth quarter of fiscal 1998 as a result of the accounting
treatment for issuance of the Warrants. Such charge and potential other future
charges relating to the provisions of the Series B Preferred Stock financing
agreements may materially adversely affect our earnings (loss) per share and
the market price of our Common Stock both currently and in future periods. The
convertibility features of such Series B Preferred Stock and subsequent sales
of the Common Stock underlying both it and the Warrants could materially
adversely affect our valuation and the market trading price of our shares of
Common Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the Common
Stock or the Shares by the Selling Stockholders. See "Selling Stockholders" for
a list of those entities receiving proceeds from sales of shares offered
hereby.
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.
PREMIUM
We are required to pay, upon conversion, a 6% per year premium on the Series
B Preferred Stock, payable in cash or Common Stock at our option.
RATIO (DEFICIENCY) OF EARNINGS (LOSS) TO FIXED CHARGES
P-Com's ratio (deficiency) of earnings (loss) to fixed charges for each of
the periods indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, September 30,
------------------------------ -------------
1993 1994 1995 1996 1997 1998
------- ------ ---- ---- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Ratio (deficiency) of earnings
(loss) to fixed charges (1)..... <14.3x> <7.9x> 5.9x 9.6x 13.4x <12.0x>
</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 P-
Com to be representative of the interest factor. Earnings did not cover
fixed charges by $4.8 million, $5.4 million and $74.2 million in 1993, 1994
and for the three quarters ended September 30, 1998, respectively.
22
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 95 million shares of
common stock, $0.0001 par value (the "Common Stock"), and 2 million shares of
preferred stock, $0.0001 par value (the "Preferred Stock"), including 500,000
shares of which have been designated Series A Junior Participating Preferred
Stock (the "Series A Preferred Stock") pursuant to the Rights Agreement (see
discussion below) and 20,000 shares of which have been designated Series B
Convertible Participating Preferred Stock (the "Series B Preferred Stock"),
15,000 shares of which are issued and outstanding.
Common Stock
As of January 8, 1999, there were 47,258,691 shares of Common Stock
outstanding which were held of record by approximately 479 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 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
million shares of Preferred Stock, of which 500,000 shares have been designated
Series A Preferred, none of which are issued and outstanding and 20,000 shares
which have been designated as Series B Preferred Stock of which 15,000 shares
are issued and outstanding. 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 holders of Common Stock; however the Board may not create or
issue any additional shares of Series B Preferred Stock or of the remaining
authorized but unissued shares of preferred stock without the consent of the
initial purchasers of the Series B Preferred Stock. The issuance of the Series
A Preferred Stock or any newly created preferred stock may delay, defer or
prevent 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 Series A Preferred Stock or any newly
created 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, other than Series A Preferred and the Series B
Preferred Stock, we have no plans to issue any additional 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 10,000 times any
dividend declared per share of Common Stock. In the event of liquidation, the
holders of the Series A Preferred will be entitled to the greater of a $10,000
per share payment, plus any accrued and unpaid dividends, or an aggregate
payment of 10,000 times any payment to be made per share of Common Stock, prior
to any payment to any holder of Common Stock. Each share of Series A Preferred
will have 10,000 votes, voting together with the Common Stock. In the event of
any merger, consolidation or other transaction in which our Common Stock is
exchanged, each share of Series A Preferred will be entitled to receive 10,000
times the amount received per share of Common Stock. Each of these rights are
protected by customary antidilution provisions. Because of the nature of the
dividend, liquidation and voting rights of the shares of Series A Preferred,
the value of the one-ten-thousandth interest in a share of Series A Preferred
purchasable upon exercise of each Right (as defined in the Rights Agreement)
should approximate the value of one share of Common Stock. See "--Rights
Agreement."
23
<PAGE>
Each share of Series B Preferred Stock has a face value of $1,000 and is
convertible at the election of the holder into shares of Common Stock beginning
immediately after issuance until May 14, 1999, at $6.0374 per share; provided
that from March 25, 1999 through May 14, 1999, if we have not achieved $10
million of bona fide, third-party, unaffiliated written contractual commitments
for sales of our point to multipoint products and services prior to March 24,
1999, then 7,500 shares of the Series B Preferred Stock shall be convertible at
the lower of (i) $6.0374 or (ii) 101% of the lowest average closing bid prices
our Common Stock over any 3 consecutive days during the 15 consecutive day
period ending prior to the applicable conversion date (the "Variable Conversion
Price"). From and after May 15, 1999, the Series B Preferred Stock is
convertible at the lower of (i) $6.0374 or (ii) 105% of the average closing bid
prices of our Common Stock for the 15 consecutive trading days immediately
prior to and ending on May 14, 1999 or (iii) the Variable Conversion Price. The
foregoing conversion rates are subject to adjustment upon the occurrence of
certain other events, including:
. our failure to obtain stockholder approval to exceed the 20% Limit prior to a
predetermined date;
. our failure to timely deliver Common Stock upon submission of a notice of
conversion for the Series B Preferred Stock;
. our failure to redeem the Series B Preferred Stock after providing to the
holders thereof a notice of redemption at our option;
. our or any subsidiary's public announcement of a merger or consolidation;
. our issuance of Common Stock or securities convertible or exchangeable into
Common Stock at a variable price per share or at a price per share less than
a predetermined amount; and
. the sale by George Roberts, Chief Executive Officer of the Company, or
Michael Sophie, Chief Financial Officer of the Company, of securities at less
than a predetermined per share price.
We are required by the Series B Preferred Stock financing agreements to
register and keep registered at least 150%, and in some instances 200%, of the
aggregate number of shares of Common Stock into which the Series B Preferred
Stock is convertible and for which the Warrants are exercisable. In order to
help ensure our compliance at all times, we have chosen to initially register,
pursuant to the registration statement of which this prospectus is a part, 13
million shares of our Common Stock. Notwithstanding the registration of such
number of shares, the terms of the Series B Preferred Stock financing
agreements prohibit us from issuing shares of Common Stock upon conversion of
the shares of Series B Preferred Stock or exercise of the Warrants if such
issuance would result in any holder's beneficially owning in excess of 4.9% of
our then outstanding Common Stock. In addition, until stockholder approval is
obtained, we are subject to the 20% Limit imposed by the Nasdaq National Stock
Market. See "Risks Associated with Preferred Stock Financing."
Assuming certain conditions are met, the Series B Preferred Stock will
automatically convert into Common Stock on December 22, 2001. The Series B
Preferred Stock accrues a 6% per year premium, payable in cash or Common Stock
at our option. From and after June 21, 1999, upon sufficient notice, if the
then-effective conversion price for the Series B Preferred Stock is less than
$2.264025, instead of converting the Series B Preferred Stock into Common Stock
upon a holder's request, we may elect to pay such holder the equivalent value
of the Common Stock in cash.
Upon the occurrence of certain events deemed within the Company's control,
each then outstanding share of the Series B Preferred Stock is redeemable at a
holder's option at the greater of $1,330 per share, plus a 6% per year premium
and any default amounts, or a predetermined redemption formula based on the
average of the closing bid prices for our Common Stock during the period
beginning on the date of the holder's redemption notice and ending on the date
of redemption (the "Redemption Formula Amount"). Such events include:
. our failure to timely solicit stockholder approval to exceed the 20% Limit;
. our failure to timely deliver Common Stock upon a holder's submission of a
notice of conversion;
. our failure to remove restrictive legends on our Common Stock as and when
required under the Series B Preferred Stock financing agreements;
24
<PAGE>
. our announcement of our intention not to issue Common Stock upon conversion
of the Series B Preferred Stock or exercise of the Warrants;
. our knowing breach of any material covenant or term in the Series B Preferred
Stock financing agreements;
. our material breach, as a result of performance under the Series B Preferred
Stock financing agreements, of any agreement to which we are or become a
party;
. our knowing commission of any act or omission that constitutes a breach of
any representation or warranty in any of the Series B Preferred Stock
financing agreements;
. our failure to maintain sufficient Common Stock reserved for conversion of
the Series B Preferred Stock or exercise of the Warrants (to the extent no
additional stockholder approval is required to obtain an increase in
authorized shares, if required);
. our knowing and material breach of any agreement involving indebtedness for
borrowed money or purchase price which results in or which would result in
acceleration of the maturity of such debt; and
. our failure to use best efforts to avoid the occurrence of certain Override
Election Events (as defined below).
In certain circumstances, we may be able to avoid redemption if we cure such
events prior to the redemption election by a holder. If we are unable to avoid
redemption and unable to redeem the Series B Preferred Stock upon request, we
must redeem that portion which is permitted and, thereafter, use our best
efforts to remedy the impairment preventing redemption. In addition, certain of
the foregoing events may also cause us to become required to make additional
payments, some of which are payable in cash only and some of which are payable
in cash or additional shares of Common Stock or Series B Preferred Stock, at
the Company's option.
Upon the occurrence of certain other events deemed outside of the Company's
control ("Override Election Events"), we are required to make significant cash
payments to the holders of the Series B Preferred Stock. Such Override Election
Events include:
. the suspension or de-listing of our Common Stock from trading on the Nasdaq
National Market System ("Nasdaq") or certain other markets acceptable to the
initial purchasers of the Series B Preferred Stock;
. the suspension of the registration statement of which this prospectus is a
part (after its effective date) for more than a predetermined period of time;
. failure to maintain sufficient Common Stock reserved for conversion of the
Series B Preferred Stock or exercise of the Warrants (to the extent
additional stockholder approval is required to obtain an increase in
authorized shares, if required);
. failure to have declared effective additional registration statements that
may be required under a Registration Rights Agreement entered into in
connection with the Series B Preferred Stock investment for shares of Common
Stock issuable as a result of premiums, failures to satisfy certain
obligations, anti-dilution protections or adjustments in the conversion rate
of the Series B Preferred Stock;
. failure to obtain stockholder approval to exceed the 20% Limit prior to a
predetermined time; and
. declaration of or being put into bankruptcy or receivership or failure to pay
our debts generally as and when due.
All cash payments required to be made as a result of an Override Election
Event, together with all cash payments required to be made under the other
Series B Preferred Stock financing agreements, are capped at an aggregate of
$1,333 per share plus a default interest rate, if applicable. In addition to
the foregoing cash payments, upon the occurrence of an Override Election Event,
the holders can require us to list our Common Stock on the over-the-counter
electronic bulletin board which, as of the date hereof, has no 20% Limit or
similar restriction and, thereafter, require us to honor all requested
conversions.
So long as an event pursuant to which the holders of Series B Preferred
Stock are entitled to redeem or an Override Election Event has not occurred (or
if such event has occurred in the past, it has been cured for at least the six
immediately preceding consecutive months without the occurrence of any other
such event), the Series B Preferred Stock is redeemable at our option in
certain limited circumstances at premiums varying from
25
<PAGE>
115% to 160% of the original issue price of the Series B Preferred Stock, plus
a 6% premium per year and a default interest rate, if applicable. More
particularly, the Series B Preferred Stock is redeemable:
. on three dates between December 22, 1998 and December 22, 1999 at premiums
varying between 130% and 120% of the original issue price of the Series B
Preferred Stock, plus a 6% premium per year and any default amounts, provided
our Common Stock is then trading at less than $2.264025;
. after December 22, 1999 and prior to December 22, 2000, the Company may
redeem the Series B Preferred Stock at the greater of 160% of the original
issue price of the Series B Preferred Stock, plus a 6% premium per year and
any default amounts, or the Redemption Formula Amount; and
. after December 22, 2000, (i) if the closing bid price for our Common Stock
exceeds a predetermined substantial threshold, we may redeem the Series B
Preferred Stock at 115% of the original issue price of the Series B Preferred
Stock, plus a 6% premium per year and any default amounts, or (ii) if we
simultaneously close a firm commitment underwriting with a minimum $8.00 per
share price and a minimum aggregate amount of $30 million, we may redeem the
Series B Preferred Stock at the greater of 120% of the original issue price
of the Series B Preferred Stock plus a 6% premium per year and any default
amounts, or the Redemption Formula Amount.
We must redeem all of the Series B Preferred Stock unless in excess of $5
million of Series B Preferred Stock (in $1 million increments) will be
redeemed. If we fail to redeem the Series B Preferred Stock after providing a
notice of redemption, we forfeit all future redemptions at our option and the
conversion rate of the Series B Preferred Stock will be adjusted.
The Series B Preferred Stock is senior to the Series A Preferred Stock and
Common Stock in respect of the right to receive dividend payments and
liquidation preferences. The Series B Preferred Stock has no voting power,
except as otherwise provided by applicable law or pursuant to certain
contractual protections described herein. In connection with the issuance of
the Series B Preferred Stock, we have agreed, until December 22, 1999, not to
issue or agree to issue any equity securities at a price less than fair market
value or at a variable or re-settable price, subject to limited exceptions. In
addition, we are prohibited from, among other things, altering, changing or
otherwise adversely affecting the terms of the Series B Preferred Stock;
creating or issuing any senior or pari passu securities; redeeming or paying
any dividend on any junior securities; acting so as to generate taxation under
Section 305 of the Internal Revenue Code of 1986, as amended; and selling or
transferring all or substantially all of our assets without prior approval by
the purchasers of the Series B Preferred Stock.
If we merge with a public company meeting certain threshold criteria, the
holders of the Series B Preferred Stock will be entitled to receive in the
merger the consideration they would have received had they converted their
stock the day before the public announcement of the merger. If we merge with a
private company or a public company not meeting the threshold criteria, the
holders of the Series B Preferred Stock will be entitled, at their option, (1)
to retain their preferred stock, which will thereafter convert into common
stock of the surviving company, or (2) receive either the consideration they
would have received had they converted their stock the day before the public
announcement of the merger or receive $1,250 per share of Series B Preferred
Stock then outstanding, up to an aggregate of $18,750,000, in cash, plus any
accrued and unpaid premium and a default interest rate, if applicable.
Notwithstanding the foregoing, we are permitted to acquire other companies
without having to provide special consideration to the holders of the Series B
Preferred Stock so long as we do not issue more than 20% of our Common Stock as
merger consideration. The holders of the Warrants are entitled to similar
protections in the event of our merger or consolidation with another company.
We are also prohibited from selling or transferring all or substantially all of
our assets without prior approval by the purchasers of the Series B Preferred
Stock.
The Warrants are immediately exercisable until the earlier of: (1) December
22, 2003 and (2) the date on which the closing of a consolidation, merger or
other business combination with or into another entity pursuant to which we do
not survive. The exercise price for the Common Stock underlying the Warrant is
$3.47 (subject to adjustment). In the event we merge or consolidate with any
other company, the warrantholders are entitled to
26
<PAGE>
similar choices as to the consideration they will receive in such merger or
consolidation as are provided to the holders of the Series B Preferred Stock.
In addition, the number of shares issuable upon exercise of the Warrants is
subject to anti-dilution adjustment if we sell Common Stock or securities
convertible into or exercisable for Common Stock (excluding certain issuances
such as Common Stock issued under employee, director or consultant benefit
plans) at a price per share less than $3.47 (subject to adjustment).
