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As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333-70937
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933, as amended
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P-COM, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 77-0289371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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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)
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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)
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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. [_]
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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.
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PRELIMINARY PROSPECTUS
(SUBJECT TO COMPLETION, DATED APRIL 30, 1999)
13,000,000 Shares
P-COM, INC.
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COMMON STOCK
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The stockholders of P-COM, Inc. listed in the Summary below are
offering for resale and selling under this prospectus up to 13,000,000 shares of
our common stock.
Our common stock is traded on the Nasdaq National Market (Nasdaq
Symbol: PCMS). On April 28, 1999, the closing price of the common stock was
$5.75 per share.
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You should carefully consider the risk factors commencing on page 6
before purchasing any of the common stock offered by the selling stockholders.
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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.
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The date of this prospectus is _____________, 1999.
The information in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is 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.
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SUMMARY
The common stock to be resold by the selling stockholders pursuant to
this prospectus will be issued by us upon conversion of our outstanding Series B
preferred stock and upon exercise of warrants held by the selling stockholders.
The name of each selling stockholder and the number of shares of Series B
preferred stock and warrants held by it are set forth in the following table:
<TABLE>
<CAPTION>
Number of Shares of Series Warrants to Purchase the Following
B Preferred Stock number of shares of Common Stock
Beneficially Owned Beneficially Owned Before the
Name of Selling Stockholder Prior to Offering Offering
- -------------------------------------- --------------------------- -----------------------------------
<S> <C> C>
Marshall Capital Management, Inc...... 4,500 372,677
Castle Creek Technology Partners LLC.. 5,500 455,494
Capital Ventures International........ 5,000 414,086
</TABLE>
We develop, manufacture and market network access systems for the
worldwide wireless telecommunications market. The radio links we provide are
designed to satisfy the network requirements of cellular and personal
communications services, corporate communications, public utilities and local
governments. We also provide comprehensive network services including system
and program planning and management, path design, installation and network
performance monitoring devices. Our radio systems are sold internationally
through strategic partners, system providers, original equipment manufacturers
and distributors as well as directly to end-users. Our executive offices are
located at 3175 S. Winchester Boulevard, Campbell, California 95008, and our
telephone number is (408) 866-3666.
We issued and sold 15,000 shares of a newly designated Series B
preferred stock and warrants to purchase 1,242,257 shares of common stock to the
selling stockholders in December 1998 for gross proceeds of $15 million. The
Series B preferred stock has a number of provisions that could have a material
adverse effect on us. Foremost among these provisions are that:
. the Series B preferred stock converts into common stock at the
lesser of a fixed and a variable rate based upon our stock price,
which conversion may result in substantial dilution to our existing
stockholders;
. upon the occurrence of certain events described in this prospectus,
outstanding shares of the Series B preferred stock are redeemable
for cash at each holder's option at a redemption price that can
represent a substantial premium above the purchase price per share
paid by the purchasers of such stock; and
. certain events obligate us to make substantial cash payments to the
holders of the Series B preferred stock.
Notwithstanding these potentially adverse provisions of the Series B preferred
stock, our board of directors decided that it was in our best interests to issue
the Series B preferred stock because:
. we needed additional capital to fund our operations, and the
consequences of not obtaining additional capital, namely defaulting
on our credit agreement
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and cross-defaulting on our other debt, which would accelerate such
debt and likely render us unable to pay our debts, would have
caused immediate and irreparable damage to us;
. the Series B preferred stock does not require us to pay cash
dividends and permits us to pay accrued premium through the
issuance of additional shares of common stock or cash, at our
option;
. so long as our common stock trades at prices at or in excess of
$6.0374 per share, the Series B preferred stock will be convertible
into common stock at a price of $6.0374, which is 200% of the
closing price of our common stock on the day the Series B preferred
was issued;
. due to our financial position and business prospects at the time of
issuance of the Series B preferred stock, additional capital was
not available to us in the necessary time frame, except on terms
less favorable to us than the Series B preferred stock; and
. the board determined that, compared with the immediate and
irreparable damage to us that would have resulted if we did not
raise additional capital, issuing the Series B preferred stock was
in our best interests.
Conversion. The Series B preferred stock converts into shares of
common stock at the lesser of fixed or variable rates based on future events and
future trading prices. As of April 28, 1999, if all shares of the Series B
preferred stock converted into common stock, we would be obligated to issue
2,862,419 shares of common stock to the holders of the Series B preferred stock
which would represent 5.85% of our common stock outstanding after such issuance.
In addition, if we pay the premium that has accrued on the Series B preferred
stock between December 22, 1999 and April 28, 1999 by issuing common stock, we
would issue an aggregate of 45,172 shares of common stock to the selling
stockholders. These shares of common stock, when combined with the shares of
common stock issued upon conversion of the Series B preferred stock, would
represent 5.94% of our outstanding common stock. The conversion price will
never exceed $6.0374 per share, which was above the closing price of our stock
on April 28, 1999 of $5.75 per share, but the conversion price can decrease
significantly. Due to the variable conversion price, we do not know the number
of shares of common stock that we will actually issue upon conversion of the
Series B preferred stock. In addition, the conversion price can be decreased if
certain events occur, which would lead to more shares of common stock being
issued upon conversion.
As a result of the variable conversion price, the lower our stock
price is during the 15 day period prior to the date that any holder converts,
the greater number of shares we must issue to such holder upon conversion. If
the conversion price falls below $2.26 per share, instead of issuing additional
common stock to the holder, we can pay cash to each converting holder in an
amount equal to the market value of the stock issuable upon conversion. This
right has the potential to limit the dilution that our existing common
stockholders would suffer as a result of conversions at lower conversion prices.
However, we may not have sufficient available cash or borrowing capacity at the
time of such conversion to permit us to exercise this right and it is unlikely
that our lenders would permit us to make the necessary cash payments.
The additional shares of common stock issued upon conversion of the
Series B preferred stock would dilute the percentage interest of each of our
existing common stockholders, and this dilution would increase as more common
shares are issued due to the impact of the variable conversion price. Each
additional issuance of shares upon conversion of
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the Series B preferred stock or upon exercise of the warrants would increase the
supply of shares in the market and, as a result, may cause the market price of
our common stock to decrease.
The effect of this increased supply of common stock may be magnified
if there are sequential conversions of Series B preferred stock. Specifically,
the selling stockholders could convert a portion of their Series B preferred
stock and then sell the common stock issued upon conversion, which could result
in a drop in our stock price. Then selling stockholders could convert another
portion of their Series B preferred stock at a lower conversion price because of
the decreased stock price, and be issued a greater number of shares of common
stock due to the lower conversion price. If they then sold those shares of
common stock, our stock price would likely decrease again, permitting the
holders to convert additional Series B preferred stock at conversion prices more
favorable to them.
A pattern of such partial conversions and sales could place
significant downward pressure on our stock price. This downward pressure on our
stock price might encourage market participants to sell our stock short, which
would put further downward pressure on our stock price, and further decrease the
conversion price and increase the dilution of our existing common stockholders
upon conversion of the Series B preferred stock. In addition, the Series B
preferred stock financing documents do not restrict the selling stockholders
ability to sell short our common stock.
Two separate limits may constrain the number of shares of common stock
to be issued upon conversion of the Series B preferred stock, payment of the
premium and exercise of the warrants. First, until the limit is removed by a
vote of our stockholders as described below, the total number of shares of
common stock issued upon conversion of the Series B preferred stock, payment of
the premium and exercise of the warrants will be limited to 8,706,483 shares of
common stock, which represents 19.9% of our outstanding common stock prior to
the issuance of the Series B preferred stock and warrants. We have filed with
the SEC a preliminary proxy statement which, when finalized, we intend to use to
request that our stockholders approve the potential issuance of shares of our
common stock in excess of 20% of our outstanding common stock to which we are
limited by Rule 4460(i) of the Nasdaq Marketplace Rules. This approval, if
obtained, would eliminate the 19.9% limit.
Second, the Series B preferred stock is not convertible to the extent
the converting selling stockholder would hold in excess of 4.9% of our
outstanding common stock after such conversion. However, the 4.9% limit may not
prevent any holder from converting all of its Series B preferred stock or
exercising all of its warrants because the holder can convert or exercise into
4.9% of the outstanding common stock, then sell all or part of that common stock
to permit it to engage in further conversions or exercises. As a result, the
4.9% limit does not prevent any selling stockholder from selling more than 4.9%
of our outstanding common stock.
The warrants are subject to anti-dilution protection in the event we
issue stock at a price of less than the exercise price of the warrants, which
may require the issuance of more than 1,242,257 shares of common stock. The
exercise price is initially set at $3.47 per share.
Redemption. If certain events occur which are deemed to be within our
control, we are obligated to redeem all outstanding shares of Series B preferred
stock for cash in an amount significantly in excess of the original issue price.
If all of the presently outstanding Series B preferred stock were outstanding on
the redemption date, the aggregate amount of redemption payments would be at
least $19,950,000, but could be much higher if the market
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price of our stock increases significantly. For example, if the redemption
occurred on June 30, 1999 and our stock price was three times the highest
possible conversion price, or approximately $18 per share, the aggregate
redemption payments would exceed $46,300,000. At present the amount we can pay
to redeem Series B preferred stock is limited to approximately $5,000,000 under
our credit agreement. However, if this limitation ever actually prevents
redemptions that would otherwise be required, we must use our best efforts to
remove such limitation.
Cash payments. If certain events occur, regardless of whether such
events are within our control, we are obligated to make cash payments to the
holders of the Series B preferred stock until such event no longer exists. The
amount of these payments would be 3% of the aggregate face amount of the Series
B preferred stock originally issued plus any accrued but unpaid premium the
first week and 5% each week thereafter. The 3% amount would be at least
$450,000 and the 5% amount would be at least $750,000. Thus, if such event
persisted for 2 weeks, we would be required to pay at least $1,200,000, if such
event persisted for 3 weeks, we would be required to pay at least $1,950,000,
and so on.
Separately, if we fail to timely issue the number of common shares
required by any conversion notice provided to us by a holder, we must make daily
cash payments to such holder until we have issued all shares required by the
conversion notice. The daily cash payment would be in an amount equal to 1% of
the face amount of each share of Series B preferred stock that is included in
the conversion notice but for which shares of common stock were not issued. For
example, if we received a conversion notice from a holder requesting conversion
of 1,000 shares of Series B preferred stock and we did not timely issue such
stock, for each day after the last day to timely issue that common stock until
we actually issued it, we would owe such holder $10,000. Continuing such
example, if we issued the shares 7 days after the last day permitted to avoid
payments, we would owe such holder $70,000.
We are also required to make cash payments because we have failed to
have the registration statement of which this prospectus is a part effective by
April 22, 1999 or if, once the registration statement is effective, sales are
not permitted under the registration statement for any period of time before all
of the shares registered hereby are sold hereunder or eligible for sale pursuant
to Rule 144 under the Securities Act of 1933. The cash payment for each of
these failures will be at most $5,000 per day during the first 30 days, $7,500
per day during the second 30 days, and $10,000 per day thereafter.
All cash payments described above other than redemption payments are
limited to a total amount of $1,333 per share plus default interest, if
applicable. Default interest accrues, upon any failure to make a cash payment
required in respect of the Series B preferred stock, at the lesser of 18% per
annum and the highest rate permitted by applicable law.
Premium. The Series B preferred stock accrues a 6% premium per year,
payable in cash or common stock at our option. If the premium is paid in common
stock, the amount of common stock issued in respect of the premium will be based
upon the applicable conversion price. The issuance of common stock to pay the
premium could have a dilutive effect similar to conversions of the Series B
preferred stock.
Restrictions on issuing certain securities. Unless certain limited
exceptions apply, the Series B preferred stock financing documents generally
prohibit us from issuing prior to December 22, 1999:
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. any equity securities at a price less than fair market value; and
. any variably or re-set priced equity securities of equity-like
securities or any security convertible into or exercisable or
exchangeable for any equity or equity-like securities.
We may need additional funds in the future, and may issue additional
convertible preferred stock or other securities in order to raise such funds.
In that regard, amendments to our bank credit agreement structured covenants
that require that we satisfy our business plan. Our business plan includes
provisions for an infusion of approximately $15 million of additional capital
during the second quarter of 1999. This part of our business plan is based upon
preliminary discussions with potential investors and our desire to solidify our
equity base to support future growth. We do not currently have commitments from
any potential investors, and there can be no assurance that we will be able to
raise additional capital. We may need the consent of the initial purchasers of
the Series B preferred stock to issue certain securities in order to raise
capital.
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RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. The risks and uncertainties described below may not be
the only ones facing us. Additional risks and uncertainties not presently known
to us may also impair our business operations. If any of the following risks
actually occur, our business, financial condition and results of operations
could be materially adversely affected. In such case, the trading price of our
common stock could decline, and you may lose all or part of your investment.
The common stock sold in this offering may significantly increase the supply of
our common stock on the public market, which may cause our stock price to
decline
The conversion of the Series B preferred stock and sale of the common
stock into the public 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 5.3 million shares of common stock we issued in
exchange for approximately $40 million of our 4 1/4% convertible promissory
notes which were issued to investors other than the selling stockholders. Once
the registration statement of which this prospectus forms a part is declared
effective, all shares of common stock issuable upon conversion of the Series B
preferred stock and exercise of the warrants will be eligible for immediate and
unrestricted resale into the public market. The presence of these additional
shares of common stock in the public market may further depress the stock price.
Our preferred stock financing may result in substantial dilution to holders of
our common stock
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. If our common stock trades at a price less than $6.0374
per share, then the Series B preferred stock will be convertible into shares of
our common stock at variable rates based on future trading prices of the 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. Also, the warrants and
potentially our 4 1/4% convertible promissory notes are subject to anti-dilution
protection and thus may result in the issuance of more shares than originally
anticipated if we issue securities at less than market value or the applicable
exercise price. These factors may result in substantial future dilution to the
holders of our common stock.
