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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
P-COM, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[P-COM LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 1999
TO THE STOCKHOLDERS OF P-COM, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of P-COM,
Inc., a Delaware corporation (the "Company"), will be held on May 17, 1999 at
9:00 a.m., Pacific Daylight Saving Time at the Doubletree Hotel, 2050 Gateway
Place, San Jose, California 95110, for the following purposes, as more fully
described in the Proxy Statement accompanying this Notice:
1. To elect two (2) directors to serve for three-year terms ending in the
year 2002 or until their successors are duly elected and qualified;
2. To approve an amendment to the Company's 1995 Stock Option/Stock
Issuance Plan (the "1995 Plan") to increase the number of shares of
Common Stock authorized for issuance over the term of the 1995 Plan by
an additional 1,500,000 shares and increase the limitation on the
maximum number of shares for which any one individual may be granted
stock options, separately exercisable stock appreciation rights and
direct stock issuances over the term of the 1995 Plan from 1,600,000
shares to 2,400,000 shares;
3. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock authorized for issuance
over the term of the Employee Stock Purchase Plan by an additional
250,000 shares;
4. To approve the issuance of (a) an aggregate of 15,000 shares of Series B
Convertible Participating Preferred Stock at a purchase price of $1,000
per share, (b) warrants to purchase 1,242,257 shares of Common Stock at
an exercise price of $3.47 per share and (c) the conversion or exercise
thereof;
5. To ratify the appointment of PriceWaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999;
and
6. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on April 2, 1999 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the meeting. A list of stockholders entitled to vote at the Annual Meeting
will be available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy
as promptly as possible in the envelope enclosed for your convenience. Should
you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
assure that all your shares will be voted. You may revoke your proxy at any
time prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
Sincerely,
/s/ George P. Roberts
George P. Roberts
Chief Executive Officer and
Chairman of the Board of Directors
Campbell, California
April [ ], 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
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P-COM, INC.
3175 South Winchester Boulevard
Campbell, California 95008
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 1999
General
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors of P-COM, Inc., a Delaware corporation (the "Company"), for use at
the Annual Meeting of Stockholders to be held on May 17, 1999 (the "Annual
Meeting"). The Annual Meeting will be held at 9:00 a.m., Pacific Daylight
Saving Time at the Doubletree Hotel, 2050 Gateway Place, San Jose, California
95110. These proxy solicitation materials were mailed on or about April [ ],
1999, to all stockholders entitled to vote at the Annual Meeting.
Voting
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. On April 2, 1999, which is the record date for
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, [ ] shares of the Company's common stock, par value $0.0001
("Common Stock"), were issued and outstanding, no shares of the Company's
Series A Preferred Stock, par value $0.0001 ("Series A Preferred Stock"), were
issued and outstanding and 15,000 shares of the Company's Series B Preferred
Stock, par value $0.0001 ("Series B Preferred Stock"), were issued and
outstanding. Each common stockholder is entitled to one vote for each share of
Common Stock held by such stockholder on April 2, 1999. The holders of the
Series B Preferred Stock do not have voting rights on any of the proposals.
Stockholders may not cumulate votes in the election of directors.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Directors are elected by a plurality vote.
Proposal 4 (the issuance of Series B Convertible Participating Preferred
Stock), will be decided by a majority of the total votes cast on the proposal
in person or by proxy. All other proposals will be decided by an affirmative
vote of the holders of a majority of the shares present in person or
represented by proxy and entitled to vote on such matter. Abstentions and
broker non-votes are counted as present for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
will be counted towards the tabulations of votes cast on proposals presented
to the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved.