The foregoing description is only a summary and is qualified in its entirety
by reference to the Securities Purchase Agreement dated as of December 21, 1998
by and among the Company and the purchasers listed therein, the Registration
Rights Agreement dated as of December 21, 1998 by and among the Company and the
purchasers listed therein, the Warrants issued by the Company to the purchasers
and the Series B Certificate of Designation attached hereto or to the Current
Report on Form 8-K dated as of December 24, 1998 as Exhibits 10.38, 10.39,
10.40A, 10.40B, and 10.40C, and 3.2D and 3.2E, respectively, and incorporated
herein by reference.
Delaware Anti-Takeover Law and Certain Charter Provisions
We are 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:
. 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;
. upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, 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 (1) by persons who are
directors and also officers and (2) 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
. 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:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder;
. 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;
. 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
. 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 interest 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 our Stockholders' Rights Plan, 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, we have a classified Board of Directors
and the Board of Directors has the ability (subject to approval by the initial
holders of the Series B Preferred Stock) to issue blank check Preferred Stock
without further stockholder approval, as was the case with the Series B
Preferred Stock, may have the effect of
27
<PAGE>
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.
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 October 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. On October 5, 1998, the Rights Agreement was amended and on
December 18, 1998 and December 21, 1998, the Rights Agreement was amended and
restated in its entirety. Each Right entitles its holder to buy one ten-
thousandth of one share of Series A Preferred Stock at an exercise price of
$125.00, but only once the Rights become exercisable upon the occurrence of
certain triggering events. The Rights will expire on November 1, 2007.
The Rights become exercisable only if a person or group acquires 15% or more
of our 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 our Common
Stock, such person or group to be known as an "Acquiring Person." If,
(A) subject to limited exceptions, any Acquiring Person:
. merges into the Company and the Company survives;
. transfers assets to the Company or its subsidiaries in exchange for
our Common Stock or otherwise acquires additional shares of our
Common Stock;
. sells or purchases or otherwise acquires or disposes of assets to,
from or with the Company or any subsidiary on terms less favorable
than in an arm's length negotiated transaction;
. sells or purchases or otherwise acquires or disposes of assets to,
from or with the Company or any subsidiary having a fair market value
of more than $5 million;
. receives compensation from the Company or any subsidiary, except for
standard compensation for full time employment; or
. receives the benefit of any financial assistance or tax advantages
from the Company or any subsidiary;
(B) subject to limited exceptions, any person becomes an Acquiring Person;
or
(C) subject to limited exceptions, while there is an Acquiring Person, we
reclassify or recapitalize our capital stock (including a reverse stock
split) or we merge or consolidate with any subsidiary causing more than
a 1% increase in any class of our then outstanding equity securities
which is owned by an Acquiring Person,
then each unexercised Right will entitle its holder to purchase, at the Right's
then-current exercise price, a number of one-ten-thousandths of a share of our
Series A Preferred Stock having a market value of twice the then-current
exercise price of a Right on the date any of the foregoing events occurred. The
holders of the Series B Preferred Stock and Warrants and their transferees have
been excluded from the definition of Acquiring Person and therefore also from
triggering the provisions of the Stockholder Rights Agreement. Consequently,
even if such a holder acquires 15% or more of our Common Stock, the Rights will
not become exercisable.
In addition, if after a person or group becomes an Acquiring Person,
. we consolidate with or merge with and into any other person (other than a
subsidiary) and we do not survive;
. any person (other than a subsidiary) consolidates or merges with the Company
in a transaction in which we survive and any of our Common Stock is exchanged
for cash, property or stock of any other person; or
28
<PAGE>
. we or any subsidiary sells or otherwise transfers to any person (other than a
subsidiary) assets or earning power in excess of 50% of the assets or earning
power of the Company and our subsidiaries;
then each unexercised Right will entitle its holder to receive, at the Right's
then-current exercise price, shares of common stock of the principal party
involved in such transaction with the Company equal in value to twice the then-
current exercise price of a Right on the date of any of the foregoing events.
At any time after any person or group becomes an Acquiring Person, but
before such Acquiring Person becomes the beneficial owner of more than 50% of
our Common Stock, the Board, in its sole discretion, may exchange all or part
of the unexercised Rights for a number of one-ten-thousandths of a share of our
Series A Preferred Stock equal to the then-current exercise price of a Right
divided by the fair market value of one-ten-thousandth of a share of our Series
A Preferred Stock on the earlier of the date the Acquiring Person became an
Acquiring Person or, if applicable, the date on which a tender or exchange
offer was first made pursuant to which the offeror became an Acquiring Person.
At any time prior to the date an Acquiring Person becomes an Acquiring Person,
the Board, in its sole discretion, may redeem all of the Rights for $0.001 per
Right, payable at the Board of Director's option in cash or property, including
our Common Stock.
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.
29
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the aggregate number of shares of Common
Stock beneficially owned by each Selling Stockholder as of January 8, 1999 and
the percentage of all shares of Common Stock held by such Selling Stockholder
before and after giving effect to the offering (based on 47,258,691 shares of
Common Stock outstanding as of January 8, 1999). In calculating beneficial
ownership, we have assumed the fixed conversion price as of January 8, 1999 for
the Series B Preferred Stock of $6.0374 and the exercise price as of January 8,
1999 for each share of Common Stock underlying the Warrants of $3.47. As of
January 8, 1999, the Series B Preferred Stock and Warrants were convertible
into and exercisable for an aggregate of 3,726,769 shares of Common Stock, or
an aggregate of approximately 7.9% of our currently outstanding shares of
Common Stock. In addition, we have assumed for purposes of the following table
that the Selling Stockholders will sell all of the securities offered hereby
and that any other shares held by such Selling Stockholders will not be sold.
However, the Selling Stockholders may, in their discretion, offer all, some or
none of their shares pursuant to this prospectus. Also, any or all of the
shares listed below may be offered for sale pursuant to this prospectus or in
privately negotiated transactions from time to time. Accordingly, no estimate
can be given as to the amounts of shares that will actually be held by the
Selling Stockholders upon consummation of such sales.
Pursuant to the Series B Preferred Stock financing agreements, P-Com and the
Selling Stockholders agreed that P-Com would register at least 11 million
shares of Common Stock on behalf of the Selling Stockholders. In addition, we
are required by the Series B Preferred Stock financing agreements to keep
registered at least 150%, and in some instances 200%, of the aggregate number
of shares of Common Stock into which the Series B Preferred Stock is
convertible and for which the Warrants are exercisable. In order to help ensure
our compliance at all times, P-Com has chosen to register an additional 2
million shares of Common Stock, for an aggregate of 13 million shares of Common
Stock. The number of shares of Common Stock that will ultimately be issued upon
conversion of the Series B Preferred Stock is dependent upon a variable
conversion ratio derived from the average of certain closing bid prices of our
Common Stock prior to conversion and the occurrence of certain events and may
be effectively increased if P-Com chooses to pay the 6% per year premium in
Common Stock. The number of shares issuable upon conversion of the Series B
Preferred Stock and upon exercise of the Warrants is also subject to certain
antidilution and other adjustments and possible payments required upon our
failure to satisfy certain obligations. As a result, the conversion of the
Series B Preferred Stock and exercise of the Warrants may or may not result in
the actual issuance of the entire 13 million shares of Common Stock being
registered hereby, and the number of shares of Common Stock sold by the Selling
Stockholders hereunder, could be materially less or more than the number
estimated depending on factors which cannot be predicted by P-Com at this time.
13 million shares represents approximately 27.5% of our currently outstanding
shares of Common Stock. Notwithstanding the registration of 13 million shares,
the terms of the Series B Preferred Stock financing agreements prohibit us from
issuing to any Selling Stockholder shares of Common Stock upon conversion of
the shares of Series B Preferred Stock or exercise of the Warrants if such
issuance would result in our exceeding the 20% Limit prior to obtaining
stockholder approval or such Selling Stockholder beneficially owning in excess
of 4.9% of our then outstanding Common Stock. See "Description of Capital
Stock" and "Risk Factors--Risks Associated with Preferred Stock Financing."
Other than their ownership of our equity securities, none of the Selling
Stockholders has had any material relationship with the Company within the past
three years. The information provided in the following table is based upon
information provided by the Selling Stockholders.
<TABLE>
<CAPTION>
Percent of Percent of
Number of Shares Outstanding Shares Number of Shares Outstanding Shares
Beneficially Owned Beneficially Owned Beneficially Owned Beneficially Owned
Name of Selling Stockholder Prior to Offering(1) Before the Offering(2) After the Offering(3) After the Offering
- --------------------------- -------------------- ---------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
Marshall Capital
Management, Inc........ 1,118,030(4) 2.3% 0 0%
Castle Creek Technology
Partners LLC........... 1,366,482(5) 2.9% 0 0%
Capital Ventures
International.......... 1,242,257(6) 2.6% 0 0%
</TABLE>
30
<PAGE>
- --------
1. Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities and includes any securities
which the person has the right to acquire within sixty (60) days of January
8, 1999.
2. The percentage of outstanding shares beneficially owned before the Offering
was calculated assuming a conversion price for the Series B Preferred Stock
of $6.0374 and an exercise price for each share of Common Stock underlying
the Warrants of $3.47, each as in effect on January 8, 1999. Over time and
upon the occurrence or non-occurrence of certain events, the conversion
price for the Series B Preferred Stock and the exercise price for the
Warrants can fluctuate significantly. Thus, although an aggregate of only
3,726,769 shares of Common Stock are beneficially owned by the Selling
Stockholders as of January 8, 1999, such number could increase significantly
over time in the event of a conversion or exercise price adjustment.
3. Because the Selling Stockholders may offer all or some of the Common Stock
pursuant to the offering contemplated by this prospectus, no estimate can be
given as to the amount of shares of Common Stock that will be held by the
Selling Stockholders after completion of this offering. See "Plan of
Distribution." The table assumes sale of all of the shares offered hereby
and no sale of any other shares owned by the Selling Stockholders.
4. Consists of 745,353 shares of Common Stock issuable upon the conversion of
Series B Preferred Stock and 372,677 shares of Common Stock issuable upon
the exercise of Warrants.
5. Consists of 910,988 shares of Common Stock issuable upon the conversion of
Series B Preferred Stock and 455,494 shares of Common Stock issuable upon
the exercise of Warrants. Pursuant to a management agreement, Castle Creek
Partners LLC shares voting and investment power with respect to the
securities held by Castle Creek Technology Partners LLC with Castle Creek
Technology Partners LLC. John Ziegelman and Daniel Asher, as managing
members of Castle Creek Partners LLC, may be deemed as a result thereof to
be beneficial owners of such securities. Messrs. Asher and Ziegelman
disclaim such beneficial ownership.
6. Consists of 828,171 shares of Common Stock issuable upon the conversion of
Series B Preferred Stock and 414,086 shares of Common Stock issuable upon
the exercise of Warrants. Heights Capital Management, Inc., a Delaware
corporation, the investment manager for Capital Ventures International, has
voting control and investment discretion over transactions by Capital
Ventures International.
31
<PAGE>
RECENT DEVELOPMENTS
In December 1998 and January 1999, we exchanged an aggregate of $21,775,000
of our 4 1/4% Convertible Subordinated Notes due 2002 for an aggregate of
3,721,250 shares of unrestricted Common Stock. We may engage in similar
transactions in the future.
PLAN OF DISTRIBUTION
The shares of Common Stock will be offered and sold by the Selling
Stockholders for their own accounts. Each Selling Stockholder will act
independently of P-Com in making decisions with respect to the timing, manner
and size of each sale. We will not receive any proceeds from the sale of the
Common Stock pursuant to this prospectus. We have agreed to pay the expenses of
registration of the Common Stock offered hereby, including legal and accounting
fees, but excluding underwriter's discounts and commissions, if any.
The shares offered hereby may be sold from time to time at negotiated
prices, at fixed prices which may be changed, at market prices prevailing at
the time of sale or at prices related to prevailing market prices. The Selling
Stockholders may effect such transactions in the over-the-counter market or any
exchange on which the securities are listed, by selling the shares to or
through broker-dealers, including block trades in which brokers or dealers will
attempt to sell the shares as agent but may position and resell the block as
principal to facilitate the transaction, or in one or more underwritten
offerings on a firm commitment or best effort basis. Sales of Selling
Stockholders' shares may also be made pursuant to Rule 144 under the Securities
Act, where applicable.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers, transferees or underwriters and any
applicable fee or commission with respect to a particular offer will be set
forth in an accompanying prospectus supplement. Any underwriters, dealers,
brokers or agents participating in the distribution of the shares may receive
compensation in the form of underwriting discounts, concessions, commission or
fees from the Selling Stockholders and/or purchasers of Selling Stockholders'
shares for whom they may act (which compensation as to a particular broker-
dealer might be in excess of customary commissions). Each Selling Stockholder
will be responsible for any such payments. The aggregate proceeds to a Selling
Stockholder from the sale of its shares offered hereby will be the purchase
price of such shares less discounts or commissions, if any.
From time to time, the Selling Stockholders may pledge, hypothecate or grant
a security interest in some or all of the shares, and the pledgees, secured
parties or persons to whom such securities have been hypothecated shall, upon
foreclosure in the event of default, be deemed to be Selling Stockholders
hereunder. From time to time, the Selling Stockholders may also transfer,
pledge, donate or assign shares to lenders or others and each of such persons
will be deemed to be a Selling Stockholder for purposes of this prospectus. The
number of the Selling Stockholders' shares beneficially owned by a Selling
Stockholder who transfers, pledges, donates or assigns shares will decrease as
and when they take such actions. The plan of distribution for Selling
Stockholders' shares sold hereunder will otherwise remain unchanged, except
that the transferees, pledgees, donees or other successors will be a Selling
Stockholder hereunder. There is, however, no assurance that any Selling
Stockholder will sell any or all of the shares described herein, and any
Selling Stockholder may transfer, devise or gift such securities by other means
not described herein.
In addition, the Selling Stockholders may, from time to time, sell short the
shares of the Company, and in such instances, this prospectus may be delivered
in connection with such short sales and the shares offered hereby may be used
to cover such short sales. A Selling Stockholder may enter into hedging
transactions with broker-dealers, and the broker-dealers may engage in short
sales of the shares in the course of holding the positions they assume with
such Selling Stockholder, including, without limitation, in connection with
distribution of the shares by such broker-dealers. The Selling Stockholders may
also enter into option or other
32
<PAGE>
transactions with broker-dealers that involve the delivery of the shares to the
broker-dealers, who may then resell or otherwise transfer such shares. The
Selling Stockholders may also loan or pledge the shares to a broker-dealer and
the broker-dealer may sell the shares as loaned or upon a default may sell or
otherwise transfer the pledge shares.
The Selling Stockholders, any underwriter, any broker-dealer or any agent
that participates with the Selling Stockholders in the distribution of the
shares may be deemed to be "underwriter" within the meaning of the Securities
Act, and any discounts, commissions or concessions received by them and any
profit on the resales of the shares purchased by them may be deemed to be
underwriting commissions under the Securities Act.