Our preferred stock financing may make it more difficult or expensive for us to
obtain additional funds in the future
The Series B preferred stock financing documents contain restrictions
on our ability to issue certain securities and the terms upon which we can enter
into loan agreements. In addition, the variable conversion, redemption and cash
payment provisions of the Series B preferred stock will impact the decision of
third parties whether to lend to or invest in us and on what terms. Further, we
may need the consent of the initial purchasers of the Series B preferred stock
to issue certain securities in order to raise capital. These factors may make
it difficult to, or prevent us from, obtaining funds when needed in the future,
or force us to obtain additional funds on less attractive terms than would
otherwise be available. Our business plan includes
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provisions for an infusion of approximately $15 million of additional capital
during the second quarter of 1999. We do not currently have commitments from any
potential investors, and there can be no assurance that we will be able to raise
additional capital.
This registration statement will not be declared effective by before April 22,
1999, which will require us to make cash payments to the selling stockholders
The registration rights agreement requires that the registration
statement of which this prospectus is a part be declared effective by the SEC on
or prior to April 22, 1999. For each day after April 22, 1999 that the
registration statement is not declared effective, we are required to make cash
payments to the selling stockholders. For the consequences of these payments,
see "--Our preferred stock may require us to make significant cash payments,
diverting resources away from our business, causing us to sell key operational
assets or rendering us insolvent."
Our preferred stock may require us to make significant cash payments, diverting
resources away from our business, causing us to sell key operational assets or
rendering us unable to pay our debts
The Series B financing documents require significant cash payments
upon the occurrence of certain events, even if we do not have cash available to
make these payments. If we do not timely make these payments, the amount of
such payments will accrue default interest at a high interest rate. Making such
payments may divert funds away from and thus adversely affect our business,
financial condition and results of operations. If we do not have the funds
available to make such cash payments or redemption payments, we may have to sell
key operational assets or become unable to pay our debts. Either such event
would have a material adverse effect on our business, financial condition,
prospects and stock price.
Our preferred stock financing may make it more difficult for us to engage in
merger and acquisition activities, rendering us unable to complete transactions
that would be beneficial to our stockholders
The Series B preferred stock financing agreements could also render
merger and acquisition activities more difficult. In addition, we cannot
transfer all or substantially all of our assets without the approval of each
initial holder of Series B preferred stock. The Series B preferred stock
financing agreements and such approval right may require us to ensure that
certain terms that are favorable to the selling stockholders be included in any
merger or acquisition transaction. Certain provisions of the Series B preferred
stock may prohibit us from accounting for any acquisition by or of the Company
as a pooling of interests transaction. These terms would likely increase the
cost of the transaction to us or the potential acquirer or otherwise be
unacceptable to the potential acquirer. As such, such provisions may result in
our stockholders receiving decreased consideration for their stock in such a
transaction or prevent such a transaction from occurring.
Our preferred stock financing may result in adverse accounting charges, which
could adversely affect our results of operations and stock price
The redemption rights, liquidated damages provisions and other terms
of the Series B preferred stock, and the cross default provisions in our debt
financing agreements could, under certain circumstances, lead to a significant
accounting charge to earnings and materially adversely affect our financial
condition and results of operations. Such potential charge and
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other future charges relating to the provisions of the financing agreements may
materially adversely affect our earnings per share and the market price of our
common stock both currently and in future periods.
If we violate the 20% rule or other Nasdaq rules relating to securities having
variable conversion features, we risk being delisted from the Nasdaq National
Market
Nasdaq has recently published a document that sets forth its position
on how certain of the Nasdaq Marketplace Rules apply to securities having
variable conversion features, such as the Series B preferred stock. Nasdaq may
determine that we violate one or more of its rules, which could lead to our
stock being involuntarily delisted from the Nasdaq National Market. For the
consequences of our being delisted, see "--If our stockholders do not approve
the proposal to waive the 20% rule, we may be required to list our stock on an
over-the-counter bulletin board."
If the price of our common stock falls below one dollar, we risk being delisted
from the Nasdaq National Market
If the price of our common stock falls below $1.00 per share, our
ability to retain our listing on the Nasdaq National Market will be seriously
jeopardized. For the consequences of our being delisted, see "--If our
stockholders do not approve the proposal to waive the 20% rule, we may be
required to list on an over-the-counter bulletin board."
If our stockholders do not approve the proposal to waive the 20% rule, we may be
required to list our stock on an over-the-counter bulletin board
If we do not obtain the approval of our stockholders before June 22,
1999 and this failure prevents us from honoring conversions, any selling
stockholder who is prevented from converting has a right to force us to list our
stock on an over-the counter bulletin board or an exchange that does not have a
rule as restrictive on conversions of the Series B preferred stock and exercise
of warrants as Nasdaq's 20% rule. If our common stock were traded on an over-
the-counter bulletin board, our common stock may be subject to reduced liquidity
and reduced analyst coverage, our ability to raise capital in the future may be
inhibited, and our business, financial condition and results of operations could
be materially adversely affected. In addition, if our common stock is listed on
an over-the-counter bulletin board rather than on a national exchange, we may be
in default under our credit agreement and note indenture, which would cause
acceleration of those debts and redemption of the Series B preferred stock. For
the possible consequences of these payments, see "--Our preferred stock may
require us to make significant cash payments, diverting resources away from our
business, causing us to sell key operational assets or rendering us insolvent."
If our stockholders do not approve the proposal to waive the 20% rule, we may be
required to redeem the Series B preferred or make significant cash payments
If we do not obtain the approval of our stockholders before June 22,
1999 and this event is deemed to be within our control, the selling stockholders
can elect to have us redeem their Series B preferred stock. If we do not obtain
the approval of our stockholders before June 22, 1999 and this event is deemed
not to be within our control, we must make significant cash payment to the
selling stockholders. For the possible consequences of these redemption or
other cash payments, see "--Our preferred stock may require us to make
significant cash
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payments, diverting resources away from our business, causing us to sell key
operational assets or rendering us insolvent."
If our stockholders do not approve the proposal to waive the 20% limit, we may
be required to continue to try to obtain the approval at our significant expense
If we do not obtain the approval of our stockholders before June 22,
1999, we may be obligated to continue to attempt to obtain the approval. Such
attempts likely would involve preparing and filing a proxy statement for a
special meeting of stockholders, holding a special meeting of stockholders,
engaging a proxy solicitation firm and other actions. Such attempts would
involve significant expenditures by us and would likely divert resources away
from our business.
We are a highly risky new business and you may lose your entire investment in us
Due to our limited operating history and limited resources, among
other factors, profitability or significant revenue growth on a quarterly or
annual basis may not occur in the future. We were founded in August 1991 and
remained in the development stage until October 1993 when commercial shipments
of our first product began. 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, which would adversely affect our results of operations and,
ultimately, our stock price.
We may lose money, which may depress our stock price
During 1998, we generated a net loss of approximately $55.3 million.
During 1997 and 1998, operating expenses increased more rapidly than we had
anticipated and these increases also contributed to net losses. We plan to
continue investments in operations, particularly to support product development
and the marketing and sales of recently introduced products. If sales do not
increase, we may not achieve profitability, and our business and financial
condition, and ultimately our stock price, may be materially adversely affected.
A substantial amount of our products and services are purchased by a limited
number of customers, and the deterioration of any of these customer
relationships would have an immediate and adverse effect on us
If any of our important customers significantly reduce their purchases
from us, then this may materially adversely affect the profitability of our
business and our ability to remain in business. During 1998, one customer,
Orange Personal Communications Ltd., accounted for 23% our sales and four
customers accounted for approximately 42% of our sales. Six customers accounted
for approximately 59% of the backlog scheduled for shipment in the twelve months
subsequent to December 31, 1998.
When our large fixed costs combine with significant fluctuations in our sales,
large fluctuations in our results of operations may occur which could adversely
affect our stock price
A material portion of our significant expenses are fixed and difficult
to reduce, which magnifies the effects of any revenue shortfall. We experience
significant fluctuations in sales, gross margins and operating results. Our
results of operations have also been and will
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continue to be influenced by competitive factors, including pricing,
availability and demand for other competitive products and services, which are
difficult for us to forecast, and have materially adversely affected our results
of operations and may continue to do so.
Because of our inability to predict customer orders, delays, deferrals
and cancellations, we may not be able to achieve or maintain our current sales
levels. We believe that period-to-period comparisons are thus not necessarily
meaningful and should not be relied upon as indications of future performance.
Because of 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 continue to be materially
adversely affected by such discrepancy.
We may be forced to incur costs to restructure our business to reflect decreased
value of our assets, which could adversely affect our financial condition,
results of operations and stock price
We reported a net loss for the fiscal year and quarter ended December
31, 1998. Should current market conditions continue to deteriorate, we may also
incur net losses in subsequent periods. 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. These measures included reductions in our workforce
in July, September and November of 1998. Additionally, management continues to
evaluate market conditions to assess the need to take further action to more
closely align our cost structure with anticipated revenues. Any subsequent
actions could result in additional restructuring charges, reductions of
inventory valuations and provisions for the impairment of long-lived assets,
which could materially adversely affect our financial condition, results of
operations and stock price.
We may have difficulty integrating and managing the businesses we have acquired,
increasing our costs and diverting resources from our business
Since April 1996, we have acquired nine complementary companies and
businesses. We have encountered or expect to encounter the following problems
relating to integration and management of these companies:
. difficulty of assimilating operations . maintenance of uniform standards,
and personnel of combined companies; controls, procedures and policies;
. potential disruption of ongoing . impairment of relationships with
business; employees and customers as a result
of integration of new personnel;
. inability to retain key technical
and managerial personnel;
. risks of entering markets in which
. inability of management to maximize we have no or limited direct prior
financial and strategic position experience; and
through integration of acquired
businesses;
. operation of companies in different
. additional expenses associated with geographical locations with
amortization of acquired intangible different cultures.
assets;
. dilution to existing stockholders;
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<PAGE>
Overcoming existing and potential problems may entail increased costs,
additional investment and diversion of management attention and other resources,
or require divestment of one or more business units. See--"We may be unable to
successfully acquire new businesses needed to effectively compete, or to make
such businesses pay off once acquired."
We may be unable to successfully acquire new businesses needed to effectively
compete, or to make such businesses pay off once acquired
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. We compete for acquisition and expansion opportunities against many
entities that have substantially greater resources. Our success in future
acquisition transactions may, therefore, be limited. We also 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
levels of revenues, profitability, or productivity comparable 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 try to
attract our customers and to recruit key employees. If we proceed with
acquiring companies through the payment of cash as consideration, a substantial
portion of our available cash could be used to consummate such acquisitions, as
was the case with the acquisition of the Cylink Wireless Group. The occurrence
of any of these events could impact our customer base or workforce and hurt our
business.
Accounting charges related to acquisitions may decrease future earnings
Many business acquisitions must be accounted for as purchase business
combinations for financial reporting purposes. Attractive acquisition
candidates are high technology companies which tend to have small amounts of
tangible assets and generate significant goodwill upon acquisition. If
acquired, these businesses would typically result in substantial future charges
related to the amortization of such goodwill. All of our past acquisitions to
date, except the acquisitions of Control Resources Corporation, RT Masts Limited
and Telematics, Inc., have been accounted for as purchase business combinations,
resulting in a significant amount of goodwill being amortized. Amortization
expenses adversely affect our financial results.
We depend on contract manufacturers and limited sources of supply and, if they
fail us, production delays could damage our customer relationships
Our internal manufacturing capacity is very limited, and certain
components, subassemblies and services necessary for the manufacture and
production of our systems are obtained from a sole supplier or a limited group
of suppliers. As a result, we have reduced control over the price, timely
delivery, reliability and quality of finished products, components and
subassemblies. We have experienced problems in the timely delivery and quantity
of products and certain components and subassemblies from vendors. We expect to
rely increasingly on these contract manufacturers and outside vendors in the
future, and they may
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prove undependable, stop doing business with us, or go out of business. Due to
the complexity of our products, finding and educating additional or replacement
vendors may be expensive and take considerable time. Our internal manufacturing
capacity and that of our contract manufacturers is insufficient to fulfill our
orders, and we may be unable to obtain timely deliveries of components and
subassemblies of acceptable quality. Our failure to manufacture, assemble and
ship systems and meet customer demands on a timely and cost-effective basis
could damage relationships with customers and our business.
We continue to invest in our business, increasing costs in the near term, and
perhaps not increasing revenues
To prepare for the future, we must continue to heavily invest
resources in our acquired and new businesses. We also continue to devote
significant resources to the development of new products and technologies, the
evaluation of these products and expansion into new geographic markets. Such
investments include additional resources in plant and equipment, inventory,
personnel and other items, in order to efficiently produce these products and to
provide necessary marketing and administrative service and support.
Accordingly, in addition to the effect of recent financial performance 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. If our sales do
not increase, profitability problems will continue to diminish our financial
performance and results.
We may be unable to manage and integrate the expanded operations associated
with revenue growth, which may increase costs and hurt profitability
Expansion has caused and continues to strain our management, financial
resources, manufacturing capacity and other resources and has 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, all of which would involve expenditures in advance of
increased sales. In particular, we must successfully manage overhead expenses
and inventories, develop, introduce and market new products, manage and train
our employee base, integrate and coordinate our geographically and ethnically
diverse workforce and the monitor third party manufacturers and suppliers. We
have in the past and may continue to experience significant problems in these
areas.
Any failure to efficiently coordinate and improve systems, procedures
and controls, including improved inventory control and coordination with our
subsidiaries, could cause continued inefficiencies, additional operational
complexities and expenses, greater risk of billing delays, inventory write-downs
and financial reporting difficulties. Such problems could impact our
profitability and our ability to effectively manage our business.
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We may be unable to become profitable if the selling prices of our products
and services decline over time
We believe that average selling prices and possibly gross margins for
our systems and services will decline over time. 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 we cannot develop new products in a timely manner, or if our new
products fail to achieve customer acceptance or do not generate higher average
selling prices, then we would be unable to offset declining average selling
prices. If we are unable to offset declining average selling prices, our gross
margins will decline, and our results or operations and financial condition
would be adversely affected.