Proxies
If the enclosed form of proxy is properly signed and returned, the shares
represented thereby will be voted at the Annual Meeting in accordance with the
instructions specified thereon. If the proxy does not specify how the shares
represented thereby are to be voted, the proxy will be voted FOR the election
of the directors proposed by the Board unless the authority to vote for the
election of such director is withheld and, if no contrary instructions are
given, the proxy will be voted FOR the approval of Proposals 2, 3, 4 and 5
described in the accompanying Notice and Proxy Statement. You may revoke or
change your Proxy at any time before the Annual Meeting by filing with the
Chief Financial Officer of the Company at the Company's principal executive
offices at 3175 South Winchester Boulevard, Campbell, California 95008, a
notice of revocation or another signed Proxy with a later date. You may also
revoke your Proxy by attending the Annual Meeting and voting in person.
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Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of this Proxy Statement, the Proxy
and any additional solicitation materials furnished to the stockholders. The
Company has retained the services of Beacon Hill Partners, Inc. ("Beacon") to
assist in the solicitation of proxies. Beacon will receive a fee from the
Company of approximately $5,000.00 plus out-of-pocket expenses. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding shares in their names that are beneficially owned by others
so that they may forward this solicitation material to such beneficial owners.
In addition, the Company may reimburse such persons for their costs in
forwarding the solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by a solicitation by
telephone, telegram or other means by directors, officers or employees of the
Company. No additional compensation will be paid to these individuals for any
such services. Except as described above, the Company does not presently
intend to solicit proxies other than by mail.
Deadline for Receipt of Stockholder Proposals
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting must be received no
later than [ ] in order that they may be included in the proxy
statement and form of proxy relating to that meeting.
In addition, the proxy solicited by the Board of Directors for the 2000
Annual Meeting will confer discretionary authority to vote on any stockholder
proposal presented at that meeting, unless the Company is provided with notice
of such proposal no later than February [21], 2000.
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE
ELECTION OF DIRECTORS
General
The Company's Certificate of Incorporation provides for a classified Board
of Directors consisting of three classes of directors with staggered three-
year terms. Each class consistings, as nearly as possible, of one-third of the
total number of directors. The Board currently consists of five persons. The
class whose term of office expires at the Annual Meeting currently consists of
two directors. The directors elected to this class will serve for a term of
three years, expiring at the 2002 annual meeting of stockholders or until
their successors have been duly elected and qualified. The nominees listed
below are currently directors of the Company. If this proposal is approved,
the Board will continue to consist of five persons, with two classes
consisting of two directors each and the third class consisting of one
director.
Each nominee for election has agreed to serve if elected, and management has
no reason to believe that such nominee will be unavailable to serve. If either
nominee is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee who may be designated by
the present Board of Directors to fill the vacancy. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
nominees named below.
Nominees for Term Ending Upon the 2002 Annual Meeting of Stockholders
George P. Roberts, 66, is a founder of the Company and has served as Chief
Executive Officer and a Director since October 1991. From October 1991 to
December 1996, Mr. Roberts served as President of the Company. Since September
1993, he has also served as Chairman of the Board of Directors. From May 1989
to August 1991, Mr. Roberts was Chief Operating Officer for Digital Microwave
Corporation, a wireless communications company. From October 1984 to May 1989,
Mr. Roberts was President of American Satellite Company, a wholly owned
subsidiary of Contel, an independent telecommunications company. Mr. Roberts
serves as a director of one private company. Mr. Roberts holds a B.S. in
Electrical Engineering from the University of Arizona and has completed
graduate business studies at the University of Arizona and the University of
California--Los Angeles.
Gill Cogan, 47, has served as a Director of the Company since November 1993.
Since January 1994, Mr. Cogan has been a Principal of Weiss, Peck & Greer,
L.L.C., an investment company, and since 1990, he has been a general partner
of Weiss, Peck & Greer Venture Partners, L.L.C., a private venture capital
investment firm. From August 1986 to November 1990, Mr. Cogan was a partner of
Adler & Company, a venture capital group specializing in technology-related
investments. From 1983 to 1985, Mr. Cogan was Chairman and Chief Executive
Officer of Formtek, an imaging and data management computer company. Mr. Cogan
serves as a director of Electronics for Imaging, Inc., Integrated Packaging
Assembly Corporation and several private companies. Mr. Cogan holds a B.S. in
Physics and an M.B.A. from the Graduate School of Management at the University
of California--Los Angeles.