In order to comply with securities laws of certain states, if applicable,
the shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the shares may not
be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available.
Pursuant to a Registration Rights Agreement entered into in connection with
the Series B Preferred Stock financing, we have agreed to keep the registration
statement of which this prospectus is a part continuously effective until the
earlier of the date that all of the shares issued or issuable upon conversion
of the Series B Preferred Stock or exercise of the Warrants have been sold or
until all such shares are immediately freely saleable under Rule 144. In this
regard, we are required to supplement and/or amend the registration statement
of which this prospectus is a part if more shares than are registered hereby
are issued or issuable upon conversion of the Series B Preferred Stock and
exercise of the Warrants or to supplement or change the Selling Stockholders
hereunder. The Registration Rights Agreement requires P-Com to indemnify the
Selling Stockholders, any underwriter and the respective directors, officers,
partners, members, employees, agents and controlling persons of each Selling
Stockholder against certain liabilities in connection with the offer and sale
of the shares hereunder, including under the Securities Act. Similarly, each
Selling Stockholder is required to indemnify P-Com and its directors, the
officers who sign the registration statement of which this prospectus is a
part, it employees, agents and controlling persons against certain liabilities
in connection with the offer and sale of the shares hereunder, including the
Securities Act, to the extent that liability occurs as a result of reliance
with written information furnished to P-Com by such Selling Stockholder
expressly for use in connection with the registration statement of which this
prospectus is a part. To the extent indemnification is prohibited, the Selling
Stockholders and P-Com are required to contribute to payments the parties may
be required to make in respect of otherwise indemnifiable claims.
LEGAL MATTERS
The validity of the Common Stock offered in this prospectus and certain
other legal matters will be 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.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Annual Report on Form 10-K of P-Com, Inc. for the year ended December 31, 1997
have been so incorporated by reference in the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information........................................ 2
The Company................................................................ 3
Risk Factors............................................................... 4
Use of Proceeds............................................................ 22
Dividend Policy............................................................ 22
Premium.................................................................... 22
Ratio (Deficiency) Of Earnings (Loss) To Fixed Charges..................... 22
Description of Capital Stock............................................... 23
Selling Stockholders....................................................... 30
Recent Developments........................................................ 32
Plan of Distribution....................................................... 32
Legal Matters.............................................................. 33
Experts.................................................................... 33
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
13,000,000 Shares
P-COM, INC.
Common Stock
-------------------
PROSPECTUS
-------------------
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 except Securities and
Exchange Commission and Nasdaq Stock Market listing fees and the placement
agent fee to PaineWebber Incorporated are estimates.
<TABLE>
<S> <C>
Registration Statement--SEC.................................... $25,806.31
Nasdaq listing fee............................................. $17,500
Printing and engraving......................................... $15,000
Legal fees..................................................... $325,000
Accounting fees and expenses................................... $100,000
Placement agent fee to PaineWebber Incorporated................ $657,754
Miscellaneous.................................................. $300,000.69
-------------
Total......................................................... $1,441,061
=============
</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 registration rights agreements entered
into in connection with the Company's three public offerings, the Company's
nine acquisitions, the sale of the Notes and the sale of the Series B Preferred
Stock, 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>
3.2 Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State filed on March 9, 1995(1)
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as
filed with the Delaware Secretary of State on June 16, 1997(2)
3.2C Certificate of Designation for the Series A Junior Participating
Preferred Stock, as filed with the Delaware Secretary of State on
December 21, 1998(3)
3.2D Certificate of Designation for the Series B Convertible Participating
Preferred Stock, as filed with the Delaware Secretary of State on
December 21, 1998(4)
3.2E Certificate of Correction of Certificate of Designations for the
Series B Convertible Participating Preferred Stock, as filed with the
Delaware Secretary of State on December 23, 1998(4)
4.1 Specimen of Common Stock Certificate(5)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998,
between the Company and BankBoston, N.A.(6)
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein
10.39 Registration Rights Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein(4)
10.40A Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Castle Creek Technology Partners LLC
10.40B Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Capital Ventures International
10.40C Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Marshall Capital Management, Inc.
12.2 Ratio of Earnings to Fixed Charges
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (including in the signature page of this
registration statement)
</TABLE>
- --------
(1) Incorporated by reference to identically numbered exhibits included in the
Registrant's registration statement on Form S-1 (File No. 33-95392)
declared effective with the Securities and Exchange Commission on August
17, 1995.
(2) Incorporated by reference to identically numbered exhibits included in the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(3) Incorporated by reference to the Registrant's amended registration
statement on Form 8-A/A, filed with the Securities and Exchange Commission
on December 22, 1998 (File No. 0-25356).
(4) Incorporated by reference to the Registrant's Current Report Form 8-K, as
filed with the Securities and Exchange Commission on December 24, 1998.
(5) Incorporated by reference to identically numbered exhibit included in the
Registrant's registration statement Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
(6) Incorporated by reference to identically numbered exhibit included in the
Registrant's amended registration statement on Form 8-A/A, filed with the
Securities and Exchange Commission on December 24, 1998 (File No. 0-25356).
Item 17. Undertakings.
The undersigned 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:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) 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 set forth
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
II-2
<PAGE>
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 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(c) 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 any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 of 1933 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, 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 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, as amended, the
Registrant, P-Com, Inc., a corporation organized and existing under the laws of
the State of Delaware, 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 the
20th day of January, 1999.
P-COM, Inc.
By: /s/ George P. Roberts
----------------------------------
George P. Roberts, Chairman of the
Board
and Chief Executive Officer
II-4
<PAGE>
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, 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, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<S> <C>
</TABLE>
Signature Title Date
/s/ George P. Roberts Chairman of the January 20, 1999
- ----------------------------------- Board and Chief
George P. Roberts Executive Officer
and Director
(Principal
Executive Officer)
/s/ Michael J. Sophie Chief Financial January 20, 1999
- ----------------------------------- Officer and Vice
Michael J. Sophie President, Finance
and Administration
(Principal
Accounting and
Financial Officer)
/s/ Gill Cogan Director January 20, 1999
- -----------------------------------
Gill Cogan
/s/ John A. Hawkins Director January 20, 1999
- -----------------------------------
John A. Hawkins
/s/ M. Bernard Puckett Director January 20, 1999
- -----------------------------------
M. Bernard Puckett
/s/ James J. Sobczak Director January 20, 1999
- -----------------------------------
James J. Sobczak
/s/ George P. Roberts
- -----------------------------------
George P. Roberts
Attorney-in-fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.2 Restated Certificate of Incorporation, as filed with the Delaware
Secretary of State filed on March 9, 1995(1)
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as
filed with the Delaware Secretary of State on June 16, 1997(2)
3.2C Certificate of Designation for the Series A Junior Participating
Preferred Stock, as filed with the Delaware Secretary of State on
December 21, 1998(3)
3.2D Certificate of Designation for the Series B Convertible Participating
Preferred Stock, as filed with the Delaware Secretary of State on
December 21, 1998(4)
3.2E Certificate of Correction of Certificate of Designations for the
Series B Convertible Participating Preferred Stock, as filed with the
Delaware Secretary of State on December 23, 1998(4)
4.1 Specimen of Common Stock Certificate(5)
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998,
between the Company and BankBoston, N.A.(6)
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein
10.39 Registration Rights Agreement dated as of December 21, 1998 by and
among the Company and the purchasers listed therein(4)
10.40A Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Castle Creek Technology Partners LLC
10.40B Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Capital Ventures International
10.40C Warrant to purchase shares of Common Stock, dated as of December 21,
1998, issued by the Company to Marshall Capital Management, Inc.
12.2 Ratio of Earnings to Fixed Charges
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (including in the signature page of this
registration statement)
</TABLE>
- --------
(1) Incorporated by reference to identically numbered exhibits included in the
Registrant's registration statement on Form S-1 (File No. 33-95392)
declared effective with the Securities and Exchange Commission on August
17, 1995.
(2) Incorporated by reference to identically numbered exhibits included in the
Registrant's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1996.
(3) Incorporated by reference to the Registrant's amended registration
statement on Form 8-A/A, filed with the Securities and Exchange Commission
on December 22, 1998 (File No. 0-25356).
(4) Incorporated by reference to the Registrant's Current Report Form 8-K, as
filed with the Securities and Exchange Commission on December 24, 1998.
(5) Incorporated by reference to identically numbered exhibit included in the
Registrant's registration statement Form S-1 (File No. 33-88492) declared
effective with the Securities and Exchange Commission on March 2, 1995.
(6) Incorporated by reference to identically numbered exhibit included in the
Registrant's Amended registration statement on Form 8-A/A, filed with the
Securities and Exchange Commission on December 24, 1998 (File No. 0-25356).
<PAGE>
EXHIBIT 5.1
January 21, 1999
P-Com, Inc.
3175 S. Winchester Boulevard
Campbell, CA 95008
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have examined the registration statement on Form S-3 to be filed by you
with the Securities and Exchange Commission on or about January 21, 1999 (the
"Registration Statement") in connection with the registration under the
Securities Act of 1933, as amended, of a total of 13,000,000 shares of your
Common Stock (the "Shares"), to be offered for sale for the benefit of selling
stockholders. The Shares are issuable upon the conversion of the Company's
Series B Preferred Stock (the "Series B Preferred Stock") and upon the exercise
of Warrants (the "Warrants"), in each case as further described in the
Registration Statement. The Shares may be offered and sold from time to time as
described in the Registration Statement. As your legal counsel, we have
examined the proceedings taken or proposed to be taken by you in connection
with the sale and issuance of the Series B Preferred Stock, the Warrants and
the Shares. It is our opinion that upon conclusion of the proceedings being
taken or contemplated by us, as your counsel, to be taken prior to the issuance
of the Shares, the Shares, when issued in the manner described in the
Registration Statement, will be legally and validly issued, fully paid and
nonassessable. We consent to the use of this opinion as an exhibit to the
Registration Statement, including the prospectus constituting a part thereof,
and further consent to the use of our name wherever it appears in the
Registration Statement and any amendments thereto.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.38
-------------
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
---------
December 21, 1998, by and among P-Com, Inc., a Delaware corporation (the
"Company"), with headquarters located at 3175 South Winchester Boulevard,
- --------
Campbell, California 95008 and the purchasers (each a "Purchaser" and together
---------
the "Purchasers") set forth on the execution pages hereof, with regard to the
----------
following:
RECITALS
--------
A. The Company and Purchasers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
---
as amended (the "Securities Act").
--------------
B. Purchasers desire to purchase, upon the terms and conditions stated in
this Agreement (and, as applicable, the Registration Rights Agreement (as
defined below)), (i) Series B Convertible Participating Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "Certificate of Designation") attached hereto as
--------------------------
Exhibit A (the "Preferred Stock"), which shall be convertible into shares of the
- --------- ---------------
Company's Common Stock, par value $0.0001 per share (the "Common Stock") and
------------
(ii) a Warrant in the form of Exhibit B hereto (a "Warrant" and, when taken
--------- -------
together with all of the warrants issued hereunder, the "Warrants") entitling
--------
the holder thereof to purchase the number of shares (the "Warrant Shares") of
--------------
Common Stock as set forth below. The Preferred Stock and the Warrants are
sometimes collectively referred to herein as the "Convertible Securities." The
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Stock are referred to herein as the "Conversion Shares." The
-----------------
Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares are
collectively referred to herein as the "Securities."
----------
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
--------- -----------------------------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws. The Certificate of Designation, the Warrants
and the Registration Rights Agreement, together with any other agreements,
documents and instruments to be delivered in connection with the transactions
contemplated hereby, are collectively referred to as the "Ancillary Documents".
-------------------
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Preferred Stock and Warrants. The purchase price (the
----------------------------------------
"Purchase Price") to be paid by each Purchaser for the Preferred Stock and
--------------
Warrant being purchased by such Purchaser shall be equal to $1,000 times the
-----
number of shares of Preferred Stock so purchased. Each Purchaser shall purchase
the number of shares of Preferred Stock set forth on the signature page executed
by such Purchaser.
On the date of the Closing (as defined herein), subject to the terms
and the satisfaction (or waiver) of the conditions set forth in Articles VI and
VII, the Company shall issue and sell to each Purchaser, and each Purchaser
shall purchase from the Company (i) the number of shares of Preferred Stock set
forth below such Purchaser's name on the signature pages hereof and (ii) a
Warrant entitling the holder thereof to purchase the number of Warrant Shares as
set forth in such Warrant. The aggregate purchase price for the Securities
purchased at the Closing shall be fifteen million dollars ($15,000,000).
1.2 Form of Payment. At the Closing, each Purchaser shall pay the
---------------
aggregate Purchase Price for the Preferred Stock and Warrant being purchased by
such Purchaser by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates for
the same, and the Company shall deliver such Preferred Stock and certificates
representing the Warrants against delivery of such aggregate Purchase Price. The
obligations in this Agreement of each Purchaser shall be separate from the
obligations of each other Purchaser and shall relate solely to the number of
shares to be purchased by such Purchaser. The obligations of the Company with
respect to each Purchaser shall be separate from the obligations of each other
Purchaser and shall not be conditioned as to any Purchaser upon the performance
of the obligations of any other Purchaser.
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
------------
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Securities pursuant to this Agreement shall
be as soon as practicable after execution of this Agreement, but in any event
within two (2) business days of the execution of this Agreement (the "Closing").
The Closing shall occur at 11:00 a.m. Chicago time, at the offices of Altheimer
& Gray, 10 S. Wacker Drive, Chicago, IL 60606. The date of the Closing is
hereinafter referred to as the "Closing Date."
2
<PAGE>
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself and
its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 Purchase for Own Account. Purchaser is purchasing the Convertible
------------------------
Securities for investment and for Purchaser's own account and not with a view
toward or in connection with the public sale or distribution thereof. Purchaser
will not resell the Convertible Securities or any securities which may be issued
upon conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment until such time as the Convertible Securities and/or the
Conversion Shares are registered for resale pursuant to the Securities Act or an
exemption from such registration is available (and such securities are sold),
and that the Company has no present intention of registering the Convertible
Securities or the Conversion Shares other than as contemplated by the
Registration Rights Agreement. By making the representations in this Section
2.1, Purchaser does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of any of the Securities
at any time pursuant to a registration statement or an exemption from
registration under the Securities Act.
2.2 Accredited Investor Status. Purchaser is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. Purchaser understands that the Convertible
----------------------
Securities are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Convertible Securities.
2.4 Information. Purchaser and its counsel have been furnished or given
-----------
access to all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Convertible
Securities which have been specifically requested by Purchaser. Purchaser has
been afforded the opportunity to ask questions of the Company and has received
what Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such
3
<PAGE>
inquiries nor any other due diligence investigation conducted by Purchaser or
any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Article III.
Purchaser understands that Purchaser's investment in the Securities involves a
high degree of risk. Purchaser acknowledges that the Company's filings available
via the SEC's EDGAR document retrieval system as of November 20, 1998 shall be
deemed available to the Purchasers.