Our customers may not pay us on time, leaving us short of funds needed to
operate our business
We may in certain circumstances be unable to enforce a policy of
receiving payment within a limited number of days of issuing bills. We have had
difficulties in the past in receiving payment in accordance with our policies,
particularly from customers in the early phases of business development which
are awaiting financing to fund their expansion and from customers outside of the
United States. The days sales outstanding of receivables have also recently
increased. We have in the past 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. Any inability to timely collect or sell our receivables could cause
us to be short of cash to fund operations and could have a material adverse
effect on our business, financial condition and results of operations.
We may experience problems with product quality, performance and reliability,
which may damage our customer relationships and adversely affect our business,
condition and results of operations
We have limited experience in producing and manufacturing systems and
contracting for such manufacture. Our customers also require very demanding
specifications for quality, performance and reliability. As a consequence,
problems may occur with respect to such specifications for our systems or
related software tools. If such problems occur, we could experience increased
costs, delays, cancellations or reschedulings of orders or shipments, delays in
collections of accounts receivable and product returns and discounts. In
addition, the failure of any of our facilities to maintain or attain ISO 9001
certification could adversely affect our
14
<PAGE>
sales and sales growth. If any of these events occur, they might erode customer
confidence and adversely impact our business, financial condition and results of
operations.
The market for our products and may not grow fast enough to support our level
of investment, adversely affecting revenues and profitability
Our future operating results depend upon the continued growth and
increased availability and acceptance of advanced radio-based wireless
telecommunications systems and services in the United States and
internationally. The volume and variety of and the markets for and acceptance
of wireless telecommunications systems and services may not continue to grow as
anticipated. Because these markets are relatively new, predicting which market
segments will develop and at what rate they will grow is difficult. We have
recently invested additional significant time and resources in the development
of new products. If the market for these new products and the market for
related services for our systems fail to grow, or grow more slowly than
anticipated, revenue will also fail to grow, adversely affecting our results of
operations.
We may be unable to compete successfully for customers with either competitors
offering technologies similar to ours or with alternative technologies, which
could adversely affect our business condition and results of operations
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, which makes us more vulnerable to shifts in
technology and customer preferences. Many of these companies have greater
installed bases, financial resources and production, marketing, manufacturing,
engineering and other capabilities than we do. 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. If we are unable to successfully compete for customers, future
growth, revenues and profitability would be adversely affected.
Failure to respond to rapid technological change or introduce new products in
a timely manner may limit our revenue growth and adversely impact our financial
condition and results of operations
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. 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 acquisitions. Moreover, we may not be
successful in selecting, developing, manufacturing and marketing new systems or
enhancements or related software tools. Any inability to rapidly introduce, in a
timely manner, new systems, enhancements or
15
<PAGE>
related software tools could have a material adverse effect on our financial
results and limit future growth.
We have extensive international operations, in more volatile markets than the
United States, and changes in these markets may undermine our business there
In doing business in international markets, we face economic,
political, regulatory, logistical, legal, financial and business environments
and foreign currency fluctuations that are more volatile than those commonly
experienced in the United States. Most of our sales to date have been made to
customers located outside of the United States. We anticipate that
international sales will continue to account for a majority of our sales for the
foreseeable future. Because of the more volatile nature of these markets, the
basis for our business in these markets may be frequently jeopardized,
materially and adversely affecting our operations in these countries and our
overall profitability, revenues and growth.
We are subject to extensive government regulation, which may change and harm
our business
We operate in a constantly changing regulatory environment. 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. 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. Many of our competitors have
broader telecommunications product lines, which makes us more vulnerable than
they are to regulatory changes that shift business from one product to another.
As a result, such regulatory changes could make current systems obsolete, favor
our competitors or increase competition. Any such regulatory changes, including
changes in the allocation of available spectrum or changes that require us to
modify our systems and services, could prove costly and thus affect
profitability and performance.
We may be unable to obtain additional capital needed to operate and grow our
business
Future capital requirements will depend upon many factors, including
development of new products and related software tools, potential acquisitions,
maintenance of adequate manufacturing facilities and contract manufacturing
agreements, progress of research and development efforts, expansion of marketing
and sales efforts, and status of competitive products. Amendments to our bank
credit agreement structured covenants that require that we satisfy our business
plan. Our business plan includes provisions for an infusion of approximately
$15 million of additional capital during the second quarter of 1999. In
addition, if we cannot satisfy the covenants in our credit agreements, we may be
declared in default of our bank credit agreement and our note indenture,
accelerating repayment of those obligations, and be forced to redeem the Series
B preferred stock. See "--We may violate covenants in any of our debt financing
agreements, which would cause acceleration of all of our debts and redemption of
the Series B preferred stock" and "--Our preferred stock may require us to make
significant cash payments, diverting resources away from our business, causing
us to sell key operational assets
16
<PAGE>
or rendering us insolvent." We may be required to or want to raise additional
capital to retire such debt and to pay any redemption amounts due in respect of
Series B preferred stock.
Additional financing may not be available in the future on acceptable
terms or at all. The continued existence of a substantial amount of debt could
also severely limit our ability to raise additional financing. If adequate
funds are not available, we may be required to restructure or refinance our debt
or delay, scale back or eliminate our 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. Our inability to obtain
capital, or our ability to obtain additional capital only upon onerous terms,
could damage our financial condition and further erode our stock price. See "--
If our results are inadequate, we may have difficulty servicing our debt."
If we issue additional equity securities to raise additional funds, that equity
might be highly dilutive of our outstanding common stock
Given the recent price for our common stock, if we raise additional
funds by issuing equity securities, significant dilution to our stockholders
could result. In particular, if we issue additional convertible preferred
securities with terms similar to the Series B preferred stock, which is one
potential source of additional funds, then such securities may be highly
dilutive to our outstanding common stock. We may need additional funds in the
future and may issue additional convertible preferred securities or other equity
securities in order to raise such funds.
We may be the subject of additional class action suits, which would divert
significant resources away from our business
We are a defendant in a consolidated class action lawsuit in state
court. An unfavorable outcome could have a material adverse effect on our
prospects and financial condition. Even if the litigation is resolved in our
favor, the defense of such litigation will entail considerable cost and
diversion of efforts of management, either of which are likely to adversely
affect our results of operations.
We may be unable to protect our proprietary rights, permitting competitors to
duplicate our products and services
We rely on a combination of patents, trademarks, trade secrets,
copyrights and other measures to protect our intellectual property rights.
However, such measures may not provide adequate protection for our trade secrets
or other proprietary information. Any of our patents could be invalidated,
circumvented or challenged, or may not provide competitive advantages to us. In
addition, foreign intellectual property laws may not adequately protect our
intellectual property rights abroad. Any failure or inability to protect
proprietary rights could have a material adverse effect on our competitive
market position and business.
Even if our intellectual property rights are adequately protected,
litigation may also be necessary to enforce such rights, to protect our trade
secrets, to determine the validity and scope of proprietary rights of others or
to defend against claims of infringement. A variety of
17
<PAGE>
third parties have alleged that the Cylink Wireless Group's products may be
infringing their intellectual property rights. We recently acquired Cylink
Therefore, any intellectual property litigation based upon such allegations
could result in substantial costs and diversion of management attention and
resources.
Our results may suffer if we are unable to attract and retain qualified
management and technical personnel
Our highly technical business depends upon the continued contributions
of key technical and senior management personnel, many of whom would be
difficult to replace. Competition for qualified management, manufacturing,
quality assurance, engineering, marketing, sales and support personnel is
intense in our industry and geographic areas, and we may not be successful in
attracting or retaining such personnel. We experience high employee turnover
which is disruptive and could adversely impact our business. The loss, or
failure to perform, of any key employee, could materially adversely affect our
performance, customer relations and profitability.
Our operations and business could be disrupted and our condition and results
of operations could be adversely affected if our systems, products or suppliers
are not year 2000 ready
The inability of our products to properly manage and manipulate data
relating to the year 2000 could result in increased warranty costs, customer
dissatisfaction issues, potential lawsuits and other material costs and
liabilities. The failure of our internal systems to achieve year 2000 readiness
could result in a material disruption of our operations. Any failure of the
internal systems or products of our single source or large volume suppliers
related to the year 2000 could have a material adverse effect on our business,
condition and results of operations.
Our stock price is volatile, so you may not be able to sell our common stock
at a favorable price at any given time
The stock market in general, and the market for shares of small
capitalization and technology stocks in particular, have experienced extreme
price fluctuations in recent years. Such fluctuations have often been unrelated
to the operating performance of affected companies. The market price of our
common stock may continue to decline substantially, or otherwise continue to
experience significant fluctuations in the future, sometimes reaching extreme
and unexpected lows including fluctuations that are unrelated to our
performance. During the 52 week period ending April 28, 1999, the market price
of a share of our common stock was as low as $2 5/16 and as high as $20 3/4.
Such fluctuations may mean that investors may not be able to sell our common
stock at a favorable price at any given time.
If our results of operations are inadequate, we may have difficulty servicing
our debt, which could cause a default, acceleration of repayment of such debts
and redemption of the Series B preferred stock
As of December 31, 1998, our total indebtedness including current
liabilities was approximately $207.8 million and our stockholders' equity was
approximately $106.6 million. Our ability to make scheduled payments of the
principal and interest on our indebtedness will depend on our future
performance, which is subject in part to economic, financial, competitive
18
<PAGE>
and other factors beyond our control. We may be unable to make payments on or
restructure or refinance our debt in the future, if necessary, which could lead
to a default under our credit agreement and note indenture, acceleration of
repayments of the debts thereunder, and redemption of the Series B preferred
stock. For the consequences of these events, see "--Our preferred stock may
require us to make significant cash payments, diverting resources away from our
business, causing us to sell key operational assets or rendering us insolvent."
We may violate covenants in any of our debt financing agreements, which may
trigger default and cause acceleration of all of our debts and redemption of the
Series B preferred stock
At various times since June 30, 1998, our bank has amended our line of
credit to prevent violations with respect to several financial covenants. If we
experience similar covenant violations in the future and are unable to
adequately remedy them through amendments or otherwise, such violations will
trigger cross defaults on the outstanding 4 1/4% convertible promissory notes
and other debt instruments, accelerate repayment of such debts, and give rise to
rights of holders of all outstanding Series B preferred stock to have their
stock redeemed by us. For the consequences of these events, see "--Our
preferred stock may require us to make significant cash payments, diverting
resources away from our business, causing us to sell key operational assets or
rendering us insolvent."
Return on an investment in our common stock may be limited to stock price
increases as we are not permitted to declare or pay dividends
Our bank line-of-credit agreement prohibits us from paying any
dividend on our common stock except a dividend paid in shares of our common
stock. The Series B preferred stock financing agreements prevent us from paying
any dividend on any junior securities, including our common stock, without the
consent of each of the original purchasers of the Series B preferred stock.
Since our incorporation in 1991, we have not declared or paid cash dividends on
our common stock, and we anticipate that any future earnings will be retained
for investment in the business. Thus, the return on an investment in our common
stock will likely be through resale of shares at a price higher than the price
paid for such shares. See "--Our stock price is volatile, so you may not be
able to sell our common stock at a favorable price at any given time."
Our board has the power to reject offers to acquire shares of our common stock
in a change of control transaction, which may prevent our stockholders from
having the opportunity to accept such offers and discourage certain offers for
shares of our common stock
The following factors give our board of directors the power to reject
acquisition proposals without any input or consideration of such proposals by
our stockholders:
. concentration of share ownership in our board of directors and
officers,
. our stockholder rights agreement,
. our certificate of incorporation and bylaws,
. our equity incentive plans, and
. Delaware law.
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As a result of these factors, our board of directors could
significantly delay, defer or prevent a change in control transaction involving
P-Com, even if holders of our common stock may want such transaction to occur.
Thus, these factors may adversely affect the voting and other rights of other
holders of common stock, and prevent stockholders from receiving and accepting
offers to acquire their shares that the board deems not to be in the best
interest of our stockholders. In addition, the power of the board to reject
such offers may discourage certain third parties from making such offers. See
"--Our preferred stock financing may make it more difficult for us to engage in
merger and acquisition activities, potentially rendering us unable to complete
transactions that would be beneficial to our stockholders", "Description of Our
Capital Stock--Preferred Stock--Series B Preferred Stock" and "Description of
Our Capital Stock--Rights Agreement."
Our actual results could differ materially from those anticipated in
forward-looking statements contained in this prospectus
This prospectus also contains "forward-looking" statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks faced by us described above and elsewhere
in this prospectus.
20
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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://p-com.com or at the SEC's web site at
http://www.sec.gov.
This prospectus is part of a registration statement (Registration No.
333-70937) we filed with the SEC. 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 the selling stockholders sell
all of the shares of common stock being registered for resale by the selling
stockholders or until such shares can be sold without being so registered:
(1) our Annual Report on Form 10-K for the year ended December 31, 1998,
filed as of April 21, 1999;
(2) our 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, as each such filing was amended on April 30, 1999,
respectively;
(3) our 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, January 4, 1999 (two separate filings),
January 29, 1999 and February 3, 1999, and Form 8-K/A dated as of April 17,
1998, June 12, 1998 (as further amended on April 30, 1999), September 11, 1998
and January 6, 1999;
(4) the description of our common stock and Series A preferred stock
contained in our 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
(5) 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 Corporate Secretary, 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
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<PAGE>
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.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common
stock by the selling stockholders.
DIVIDEND POLICY
Our credit agreement prohibits us from paying any dividend on our
common stock other than dividends paid in shares of our common stock. The
Series B preferred stock financing agreements prevent us from paying any
dividend on any junior securities, including our common stock, without the
consent of each of the original purchasers of the Series B preferred stock. To
date, we have not paid any cash dividends on shares of our common stock. We
currently anticipate that we will retain any available funds for use in the
operation of its business, and we do not anticipate paying any cash dividends in
the foreseeable future. The Series B preferred stock has no right to dividends.