2.5 Governmental Review. Purchaser understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 Transfer or Resale. Purchaser understands that (i) except as provided
------------------
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless subsequently registered thereunder or an exemption
from such registration is available (which exemption the Company expressly
agrees may be established as contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
--------
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement). The Company may issue stop
transfer instructions in the event that a Purchaser does not comply with the
provisions in this Section 2.6.
2.7 Legends. Purchaser understands that, subject to Article V hereof, the
-------
certificates for the Convertible Securities, and until such time as the
Conversion Shares or Warrant Shares (as the case may be) have been registered
under the Securities Act as contemplated by the Registration Rights Agreement or
may be sold by Purchaser pursuant to Rule 144 or otherwise without registration,
the certificates for the Conversion Shares or Warrant Shares (as the case may
be) will bear a restrictive legend (the "Legend") in the following form:
------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
4
<PAGE>
2.8 Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
---------
under Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the date hereof
as set forth in this Article III. The Company makes no other representations or
warranties, express or implied, to any Purchaser in connection with the
transactions contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by the Company to any Purchaser in
connection with the transactions contemplated hereby shall be deemed to have
been merged in this Agreement and any such prior representations and warranties,
if any, shall not survive the execution and delivery of this Agreement (provided
the foregoing shall not limit the scope of the Company's representation and
warranty in Section 3.9 hereof or any officer certification of the Company
delivered at the Closing).
3.1 Organization and Qualification. The Company and each of its
------------------------------
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
-----------------------
effect on either (i) the business, operations, properties, financial condition,
operating results or publicly-announced prospects (which prospects have not been
publicly modified prior to November 20, 1998) of the Company and its
subsidiaries, taken as a whole on a consolidated basis or (ii) the transactions
contemplated hereby or the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under this Agreement or any
Ancillary Document.
3.2 Authorization; Enforcement. (a) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, and to issue
and sell and perform its obligations with respect to, the Convertible Securities
in accordance with the terms hereof and to issue the Conversion Shares in
accordance with the terms and conditions of the Certificate of Designation and
the Warrant Shares in accordance with the terms and conditions of the Warrant;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company, the
5
<PAGE>
execution and filing of the Certificate of Designations and the execution and
delivery of the Warrant, and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Convertible Securities and the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) have been duly authorized by all
necessary corporate action and, except as set forth on Schedule 3.2 hereof, no
------------
further consent or authorization of the Company, its board of directors, or its
stockholders or any other person, body or agency is required with respect to any
of the transactions contemplated hereby or thereby (whether under rules of the
Nasdaq National Market System ("Nasdaq"), the National Association of
--------
Securities Dealers or otherwise); (c) this Agreement, the Registration Rights
Agreement and the Convertible Securities have been (or will be when executed and
delivered) duly executed and delivered by the Company; and (d) this Agreement,
the Registration Rights Agreement and the Convertible Securities constitute (or
will, when issued, constitute) legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally.
3.3 Capitalization. The capitalization of the Company, including the
--------------
authorized capital stock, the number of shares issued and outstanding, the
number of shares reserved for issuance pursuant to the Company's stock option
and stock issuance plans, the number of shares reserved for issuance pursuant to
securities (other than the Convertible Securities and those shares reserved
under the Company's stock option and stock issuance plans) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be initially reserved for issuance upon conversion of the
Convertible Securities and the exercise of the Warrants is set forth on Schedule
--------
3.3. All of such outstanding shares of capital stock have been, or upon
- ---
issuance will be, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company (including the Preferred Stock, the Conversion
Shares and the Warrant Shares) are subject to preemptive rights or to the
Company's knowledge after reasonable investigation any other similar rights of
the stockholders of the Company or any liens or encumbrances (other than as
caused by the Company's stockholders or the Purchasers). There are no
antidilution or any similar provisions triggered (either alone or together with
other action and either currently or after passage of time) by this Agreement or
the issuance of the Convertible Securities or any securities which may be issued
upon conversion or exercise thereof in accordance with the terms thereof.
Except as disclosed in Schedule 3.3, (i) there are no outstanding options,
------------
warrants, scrip, legally binding rights to subscribe for, legally binding calls
or legally binding commitments of any character whatsoever relating to, or
securities or legally binding rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries (or any securities exercisable or exchangeable therefor or
convertible thereto), or contracts, legally binding commitments, legally binding
understandings or legally binding arrangements by which the Company or any of
its subsidiaries is or may become (as a result of any of the foregoing in
existence as of the date hereof) legally bound to issue additional shares of
capital stock of the Company or any of its subsidiaries (or any such
securities), and (ii) there are no legally binding agreements or legally binding
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). The Company has furnished to
Purchaser true and
6
<PAGE>
correct copies of the Company's Certificate of Incorporation as currently in
effect ("Certificate of Incorporation"), and the Company's By-laws as currently
----------------------------
in effect (the "By-laws"). The Company has set forth on Schedule 3.3 all
------- ------------
instruments and agreements (other than the Certificate of Incorporation and By-
laws) governing securities convertible into or exercisable or exchangeable for
Common Stock of the Company (or any such securities) (and the Company shall
provide to Purchaser copies thereof upon the request of Purchaser). The Company
shall provide Purchaser with a written update of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on behalf of
the Company as of the date of the Closing.
3.4 Issuance of Shares. The Conversion Shares and Warrant Shares are duly
------------------
authorized and reserved for issuance, and, upon conversion or exercise (as the
case may be) of the Convertible Securities in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances, except as created by the Purchasers, and will
not be subject to preemptive rights, except as created by the Purchasers, or to
the Company's knowledge after reasonable investigation other similar rights of
stockholders of the Company. The Convertible Securities are duly authorized and
reserved for issuance, and are validly issued, fully paid and non-assessable,
and free from all taxes, liens claims and encumbrances (except as granted by the
Purchasers) and are not and will not be subject to preemptive rights (except as
granted by the Purchasers) or to the Company's knowledge after reasonable
investigation other similar rights of stockholders of the Company (other than as
created by the Purchasers). The Certificate of Designations has been duly filed
(or will be) as of the Closing Date with the Secretary of State of the State of
Delaware, and the Preferred Stock is (or shall be upon such filing) entitled to
all of the rights, preferences and privileges set forth therein. The Board of
Directors of the Company (the "Board") has unanimously approved the issuance of
shares of Common Stock upon conversion of shares of Preferred Stock and upon the
exercise of the Warrants pursuant to the terms hereof and thereof, including the
circumstance where such conversion would, in the aggregate, require issuance in
excess of twenty percent (20%) of the outstanding shares of Common Stock (the
"Rule 4460(i) Authorization") and has unanimously recommended to the
- ---------------------------
stockholders of the Company the approval of the Rule 4460(i) Authorization.
Accordingly, no further corporate authorization or approval (other than the
Stockholder Approval (as defined in Section 4.13)) is required under the rules
of Nasdaq with respect to the transaction contemplated by this Agreement,
including, without limitation, the issuance of the Conversion Shares and the
Warrant Shares and the inclusion thereof on Nasdaq.
3.5 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Convertible Securities, Conversion Shares and the Warrant
Shares) does not and will not (a) result in a violation of the Certificate of
Incorporation or By-laws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party (except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would not,
individually or in the aggregate, have a Material
7
<PAGE>
Adverse Effect), or (c) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries, or by which any property or asset of the Company or any of its
subsidiaries, is bound or affected. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, by-laws or
other organizational documents, and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted, in
violation of any law, ordinance, rule, regulation, order, judgment or decree of
any governmental entity, court or arbitration tribunal except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as set forth on Schedule 3.5, the
------------
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or the Convertible Securities or to perform its
obligations in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of Nasdaq and does not reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future.
3.6 Registration and SEC Documents. The Common Stock is registered under
------------------------------
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and has been so registered since March 2, 1995. Except as disclosed in
Schedule 3.6, since March 2, 1995, the Company has timely filed all reports,
- ------------
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after March 2, 1995 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC Documents"). The
-------------
Company has delivered or made available to each Purchaser true and complete
copies of the SEC Documents, except for exhibits, schedules and incorporated
documents (the SEC Documents filed prior to November 20, 1998, collectively, the
"Filed SEC Documents"). As of their respective dates, the SEC Documents complied
-------------------
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is
currently required to be updated or amended under applicable law and has not
been updated or amended in a subsequent filing with the SEC by November 20,
1998. The financial statements of the Company included in the SEC Documents have
been prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and the rules and regulations of the SEC during the
periods involved (except (i) as may be otherwise indicated in such financial
8
<PAGE>
statements or the notes thereto, or (ii) in the case of unaudited interim
financial statements, to the extent they do not include footnotes or are
condensed or summary statements) and present accurately and completely the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, immaterial year-end audit adjustments). Except as clearly
set forth as an actual or potential liability of the Company in the Filed SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred subsequent to the date of such financial statements in
the ordinary course of business consistent with past practice and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, in each case of clause (i) and (ii) next
above which, individually or in the aggregate, are not material to the financial
condition, business, operations, properties, operating results or publicly-
announced prospects (which prospects have not been publicly modified prior to
November 20, 1998) of the Company and its subsidiaries taken on a whole. Except
as otherwise permitted by the rules and regulations of the SEC, the Filed SEC
Documents contain a complete and accurate list or description of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). None of the Company, its
--------
subsidiaries or, to the knowledge of the Company, any of the other parties
thereto, is in breach or violation (or breach or violation alleged in writing)
of any Contract, which breach or violation (or breach or violation alleged in
writing) would have a Material Adverse Effect. Except as clearly set forth as
such in the Filed SEC Documents, no event, occurrence or condition exists which,
with the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a breach or default by the Company or
its subsidiaries under any Contract which breach or default would have a
Material Adverse Effect.
3.7 Absence of Certain Changes. Since December 31, 1997, there has been
--------------------------
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations or
publicly-announced prospects (which prospects have not been publicly modified
prior to November 20, 1998) of the Company, except as disclosed in Schedule 3.7
------------
or as clearly disclosed as such in the Filed SEC Documents filed with the SEC
since December 31, 1997.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is
--------------------- ------------
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against the Company, any of its subsidiaries, or any of their
respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect. To
the knowledge of the Company, there are no facts which, if known by a potential
claimant or governmental agency or authority, would reasonably be expected to
have a Material Adverse Effect.
9
<PAGE>
3.9 Disclosure. No information (written or oral) relating to or concerning
----------
the Company and set forth in this Agreement or provided to Purchaser in
connection with the transactions contemplated hereby contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No material adverse
fact (within the meaning of the federal securities laws of the United States)
exists with respect to the Company or any of its subsidiaries which has not been
publicly disclosed. The Company has not provided any Purchaser with any material
non-public information. In making the foregoing representation and warranty, it
is understood and agreed to that the Company has not provided any Purchaser with
any projections prepared by or on behalf of the Company or any assurances
concerning future stock prices.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
---------------------------------------------------------------
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser, or
any of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.
3.11 Current Public Information. The Company is currently eligible to
---------------------------
register the resale of the Conversion Shares for the account of the Purchasers
on a registration statement on Form S-3 under the Securities Act.
3.12 No General Solicitation. Neither the Company, nor to the Company's
-----------------------
knowledge after reasonable investigation any person acting on behalf of the
Company, has conducted any "general solicitation," as described in Rule 502(c)
under Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor to the Company's
----------------------
knowledge after reasonable investigation any of its affiliates, nor to the
Company's knowledge after reasonable investigation any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D. The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of each
Purchaser to the extent relevant for such determination.
10
<PAGE>
3.14 No Brokers. The Company has taken no action which would give rise to
----------
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with PaineWebber Incorporated (the fees
of which shall be paid in full by the Company).
3.15 Acknowledgment of Dilution. The number of Conversion Shares issuable
--------------------------
upon conversion of the Convertible Securities may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors
understand the nature of the securities being issued and sold hereunder and
recognize that they have a potential dilutive effect. The board of directors of
the Company has unanimously concluded in its good faith business judgment that
such issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Stock and the Warrant Shares upon exercise of the Warrants is binding upon it
and enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
3.16 Intellectual Property. Each of the Company and its subsidiaries owns
---------------------
or possesses adequate and enforceable rights to use all material patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar material rights and
proprietary knowledge (collectively, "Intangibles") used or necessary for the
-----------
conduct of its business as now being conducted and as previously described in
the Company's Annual Report on Form 10-K for its most recently ended fiscal
year. Except as clearly specified in the Filed SEC Documents, to the Company's
knowledge after reasonable investigation, neither the Company nor any subsidiary
of the Company infringes on or is in conflict with any right of any other person
with respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
3.17 Foreign Corrupt Practices. To the Company's knowledge after
-------------------------
reasonable investigation, neither the Company, nor any of its subsidiaries, nor
to the Company's knowledge after reasonable investigation, any director,
officer, agent, employee or other person acting on behalf of the Company or any
subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or, to the Company's knowledge after
reasonable investigation, is currently in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. Without limiting the generality of the
foregoing, to the Company's knowledge after reasonable investigation, the
Company and its subsidiaries have not directly or indirectly made or agreed to
make (whether or not said payment is lawful) any payment to obtain, or with
respect to, sales other than
11
<PAGE>
usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.18 Inapplicability of Rights Agreement. The Company and the Board have
-----------------------------------
heretofore taken all necessary action and the Rights Agreement (as defined
below) has heretofore been amended so that (a) no Purchaser (or any
transferee, other than a Competitor (as herein defined), of Convertible
Securities approved by the Company's Board of Directors, which approval shall
not be unreasonably withheld) has ever been or will ever be included in the
definition of "Acquiring Person" under the Company's Amended and Restated
Rights Agreement dated as of December 18, 1998 between the Company and
BankBoston, N.A. (the "Rights Agreement") by virtue of entry into this
Agreement, any of the transactions contemplated hereby or the acquisition by
such Purchaser (or such transferee) of any or all of the Securities and (b)
none of the entry into this Agreement, any of the transactions contemplated
hereby or the acquisition of Securities by the Purchaser (or any transferee,
other than a Competitor, of Convertible Securities approved by the Company's
Board of Directors, which approval shall not be unreasonably withheld) has
ever caused or will ever cause under any circumstances whatsoever any adverse
consequence to any of the Purchasers (or any of such transferees) or the
Company pursuant to the Rights Agreement, including, without limitation, the
occurrence of a Distribution Date (as defined in the Rights Agreement) or any
adjustment to the Purchase Price (as defined in the Rights Agreement).
ARTICLE IV
COVENANTS
4.1 Best Efforts. The Company and each Purchaser shall use their best
------------
efforts to timely cause to be satisfied (consistent with the terms of the
Transaction Documents (as defined herein)) each of the conditions described in
Articles VI and VII of this Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect to
---------------
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser or its counsel on or within twenty (20) days of the
date of the Closing. The Company shall, on or prior to the date of the Closing,
take such action as is necessary to sell the Securities to each Purchaser in
accordance with applicable securities laws of the states of the United States,
and shall provide evidence of any such action so taken to each Purchaser on or
prior to the date of the Closing. Without limiting any of the Company's
obligations under this Agreement, the Registration Rights Agreement or the
Certificate of Designation or the Convertible Securities, from and after the
date of the Closing, neither the Company nor any person acting on its behalf
shall take any action which would adversely affect any exemptions from
registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 Reporting Status. So long as any Purchaser beneficially owns any of
----------------
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
12
<PAGE>
4.4 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Stock and the Warrants for working capital and general corporate
purposes.
4.5 Restriction on Issuance of Securities. For a period of three hundred
-------------------------------------
and sixty five (365) days following the date of the Closing, the Company shall
not issue or agree to issue (except (i) to Purchasers and their assignees
pursuant to this Agreement and the Ancillary Agreements, (ii) to an industry
partner(s) as part of "strategic investments" in the Company, (iii) in
connection with the grant and/or exercise of options by employees, consultants
or directors, (iv) in connection with direct stock issuances to employees,
consultants or directors, (v) in exchange solely for existing securities, (vi)
in exchange for the Securities, (vii) pursuant to the Stockholders Rights Plan
and the Series A Preferred Stock, as amended, (viii) in connection with
acquisitions of other companies, material technologies or business entities,
(ix) to equipment lessors or banks as an incentive in connection with an
ordinary course of business equipment financings or commercial loans which is
primarily for non-equity financing purposes, and (x) shares of Common Stock in
accordance with Article V of the Company's indenture dated November 1, 1997 and
Paragraph Nine of the notes thereunder) any equity securities at a price less
than the fair market value thereof or any variably or re-set priced equity
securities or equity like securities of the Company (or any security convertible
into or exercisable or exchangeable, directly or indirectly, for equity or
equity like securities of the Company) (each of the foregoing being a
"Restricted Security").
-------------------
4.6 Expenses. The Company shall pay to each Purchaser, or at its
--------
direction, at the Closing, reimbursement for the expenses reasonably incurred
by it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, such
Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees
and expenses (including the review and/or preparation of this Agreement, the
Certificate of Designation, the Warrant and the Registration Rights Agreement
(collectively, the "Transaction Documents"), the associated Registration
---------------------
Statement and all related due diligence and other documents) (the "Expenses");
--------
provided, however, that such reimbursement of Expenses for all Purchasers
shall not exceed $75,000 in the aggregate. In addition, from time to time
thereafter, upon any Purchaser's written request, subject to such $75,000
aggregate limit, the Company shall pay to such Purchaser such Expenses, if
any, not so paid at the Closing and/or covered by such payment, in each case
to the extent reasonably incurred by such Purchaser.
4.7 Information. The Company agrees to send the following reports to each
-----------
Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (a) within five (5) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within one (1) day after
release, copies of all material press releases issued by the Company or any of
its subsidiaries. The Company further agrees to promptly provide to any
Purchaser any information with respect to the Company, its properties, or its
business or Purchaser's investment as such Purchaser may reasonably request in
writing; provided, however, that the Company shall not be required to give any
Purchaser any material non-public information. If any information requested by a
Purchaser from the Company
13
<PAGE>
contains material non-public information, the Company shall inform the Purchaser
in writing that the information requested contains material non-public
information and shall in no event provide such information to Purchaser without
the express prior written consent of such Purchaser after being so informed;
provided, however, that the Company shall not be required to give any Purchaser
information subject to the attorney-client privilege or attorney work product
privileges. To the extent any such information is confidential, Purchaser agrees
to execute a customary confidentiality agreement prior to receipt of such
information.
4.8 [Intentionally Deleted]
4.9 Listing. For so long as any Purchaser owns any of the Securities, the
-------
Company shall use its best efforts to continue the listing and trading of its
Common Stock on The Nasdaq SmallCap Market, Nasdaq, the New York Stock Exchange,
the American Stock Exchange, or, in accordance with the Certificate of
Designation, on the over-the-counter electronic bulletin board, secure and
maintain listing and trading of the Conversion Shares and Warrant Shares on such
exchange, and comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of such exchange.
4.10 Prospectus Delivery Requirement. Each Purchaser understands that the
-------------------------------
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
4.11 [Intentionally Deleted]
4.12 Corporate Existence. Without limiting any rights of the holders of
-------------------
Preferred Stock or Warrants, so long as any Purchaser beneficially owns any
Preferred Stock or Warrants, the Company shall maintain its corporate existence,
except in the event of a merger, consolidation or sale of all or substantially
all of the Company's assets, as long as the surviving or successor entity in
such transaction assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all Preferred Stock outstanding as of the date of such
transaction.
4.13 Share Authorization. The Company shall, unless otherwise consented to
-------------------
by each initial Holder (as defined in the Certificate of Designation), use its
best efforts to obtain the Stockholder Approval (as defined below) no later
than the Approval Date (as defined below). For purposes hereof, the "Approval
--------
Date" means the earliest to occur of (i) sixty (60) days (one hundred and five
- ----
(105) days in the event of SEC review of the Company's proxy statement with
respect to Stockholder Approval) following the earlier of a Trading Market
Trigger Event (as herein defined) or the issuance to any Holder upon conversion
of the Preferred Stock and/or exercise of the Warrants of a number of shares of
the Company's Common Stock equal to 3.3% of the Company's outstanding
14
<PAGE>
Common Stock as of the Closing Date, (ii) six (6) months from the Closing Date,
or (iii) the Company's next annual meeting of stockholders. For purposes hereof,
"Stockholder Approval" means authorization by the stockholders of the Company of
--------------------
the issuance of shares of Common Stock upon conversion of shares of Preferred
Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to
the terms thereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock and, if necessary, the elimination of any
prohibitions under the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to issue shares of
Common Stock in excess of the Cap Amount (as defined in the Certificate of
Designation). In addition, the Company shall, unless otherwise consented to by
each initial Holder, have a definitive proxy statement mailed to each
stockholder of the Company at least twenty (20) days prior to the Approval Date.
The Company shall deliver any SEC comments it receives with respect to its proxy
statement to each Holder and will not file such proxy statement (or any
revisions thereto), whether such proxy statement is in preliminary or definitive
form, without the approval of each initial Holder (as defined in the
Certificate of Designation), which approval shall not be unreasonably withheld
or delayed.
4.14 Conduct of Business. So long as any Purchaser beneficially owns any
-------------------
Securities, the business of the Company and its subsidiaries shall not be
conducted in violation of any law, ordinance, rule, regulation, order, judgement
or decree of any governmental entity, court or arbitration tribunal except for
possible violations the sanctions for which either singularly or in the
aggregate, would not have a Material Adverse Effect.
4.15 Indemnification. The Company will indemnify each Purchaser from and
---------------
against any fees and expenses sought or other claims made by PaineWebber
Incorporated relating to this Agreement and the transactions contemplated
hereby.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
-----------------
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a Security shall be originally
issued without the Legend, unless otherwise required by applicable state
securities laws if (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary or otherwise reasonable for
opinions of counsel (with the expense of such opinion paid by such holder) in
comparable transactions to the effect that a sale or transfer of such Security
may be made without registration under the Securities Act and without the
inclusion of the Legend on the certificate for such Security or (c) such
Security can be sold pursuant to Rule 144. Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Securities Act. In the event the Legend is
15
<PAGE>
removed from any Security or any Security is issued without the Legend and
thereafter such Security may not be sold pursuant to an effective registration
statement under the applicable securities laws, then upon reasonable advance
notice to Purchaser holding such Security, the Company may require that the
Legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 or with respect to which the
opinion referred to in clause (b) next above has not been rendered, which Legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144 or such holder provides the opinion with
respect thereto described in clause (b) next above.
5.2 Transfer Agent Instructions. The Company shall instruct its transfer
---------------------------
agent to issue certificates, registered in the name of each Purchaser or its
nominee, for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by such Purchaser to the Company upon, and in
accordance with, the conversion of the Preferred Stock and the exercise of the
Warrants. Such certificates shall bear a legend only in the form of the Legend
and only to the extent permitted by Section 5.1 above. The Company warrants
that no instruction other than such instructions referred to in this Article V,
and no stop transfer instructions other than stop transfer instructions (i) to
give effect to Section 2.6 hereof in the case of the Conversion Shares prior to
registration of the Conversion Shares under the Securities Act, (ii) to comply
with SEC or court order and (iii) to suspend the use of the Company's then
effective Registration Statement(s) in the event an amendment or supplement
thereto must be filed in order to make a statement therein not misleading or to
correct the omission of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, but, in the case of this clause (iii), only with respect to
transfers under such Registration Statement and only during the pendency of a
"Permitted Blackout" (as defined in the Registration Rights Agreement), will be
------------------
given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way a Purchaser's obligations and
agreement set forth in Section 5.1 hereof to re-sell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. In addition, if (a) a Purchaser
provides the Company with an opinion of counsel, which opinion of counsel shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Purchaser transfers Securities to an
affiliate or pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Purchaser in order to effect such a transfer
or sale. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss
16
<PAGE>
and without any bond or other security being required. Purchasers shall not
knowingly transfer or otherwise dispose of, in any private off-market offering,
any Convertible Securities to any Competitor of the Company (or any of its
subsidiaries). For purposes of this section, "Competitor" shall mean any person
----------
or entity engaged in the manufacture, sale, distribution, installation,
relocation, engineering, commissioning or program management of microwave radio
equipment that directly competes with the Company.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation of the
----------------------------------------------
Company hereunder to issue and sell the Convertible Securities to a Purchaser at
the Closing is subject to the satisfaction, as of the date of the Closing and
with respect to such Purchaser, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Such Purchaser shall deliver the applicable Purchase Price for
the Convertible Securities purchased at the Closing.
(iii) The representations and warranties of such Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and such Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by such
Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the
transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 Conditions to the Closing. The obligation of each Purchaser
-------------------------
hereunder to purchase the Convertible Securities to be purchased by it on the
date of the Closing is subject to the satisfaction of each of the following
conditions, provided that these conditions are for each Purchaser's sole benefit
and may be waived by such Purchaser (with respect to it) at any time in such
Purchaser's sole discretion:
17
<PAGE>
(i) The Company shall have executed the signature page to this
Agreement, the Warrant and the Registration Rights Agreement and delivered
the same to Purchaser.
(ii) The Company shall have delivered duly executed certificates for
the Preferred Stock (in such denominations as Purchaser shall reasonably
request) and the Warrant being so purchased by Purchaser at the Closing.
(iii) The Common Stock shall be listed on Nasdaq, the New York Stock
Exchange or the American Stock Exchange and trading in the Common Stock
shall not have been suspended by Nasdaq, the New York Stock Exchange or the
American Stock Exchange, the SEC or other regulatory authority and no de-
listing or suspension shall be reasonably likely for the foreseeable
future.
(iv) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as
of the Closing as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the
covenants and agreements required by any of this Agreement or the
Ancillary Documents to be performed or complied with by the Company at or
prior to the Closing. Purchaser shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing to the foregoing effect and as to such
other matters as may be reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vi) Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received an opinion of the Company's
outside legal counsel, dated as of the Closing from Brobeck, Phleger &
Harrison LLP and in form and substance reasonably acceptable to Purchasers.
(viii) The Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
---------
(ix) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser and the Certificate of Designation shall not have
been amended, modified or rescinded.
18
<PAGE>
(x) The Company shall have received and delivered to Purchaser the
third amendment under its existing credit facility with Union Bank, N.A.
and Bank of America (the "Credit Agreement") and the Security Agreement
thereunder, in each case satisfactory to Purchaser in its sole discretion.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
8.5 Scope of Agreement; Amendments. Except as specifically set forth
------------------------------
herein, no Purchaser makes any representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this
19
<PAGE>
Agreement may be amended other than by an instrument in writing signed by the
Company, each initial Purchaser and Purchasers holding a majority in interest of
the Convertible Securities.
8.6 Notice. Any notice herein required or permitted to be given shall be
------
in writing and may be personally served or delivered by courier or by facsimile-
machine confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
If to any Purchaser, to such address set forth under such Purchaser's name on
the signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.
8.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder to any of its "affiliates," as that term is defined under
the Exchange Act, and to any permitted purchaser of Convertible Securities (in
connection with a permitted transfer) without the consent of the Company so long
as such affiliate or purchaser is an accredited investor and signs an assumption
agreement. This provision shall not limit each Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Certificate of Designation, the Warrants or the Registration Rights Agreement,
the Securities may be pledged, and all rights of Purchaser under this Agreement
or any other agreement or document related to the transaction contemplated
hereby may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with a Purchaser's margin or brokerage accounts.
20
<PAGE>
8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties and the agreements and
--------
covenants set forth in Articles II, III, IV, V and VIII shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of Purchaser. Notwithstanding such survival, no party shall bring
any claim or action after the second (2nd) anniversary of the Closing Date based
upon a breach of such representations and warranties. The Company agrees to
indemnify and hold harmless each Purchaser and each of each Purchaser's
officers, directors, employees, partners, agents and affiliates for actual loss
or damage to the extent arising as a result of (a) any breach by the Company of
any of its representations or covenants set forth herein or (b) any cause of
action, suit or claim brought or made against such indemnitee, other than by the
Company solely for breach of this Agreement or any of the other Transaction
Documents by the indemnitee or by governmental or regulatory authorities, and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto or contemplated hereby, any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Preferred Stock or the status of any Purchaser as an
investor in the Company, except to the extent that such actual loss or damage
directly results from a breach by such indemnitee of this Agreement or any of
the Other Transaction Documents or from a violation of law. The right to
indemnification shall include the right to advancement of expenses as they are
incurred.
8.10 Public Filings; Publicity. Immediately following execution of this
-------------------------
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. Prior to the expiration of three (3) days
following the date of the Closing, the Company shall file a Form 8-K regarding
the transaction contemplated by this Agreement; such Form 8-K shall have as
exhibits thereto this Agreement, the Certificate of Designation, the Warrant and
the Registration Rights Agreement. The Company and each Purchaser shall have
the right to review before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although each
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof). Notwithstanding the foregoing, without further
review or approval by the Purchasers or the consent of the Purchasers (provided
such filing or press release was originally reviewed and consented to by the
Purchasers, such filing or press release is not misleading, such filing or press
release has not been subsequently determined to be incorrect in any material
respect and the Purchasers do not otherwise reasonably request changes to or
restrictions on use of such descriptions) the Company may continue to use the
descriptions in the initial press release, the Form 8-K filing (if such filing
has been previously reviewed and approved by the Purchasers), or any other press
release or SEC filing previously reviewed by the Purchasers to describe the
transactions contemplated hereby in future public SEC filings as required by
law.
21
<PAGE>
8.11 Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy to
--------
a Purchaser or the Company shall limit any remedy which would otherwise be
available to such Purchaser or the Company at law or in equity. Nothing in this
Agreement shall limit any rights a Purchaser or the Company may have under any
applicable federal or state securities laws with respect to the investment
contemplated hereby.