If we do pay any dividends on our common stock, the Series B preferred stock
would be entitled to participate in such dividend as though it had been
converted into common stock on the record date for determining the stockholders
entitled to receive the dividend. See "Description of Our Capital Stock--
Preferred Stock--Series B preferred stock--Rank and Participation."
PREMIUM
We are required to pay, upon conversion of the Series B preferred
stock, a 6% per year premium on the Series B preferred stock, payable in cash or
common stock (at the conversion price then in effect) at our option. Similarly,
we are required to pay, upon redemption of the Series B preferred stock, a 6%
per year premium on the Series B preferred stock, payable in cash. Premium
accrues from the date of issuance of the Series B preferred stock until the date
of conversion or redemption thereof. See "Description of Our Capital Stock--
Preferred Stock--Series B preferred stock--Premium."
RATIO (DEFICIENCY) OF EARNINGS (LOSS) TO COMBINED FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
The following table shows our ratio (deficiency) of earnings (loss) to
combined fixed charges and preferred stock dividends for each of the periods
indicated. For purposes of calculating the ratio (deficiency) of earnings to
combined fixed charges and preferred stock dividends, "earnings" consist of
income (loss) before income taxes plus fixed charges, and "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 us to be representative of the interest factor. Earnings did
not cover fixed charges by $5.1 million, $6.0 million and $73.6 million in 1993,
1994 and 1998, respectively.
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<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
------- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Ratio (deficiency) of earnings <14.3x> <7.9x> 5.9x 9.6x 13.4x <5.8x>
(loss) to fixed charges
</TABLE>
23
<PAGE>
DESCRIPTION OF OUR CAPITAL STOCK
Our authorized capital stock consists of 95 million shares of common
stock and two million shares of preferred stock. We have designated 500,000
shares of our preferred stock as Series A junior participating preferred stock
and 20,000 shares of our preferred stock as Series B convertible participating
preferred stock. There are no shares of our Series A preferred stock issued and
outstanding and 15,000 shares of our Series B preferred stock issued and
outstanding.
Common stock
As of April 28, 1999, there were 48,966,750 shares of common stock
outstanding which were held of record by approximately 519 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
our board of directors out of funds legally available therefor. See "Dividend
Policy."
In the event of our liquidation, dissolution or winding up, 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.
Preferred stock
Our board of directors has the authority to issue 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.
Our 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 P-Com 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 we have no concrete plans to issue
any additional preferred stock, other than Series A preferred stock described
below. However, we may need additional funds in the future, and may issue
additional preferred stock in order to raise such funds.
24
<PAGE>
Series A preferred stock
On September 26, 1997, the board of directors approved a Stockholder
Rights Agreement that was executed by P-Com and BankBoston, N.A., the Rights
Agent, on October 1, 1997 and amended and restated on December 21, 1998. The
Series A preferred stock was created in connection with our adoption of the
stockholder rights agreement. Pursuant to the stockholder rights agreement,
rights to purchase Series A preferred stock were distributed as a dividend at
the rate of one preferred share purchase right on each outstanding share of its
common stock held by stockholders of record as of the close of business on
November 3, 1997, and will be distributed at the same rate for each share of
common stock issued thereafter. Each right to purchase Series A preferred stock
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 to purchase
Series A preferred stock become exercisable upon the occurrence of certain
triggering events set forth in the stockholder rights agreement. Pursuant to
the rights, the Series A preferred stock will be issued in accordance with the
terms of the stockholder rights agreement in order to fulfill the purposes of
that agreement. See "--Rights Agreement."
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 stock 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 stock 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 stock 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 stock, the value of the one-ten-thousandth interest
in a share of Series A preferred stock purchasable upon exercise of each right
to purchase Series A preferred stock should approximate the value of one share
of common stock.
Series B preferred stock
The following chart briefly summarizes the features of the Series B
preferred stock, which are described in greater detail below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Feature Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Conversion price Prior to May 15, 1999, the conversion price is set at $6.0374 per share. Beginning on May 15, 1999,
the Series B preferred stock is convertible into our common stock at the lesser of:
(1) $6.0374 per share;
(2) 105% of the average closing bid prices of our common stock for the 15 consecutive trading days
ending on May 14, 1999; and
(3) 101% of the lowest average closing bid prices our common stock over any 3 consecutive days
during the 15 consecutive day period
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Feature Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ending on the day prior to the applicable conversion date. Certain events set forth below can cause
conversion prices calculated on other bases to apply, or cause the above methods of calculating the
conversion price to apply to certain shares prior to May 15, 1999. One such event occurred when we
failed to obtain by March 24, 1999 orders to purchase at least $10 million worth of our newest
product. Due to such event, 7,500 shares of the Series B preferred stock can convert at a conversion
price equal to the lesser of the price calculated using methods (1) and (3) above beginning on March
24, 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Mandatory redemption Upon the occurrence of certain events deemed to be within our 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 interest, or a redemption formula amount per
share. The redemption formula amount is equal to:
. the highest closing bid price for our common stock during the period beginning on the date of the
holder's redemption notice and ending on the date of redemption, multiplied by
. the sum of the original issue price, plus a 6% per year premium and any default interest due, and
divided by
. the conversion price in effect on the date of the redemption notice.
- ------------------------------------------------------------------------------------------------------------------------------------
Cash payments/total amount Upon the occurrence of certain events set forth below, we are required to make significant cash
capped payments to the holders of the Series B preferred stock. All cash payments required to be made as a
result of such an event, together with all cash payments required to be made in respect of
conversion defaults (as described below) and under the registration statement for delays or gaps in
the effectiveness of the registration statement, are capped at a total amount of $1,333 per share
plus default interest, if applicable.
- ------------------------------------------------------------------------------------------------------------------------------------
Premium We are required to pay, upon conversion of the Series B preferred stock, a 6% per year premium on
the Series B preferred stock, payable in cash or common stock (at the conversion price then in
effect) at our option. Similarly, we are required to pay, upon redemption of the Series B preferred
stock, a 6% per year premium on the Series B preferred stock, payable in cash. Premium accrues from
December 22, 1998 until the date of conversion or redemption thereof.
- ------------------------------------------------------------------------------------------------------------------------------------
Optional redemption So long as:
. an event pursuant to which the holders of Series B preferred stock
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Feature Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
are entitled to redemption or an event requiring us to make a cash payment as described above 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, then the Series B
preferred stock is redeemable at our option in certain limited circumstances for redemption
amounts varying from 115% to 160% of the original issue price of the Series B preferred
stock, plus a 6% premium per year and default interest, if applicable.
- ------------------------------------------------------------------------------------------------------------------------------------
Change of control 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:
. to retain their preferred stock, which will thereafter convert into common stock of the surviving
company, or
. 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, if applicable, default interest.
- ------------------------------------------------------------------------------------------------------------------------------------
Vote of stockholders/ We will ask our stockholders to approve the issuance of more than 20% of our outstanding common
19.9% limit stock on conversion of the Series B preferred stock and exercise of the warrants issued in
connection with the Series B preferred stock as required under Rule 4460(i) of the Nasdaq
Marketplace Rules. Until such approval is obtained, such issuances are capped at 19.9% of our
outstanding common stock on December 22, 1998. If our stockholders do not approve such issuances,
the holders of the Series B preferred stock can, among other things, require us to redeem their
shares of Series B preferred stock and list our common stock on an over-the-counter bulletin board.
- ------------------------------------------------------------------------------------------------------------------------------------
Default interest If we fail to timely pay any amounts owed to the holders of the Series B preferred stock, then we
must pay the holders default interest at rate equal to the lesser of 18% per annum or the highest
interest rate permitted by applicable law.
- ------------------------------------------------------------------------------------------------------------------------------------
Protective provisions We have agreed:
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Feature Description
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
. 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, and
. not to take certain actions without prior approval by each initial purchaser of the Series B
preferred stock.
- ------------------------------------------------------------------------------------------------------------------------------------
4.9% limitation The Series B preferred stock shall not be convertible and the related warrants
may not be exercisable by a holder thereof to the extent that after such
conversion such holder would own in excess of 4.9% of our outstanding common
stock. There is a similar provision in the warrants rendering them unexercisable
by a holder to the extent that after exercise thereof by such holder would cause
such holder to own in excess of 4.9% of our outstanding common stock.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Premium. We are required to pay, upon conversion of the Series B
-------
preferred stock, a 6% per year premium on the Series B preferred stock, payable
in cash or common stock (at the conversion price then in effect) at our option.
Similarly, we are required to pay, upon redemption of the Series B preferred
stock, a 6% per year premium on the Series B preferred stock, payable in cash.
Premium accrues from the date of issuance of the Series B preferred stock until
the date of conversion or redemption thereof.
The aggregate annual premium on all outstanding shares of Series B
preferred stock, if such shares remained outstanding for an entire year, would
be $900,000. If all of the shares of Series B preferred stock remain
outstanding until the third anniversary of the closing, the date upon which the
Series B preferred stock may be required to convert into common stock, we would
pay an aggregate premium of $2,700,000. If we paid the premium in shares of
common stock, then the lower the conversion price, the more shares of our common
stock would be issued to pay the premium. The table below indicates the number
of shares of our common stock that would be paid in respect of the amount of
premium per year and the aggregate premium accruing from the issue date until
the third anniversary thereof at various conversion prices:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Conversion Price as a Percent of
Market Price on Number of shares of common stock issued to pay premium in
April 28, 1999 the amount of :
- --------------------------------------------------------------------------------------------
<S> <C> <C>
$900,000 $2,700,000
- --------------------------------------------------------------------------------------------
25%($1.44) 626,087 1,878,261
- --------------------------------------------------------------------------------------------
50%($2.88) 313,044 939,130
- --------------------------------------------------------------------------------------------
75%($4.31) 208,696 626,087
- --------------------------------------------------------------------------------------------
100%($5.75) 156,522 469,565
- --------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
The 4.9% limit on holdings of our common stock by any selling
stockholder and the 19.9% limit on aggregate issuances of common stock in
respect of the Series B preferred stock and the warrants (absent stockholder
approval of issuances of 20% or more) apply to and could limit the number of
shares of our common stock issued to pay the premium.
Conversion Price. With respect to 7,500 shares of Series B preferred
----------------
stock, the conversion price of the Series B preferred stock is $6.0374 per share
until May 14, 1999. The conversion price of the other 7,500 shares of the
Series B preferred stock has been adjusted to the lower of $6.0374 and 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 during the period from March 24, 1999 through May 14, 1999./1/
Beginning on May 15, 1999, the Series B preferred stock is convertible
at the lesser of:
. $6.0374 per share;
. 105% of the average closing bid prices of our common stock for the
15 consecutive trading days ending on May 14, 1999; and
. 101% of the lowest average closing bid prices our common stock over
any 3 consecutive days during the 15 consecutive day period ending
on the day prior to the applicable conversion date.
These three bases for calculating the conversion price provide the holders of
Series B preferred stock with a method from benefiting from particular movements
in the market price of our common stock. The $6.0374 fixed conversion price
protects the holder from increases in the price of our common stock. The
conversion price based upon average prices for the 15 consecutive trading days
ending on May 14, 1999 may provide a lower fixed price if the average closing
bid price of our common stock is, on average, lower than $6.0374 during that
period. The variable conversion price calculated based upon the lowest average
closing bid prices of our common stock over any 3 consecutive days during the 15
consecutive day period ending on the day prior to the applicable conversion date
is designed to permit the holder to take advantage of periods in which our stock
price is depressed below $6.0374.
The result of these alternative bases for calculating the conversion
price is that the conversion price will be at most $6.0374, at which price the
Series B preferred stock will convert into 2,484,513 shares or 5.07% of our
outstanding stock as of April 28, 1999, excluding common stock issued in respect
of premium, and, to the extent the market price of our common stock is less than
$6.0374, will result in additional dilution. There is no minimum conversion
price and, therefor, there is no limit on dilution of our existing stockholders.
However, if a holder seeks to convert Series B preferred stock at a conversion
price below $2.264025 after June 21, 1999, we can pay cash to the holder in the
amount the equivalent value of the common stock such Series B preferred stock
would otherwise convert into. This right is, of course, only available to us if
we
- ----------------------
/1/ We did not achieve $10 million of written contractual commitments
for sales of our point to multipoint products and services prior to March 24,
1999, which led to this adjustment to the conversion price calculation for 7,500
shares of Series B preferred stock.
29
<PAGE>
have sufficient cash on hand or credit available to pay the holders the required
amounts, which will not always be the case. In addition, it is unlikely that our
lenders will consent to this use of cash. If we have sufficient funds and elect
to exercise this right, the conversion ratio would be no more than $6.0374 and
no less than $2.264025, which would limit the dilution that can be suffered by
our existing common stockholders.
The following table sets forth the number of shares of common stock
issuable upon conversion of the outstanding Series B preferred stock (other than
shares issuable in respect of accrued premium and any default amounts) and
percentage ownership that each represents assuming:
. the market price of the common stock is 25%, 50%, 75% and 100% of
the market price of the common stock on April 28, 1999, which was
$5.75 per share;
. the variable conversion price feature of the preferred stock that
was in effect;
. the maximum conversion prices of the preferred stock was not
adjusted as provided in our certificate of incorporation or the
amount of shares issuable is otherwise limited by the transaction
agreements;
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Percent of Series B
Market Price Preferred Stock/(1)/
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Shares %/(2)/
Underlying
- -----------------------------------------------------------------------------------------------
25%($1.44) 10,434,783 17.57%
- -----------------------------------------------------------------------------------------------
50%($2.88) 5,217,391 9.63%
- -----------------------------------------------------------------------------------------------
75%($4.31) 3,478,261 6.63%
- -----------------------------------------------------------------------------------------------
100%($5.75) 2,608,696(2) 5.06%
- -----------------------------------------------------------------------------------------------
</TABLE>
/(1)/ On April 28, 1999, there were 48,966,750 shares of common stock and
15,000 of Series B Preferred Stock outstanding.
/(2)/ Limitations in the transaction agreements and the certificate of
incorporation may preclude these levels of beneficial ownership from
being achieved.