8.13 Termination. In the event that the Closing shall not have occurred
-----------
within two (2) business days of the execution of this Agreement, unless the
parties agree otherwise, this Agreement shall terminate. No such termination
shall relieve a party of its breach of this Agreement prior to such termination.
8.14 No Reliance. Each party acknowledges, without limiting any
-----------
representations or warranties or rights or obligations under this Agreement or
the Ancillary Documents, that (i) it has such knowledge in business and
financial matters as to be fully capable of evaluating the Transaction Documents
and the transactions contemplated hereby and thereby, (ii) it is not relying on
any advice or representation or warranty of the other party in connection with
entering into the Transaction Documents or such transactions (other than the
representations made in this Agreement or the Registration Rights Agreement or
certificates delivered at closing), and (iii) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary.
8.15 Integration. This Agreement, the Certificate of Designation, Warrants
-----------
and the Registration Rights Agreement (including all schedules and exhibits
thereto and all certificates and opinions and other documents required thereby)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Certificate of Designation, the Warrants and the
Registration Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
* * *
22
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
P-COM, INC.
By: /s/ George P. Roberts with a copy to: Warren T. Lazarow, Esq.
------------------------- Brobeck, Phleger & Harrison LLP
Name: George P. Roberts Two Embarcadero Place
Title: Chairman and Chief Executive Officer 2200 Geng Road
Palto Alto, CA 94303
Address: 3175 S. Winchester Blvd.
Campbell, CA 95008
Facsimile Number: (408)866-3678
----------------------
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: CASTLE CREEK PARTNERS LLC
Its: Managing Member
By: /s/ John D. Ziegelman
--------------------------------
Name: John D. Ziegelman
Title: Managing Member
Address: 333 W. Wacker Drive, Suite 1410
Chicago, Illinois 60606
Facsimile Number: (312) 435-2636
with a copy to:
Althelmer & Gray
10 S. Wacker Drive
Chicago, IL 60606
Attention: Peter Lieberman
23
<PAGE>
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By: /s/ Allan Weine
--------------------------------
Name: Allan Weine
Title: President
Address: c/o Credit Suisse First Boston
11 Madison Ave. - 3rd Floor
New York, NY 10010
Facsimile Number: (312) 750-1031
with a copy to:
c/o Credit Suisse First Boston
227 W. Monroe St. - 41st Floor
Chicago, IL 60606
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.
Its: Authorized Agent
By: /s/ Michael L. Spolan
---------------------------------
Name: Michael L. Spolan
Title: General Counsel and Secretary
Address:
Heights Capital Mgmt.
425 California St., Suite 1100
San Francisco, CA 94104
Facsimile Number: (415) 403-6525
with a copy to:
William Hudson, Esq.
Gibson, Dunn & Crutcher
One Montgomery St.
San Francisco, CA 94104
FAX 415-986-5309
24
<PAGE>
EXHIBIT 10.40A
VOID AFTER 5:00 P.M. EASTERN STANDARD
TIME ON DECEMBER 22, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of
Common Stock, par value $0.0001 per share
Date: December 22, 1998
FORM OF
P-COM, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Castle Creek Technology Partners
LLC or its registered assigns, is entitled to purchase from P-Com, Inc., a
Delaware corporation (the "Company"), at any time or from time to time during
-------
the period specified in Section 2 hereof, 455,494 fully paid and nonassessable
shares of the Company's common stock, par value $0.0001 per share (the "Common
------
Stock"), which number of shares was calculated as follows:
- -----
Dollar Amount of Holder's The average Closing x .25
Investment Pursuant to the / Bid Price (as defined
Securities Purchase Agreement herein) over the
(as defined below) fifteen (15) trading
day period immediately
preceding December 22,
1998 (the "Closing Date")
The Warrant exercise price per share of Common Stock (the "Exercise Price")
--------------
shall be equal to $3.47, which exercise price was calculated as 115% of the
average Closing Bid Price (as defined herein) over the fifteen (15) trading day
period immediately preceding December 22, 1998. This Warrant is being issued
pursuant to that certain Securities Purchase Agreement dated December 21, 1998
<PAGE>
among the Company and the signatories thereto (the "Securities Purchase
-------------------
Agreement"). The number of shares of Common Stock purchasable hereunder (the
- ---------
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
--------------
in Section 4 hereof. The term "Warrants" means this Warrant and the other
--------
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
-----------------
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
- -------
prices of such security (collectively, "Bloomberg"), or if the foregoing does
---------
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
---------------------
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
------------------
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 12(e) hereof),
together with a completed exercise agreement in the form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
------------------
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the principal
executive office of the Company ("Attention: Corporate Secretary") of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder or Holder's designees, as the record owner of
such shares, as of the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment (or
notice of an election to effect a Cashless Exercise) shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
------------------------
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall
2
<PAGE>
be delivered to the Holder within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised (the "Delivery
--------
Period"). The certificates so delivered shall be in such denominations as may be
- ------
requested by the Holder upon exercise and shall be registered in the name of
Holder or such other name as shall be designated by such Holder upon exercise.
If this Warrant shall have been exercised only in part, then, unless this
Warrant has expired, the Company shall, at its expense, at the time of delivery
of such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
-----------------
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than ten (10)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
-----------------
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date hereof and before 5:00 P.M., Eastern Standard
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
---------------
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances, except
such as are caused by the Holder.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. The Company shall use its best efforts to secure the
-------
listing of the shares of Common Stock issuable upon exercise of this Warrant
upon The Nasdaq National Market System, the New York Stock Exchange or the
American Stock Exchange and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall use its best
efforts to so list on each national securities exchange or automated quotation
system, as the case may be, and shall use its best efforts to maintain such
listing of any other shares of capital stock of the Company issuable upon the
exercise of this Warrant so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price or number of Warrant Shares as required herein results in a
fraction of a cent or fraction of a share, as applicable, such Exercise Price or
number of Warrant Shares shall be rounded up or down to the nearest cent or
share, as applicable.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
- ------------
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Exercise Price (as then in effect) (a "Dilutive Issuance"),
-----------------
then effective immediately upon the Dilutive Issuance, the Exercise Price will
be adjusted in accordance with the following formula:
E' = (E) (O+P/M) / (CSDO)
where:
4
<PAGE>
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then
Current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If, after the date hereof,
-----------------------------
the Company in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the issuance, grant
----------------------
or exercise of any stock or options which may hereafter be issued, granted or
exercised under any service provider benefit plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of non-
employee directors established for such purpose (such warrants, rights and
options to purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common Stock is
purchasable or issuable upon the exercise of such Options is less than the
Exercise Price (as then in effect) on the date of issuance of such Option or
direct stock grant ("Below Market Options"), then the maximum total number of
--------------------
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon the
exercise of such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise of all such Below Market Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise,
5
<PAGE>
conversion or exchange of Convertible Securities issuable upon exercise of such
Below Market Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
----------------------------------
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of issuance of such Convertible
Security (the "Assumed Variable Market Price").
-----------------------------
(iii) Change in Option Price or Conversion Rate. Except for the
-----------------------------------------
issuance, grant or exercise of any stock or options which may hereafter be
granted or exercised under any service provider benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or
6
<PAGE>
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock issuable
- ----------
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the non-
surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) in
accordance with terms of the Certificate of Designations with respect to the
Company's shares of Series B Preferred
7
<PAGE>
Stock (the "Preferred Stock"); (iv) upon the exercise of the Warrants; or (v)
issuances of any equity securities pursuant to the Stockholders Rights Plan and
the Series A Preferred Stock, as amended.
(c) Subdivision or Combination of Common Stock. If the Company, at
------------------------------------------
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merger
with any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant
shall thereafter be entitled to (a) in the event that the Common Stock remains
outstanding or holders of Common Stock receive any common stock or
substantially similar equity interest, in each of the foregoing cases which is
publicly traded, retain its Warrant and such Warrant shall continue to apply
to such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant,
equal to the greater of, as determined in the sole discretion of such holder,
(i) the number of shares of stock or securities or property of the Company, or
of the entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which the holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding
and had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) cash paid by the
Company in immediately available funds, in an amount equal to one hundred and
twenty five percent (125%) of the Black-Scholes Amount (as defined herein)
times the number of shares of Common Stock for which this Warrant was
exercisable (without regard to any limitations on exercise herein contained);
and the Company shall make lawful provision for the foregoing as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 21, 1998 among the Company and
the signatories thereto (the "Registration Rights Agreement") to assume all of
the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any corporation in a
transaction in which common stock of the surviving corporation or the parent
thereof (the "Exchange Securities") is issued to the holders of Common Stock
in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume
of the Exchange Securities reported by Bloomberg during the ninety (90) day
period ending on the date on which such transaction is publicly disclosed is
greater than two million dollars ($2,000,000) per day, (c) the historical one
hundred (100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price of
the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed is not less than sixty five percent (65%) of
the last sale price of the Exchange
8
<PAGE>
Securities on any day during the twenty (20) trading day period ending on such
date (in each case as reported by Bloomberg) (a "Common Stock Major
Transaction"), then each holder of a Warrant shall following consummation of
such transaction have the right to receive solely, in exchange for such Warrant,
consideration equal to the number of shares of stock or securities or property
issued or paid in such Common Stock Major Transaction to which a holder of the
number of shares of Common Stock which would have been delivered upon exercise
of such Warrant would have been entitled upon such Common Stock Major
Transaction had the holder of such Warrant exercised (without regard to any
limitations on conversion herein or elsewhere contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Common Stock Major Transaction and had such Common Stock been
issued and outstanding and had such holder been the holder of record of such
Common Stock at the time of the consummation of such Common Stock Major
Transaction; and the Company shall make lawful provision for the foregoing as a
part of such Common Stock Major Transaction and shall cause the issuer of any
security in such transaction which constitutes Registrable Securities under
that certain Registration Rights Agreement dated December 21, 1998 among the
Company and the signatories thereto (the "Registration Rights Agreement") to
assume all of the Company's obligations under the Registration Rights
Agreement. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction or Common
Stock Major Transaction, as the case may be, (each, a "Transaction") but not
prior to the public announcement of such Transaction, the Company shall
deliver written notice ("Notice of Transaction") to each holder of a Warrant,
---------------------
which Notice of Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Transaction. Such Notice of Transaction
shall indicate the amount and type of the Transaction consideration which such
holder of a Warrant would receive under this Section. If the Transaction
consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
--------------------
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
9
<PAGE>
(f) Distribution of Assets. In case the Company shall declare or make
----------------------
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
like events (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
------------
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
---------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
all (or substantially all) of the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
10
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the Closing Bid
------------
Price for the shares of Common Stock as reported to Nasdaq National Market
System for the trading day immediately preceding such date, or (ii) if the
Nasdaq National Market System is not the principal trading market for the Common
Stock, the last reported bid price on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to each initial
holder and the Holders of a majority in interest of the Warrants, with the
costs of the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
11
<PAGE>
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
------------
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the
----------
Securities Purchase Agreement), unless otherwise permitted by the Nasdaq
National Market System or unless the rules thereof do not apply to the Warrants,
in no event shall the total number of shares of Common Stock issued upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon exercise of the
----------
Warrants and conversion of the Preferred Stock, which, as of the date of initial
issuance of the shares of Preferred Stock and Warrants, shall be eight million
seven hundred and six thousand four hundred and eighty three (8,706,483) shares
(or such higher number as such rules permit). The Cap Amount shall be allocated
pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall
be applicable to both shares of Preferred Stock and Warrants held by it and
shall be applied to such Preferred Stock and Warrants on the basis of the time
of conversion or exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
---------------------------------------------------------
a. Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment
12
<PAGE>
shall be subject to the provisions of Sections 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 9 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of December 21, 1998, by and among the Company and
the other signatories thereto (the "Registration Rights Agreement"). Holders
-----------------------------
shall not knowingly transfer or otherwise dispose of, in any private off-market
offering, any Warrants (or shares of Common Stock issuable upon exercise of any
Warrant) to any Competitor (as defined in the Securities Purchase Agreement) of
the Company (or any of its subsidiaries).
b. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 8(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 8, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
----------------
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
----------------------------------------------
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder would beneficially own in excess of 4.9% (the "Applicable
----------
Percentage") of the shares of Common Stock. To the extent the above limitation
- ----------
applies, the determination of whether the Warrants shall be exercisable (vis-a-
vis other securities owned by Holder) and of which Warrants shall be exercisable
(as among Warrants) shall be made by
13
<PAGE>
Holder and submission of the Warrants for exercise shall be deemed to be the
Holder's determination of whether such Warrants are exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants are exercisable (among
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations,
including without limitation, with respect to calculations of percentage
ownership, shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D and G
thereunder. The provisions of this paragraph may be implemented in a manner
otherwise than in strict conformity with the terms this Section (f) with the
approval of the Board of Directors of the Company and the Holder: (i) with
respect to any matter to cure any ambiguity herein, to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such Applicable Percentage limitation; and (ii) with respect to any other matter
only with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this paragraph shall apply to
each successor holder of Warrants.
9. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
-------
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
14
<PAGE>
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
12. Miscellaneous.
-------------
a. Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the Holders of a
majority of the Warrant Shares remaining subject to the Warrants.
b. Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
-----------------
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the Company and
-------------
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
e. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
-------------------------------------------------
by the Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
15
<PAGE>
* * *
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed by their duly authorized officers.
P-Com, Inc.
By: /s/ George P. Roberts
-----------------------------------
Name: George P. Roberts
---------------------------------
Title: Chairman and Chief Executive
--------------------------------
Officer
--------------------------------
17
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of P-Com, Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
-------
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) [If a cash exercise -- The undersigned makes the representations and
warranties contained in Sections 2.1 through 2.7 of the Securities Purchase
Agreement as of the date of the exercise.] The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any Common Stock obtained on exercise of
the Warrant, except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:___________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
_________________________
Name:_______________________________________
Signature:__________________________________
Title of Signing Officer or Agent (if any):
_______________________________________
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 10.40B
VOID AFTER 5:00 P.M. EASTERN STANDARD
TIME ON DECEMBER 22, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of
Common Stock, par value $0.0001 per share
Date: December 22, 1998
FORM OF
P-COM, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Capital Ventures International
or its registered assigns, is entitled to purchase from P-Com, Inc., a Delaware
corporation (the "Company"), at any time or from time to time during the period
-------
specified in Section 2 hereof, 414,086 fully paid and nonassessable shares
of the Company's common stock, par value $0.0001 per share (the "Common Stock"),
------------
which number of shares was calculated as follows:
Dollar Amount of Holder's The average Closing x .25
Investment Pursuant to the / Bid Price (as defined
Securities Purchase Agreement herein) over the
(as defined below) fifteen (15) trading
day period immediately
preceding December 22,
1998 (the "Closing Date")
The Warrant exercise price per share of Common Stock (the "Exercise Price")
--------------
shall be equal to $3.47, which exercise price was calculated as 115% of the
average Closing Bid Price (as defined herein) over the fifteen (15) trading day
period immediately preceding December 22, 1998. This Warrant is being issued
pursuant to that certain Securities Purchase Agreement dated December 21, 1998
<PAGE>
among the Company and the signatories thereto (the "Securities Purchase
-------------------
Agreement"). The number of shares of Common Stock purchasable hereunder (the
- ---------
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
--------------
in Section 4 hereof. The term "Warrants" means this Warrant and the other
--------
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
-----------------
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
- -------
prices of such security (collectively, "Bloomberg"), or if the foregoing does
---------
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
---------------------
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
------------------
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 12(e) hereof),
together with a completed exercise agreement in the form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
------------------
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the principal
executive office of the Company ("Attention: Corporate Secretary") of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder or Holder's designees, as the record owner of
such shares, as of the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment (or
notice of an election to effect a Cashless Exercise) shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
------------------------
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall
2
<PAGE>
be delivered to the Holder within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised (the "Delivery
--------
Period"). The certificates so delivered shall be in such denominations as may be
- ------
requested by the Holder upon exercise and shall be registered in the name of
Holder or such other name as shall be designated by such Holder upon exercise.