In addition, the foregoing conversion price of the Series B preferred
stock is subject to adjustment upon the occurrence of the following events:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Event Applicable Conversion Ratio
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Our uncured breach of, or any waiver of a breach of, On any conversion date prior to May 15, 1999 and prior
any material covenant of our convertible note to cure of the breach, the lower of $6.0374 and the 101%
indenture or bank agreement, which breach would give of the lowest average closing bid prices our common
the other party the right to accelerate maturity of stock over any 3 consecutive days during the 15
the debt governed thereby. consecutive day period ending on the day prior to the
applicable conversion date.
- ------------------------------------------------------------------------------------------------------------------
Our failure to obtain in a timely manner The lesser of (1) the conversion price
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Event Applicable Conversion Ratio
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
stockholder approval to issue more than 20% of our otherwise in effect, (2) during the period beginning on the
common stock on conversion of the Series B preferred date such approval is required to be obtained under the
stock and exercise of the warrants issued in connection certificate of designations and ending on the date such
with the Series B preferred stock. approval is actually obtained, a conversion price equal
to the average of the five lowest closing bid prices
(every such price if the period is less than five days)
of our common stock during the period beginning on the
date such approval is required to be obtained under the
certificate of designations and ending on the conversion
date, and (3) after the date upon which we obtain the
approval, a conversion price equal to the average of the
five lowest closing bid prices (every such price if the
period is less than five days)of our common stock for
the period beginning on the date such approval is
required to be obtained under the certificate of
designations and ending on the date such approval is
actually obtained.
- ------------------------------------------------------------------------------------------------------------------
The registration statement of which this prospectus is The lesser of (1) the conversion price otherwise in
a part has not been declared effective by June 22, effect, (2) during the period beginning on June 22, 1999
1999. and ending on the date the registration statement is
declared effective, a conversion price equal to the
average of the five lowest closing bid prices (every
such price if the period is less than five days) of our
common stock for the period beginning on June 22, 1999
and ending on the conversion date, and (3) after the
date upon the registration statement is declared
effective, a conversion price equal to the average of
the five lowest closing bid prices (every such price if
the period is less than five days) of our common stock
for the period beginning on June 22, 1999 and ending on
the date the registration statement is declared
effective.
- ------------------------------------------------------------------------------------------------------------------
Our failure to timely deliver common stock upon Such holder can rescind the notice of conversion and
submission of a notice of conversion by a holder of convert any shares owned by it at a conversion price
the Series B preferred stock. equal to the lesser of (1) the conversion price
otherwise in effect on the date specified in the notice
of conversion, and (2) lowest average closing bid prices our
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Event Applicable Conversion Ratio
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
common stock over any 3 consecutive days during the
15 consecutive day period (or over such period if it is
shorter than 15 days) ending on the earlier of the date
such failure was cured and the day the holder rescinded
the conversion notice.
- ------------------------------------------------------------------------------------------------------------------
Our notice to a holder or public announcement that we The lesser of (1) the conversion price otherwise in
intend not to issue shares of common stock upon effect on the date specified in the notice of
conversion by a holder of Series B preferred stock conversion, and (2) lowest average closing bid prices
(other than with respect to issuances that would our common stock over any 3 consecutive days during the
cause such holder to exceed its allocated portion of 15 consecutive day period (or over such period if it is
the 19.9% limit). shorter than 15 days) ending on the date we undertake in
writing to honor its conversion obligations.
- ------------------------------------------------------------------------------------------------------------------
Our failure to redeem the Series B preferred stock Each holders entitled to receive proceeds in such
after providing to the holders of the Series B redemption shall be entitled to convert its shares of
preferred stock a notice of redemption at our option. Series B preferred stock at the lesser of (1) the
conversion price otherwise in effect and (2) the average
of the closing bid prices for our common stock for any
three trading days during the period beginning on the
date of the redemption notice and ending on the day the
day the redemption was to occur (as set forth in the
redemption notice).
- ------------------------------------------------------------------------------------------------------------------
Our or any of our subsidiaries' public announcement of Each holder of Series B preferred stock can elect to
a merger or consolidation. obtain certain benefits of such transaction as though it
converted it Series B preferred stock on the trading
date immediately preceding the announcement of the
transaction at lowest conversion price obtained using
any of the three bases for calculating the conversion
price regardless of whether such announcement occurs
prior to, on or after May 15, 1999.
- ------------------------------------------------------------------------------------------------------------------
Our issuance of securities convertible or exchangeable The lesser of (1) the conversion price otherwise in
at a conversion, exercise or exchange rate based upon effect and (2) the conversion price representing the
a specific percentage discount from the market price greatest discount from the market price of our common
of the common stock at the time of conversion, stock applicable to any such convertible securities or,
exercise or exchange or based upon a market-based as applicable, such market-based rate.
rate.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Event Applicable Conversion Ratio
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Our issuance of common stock or securities convertible The lesser of (1) the conversion price otherwise in
or exchangeable into common stock at a fixed effect and (2) such fixed conversion, exchange or
conversion, exchange or exercise price less than the exercise price.
lowest fixed conversion price then in effect.
- ------------------------------------------------------------------------------------------------------------------
The sale or other transfer by George Roberts, our The lesser of (1) the conversion price otherwise in
Chief Executive Officer, or Michael Sophie, our Chief effect and (2) the lowest price at which any trade of
Financial Officer, of securities between December 1, our common stock was completed on the principal market
1998 and December 22, 1999 at a price less than the for trading thereof during the 20 days following public
lowest fixed conversion price in effect on the date announcement of the transfer.
of such transfer.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The additional shares issued upon conversion of the Series B preferred
stock would dilute the percentage interest of each of our existing common
stockholders, and this dilution would increase as more common shares are issued
due to the impact of the variable conversion price. Each additional issuance of
shares upon conversion or exercise of the warrants would increase the supply of
shares in the market and, as a result, may cause the market price of our common
stock to decrease.
The effect of this increased supply of common stock leading to a lower
market price may be magnified if there are sequential conversions of Series B
preferred stock. Specifically, the selling stockholders could convert a portion
of their Series B preferred stock and then sell the common stock issued upon
conversion, which likely would result in a drop in our stock price. Then
selling stockholders could convert another portion of their Series B preferred
stock at a lower conversion price because of the decreased stock price, and be
issued a greater number of shares of common stock due to the lower conversion
price. If they then sold those shares common stock, our stock price would
likely decrease again, permitting the holders to do more conversions at a
conversion price even more favorable to them. However, an ever falling market
price for our common stock does not benefit the holders of the Series B
preferred stock. If the price keeps falling, they receive more and more shares
with a decreasing aggregate value. Eventually, if the dilution becomes extreme,
the market for our common stock will tend to become illiquid, which will limit
the ability of the converting holders to sell shares of our common stock even at
a very low price.
A pattern of such partial conversions and sales could increase the
aggregate number of shares of common stock issued upon conversion of the Series
B preferred stock above what it would otherwise be, and could place significant
downward pressure on our stock price. This downward pressure on our stock price
might encourage market participants to sell our stock short, which would put
further downward pressure on our stock price, and further decrease the
conversion price and increase the dilution of our existing common stockholders
upon conversion of the Series B preferred stock.
33
<PAGE>
Conversion Defaults. If, after a holder of Series B preferred stock
-------------------
provides us with a conversion notice, we do not issue the shares of common stock
issuable pursuant to such conversion notice (other than because of 19.9% limit
or the 4.9% limit) prior to or on the tenth business day following the
conversion date set forth in such notice, then, on each day thereafter until we
issue to such holder the shares of common stock required by the conversion
notice, we will be required to pay to such holder an amount equal to 1% of the
face amount of the shares of Series B preferred stock set forth in the
conversion notice. If we provide notice to any holder or publicly announces its
intent not to issue shares upon exercise by any holder of Series B preferred
stock of its conversion rights, then, on each day following the tenth day after
such notice or announcement until we retract such notice or announcement, we
will be required to pay to each holder an amount equal to 1% of the face amount
of the shares of Series B preferred stock held by it.
For example, if we received a conversion notice from a holder
requesting conversion of 1,000 shares of Series B preferred stock and we did not
timely issue such stock, for each day after the last day to timely issue that
common stock until we actually issued it, we would owe such holder $10,000.
Continuing such example, if we issued the shares 7 days after the last day
permitted to avoid payments, we would owe such holder $70,000. All payments in
respect of each share of Series B preferred stock described in this paragraph
are limited to the portion of the total amount remaining after taking into
account amounts paid in respect of cash payments in connection with certain
events (as described below) and amounts paid under the registration rights
agreement (as described below).
Registration. We are required by the Series B preferred stock
------------
financing agreements to register for resale by the selling stockholders 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. To help ensure our compliance at
all times, we have chosen to initially register for resale by the selling
stockholders 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 19.9% limit.
Pursuant to the registration rights agreement, we are required to use
our best efforts to cause the registration statement of which this prospectus is
a part to be declared effective as soon as practicable but in any event no later
than April 22, 1999. Because the registration statement was not declared
effective by April 22, 1999, we will be required to make cash payments to the
selling stockholders in an amount calculated in the following manner:
. the aggregate purchase price of shares of Series B preferred stock
(including shares of such stock that have been converted into
common stock, if such common stock has not yet been sold), the
common shares issuable upon conversion of which are not immediately
saleable under an effective registration statement or Rule 144
promulgated under the Securities Act of 1933, multiplied by
34
<PAGE>
. the number of months (prorated per day for partial months)
contained in the period beginning on April 22, 1999 and ending on
the date the registration statement is declared effective;
multiplied by
. a multiplier equal to 0.01 for the first 30 days after April 22,
1999, 0.015 for the second 30 days after April 22, 1999, and 0.02
for all days thereafter.
The cash payment for each of these failures will be at most $5,000 per
day during the first 30 days, $7,500 per day during the second 30 days, and
$10,000 per day thereafter. The following chart indicates the amounts that
would be required to be paid to the selling stockholders, assuming all shares of
Series B preferred stock remain outstanding, if the registration statement is
not declared effective for 15, 30, 45, 60 and 75 days after April 22, 1999:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Days after April 22, 1999 before the registration Aggregate payment to
statement is declared effective selling stockholders
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
15 $75,000
- ------------------------------------------------------------------------------------------------------------------
30 $150,000
- ------------------------------------------------------------------------------------------------------------------
45 $252,500
- ------------------------------------------------------------------------------------------------------------------
60 $355,000
- ------------------------------------------------------------------------------------------------------------------
75 $505,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Once the registration is declared effective, sales cannot be made
pursuant to the registration statement by reason of a stop order, our failure to
update the registration statement or any event outside of the control of the
selling stockholders, then we must make cash payments to the selling
stockholders in an amount calculated in the following manner:
. the aggregate purchase price of shares of Series B preferred stock
(including shares of such stock that have been converted into
common stock, if such common stock has not yet been sold), the
common shares issuable upon conversion of which are not immediately
saleable under an effective registration statement or Rule 144
promulgated under the Securities Act of 1933, multiplied by
. the number of months (prorated per day for partial months) after
the registration statement is declared effective that sales cannot
be made under the registration statement; multiplied by
. a multiplier equal to 0.01 for the first 30 days after April 22,
1999, 0.015 for the second 30 days after April 22, 1999, and 0.02
for all days thereafter.
The cash payment for each of these failures will be at most $5,000 per
day during the first 30 days, $7,500 per day during the second 30 days, and
$10,000 per day thereafter. The
35
<PAGE>
following chart indicates the amounts that would be required to be paid to the
selling stockholders, assuming all shares of Series B preferred stock remain
outstanding, if the selling stockholders are unable to make sales under the
registration statement for 15, 30, 45, 60 and 75 days after it is declared
effective:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Days after the registration statement Aggregate payment to
is declared effective that sales selling stockholders
cannot be made pursuant thereto
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
15 $75,000
- ------------------------------------------------------------------------------------------------------------------
30 $150,000
- ------------------------------------------------------------------------------------------------------------------
45 $252,500
- ------------------------------------------------------------------------------------------------------------------
60 $355,000
- ------------------------------------------------------------------------------------------------------------------
75 $505,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
All payments in respect of each share of Series B preferred stock
under the registration rights agreement in connection with delays or gaps in
effectiveness of the registration statement are limited to the portion of the
total amount remaining after taking into account amounts paid in respect of cash
payments in connection with certain events (as described below) and amounts paid
in respect of conversion defaults (as described above).
Automatic Conversion. Subject to the 19.9% limit (if then in effect)
--------------------
and the 4.9% limit, and assuming the conditions listed below are satisfied, all
outstanding shares of Series B preferred stock will automatically convert into
common stock on December 22, 2001. These conditions are:
. the shares of common stock issuable upon such conversion are (1)
authorized and reserved for issuance, (2) registered for resale
under the Securities Act of 1933, and (3) listed for trading on the
Nasdaq National Market, Nasdaq Small Cap Market, New York Stock
Exchange or American Stock Exchange,
. we have not declared bankruptcy or been the subject of any similar
event, and
. no event has occurred that would give the holders of Series B
preferred stock the right to elect to have their Series B preferred
stock redeemed by us.
If some or all of the Series B preferred stock is not automatically
converted as set forth above because such conversion was prevented by
application of the 19.9% limit or the 4.9% limit, then such Series B preferred
stock will remain subject to automatic conversion as set forth above at such
time the 19.9% limit or the 4.9% limit no longer prevents such conversion.
Redemption at Holder's Option. Upon the occurrence of certain events
-----------------------------
set forth below, if such events are deemed to be within our control, then 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,
36
<PAGE>
plus a 6% per year premium and any default amounts, or a predetermined
redemption formula amount per share. The redemption formula amount is equal to:
. the highest closing bid price for our common stock during the
period beginning on the date of the holder's redemption notice and
ending on the date of redemption, multiplied by
. the sum of the original issue price, plus a 6% per year premium and
any default amounts due, and divided by
. the conversion price in effect on the date of the redemption
notice.
An event is deemed to be outside of our control if the event is caused
by factors beyond our control notwithstanding that we have used our best efforts
to avoid the occurrence of such event. An event is deemed to be within our
control if such event was a voluntary choice by us or is otherwise within our
control. Events which give each holder the right to demand redemption, unless
such event was caused by an act of god or was required by injunction or court of
SEC order (provided that we have used our best efforts to oppose, remove and
appeal such order or injunction):
. our failure to obtain in a timely manner stockholder approval to
issue more than 20% of our common stock on conversion of the Series
B preferred stock and exercise of the warrants issued in connection
with the Series B preferred stock;
. our failure to use our best efforts to obtain effectiveness of the
registration statement or to obtain the stockholder approval;
. our failure to respond to SEC comments on the registration
statement or to request effectiveness of the registration statement
as soon as practicable;
. our failure to deliver in a timely manner common stock upon
submission of a notice of conversion (except to the extent such
conversion would violate the 19.9% limit or the 4.9% limit);
. our failure to remove restrictive legends on our common stock when
required under the securities purchase agreement;
. our announcement of our intention not to issue common stock upon
conversion of the Series B preferred stock or exercise of the
warrants (except to the extent such conversion or exercise would
violate the 19.9% limit or the 4.9% limit);
. our knowing breach of any material covenant or term in the Series B
preferred stock financing agreements;
. our material breach, as a result of our execution or 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 or any officer's certificate
given by us in connection with the issuance of the Series B
preferred stock if the facts underlying such breach would have a
material adverse effect on us or on a holder of the Series B
preferred stock with respect to its investment in such stock;
37
<PAGE>
. our failure to maintain sufficient common stock reserved for
conversion of the Series B preferred stock or exercise of the
warrants (to the extent only the approval of our board of directors
is required to obtain an increase in authorized shares);
. 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;
unless the consequences of such breach, including any cross-
defaults, are not material to us; and
. our failure to use best efforts to avoid the occurrence of the
events described below that could result in cash payments to
holders of the Series B preferred stock.
We can avoid such redemption due to the occurrence of an event listed
above if
. we used our best efforts to avoid such event,
. we elect to avoid redemption prior to the cure (if possible) of
such event, and
. no more than a total of 5 such events and events leading to cash
payments (as described below) shall have occurred.
If we are unable to avoid redemption and are unable to redeem the
Series B preferred stock upon request, we must redeem that portion that is
permitted and, thereafter, use our best efforts to remedy the impairment
preventing redemption. In addition, to the extent set forth below, certain of
the foregoing events may also require us make additional payments, either in
cash or additional shares of common stock or Series B preferred stock.
If we were forced to redeem all of the shares of Series B preferred
stock on June 22, 1999, December 22, 1999, June 22, 2000 or December 22, 2000
and the ratio of the highest closing bid price (during the period beginning on
the date of the redemption notice and ending on the conversion date) to the
conversion price in effect on the date of the redemption notice was 1 to 1, 1.5
to 1, 2 to 1, 3 to 1, 4 to 1, or 5 to 1 and all Series B preferred stock
remained outstanding on such dates, we would be forced to pay the following
aggregate amount to the holders of Series B preferred stock pursuant to such
redemption:
38
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Redemption Date Aggregate Redemption Amount (millions)*
- ------------------------------------------------------------------------------------------------------------------------
Ratio of highest closing bid 1 to 1 1.5 to 1 2 to 1 3 to 1 4 to 1 5 to 1
price to conversion price
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 22, 1999 $19.9 $23.2 $30.9 $46.3 $61.8 $77.3
- ------------------------------------------------------------------------------------------------------------------------
December 22, 1999 $19.9 $23.9 $31.8 $47.7 $63.6 $79.5
- ------------------------------------------------------------------------------------------------------------------------
June 22, 2000 $19.9 $24.5 $32.7 $49.1 $65.4 $81.8
- ------------------------------------------------------------------------------------------------------------------------
December 22, 2000 $19.9 $25.2 $33.6 $50.4 $67.2 $84.0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Please note that, as described below, our credit agreement limits payments to
redeem shares of Series B preferred stock and cash payments in connection with
certain events (as described below) to no more than approximately $5,000,000 in
the aggregate.
Such amounts could be reduced if fewer shares of Series B preferred
stock were outstanding on the redemption date, whether through earlier
conversion or redemption of such shares, or if the holders of the Series B
preferred stock elect not to have all of their shares redeemed. Such amounts
could be increased if, due to our late payment of the redemption amounts, we
must pay default interest on such amounts, in which case the amount of the
default interest may be magnified based upon the ratio of the highest closing
bid price to the conversion price in effect on the date of the redemption
notice.
If we are unable to purchase all shares of Series B preferred stock
which are subject to redemption notices, we must redeem all shares it is able to
purchase pro rata from the holders of based upon the relative number of shares
set forth in such holder's redemption notice compared to the total number of
shares set forth in all redemption notices. However, any such inability on our
part will not limit our obligation to purchase all shares set forth in the
redemption notices. Until we redeem all such shares, we cannot, without the
consent of each initial holder of Series B preferred stock, enter into any
agreement, consummate any transaction, or otherwise operate in any way outside
the ordinary course of business. Such inability shall be considered a breach of
our obligations with respect to the Series B preferred stock, and each holder
shall have all rights and remedies for damages available at law or under the
certificate of designations, including default interest.
One reason for such an inability to redeem shares would be that
redeeming all shares of Series B preferred stock set forth in redemption notices
would cause us to violate Section 160 of the Delaware General Corporation Law.
In that case, we are required to:
. redeem the greatest number of shares of Series B preferred stock
possible without violating such section,
. use our best effort to take all steps permitted by the Series B
preferred stock financing agreements in order to remedy our capital
structure to allow further redemptions without violating such
section (and not take any actions inconsistent with so remedying
our capital structure), and
39
<PAGE>
. from time to time thereafter as promptly as possible, redeem shares
at the request of a holder to the greatest extent possible without
violating such section (such redemption to be made at the greater
of the redemption price set forth in the redemption notice or the
redemption price applicable at the time of such request).
Any inability to redeem shares based upon DGCL Section 160 shall have the
consequences set forth above in connection with any inability on our part to
redeem shares.
Another reason for such an inability to redeem shares would be that
redeeming all shares of Series B preferred stock set forth in redemption notices
would cause us to violate the credit agreement, dated May 15, 1998, between us
and certain lenders, amended as of December 17, 1998, or any extension thereof
or replacement facility that does not affect the rights, privileges and
preferences of the selling stockholders any more than the existing credit
agreement. In that case, we are required to:
. redeem the greatest number of shares of Series B preferred stock
possible without violating such credit agreements,
. use our best effort to take all steps permitted by the Series B
preferred stock financing agreements (and which would not result in
a breach thereof) and the credit agreements in order to remedy our
capital structure to allow further redemptions without violating
such credit agreements, and
. from time to time thereafter as promptly as possible, redeem shares
at the request of a holder to the greatest extent possible without
violating such credit agreements.
Unlike any other inability to redeem, any inability to redeem shares based upon
our credit agreement shall not be a breach of the certificate of designation and
will not give the holders any right to damages or default interest. At present,
the credit agreement limits the amount we may pay to redeem Series B preferred
stock and the amount of cash payments in connection with certain events (as
described below) to no more than approximately $5,000,000. In addition, from
time to time, other provisions of the credit agreement, including the financial
covenants contained therein, may prevent us from making fully honoring
redemption notices.
Cash Payments. Within 10 business days following notice to us of the
-------------
occurrence of the events set forth below, we are required to pay to each holder
of the Series B preferred stock its pro rata portion in cash of an amount equal
to 3% the first week and 5% each week thereafter of the aggregate face amount of
Series B preferred stock originally issued until such event no longer exists.
The 3% amount would be at least $450,000 and the 5% amount would be at least
$750,000. Thus, if such event persisted for 2 weeks, we would be required to
pay at least $1,200,000, if such event persisted for 3 weeks, we would be
required to pay at least $1,950,000, and so on. Such events are:
. any event which, but for the fact that we did not knowingly cause
such event to occur or it was caused by an act of god or was
required by injunction or court of SEC order or was otherwise
outside of our control, would have
40
<PAGE>
permitted the holder of Series B preferred stock to elect to have
us redeem their stock;
. the suspension or de-listing of our common stock from trading on
the Nasdaq National Market System or certain other markets
acceptable to the initial purchasers of the Series B preferred
stock for 5 or more days in any 9 month period;
. the registration statement of which this prospectus is a part not
being declared effective by June 22, 1999;
. the suspension of the registration statement of which this
prospectus is a part after its effective date for more than 10
consecutive business days or for an aggregate of more than 20 days
in any twelve month period;
. if the approval of our stockholders is required to increase the
common stock reserved for conversion of the Series B preferred
stock or exercise of the warrants as required by the Series B
preferred stock financing agreements, our failure to obtain such
approval within 60 days (or 120 days in the event of SEC review) of
the event giving rise to the requirement to reserve more shares of
common stock;
. failure to have declared effective amended or additional
registration statements that may be required under the Series B
preferred stock financing agreements within 5 business days of the
event giving rise to the need for an amended registration statement
(or within 10 business days of the event giving rise to the need
for an additional registration statement) for the resale by the
selling stockholders of shares of common stock;
. failure to obtain in a timely manner stockholder approval to issue
more than 20% of our common stock on conversion of the Series B
preferred stock and exercise of the warrants issued in connection
with the Series B preferred stock;
. our failure to fully honor a conversion of Series B preferred stock
or a valid exercise of a warrant because we do not have sufficient
shares of common stock authorized but not outstanding with which to
honor such conversion or exercise; and
. our 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 such an event,
together with all cash payments required to be made in respect of conversion
defaults and under the registration rights agreement in respect of delays or
gaps in effectiveness of the registration statement, are capped at an aggregate
of $1,333 per share plus default interest. In addition, we may be unable to
make such cash payments to the extent that making such payments would cause us
to violate the credit agreement, dated May 15, 1998, between us and certain
lenders, amended as of December 17, 1998, or any extension thereof or
replacement facility that does not affect the rights, privileges and preferences
of the selling stockholders any more than the existing credit agreement. In
that case, we are required to:
. make the greatest cash payments possible without violating such
credit agreements, and
41
<PAGE>
. use our best effort to take all steps permitted by the Series B
preferred stock financing agreements (and which would not result in
a breach thereof) in order to remedy our capital structure to allow
further cash payments without violating such credit agreements.
Unlike any other inability to make cash payments, any inability to make cash
payments based upon our credit agreement shall not be a breach of the
certificate of designation and will not give the holders any right to damages or
default interest. At present, the credit agreement limits the amount we may pay
to redeem Series B preferred stock and the amount of cash payments in connection
with certain events (as described below) to no more than approximately
$5,000,000. In addition, from time to time, other provisions of the credit
agreement, including the financial covenants contained therein, may prevent us
from making cash payments.
Vote of Stockholders. We have filed with the Securities and Exchange
Commission a preliminary proxy statement in which our board of directors
recommends to our stockholders that they vote to approve the waiver of Rule
4460(i) of the Nasdaq Marketplace Rules. This rule prohibits us from issuing
more than 20% of our outstanding common stock in a single transaction or group
of related transactions. Conversion of the Series B preferred stock and
exercise of the warrants into common stock at certain conversion prices might
trigger the anti-dilution provisions of our outstanding convertible notes,
although we do not believe this to be the case. Any additional shares of common
stock issued upon conversion of the notes due to this anti-dilution adjustment
and any common stock issued in respect of premium or otherwise may be aggregated
with the shares of common stock issued upon conversion of the Series B preferred
stock and exercise of the warrants for purposes of the 20% rule.
If our stockholders approve such issuances, then conversions of the
Series B preferred stock and exercise of the warrants into common stock may
result in our issuing new shares of common stock that represent more than 20% of
our previously outstanding common stock. Such conversions could result in
greater dilution to our present stockholders than could occur if such approval
had not been received and the 19.9% limitation remained in place.
On the other hand, if the stockholder approval sought thereby is not
timely obtained,
. we will continue to be prohibited by Nasdaq Rule 4460(i) from
issuing 20% or more of our outstanding common stock on conversion
of the Series B preferred stock, upon exercise of the warrants, and
in respect of premium or otherwise,
. we will be obligated to immediately redeem all outstanding shares
of Series B preferred stock for a cash payment in the manner
described above,
. the selling stockholders can require us to list our common stock on
the over-the-counter electronic bulletin board which, as of the
date hereof, has no limitation relating to issuance of more than
20% of our common stock or similar restriction and, thereafter,
require us to honor all requested conversions, and
42
<PAGE>
. the selling stockholders could require us to continue to seek
stockholder approval of the conversion and exercise of those
securities, which could be expensive for us.
We do not have available the cash resources to satisfy the redemption
obligation set forth in the above list and it is possible that we would not be
able to effectuate the redemption in compliance with applicable law. If the
stockholder approval is not obtained, compliance with the redemption obligation
would likely have a material adverse effect on our financial condition and
ability to implement our business strategy. In addition, any delay in payment
will cause such redemption amount to accrue default interest at the rate of the
lesser of 18% per annum or the highest interest rate permitted by applicable law
until paid.
If our common stock were traded on an over-the-counter bulletin board,
our common stock may be subject to reduced liquidity and reduced analyst
coverage, our ability to raise capital in the future may be inhibited and our
business, financial condition and results of operations could be materially
adversely affected. In addition, if our common stock is listed on an over-the-
counter bulletin board rather than on a national exchange, we may be in default
under various agreements with our financing sources, investors and stockholders.
Redemption of the Series B preferred stock and any defaults under other
agreements could significantly accelerate our cash expenditures and capital
requirements beyond the levels currently anticipated and would materially
adversely affect our ability to conduct our business.