If this Warrant shall have been exercised only in part, then, unless this
Warrant has expired, the Company shall, at its expense, at the time of delivery
of such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
-----------------
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than ten (10)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
-----------------
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date hereof and before 5:00 P.M., Eastern Standard
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
---------------
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances, except
such as are caused by the Holder.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. The Company shall use its best efforts to secure the
-------
listing of the shares of Common Stock issuable upon exercise of this Warrant
upon The Nasdaq National Market System, the New York Stock Exchange or the
American Stock Exchange and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall use its best
efforts to so list on each national securities exchange or automated quotation
system, as the case may be, and shall use its best efforts to maintain such
listing of any other shares of capital stock of the Company issuable upon the
exercise of this Warrant so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price or number of Warrant Shares as required herein results in a
fraction of a cent or fraction of a share, as applicable, such Exercise Price or
number of Warrant Shares shall be rounded up or down to the nearest cent or
share, as applicable.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
- ------------
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Exercise Price (as then in effect) (a "Dilutive Issuance"),
-----------------
then effective immediately upon the Dilutive Issuance, the Exercise Price will
be adjusted in accordance with the following formula:
E' = (E) (O+P/M) / (CSDO)
where:
4
<PAGE>
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then
Current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If, after the date hereof,
-----------------------------
the Company in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the issuance, grant
----------------------
or exercise of any stock or options which may hereafter be issued, granted or
exercised under any service provider benefit plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of non-
employee directors established for such purpose (such warrants, rights and
options to purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common Stock is
purchasable or issuable upon the exercise of such Options is less than the
Exercise Price (as then in effect) on the date of issuance of such Option or
direct stock grant ("Below Market Options"), then the maximum total number of
--------------------
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon the
exercise of such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise of all such Below Market Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise,
5
<PAGE>
conversion or exchange of Convertible Securities issuable upon exercise of such
Below Market Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
----------------------------------
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of issuance of such Convertible
Security (the "Assumed Variable Market Price").
-----------------------------
(iii) Change in Option Price or Conversion Rate. Except for the
-----------------------------------------
issuance, grant or exercise of any stock or options which may hereafter be
granted or exercised under any service provider benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or
6
<PAGE>
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock issuable
- ----------
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the non-
surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) in
accordance with terms of the Certificate of Designations with respect to the
Company's shares of Series B Preferred
7
<PAGE>
Stock (the "Preferred Stock"); (iv) upon the exercise of the Warrants; or (v)
issuances of any equity securities pursuant to the Stockholders Rights Plan and
the Series A Preferred Stock, as amended.
(c) Subdivision or Combination of Common Stock. If the Company, at
------------------------------------------
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merger
with any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant
shall thereafter be entitled to (a) in the event that the Common Stock remains
outstanding or holders of Common Stock receive any common stock or
substantially similar equity interest, in each of the foregoing cases which is
publicly traded, retain its Warrant and such Warrant shall continue to apply
to such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant,
equal to the greater of, as determined in the sole discretion of such holder,
(i) the number of shares of stock or securities or property of the Company, or
of the entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which the holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding
and had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) cash paid by the
Company in immediately available funds, in an amount equal to one hundred and
twenty five percent (125%) of the Black-Scholes Amount (as defined herein)
times the number of shares of Common Stock for which this Warrant was
exercisable (without regard to any limitations on exercise herein contained);
and the Company shall make lawful provision for the foregoing as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 21, 1998 among the Company and
the signatories thereto (the "Registration Rights Agreement") to assume all of
the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any corporation in a
transaction in which common stock of the surviving corporation or the parent
thereof (the "Exchange Securities") is issued to the holders of Common Stock
in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume
of the Exchange Securities reported by Bloomberg during the ninety (90) day
period ending on the date on which such transaction is publicly disclosed is
greater than two million dollars ($2,000,000) per day, (c) the historical one
hundred (100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price of
the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed is not less than sixty five percent (65%) of
the last sale price of the Exchange
8
<PAGE>
Securities on any day during the twenty (20) trading day period ending on such
date (in each case as reported by Bloomberg) (a "Common Stock Major
Transaction"), then each holder of a Warrant shall following consummation of
such transaction have the right to receive solely, in exchange for such Warrant,
consideration equal to the number of shares of stock or securities or property
issued or paid in such Common Stock Major Transaction to which a holder of the
number of shares of Common Stock which would have been delivered upon exercise
of such Warrant would have been entitled upon such Common Stock Major
Transaction had the holder of such Warrant exercised (without regard to any
limitations on conversion herein or elsewhere contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Common Stock Major Transaction and had such Common Stock been
issued and outstanding and had such holder been the holder of record of such
Common Stock at the time of the consummation of such Common Stock Major
Transaction; and the Company shall make lawful provision for the foregoing as a
part of such Common Stock Major Transaction and shall cause the issuer of any
security in such transaction which constitutes Registrable Securities under
that certain Registration Rights Agreement dated December 21, 1998 among the
Company and the signatories thereto (the "Registration Rights Agreement") to
assume all of the Company's obligations under the Registration Rights
Agreement. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction or Common
Stock Major Transaction, as the case may be, (each, a "Transaction") but not
prior to the public announcement of such Transaction, the Company shall
deliver written notice ("Notice of Transaction") to each holder of a Warrant,
---------------------
which Notice of Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Transaction. Such Notice of Transaction
shall indicate the amount and type of the Transaction consideration which such
holder of a Warrant would receive under this Section. If the Transaction
consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
--------------------
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
9
<PAGE>
(f) Distribution of Assets. In case the Company shall declare or make
----------------------
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
like events (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
------------
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
---------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
all (or substantially all) of the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
10
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the Closing Bid
------------
Price for the shares of Common Stock as reported to Nasdaq National Market
System for the trading day immediately preceding such date, or (ii) if the
Nasdaq National Market System is not the principal trading market for the Common
Stock, the last reported bid price on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to each initial
holder and the Holders of a majority in interest of the Warrants, with the
costs of the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
11
<PAGE>
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
------------
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the
----------
Securities Purchase Agreement), unless otherwise permitted by the Nasdaq
National Market System or unless the rules thereof do not apply to the Warrants,
in no event shall the total number of shares of Common Stock issued upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon exercise of the
----------
Warrants and conversion of the Preferred Stock, which, as of the date of initial
issuance of the shares of Preferred Stock and Warrants, shall be eight million
seven hundred and six thousand four hundred and eighty three (8,706,483) shares
(or such higher number as such rules permit). The Cap Amount shall be allocated
pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall
be applicable to both shares of Preferred Stock and Warrants held by it and
shall be applied to such Preferred Stock and Warrants on the basis of the time
of conversion or exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
---------------------------------------------------------
a. Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment
12
<PAGE>
shall be subject to the provisions of Sections 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 9 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of December 21, 1998, by and among the Company and
the other signatories thereto (the "Registration Rights Agreement"). Holders
-----------------------------
shall not knowingly transfer or otherwise dispose of, in any private off-market
offering, any Warrants (or shares of Common Stock issuable upon exercise of any
Warrant) to any Competitor (as defined in the Securities Purchase Agreement) of
the Company (or any of its subsidiaries).
b. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 8(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 8, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
----------------
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
----------------------------------------------
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder would beneficially own in excess of 4.9% (the "Applicable
----------
Percentage") of the shares of Common Stock. To the extent the above limitation
- ----------
applies, the determination of whether the Warrants shall be exercisable (vis-a-
vis other securities owned by Holder) and of which Warrants shall be exercisable
(as among Warrants) shall be made by
13
<PAGE>
Holder and submission of the Warrants for exercise shall be deemed to be the
Holder's determination of whether such Warrants are exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants are exercisable (among
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations,
including without limitation, with respect to calculations of percentage
ownership, shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D and G
thereunder. The provisions of this paragraph may be implemented in a manner
otherwise than in strict conformity with the terms this Section (f) with the
approval of the Board of Directors of the Company and the Holder: (i) with
respect to any matter to cure any ambiguity herein, to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such Applicable Percentage limitation; and (ii) with respect to any other matter
only with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this paragraph shall apply to
each successor holder of Warrants.
9. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
-------
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
14
<PAGE>
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
12. Miscellaneous.
-------------
a. Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the Holders of a
majority of the Warrant Shares remaining subject to the Warrants.
b. Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
-----------------
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the Company and
-------------
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
e. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
-------------------------------------------------
by the Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
15
<PAGE>
* * *
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed by their duly authorized officers.
P-Com, Inc.
By: /s/ George P. Roberts
-----------------------------------
Name: George P. Roberts
---------------------------------
Title: Chairman and Chief Executive
--------------------------------
Officer
--------------------------------
17
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of P-Com, Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
-------
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) [If a cash exercise -- The undersigned makes the representations and
warranties contained in Sections 2.1 through 2.7 of the Securities Purchase
Agreement as of the date of the exercise.] The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any Common Stock obtained on exercise of
the Warrant, except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:___________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
_________________________
Name:_______________________________________
Signature:__________________________________
Title of Signing Officer or Agent (if any):
_______________________________________
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 10.40C
VOID AFTER 5:00 P.M. EASTERN STANDARD
TIME ON DECEMBER 22, 2003
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of
Common Stock, par value $0.0001 per share
Date: December 22, 1998
FORM OF
P-COM, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Marshall Capital Management, Inc.
or its registered assigns, is entitled to purchase from P-Com, Inc., a Delaware
corporation (the "Company"), at any time or from time to time during the period
-------
specified in Section 2 hereof, 372,677 fully paid and nonassessable shares
of the Company's common stock, par value $0.0001 per share (the "Common Stock"),
------------
which number of shares was calculated as follows:
Dollar Amount of Holder's The average Closing x .25
Investment Pursuant to the / Bid Price (as defined
Securities Purchase Agreement herein) over the
(as defined below) fifteen (15) trading
day period immediately
preceding December 22,
1998 (the "Closing Date")
The Warrant exercise price per share of Common Stock (the "Exercise Price")
--------------
shall be equal to $3.47, which exercise price was calculated as 115% of the
average Closing Bid Price (as defined herein) over the fifteen (15) trading day
period immediately preceding December 22, 1998. This Warrant is being issued
pursuant to that certain Securities Purchase Agreement dated December 21, 1998
<PAGE>
among the Company and the signatories thereto (the "Securities Purchase
-------------------
Agreement"). The number of shares of Common Stock purchasable hereunder (the
- ---------
"Warrant Shares") and the Exercise Price are subject to adjustment as provided
--------------
in Section 4 hereof. The term "Warrants" means this Warrant and the other
--------
warrants of the Company issued pursuant to the terms of the Securities Purchase
Agreement.
The term "Closing Bid Price" means, for any security as of any date, the
-----------------
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
- -------
prices of such security (collectively, "Bloomberg"), or if the foregoing does
---------
not apply, the last reported sale price of such security in the over-the-counter
market on the electronic bulletin board of such security as reported by
Bloomberg, or, if no sale price is reported for such security by Bloomberg, the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Company and reasonably acceptable to the Holder with the costs
of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
---------------------
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
------------------
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 12(e) hereof),
together with a completed exercise agreement in the form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
------------------
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the principal
executive office of the Company ("Attention: Corporate Secretary") of a written
notice of an election to effect a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder or Holder's designees, as the record owner of
such shares, as of the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered, and payment (or
notice of an election to effect a Cashless Exercise) shall have been made for
such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
------------------------
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall
2
<PAGE>
be delivered to the Holder within a reasonable time, not exceeding three (3)
business days, after this Warrant shall have been so exercised (the "Delivery
--------
Period"). The certificates so delivered shall be in such denominations as may be
- ------
requested by the Holder upon exercise and shall be registered in the name of
Holder or such other name as shall be designated by such Holder upon exercise.
If this Warrant shall have been exercised only in part, then, unless this
Warrant has expired, the Company shall, at its expense, at the time of delivery
of such certificates, deliver to the Holder a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
-----------------
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the converting Holder of the results no later than ten (10)
business days from the date it receives the disputed calculations. The
accounting firm's calculation shall be deemed conclusive, absent manifest error.
The Company shall then issue the appropriate number of shares of Common Stock in
accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
-----------------
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date hereof and before 5:00 P.M., Eastern Standard
time on the fifth (5th) anniversary of the date hereof (the "Exercise Period").
---------------
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
non-assessable and free from all taxes, liens, claims and encumbrances, except
such as are caused by the Holder.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. The Company shall use its best efforts to secure the
-------
listing of the shares of Common Stock issuable upon exercise of this Warrant
upon The Nasdaq National Market System, the New York Stock Exchange or the
American Stock Exchange and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall use its best
efforts to so list on each national securities exchange or automated quotation
system, as the case may be, and shall use its best efforts to maintain such
listing of any other shares of capital stock of the Company issuable upon the
exercise of this Warrant so long as any shares of the same class shall be listed
on such national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment of
--------------------------
its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such actions as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this
Warrant, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Section 4. In the event that any adjustment of the
Exercise Price or number of Warrant Shares as required herein results in a
fraction of a cent or fraction of a share, as applicable, such Exercise Price or
number of Warrant Shares shall be rounded up or down to the nearest cent or
share, as applicable.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance of
------------------------------------------------------------------
Common Stock. Except as otherwise provided in Section 4(c) and 4(e) hereof, if
- ------------
and whenever after the initial issuance of this Warrant, the Company issues or
sells, or in accordance with Section 4(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share less than the Exercise Price (as then in effect) (a "Dilutive Issuance"),
-----------------
then effective immediately upon the Dilutive Issuance, the Exercise Price will
be adjusted in accordance with the following formula:
E' = (E) (O+P/M) / (CSDO)
where:
4
<PAGE>
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the greater of the then current Market Price and the then
Current Exercise Price;
O = the number of shares of Common Stock outstanding immediately
prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth in
Section 4(b) hereof, received by the Company upon such
Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as herein defined) immediately after the
Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If, after the date hereof,
-----------------------------
the Company in any manner issues or grants any warrants, rights or options,
whether or not immediately exercisable, to subscribe for or to purchase Common
Stock or other securities exercisable, convertible into or exchangeable for
Common Stock ("Convertible Securities"), but not to include the issuance, grant
----------------------
or exercise of any stock or options which may hereafter be issued, granted or
exercised under any service provider benefit plan of the Company now existing or
to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of non-
employee directors established for such purpose (such warrants, rights and
options to purchase Common Stock or Convertible Securities are hereinafter
referred to as "Options"), and the price per share for which Common Stock is
purchasable or issuable upon the exercise of such Options is less than the
Exercise Price (as then in effect) on the date of issuance of such Option or
direct stock grant ("Below Market Options"), then the maximum total number of
--------------------
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full exercise, conversion or exchange of Convertible
Securities, if applicable) will, as of the date of the issuance or grant of such
Below Market Options, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon the
exercise of such Below Market Options is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or granting of such Below Market Options, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise of all such Below Market Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Below Market Options, the minimum
aggregate amount of additional consideration payable upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Below
Market Options (assuming full conversion of Convertible Securities, if
applicable). No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon the exercise of such Below Market
Options or upon the exercise,
5
<PAGE>
conversion or exchange of Convertible Securities issuable upon exercise of such
Below Market Options.