Redemption at Our Option. So long as an event pursuant to which the
------------------------
holders of Series B preferred stock are entitled to elect to have their shares
redeemed or an event requiring us to make a cash payment as described above 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 the limited circumstances set forth below for redemption amounts
varying from 115% to 160% of the original issue price of the Series B preferred
stock, plus a 6% premium per year and default interest, if applicable. More
particularly, the Series B preferred stock is redeemable:
. on three dates between December 22, 1998 and December 22, 1999 for
a redemption amount 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, we may
redeem the Series B preferred stock at the greater of (1) 160% of
the original issue price of the Series B preferred stock, plus a 6%
premium per year and any default amounts, and (2) the amount
obtained when sum of the face amount plus a 6% premium per year and
any default amounts, is divided by the conversion price in effect
on the date of the redemption notice, and multiplied by the highest
closing bid price for our common stock during the period beginning
on the date of the holder's redemption notice and ending on the
date of redemption;
. after December 22, 2000, if the closing bid price for our common
stock exceeds a 200% of the fixed conversion price (as described
above), we may redeem the Series B preferred stock at 115% of the
original issue price of the
43
<PAGE>
Series B preferred stock, plus a 6% premium per year and any
default amounts; or
. after December 22, 2000, if we, simultaneously with such
redemption, 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 (1) 120% of the original issue price of the Series B preferred
stock plus a 6% premium per year and any default amounts, and (2)
the amount obtained when the sum of the face amount plus a 6%
premium per year and any default amounts, is divided by the
conversion price in effect on the date of the redemption notice,
and multiplied by the highest closing bid price for our common
stock during the period beginning on the date of the holder's
redemption notice and ending on the date of redemption.
We must redeem either (1) all of the Series B preferred stock or (2)
at least $5 million of Series B preferred stock and, at our discretion,
additional amounts in $1 million increments. In addition, we are not permitted
to deliver an optional redemption notice unless we have funds available to
effect the complete amount of the redemption in the form of deposits with a
financial institution, immediately available credit facilities, or an agreement
with a standby underwriter or qualified buyer to purchase a sufficient face
amount of our securities, or any combination of these methods.
If we provide the holders of Series B preferred stock with a notice of
redemption at our option, then fail to redeem the Series B preferred stock,
. we forfeit all future redemptions at our option, and
. the conversion rate of the Series B preferred stock will be
adjusted to equal to the lower of (1) the conversion price
otherwise in effect and (2) the average of the closing bid prices
for our common stock for any three trading days during the period
beginning on the date of the redemption notice and ending on the
day the day the redemption was to occur (as set forth in the
redemption notice).
Protective Provisions. The Series B preferred stock is senior to the
---------------------
Series A preferred stock and common stock in respect of the right to receive
liquidation preferences. If we liquidate, dissolve or wind up, no distribution
shall be made to the holders of any shares of capital stock of the Company upon
liquidation, dissolution or winding up unless prior thereto the holders shall
have received the liquidation preference as set forth below with respect to each
share. The liquidation preference with respect to a share of Preferred Stock
means an amount equal to the $1,000 face amount thereof plus the accrued but
unpaid premium and other unpaid amounts with respect thereto, including without
limitation redemption amounts and cash payments with respect thereto plus any
other amounts that may be due from us with respect thereto through the date of
final distribution.
The Series B preferred stock has no voting power, except as otherwise
provided by applicable law. However, in the absence of prior approval by the
initial purchasers of the Series B preferred stock, we are prohibited from:
44
<PAGE>
. altering or changing the terms of the Series B preferred stock,
. altering or changing the terms of any of our capital stock so as to
adversely affect the Series B preferred stock,
. creating or issuing any senior or pari passu securities,
. increasing the authorized shares of Series B preferred stock,
. redeeming or paying any dividend or distribution on any junior
securities, subject to limited exceptions,
. acting so as to generate taxation under Section 305 of the Internal
Revenue Code of 1986, as amended, or
. selling or transferring all or substantially all of our assets.
Other than under the circumstances set forth below, the Series B
preferred stock financing documents generally prohibit us from issuing prior to
December 22, 1999:
. any equity securities at a price less than fair market value; and
. any variably or re-set priced equity securities of equity-like
securities or any security convertible into or exercisable or
exchangeable for any equity or equity-like securities.
Notwithstanding the foregoing prohibition, we are permitted in the
following circumstances to issue any securities:
. to the initial purchasers and their assignees pursuant to the
Series B preferred stock financing documents,
. to an industry partner(s) as part of "strategic investments" in us,
. in connection with the grant and/or exercise of options by
employees, consultants or directors,
. in connection with direct stock issuances to employees, consultants
or directors,
. in exchange solely for existing securities,
. in exchange for Series B preferred stock,
. pursuant to the stockholders rights agreement and the Series A
preferred stock,
. in connection with acquisitions of other companies, material
technologies or business entities,
. 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
. shares of common stock in accordance with our convertible note
indenture and the notes thereunder.
We may need additional funds in the future, and may issue additional
convertible preferred stock or other securities in order to raise such funds.
In that regard, amendments to our bank credit agreement structured covenants
that require that we satisfy our business plan. Our business plan includes
provisions for an infusion of approximately $15 million of additional capital
during the second quarter of 1999. This part of our business plan is based upon
45
<PAGE>
preliminary discussions with potential investors and our desire to solidify our
equity base to support future growth. We do not currently have commitments from
any potential investors, and there can be no assurance that we will be able to
raise additional capital. We may need the consent of the initial purchasers of
the Series B preferred stock to issue certain securities in order to raise
capital.
Change of Control. If we merge with a public company meeting the
-----------------
following threshold criteria and our common stock will be exchanged for common
stock of the acquiror or its parent company, 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 at the lowest conversion price obtained using any of
the three bases for calculating the conversion price regardless of whether such
announcement occurs prior to, on or after May 15, 1999. The threshold criteria
are:
. the exchange securities are publicly traded,
. the average daily trading volume of the exchange securities over
the 90 day period immediately preceding announcement of the
transaction was greater than $2,000,000,
. the historical 100 day volatility of the exchange securities during
the period ending on the date of announcement of the transaction is
greater than 50%, and
. the last sale price of the exchange securities on the date
immediately preceding the date on which the transaction is public
disclosed is not less than 65% of last sale price of the exchange
securities on any day during the 20 day period ending on such date.
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 (i) the consideration they would have received had they converted their
stock the day before the public announcement of the merger or (ii) $1,250 per
share of Series B preferred stock then outstanding, in cash, plus any accrued
and unpaid premium and, if applicable, default interest. 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. As
described below, 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.
Rank and Participation. With respect to dividends or as to the
----------------------
distribution of assets upon our liquidation, dissolution or winding up, the
Series B preferred stock shall rank:
. prior to our common stock;
. prior to (1) any other class of our capital stock now outstanding
and (2) any class of our capital stock later created unless such
stock is issued with the
46
<PAGE>
consent of the holders of the Series B preferred stock and, by its
terms, ranks senior to the Series B preferred stock;
. in parity with any class of our capital stock later created that is
issued with the consent of the holders of the Series B preferred
stock and, by its terms, ranks in parity with the Series B
preferred stock; and
. junior to any class of our capital stock later created that is
issued with the consent of the holders of the Series B preferred
stock and, by its terms, ranks senior to the Series B preferred
stock.
Subject to the rights of any of our securities senior to or in parity
with the Series B preferred stock, each holder of Series B preferred stock shall
be entitled to dividends paid and distributions made to the holders of our
common stock to the same extent as if such holder had already converted its
Series B preferred stock. Specifically, such holder would be entitled to
dividends as if it held the number of shares of common stock that it would have
received had it converted its shares of Series B preferred stock on the record
date for such dividend or distribution at the conversion price in effect on such
date. Payments of such dividend or distribution to the holders of Series B
preferred stock will be made concurrently with the payment of such distribution
or divide
Warrants. The warrants are immediately exercisable until December 22,
--------
2003. The warrants are exercisable by payment of the exercise price or by net
exercise, in which shares of our common stock having a market value equal to the
exercise price are not issued to the warrant holder upon exercise of the warrant
but instead are withheld by us to pay the exercise price. The exercise price
for the common stock underlying the Warrant is $3.47 per share (subject to
adjustment as described below). Specifically, the conversion price 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 the conversion price then in
effect (initially $3.47 per share), such that the adjusted exercise price will
be equal to:
. the exercise price in effect immediately prior to such issuance,
multiplied by
. the sum of (1) the number of outstanding shares of our common stock
immediately prior to such issuance, and (2) the number obtained
when the total consideration received by us in exchange for the
stock issued is divided by the greater of the conversion price then
in effect or the market price on the day prior to such issuance,
divided by
. the number of shares of our common stock outstanding after such
issuance plus the number of shares deemed outstanding by reason of
our issuance of options or convertible securities exercisable or
convertible at less than the option price in effect at the time of
issuance of such options or convertible securities.
In the event we merge with any other company, the warrantholders are
entitled to 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. If we merge with a public company meeting the threshold criteria set
forth above and our common stock will be exchanged for common stock of the
acquiror or its parent company, the warrant holders will be entitled to
47
<PAGE>
receive in the merger the consideration they would have received had they
exercised their warrants the day before the public announcement of the merger at
the exercise price in effect on that day. If we merge with a private company or
a public company not meeting the threshold criteria, the warrant holders will be
entitled, at their option,
. to retain their warrants, which will thereafter convert into common
stock of the surviving company, or
. receive either (i) the consideration they would have received had
they exercised their warrants the day before the public
announcement of the merger or (ii) 125% of the Black-Scholes
amount.
The Black-Scholes amount is the value of an option to purchase one
share of common stock as calculated on the Bloomberg online page using the
following values:
. the market price on the day prior to the date of notice of the
transaction,
. volatility equal to the historical 100 day volatility of the our
common stock during the period preceding the date of notice of the
transaction
. a risk free interest rate equal to the rate on U.S. treasury bill
or treasury notes having a maturity similar to the term of the
warrant on the date of the notice of the transaction, and
. an exercise price equal to the exercise price on the date of notice
of the transaction.
If we declare or make a distribution of assets to our common
stockholders, then the warrant holders will be entitled to exercise their
warrants and receive the amount of such assets that such holder would have been
entitled to had it been a common stockholder on the record date for determining
shares entitled to such distribution. We have agreed to use our best efforts to
list the common stock issuable upon exercise of the warrants on a major
securities exchange so long as our other common stock is so listed. The 19.9%
limit and the 4.9% limit apply to shares of common stock issued by exercise of
the warrants, and such shares are aggregated with shares of common stock issued
upon conversion of the Series B preferred stock for purposes of the 19.9% limit
and with all shares of our common stock held by a warrant holder for purposes of
the 4.9% limit.
Anti-Dilution Provisions in our Convertible Notes. In addition,
-------------------------------------------------
conversion of the Series B preferred stock and exercise of the warrants,
together with common stock issued to pay premium, at conversion or exercise
prices less than the current market price (as described below) may cause an
anti-dilution adjustment with respect to the conversion price of our 4 1/4%
convertible promissory notes, although we do not believe this to be the case.
Specifically, the conversion price of the notes is subject to anti-dilution
adjustment if we sell common stock or securities initially 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 the conversion price then in effect, such that the adjusted
exercise price will be equal to:
. the conversion price in effect immediately prior to such issuance,
multiplied by
48
<PAGE>
. the sum of (1) the number of outstanding shares of our common stock
immediately prior to such issuance, and (2) the number of shares of
common stock the consideration received for such stock issuance
would the current market price (as set forth below); divided by
. the sum of (1) number of shares of our common stock outstanding
after such issuance, and (2) the number of shares common stock
actually issued.
For purposes of the notes, the current market price is defined as the
average of the last sale price of our common stock on the 30 consecutive
business days immediately preceding the relevant issuance of common stock.
Accounting Charges. 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. The Series B preferred stock will be
classified outside of equity as mandatorily redeemable preferred stock. On
December 22, 1998, we recognized the fair value of warrants issued and the
accretion of the Series B preferred stock to its fair value. We incurred 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 related warrants. 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.
The foregoing description is only a summary and you can obtain more
detailed information regarding the terms of the Series B preferred stock and the
warrants by reference to the securities purchase agreement dated as of December
21, 1998 by and among P-Com and the purchasers listed therein, the registration
rights agreement dated as of December 21, 1998 by and among P-Com and the
purchasers listed therein, the warrants issued by us to the purchasers and the
Series B certificate of designation attached 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.
Delaware anti-takeover law and certain charter provisions
We are subject to Section 203 of the Delaware General Corporation Law.
Section 203, 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 the date that such stockholder became an interested
stockholder, 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
49
<PAGE>
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 interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding voting stock
of the corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of our stockholders' rights agreement, certificate
of incorporation, equity incentive plans, bylaws and Delaware law may delay,
defer or prevent a change in control of P-Com 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 preferred stock having any rights the board deems appropriate without
further stockholder approval, as was the case with the Series B preferred stock.
The most significant effect of these provisions is to permit our board
of directors to decide whether a change in control transaction is in the best
interests of our stockholders and give it the power to effectively prevent
transactions that are not, and prevent any potential acquirer from bypassing the
board and presenting the proposed transaction directly to our
50
<PAGE>
stockholders. Forcing potential acquirors to negotiate with the board by
implementing these measures protects stockholders from coercive tactics
sometimes used by acquirors to push stockholders into a rash decision or pit
stockholders against one another and allows the board of directors to implement
a business plan to maximize long-term value to our stockholders. However,
stockholders may disagree with the board's decision to reject certain offers,
and may wish to accept offers that the board rejected in order to achieve
liquidity at a given price in the near term. These provisions prevent
stockholders from taking advantage of proposed transactions which the board
rejects.
Rights Agreement
On September 26, 1997, the board of directors approved a stockholder
rights agreement that was executed by P-Com and BankBoston, N.A., the Rights
Agent, on October 1, 1997 and amended and restated on December 21, 1998. The
stockholder rights agreement is intended to augment the bargaining power of our
board of directors in negotiations on behalf of our stockholders in the event of
an attempt by someone to take control of P-Com. Specifically, unless our board
of directors redeems the rights issued under the stockholder rights agreement,
the stockholder rights agreement makes it prohibitively expensive for a
potential acquiror to complete an acquisition of P-Com. In this way, the
stockholder rights agreement forces potential acquirors or P-Com to negotiate
with our board of directors, who can then decide whether the acquisition
proposal is in the best interest of our stockholders and, if so, redeem or
otherwise neutralize the rights.
Pursuant to the stockholder rights agreement, rights to purchase
Series A preferred stock were distributed as a dividend at the rate of one
preferred share purchase right on each outstanding share of its common stock
held by stockholders of record as of the close of business on November 3, 1997,
and will be distributed at the same rate for each share of common stock issued
thereafter. Each right to purchase Series A preferred stock 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 to purchase Series A
preferred stock become exercisable upon the occurrence of certain triggering
events. The rights to purchase Series A preferred stock will expire on November
1, 2007.
The rights to purchase Series A preferred stock 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,
(1) subject to limited exceptions, any acquiring person:
. merges into P-Com and P-Com survives;
. transfers assets to P-Com 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 P-Com or any subsidiary on terms less favorable than
in an arm's length negotiated transaction;
51
<PAGE>
. sells or purchases or otherwise acquires or disposes of assets to,
from or with P-Com or any subsidiary having a fair market value of
more than $5 million;
. receives compensation from P-Com or any subsidiary, except for
standard compensation for full time employment; or
. receives the benefit of any financial assistance or tax advantages
from P-Com or any subsidiary;
(2) subject to limited exceptions, any person becomes an acquiring person;
or
(3) 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 to purchase Series A preferred stock will entitle
its holder to purchase, at the rights to purchase Series A preferred stock'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 to purchase Series A preferred stock 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 to purchase Series A preferred stock
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 us
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
. we or any subsidiary sells or otherwise transfers to any person
(other than a subsidiary) assets or earning power in excess of 50%
of our assets or earning power and our subsidiaries;
then each unexercised right to purchase Series A preferred stock will entitle
its holder to receive, at the right to purchase Series A preferred stock's then-
current exercise price, shares of common stock of the principal party involved
in such transaction with us 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, our board of directors, in its sole discretion, may exchange
all or part of the unexercised rights to purchase Series A preferred stock 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 to purchase Series A preferred
stock 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
52
<PAGE>
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 of directors, in its
sole discretion, may redeem all of the rights to purchase Series A preferred
stock for $0.001 per such right, payable at our 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.
53
<PAGE>
SELLING STOCKHOLDERS
The selling stockholders, Marshall Capital Management, Inc., Castle
Creek Technology Partners LLC and Capital Ventures International acquired shares
of Series B preferred stock and warrants on December 22, 1998 pursuant to set of
financing agreements. None of the selling stockholders own any other shares of
preferred stock of P-Com, and no selling stockholder has held any office or
position, or had any other material relationship with P-Com within the past
three years. The number of shares of Series B preferred stock and warrants
owned by each selling stockholder is set forth in the following table:
<TABLE>
<CAPTION>
Number of Shares of Series Warrants to Purchase the
B Preferred Stock Following Number of Shares of
Beneficially Owned Common Stock Beneficially Owned
Name of Selling Stockholder Prior to Offering Before the Offering
- ---------------------------------------- ---------------------------- --------------------------------
<S> <C> <C>
Marshall Capital Management, Inc........ 4,500 372,677
Castle Creek Technology Partners LLC.... 5,500 455,494
Capital Ventures International.......... 5,000 414,086
</TABLE>
To help ensure our compliance with the Series B preferred stock
financing agreements, we have chosen to register for resale by the selling
stockholders 13 million shares of common stock on behalf of the selling
stockholders. We cannot determine the number of shares of common stock that we
will ultimately issue in connection with the Series B preferred stock financing
because:
. the conversion price of the Series B preferred stock may vary with
the market price of our common stock;
. we may choose to pay dividends on the Series B preferred stock in
shares of common stock;
. we may be required to issue common stock upon our failure to
satisfy certain obligations; and
. the number of shares that we may issue upon conversion of the
Series B preferred stock and exercise of the warrants is subject to
certain anti-dilution protections. "See "Description of Our Capital
Stock Preferred stock Series B preferred stock."
Because of these factors, we may not issue the entire 13 million
shares of common stock covered by this prospectus. In fact, we may issue
materially more or materially less than 13 million shares of common stock. On
the other hand, we may be required to register additional shares of common stock
to satisfy our obligations under the Series B financing documents.
The 13 million shares covered by this prospectus represent
approximately 26.5% of our outstanding shares of common stock as of April 28,
1999. Notwithstanding the registration for resale by the selling stockholders
of the 13 million shares of common stock covered by this prospectus, the terms
of the Series B preferred stock financing agreements
54
<PAGE>
prohibit us from issuing to any selling stockholder shares of common stock upon
conversion of the Series B preferred stock or exercise of the warrants if such
issuance would result in us issuing more than 20% of our outstanding common
stock without shareholder approval or such selling stockholder beneficially
owning in excess of 4.9% of our outstanding common stock.
The following table sets forth the aggregate number of shares of
common stock beneficially owned by each selling stockholder as of April 28, 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 48,966,750
shares of common stock outstanding as of April 28, 1999. We considered the
following factors and made the following assumptions regarding the table:
. beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with
respect to securities and including any securities that grant the
selling securityholders the right to acquire common stock within 60
days of April 7, 1999;
. the conversion price of the Series B preferred stock in effect as
of the date of this prospectus, which is $6.0374 with respect to
7,000 shares of Series B Preferred Stock and $4.6290 with respect
to the other 7,500 shares of Series B Preferred Stock, which is
above the closing market price of our common stock on April 28,
1999 of $5.75 per share;
. the exercise price of the warrants in effect as of the date of this
prospectus, which is $3.47, which is below the closing market price
of our common stock on April 28, 1999 of $5.75 per share;
. the selling stockholders will sell all of the securities offered by
this prospectus; and
. the selling securityholders will not sell any other of our
securities than they may own.
Notwithstanding these assumptions, the selling stockholders may sell
less than all of the shares listed on the table. Each selling stockholders will
determine the number of shares of common stock that they will sell. In
addition, the shares listed below may be sold pursuant to this prospectus or in
privately negotiated transactions. Accordingly, we cannot estimate with
certainty the number of shares of common stock that the selling stockholders
will sell under this prospectus. See "Description of Capital Stock--Series B
preferred stock" for more detailed information and discussion of the conversion
features of the Series B preferred stock.
<TABLE>
<CAPTION>
Number of Shares of Percent of Outstanding
Common Stock Percent of Outstanding Number of Shares Shares Beneficially
Beneficially Owned Shares Beneficially Owned Beneficially Owned Owned
Name of Selling Stockholder Prior to Offering Before the Offering After the Offering After the Offering
- ------------------------------------- ------------------- ------------------------- ------------------ ---------------------
<S> <C> <C> <C> <C>
Marshall Capital Management, Inc..... 1,231,420 (1) 2.5% 0 0%
Castle Creek Technology Partners LLC. 1,505,069 (2) 3.1% 0 0%
Capital Ventures International....... 1,368,246 (3) 2.8% 0 0%
</TABLE>
- ---------------------
1. Consists of 858,743 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. Marshall Capital Management, Inc. is an
indirect, wholly owned subsidiary of Credit Suisse First Boston Group,
which is a publicly held
55
<PAGE>
Swiss financial services company. The direct and indirect parent companies
of Marshall Capital Management, Inc. may be deemed to be beneficial owners
of such securities. The direct and indirect parent companies of Marshall
Capital Management, Inc. disclaim such beneficial ownership.
2. Consists of 1,049,575 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 may be deemed to beneficially own the securities held by
Castle Creek Technology Partners LLC. Castle Creek Technology Partners LLC
disclaims such beneficial ownership. John Ziegelman and Daniel Asher, as
managing members of Castle Creek Partners LLC, may be deemed to be
beneficial owners of such securities. Messrs. Asher and Ziegelman disclaim
such beneficial ownership.
3. Consists of 954,160 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.
The shares of common stock underlying the Series B preferred stock and
warrants presented in the table is based on the conversion prices in effect on
the date of this prospectus. The actual number of shares of common stock will
we issue is indeterminable as of the date of this prospectus and is subject to
future adjustments. The number of shares offered in this prospectus represents
the maximum number of shares into which the Series B preferred stock and
warrants can be converted.
PLAN OF DISTRIBUTION
We will not receive any proceeds from the sale of the common stock
through 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 offered shares may be sold from time to time at
. negotiated prices,
. fixed prices which may be changed,
. market prices prevailing at the time of sale or
. prices related to prevailing market prices.
The selling stockholders may effect such transactions
. in privately negotiated sales 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, and
. 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.
56
<PAGE>
To the extent required under the Securities Act, the following
information will be set forth in an accompanying prospectus supplement
. 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.
Each selling stockholder will be responsible for paying compensation
owed by it to any underwriters, dealers, brokers or agents participating in the
distribution of its shares, regardless of whether such compensation is in the
form of underwriting discounts, concessions, commission or fees. This
compensation might be in excess of customary commissions. The aggregate
proceeds to a selling stockholder from the sale of its shares offered by this
prospectus will be the purchase price of such shares less any discounts or
commissions.
If selling stockholders pledge, hypothecate or grant a security
interest in some or all of the shares, then 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 under this
prospectus. Similarly, if the selling stockholders transfer, pledge, donate or
assign shares to lenders or others, then each of such persons will be deemed to
be a selling stockholder for purposes of this prospectus. The number of shares
beneficially owned by the selling stockholders will decrease if and when a
selling stockholder transfers, pledges, donates or assigns shares. The plan of
distribution for selling stockholders' shares sold by this prospectus will
otherwise remain unchanged, except that the transferees, pledgees, donees or
other successors will be selling stockholders under this prospectus. There is,
however, no assurance that any selling stockholder will sell any or all of the
shares described in this prospectus, and any selling stockholder may transfer,
devise or gift such securities by other means not described in this prospectus.
A selling stockholder may also use this prospectus in the following
ways:
. to sell short, from time to time, shares of our common stock 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,
. to 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,
. to enter into option or other transactions with broker-dealers that
involve the delivery of the shares to the broker-dealers, who may
then resell or otherwise transfer such shares, and
. to 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 .
57
<PAGE>
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. As a result thereof, 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.
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
resold 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
for resale 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 us 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 us and our directors, the officers who sign
the registration statement of which this prospectus is a part, our 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 us by such selling stockholder expressly for use in connection with
the registration statement of which this prospectus is a part. To the extent
such indemnification is prohibited, the selling stockholders and we 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 us 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 our 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,
1998 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.
58
<PAGE>
============================================== =============================
13,000,000 Shares
P-COM, INC.
common stock
TABLE OF CONTENTS
Page
----
Summary.................................... 2
Risk Factors............................... 7
Where You Can Find More Information........ 21
Use of Proceeds............................ 22
Dividend Policy............................ 22
Premium.................................... 22 ------------------
Ratio (Deficiency) of Earnings (Loss) to
Combined Fixed Charges and Preferred PROSPECTUS
Stock Dividends........................ 22
Description of Our Capital Stock........... 24 ------------------
Selling Stockholders....................... 54
Plan of Distribution....................... 56
Legal Matters.............................. 58
Experts.................................... 58
___________, 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 for resale 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.
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
===========
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 P-Com's three public offerings, P-Com's nine acquisitions, the
sale of the 4 1/4% convertible promissory notes and the sale of the Series B
preferred stock, each of which contains provisions indemnifying officers and
directors of P-Com and other persons against certain liabilities, including, in
some cases, those arising under the Securities Act.
II-2
<PAGE>
Item 16 Exhibits.
<TABLE>
<CAPTION>
Exhibit
-------
No. Description
--- -----------
<S> <C>
3.2 Restated Certificate of Incorporation, as filed with the Delaware Secretary of
State filed on March 9, 1995*
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on June 16, 1997*
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*
3.2D Certificate of Designation for the Series B Convertible Participating preferred
stock, as filed with the Delaware Secretary of State on December 21, 1998*
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*
4.1 Specimen of common stock Certificate*
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between P-Com
and BankBoston, N.A.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.22B Low Capacity Digital Radio Agreement dated February 13, 1995 by and between P-Com
and Siemens*
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and among P-Com and
the purchasers listed therein
10.39 Registration Rights Agreement dated as of December 21, 1998 by and among P-Com and
the purchasers listed therein*
10.40A Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Castle Creek Technology Partners LLC*
10.40B Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Capital Ventures International*
10.40C Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Marshall Capital Management, Inc.*
12.2 Ratio of Earnings to Fixed Charges*
</TABLE>
- -----------------------------------
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
-------
No. Description
--- -----------
<S> <C>
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>
* Previously filed.
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 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.
II-3
<PAGE>
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-4
<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 amendment no. 3 to 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 30th day of April, 1999.
P-COM, INC.
By: /s/ George P. Roberts
__________________________________________
George P. Roberts, Chairman of the Board
and Chief Executive Officer
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.2 Restated Certificate of Incorporation, as filed with the Delaware Secretary of
State filed on March 9, 1995*
3.2A Certificate of Amendment of Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on June 16, 1997*
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*
3.2D Certificate of Designation for the Series B Convertible Participating preferred
stock, as filed with the Delaware Secretary of State on December 21, 1998*
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*
4.1 Specimen of common stock Certificate*
4.8 Amended and Restated Rights Agreement, dated as of December 21, 1998, between P-Com
and BankBoston, N.A.*
5.1 Opinion of Brobeck, Phleger & Harrison LLP
10.22B Low Capacity Digital Radio Agreement dated February 13, 1995 by and between P-Com
and Siemens*
10.38 Securities Purchase Agreement dated as of December 21, 1998 by and among P-Com and
the purchasers listed therein*
10.39 Registration Rights Agreement dated as of December 21, 1998 by and among P-Com and
the purchasers listed therein*
10.40A Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Castle Creek Technology Partners LLC*
10.40B Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Capital Ventures International*
10.40C Warrant to purchase shares of common stock, dated as of December 21, 1998, issued
by P-Com to Marshall Capital Management, Inc.*
12.2 Ratio of Earnings to Fixed Charges*
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>
* Previously filed.
<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 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