(ii) Issuance of Convertible Securities.
----------------------------------
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Exercise Price (as then in effect) on the date of issuance of such Convertible
Security, then the maximum total number of shares of Common Stock issuable upon
the exercise, conversion or exchange of all such Convertible Securities will, as
of the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the price per share for which
Common Stock is issuable upon such exercise, conversion or exchange is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuances of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating or re-setting conversion or exercise
price or exchange ratio (a "Variable Rate Convertible Security"), then the price
----------------------------------
per share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of exercise, conversion or exchange of such Convertible
Security was 80% of the Market Price on the date of issuance of such Convertible
Security (the "Assumed Variable Market Price").
-----------------------------
(iii) Change in Option Price or Conversion Rate. Except for the
-----------------------------------------
issuance, grant or exercise of any stock or options which may hereafter be
granted or exercised under any service provider benefit plan of the Company now
existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or
6
<PAGE>
exchangeable for Common Stock (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in effect at the time
of such change will be readjusted to the Exercise Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock issuable
- ----------
upon exercise of any Options or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Options or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the non-
surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities issued and outstanding on the date hereof in
accordance with the terms of such securities as of such date; (ii) upon the
grant or exercise of any stock or options which may hereafter be granted or
exercised under any employee, consultant or director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) in
accordance with terms of the Certificate of Designations with respect to the
Company's shares of Series B Preferred
7
<PAGE>
Stock (the "Preferred Stock"); (iv) upon the exercise of the Warrants; or (v)
issuances of any equity securities pursuant to the Stockholders Rights Plan and
the Series A Preferred Stock, as amended.
(c) Subdivision or Combination of Common Stock. If the Company, at
------------------------------------------
any time after the initial issuance of this Warrant, subdivides (by any stock
split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company, at any time after the initial issuance of this Warrant, combines
(by reverse stock split, recapitalization, reorganization, reclassification or
otherwise) its shares of Common Stock into a smaller number of shares, then,
after the date of record for effecting such combination, the Exercise Price in
effect immediately prior to such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merger
with any other corporation or entity (other than a merger in which the Company
is the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant
shall thereafter be entitled to (a) in the event that the Common Stock remains
outstanding or holders of Common Stock receive any common stock or
substantially similar equity interest, in each of the foregoing cases which is
publicly traded, retain its Warrant and such Warrant shall continue to apply
to such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for such Warrant,
equal to the greater of, as determined in the sole discretion of such holder,
(i) the number of shares of stock or securities or property of the Company, or
of the entity resulting from such Major Transaction (the "Major Transaction
Consideration"), to which the holder of the number of shares of Common Stock
delivered upon the exercise of such Warrant would have been entitled upon such
Major Transaction had such holder exercised the Warrant (without regard to any
limitations on conversion or elsewhere contained) on the trading date
immediately preceding the public announcement of the transaction resulting in
such Major Transaction and had such Common Stock been issued and outstanding
and had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) cash paid by the
Company in immediately available funds, in an amount equal to one hundred and
twenty five percent (125%) of the Black-Scholes Amount (as defined herein)
times the number of shares of Common Stock for which this Warrant was
exercisable (without regard to any limitations on exercise herein contained);
and the Company shall make lawful provision for the foregoing as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 21, 1998 among the Company and
the signatories thereto (the "Registration Rights Agreement") to assume all of
the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any corporation in a
transaction in which common stock of the surviving corporation or the parent
thereof (the "Exchange Securities") is issued to the holders of Common Stock
in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume
of the Exchange Securities reported by Bloomberg during the ninety (90) day
period ending on the date on which such transaction is publicly disclosed is
greater than two million dollars ($2,000,000) per day, (c) the historical one
hundred (100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price of
the Exchange Securities on the date immediately before the date on which such
transaction is publicly disclosed is not less than sixty five percent (65%) of
the last sale price of the Exchange
8
<PAGE>
Securities on any day during the twenty (20) trading day period ending on such
date (in each case as reported by Bloomberg) (a "Common Stock Major
Transaction"), then each holder of a Warrant shall following consummation of
such transaction have the right to receive solely, in exchange for such Warrant,
consideration equal to the number of shares of stock or securities or property
issued or paid in such Common Stock Major Transaction to which a holder of the
number of shares of Common Stock which would have been delivered upon exercise
of such Warrant would have been entitled upon such Common Stock Major
Transaction had the holder of such Warrant exercised (without regard to any
limitations on conversion herein or elsewhere contained) the Warrant on the
trading date immediately preceding the public announcement of the transaction
resulting in such Common Stock Major Transaction and had such Common Stock been
issued and outstanding and had such holder been the holder of record of such
Common Stock at the time of the consummation of such Common Stock Major
Transaction; and the Company shall make lawful provision for the foregoing as a
part of such Common Stock Major Transaction and shall cause the issuer of any
security in such transaction which constitutes Registrable Securities under
that certain Registration Rights Agreement dated December 21, 1998 among the
Company and the signatories thereto (the "Registration Rights Agreement") to
assume all of the Company's obligations under the Registration Rights
Agreement. No sooner than ten (10) business days nor later than five (5)
business days prior to the consummation of the Major Transaction or Common
Stock Major Transaction, as the case may be, (each, a "Transaction") but not
prior to the public announcement of such Transaction, the Company shall
deliver written notice ("Notice of Transaction") to each holder of a Warrant,
---------------------
which Notice of Transaction shall be deemed to have been delivered one (1)
business day after the Company's sending such notice by telecopy (provided
that the Company sends a confirming copy of such notice on the same day by
overnight courier) of such Notice of Transaction. Such Notice of Transaction
shall indicate the amount and type of the Transaction consideration which such
holder of a Warrant would receive under this Section. If the Transaction
consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating the
--------------------
"Black-Scholes" value of an option to purchase one share of Common Stock on the
applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
9
<PAGE>
(f) Distribution of Assets. In case the Company shall declare or make
----------------------
any distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
like events (including any dividend or distribution to the Company's
shareholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
------------
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(g) Notices of Adjustment. Upon the occurrence of any event which
---------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the Holder, which notice shall state the
Exercise Price resulting from such adjustment and the increase or decrease in
the number of Warrant Shares purchasable at such price upon exercise, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are to
--------------------
be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock; provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution to
all (or substantially all) of the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
10
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(k) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in case of any adjustment
required by Section 4(a) resulting from the issuance of any Options, the maximum
total number of shares of Common Stock issuable upon the exercise of the Options
for which the adjustment is required (including any Common Stock issuable upon
the conversion of Convertible Securities issuable upon the exercise of such
Options), and (y) in the case of any adjustment required by Section 4(a)
resulting from the issuance of any Convertible Securities, the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of the Convertible Securities for which the adjustment is required, as
of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the Closing Bid
------------
Price for the shares of Common Stock as reported to Nasdaq National Market
System for the trading day immediately preceding such date, or (ii) if the
Nasdaq National Market System is not the principal trading market for the Common
Stock, the last reported bid price on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to each initial
holder and the Holders of a majority in interest of the Warrants, with the
costs of the appraisal to be borne by the Company. The manner of determining
the Market Price of the Common Stock set forth in the foregoing
11
<PAGE>
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
------------
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Cap Amount. Prior to Stockholder Approval (as defined in the
----------
Securities Purchase Agreement), unless otherwise permitted by the Nasdaq
National Market System or unless the rules thereof do not apply to the Warrants,
in no event shall the total number of shares of Common Stock issued upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon exercise of the
----------
Warrants and conversion of the Preferred Stock, which, as of the date of initial
issuance of the shares of Preferred Stock and Warrants, shall be eight million
seven hundred and six thousand four hundred and eighty three (8,706,483) shares
(or such higher number as such rules permit). The Cap Amount shall be allocated
pro-rata to the Holders. A Holder's allocable portion of the Cap Amount shall
be applicable to both shares of Preferred Stock and Warrants held by it and
shall be applied to such Preferred Stock and Warrants on the basis of the time
of conversion or exercise, as the case may be, thereof.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
---------------------------------------------------------
a. Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the Holder are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the Form of Assignment
attached hereto as Exhibit 2, at the office or agency of the Company referred to
in Section 8(e) below, provided, however, that any transfer or assignment
12
<PAGE>
shall be subject to the provisions of Sections 5.1 and 5.2 of the Securities
Purchase Agreement. Until due presentment for registration of transfer on the
books of the Company, the Company may treat the registered holder hereof as the
owner and holder hereof for all purposes, and the Company shall not be affected
by any notice to the contrary. Notwithstanding anything to the contrary
contained herein, the registration rights described in Section 9 hereof are
assignable only in accordance with the provisions of that certain Registration
Rights Agreement, dated as of December 21, 1998, by and among the Company and
the other signatories thereto (the "Registration Rights Agreement"). Holders
-----------------------------
shall not knowingly transfer or otherwise dispose of, in any private off-market
offering, any Warrants (or shares of Common Stock issuable upon exercise of any
Warrant) to any Competitor (as defined in the Securities Purchase Agreement) of
the Company (or any of its subsidiaries).
b. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Holder at the office or agency
of the Company referred to in Section 8(e) below, for new Warrants, in the form
hereof, of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder of at the time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrants, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 8, this Warrant shall be promptly canceled by the Company. The
Company shall pay all issuance taxes (other than securities transfer taxes) and
charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 8.
e. Warrant Register. The Company shall maintain, at its principal
----------------
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder), a register for this Warrant, in which the
Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer. Notwithstanding
----------------------------------------------
anything to the contrary contained herein, the Warrants shall not be exercisable
by the Holder to the extent (but only to the extent) that, if exercisable by
Holder, Holder would beneficially own in excess of 4.9% (the "Applicable
----------
Percentage") of the shares of Common Stock. To the extent the above limitation
- ----------
applies, the determination of whether the Warrants shall be exercisable (vis-a-
vis other securities owned by Holder) and of which Warrants shall be exercisable
(as among Warrants) shall be made by
13
<PAGE>
Holder and submission of the Warrants for exercise shall be deemed to be the
Holder's determination of whether such Warrants are exercisable (vis-a-vis other
securities owned by Holder) and of which Warrants are exercisable (among
Warrants), in each case subject to such aggregate percentage limitation. No
prior inability to exercise Warrants pursuant to this paragraph shall have any
effect on the applicability of the provisions of this paragraph with respect to
any subsequent determination of exercisability. For the purposes of this
paragraph, beneficial ownership and all determinations and calculations,
including without limitation, with respect to calculations of percentage
ownership, shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulations 13D and G
thereunder. The provisions of this paragraph may be implemented in a manner
otherwise than in strict conformity with the terms this Section (f) with the
approval of the Board of Directors of the Company and the Holder: (i) with
respect to any matter to cure any ambiguity herein, to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Applicable Percentage beneficial ownership limitation herein contained or to
make changes or supplements necessary or desirable to properly give effect to
such Applicable Percentage limitation; and (ii) with respect to any other matter
only with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this paragraph shall apply to
each successor holder of Warrants.
9. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
-------
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
14
<PAGE>
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the County of New Castle in the State of Delaware in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that a final
nonappealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
12. Miscellaneous.
-------------
a. Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the Holders of a
majority of the Warrant Shares remaining subject to the Warrants.
b. Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a cashless exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
-----------------
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the Company and
-------------
its successors and assigns and shall inure to the benefit of Holder and its
successors and assigns. The Holder shall notify the Company upon the assignment
of this Warrant.
e. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt
-------------------------------------------------
by the Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnity or
security reasonably satisfactory to the Company, and upon surrender of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of
like tenor and date.
15
<PAGE>
* * *
16
<PAGE>
IN WITNESS WHEREOF, the Company and the Holder have caused this Warrant to
be signed by their duly authorized officers.
P-Com, Inc.
By: /s/ George P. Roberts
-----------------------------------
Name: George P. Roberts
---------------------------------
Title: Chairman and Chief Executive
--------------------------------
Officer
--------------------------------
17
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of P-Com, Inc., a Delaware
corporation (the "Company"), evidenced by the attached Warrant, and [herewith
-------
makes payment of the Exercise Price with respect to such shares in full/ elects
to effect a Cashless Exercise pursuant to the terms of the Warrant], all in
accordance with the conditions and provisions of said Warrant.
(i) [If a cash exercise -- The undersigned makes the representations and
warranties contained in Sections 2.1 through 2.7 of the Securities Purchase
Agreement as of the date of the exercise.] The undersigned agrees not to offer,
sell, transfer or otherwise dispose of any Common Stock obtained on exercise of
the Warrant, except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:___________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
_________________________
Name:_______________________________________
Signature:__________________________________
Title of Signing Officer or Agent (if any):
_______________________________________
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
<PAGE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
September 30,
1993 1994 1995 1996 1997 1998
------ ------ ----- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C>
Pretax Income (loss)...... (4,833) (5,370) 4,480 9,830 29,943 (74,236)
Minority interest in net
income (loss) of
subsidiary............... -- -- -- (15) (15) --
Interest expense.......... 82 285 413 275 2,090 5,483
Rental expense............ 234 322 496 862 313 234
------ ------ ----- ------ ------ -------
Earnings (loss) before
interest, taxes and fixed
charges.................. (4,517) (4,763) 5,389 10,952 32,331 (68,519)
====== ====== ===== ====== ====== =======
Total fixed charges....... 316 607 909 1,122 2,388 5,717
Ratio of earnings (loss)
to fixed charges......... (14.29) (7.85) 5.93 9.63 13.45 (11.98)
====== ====== ===== ====== ====== =======
Coverage surplus
(deficiency)............. (5,149) (5,977) 3,571 8,693 27,540 (79,953)
====== ====== ===== ====== ====== =======
</TABLE>
<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. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Jose, California
January 19, 1999