Continuing Director for Term Ending Upon the 2001 Annual Meeting of
Stockholders
M. Bernard Puckett, 53, has served as a Director of the Company since May
1994. From June 1995 to January 1996, he was President and Chief Executive
Officer of Mobile Telecommunication Technologies Corp. ("Mtel"), a
telecommunications corporation. From January 1994 to May 1995, Mr. Puckett was
President and Chief Operating Officer of Mtel. From June 1993 to December
1993, Mr. Puckett was Senior Vice President, Corporate Strategy and
Development for IBM. Between September 1967 and June 1993, Mr. Puckett served
in various management and marketing positions at IBM. Mr. Puckett currently
serves as a director of Nielson Media Research (formerly known as Cognizant
Corp.), R.R. Donnelley & Sons and Software.com. Mr. Puckett holds a B.S. in
Mathematics from the University of Mississippi.
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Continuing Directors for Term Ending Upon the 2000 Annual Meeting of
Stockholders
John A. Hawkins, 38, has served as a Director of the Company since September
1991. Since August 1995, Mr. Hawkins has been a General Partner of Generation
Capital Partners, L.P., a private equity firm. From May 1992 to July 1995, he
was a general partner of certain venture capital funds associated with Burr,
Egan, Deleage & Co., a venture capital company. From November 1987 to May
1992, Mr. Hawkins was an Associate with Burr, Egan, Deleage & Co. He is
currently a limited partner of certain venture capital funds associated with
Burr, Egan, Deleage & Co. Mr. Hawkins serves as a director of PixTech, Inc., a
manufacturer of flat panel displays, and several private companies. Mr.
Hawkins holds an M.B.A. from the Harvard Graduate School of Business
Administration and a B.A. in English Literature from Harvard University.
James J. Sobczak, 57, has served as a Director of the Company since April
1997. Since 1991, Mr. Sobczak has been the President of Telecommunications
Education and Research Network, Inc. ("TERN"), a non-profit company that
manages a broadband network providing research and education support to over
35 universities. Additionally, since 1993, Mr. Sobczak has taught graduate
courses in telecommunications at the University of Pittsburgh and, from 1993
to 1995, was a lecturer in the Carnegie Mellon University executive education
program. Between 1970 and 1990, he served in various management and marketing
positions at Bank of America, Ford Motor Co., Contel ASC and Westinghouse
Communications. Mr. Sobczak serves on the Board of Directors of one private
company. Mr. Sobczak holds an M.B.A. and a B.S. in Electrical Engineering from
the University of Detroit.
Board Committees and Meetings
The Board of Directors held fourteen (14) meetings and acted by unanimous
written consent six (6) times during the fiscal year ended December 31, 1998
(the "1998 Fiscal Year"). The Board of Directors has an Audit Committee and a
Compensation Committee. Each director attended or participated in 75% or more
of the aggregate of (i) the total number of meetings of the Board of Directors
and (ii) the total number of meetings held by all committees of the Board on
which such director served during the 1998 Fiscal Year.
The Audit Committee currently consists of two directors, Mr. Cogan and Mr.
Puckett, and is primarily responsible for approving the services performed by
the Company's independent auditors and reviewing their reports regarding the
Company's accounting practices and systems of internal accounting controls.
The Audit Committee held two (2) meetings during the 1998 Fiscal Year.
The Compensation Committee currently consists of two directors, Mr. Cogan
and Mr. Hawkins, and is primarily responsible for reviewing and approving the
Company's general compensation policies and setting compensation levels for
the Company's executive officers. The Compensation Committee also has the
exclusive authority to administer the Company's Employee Stock Purchase Plan
and the Company's 1995 Stock Option/Stock Issuance Plan and to make option
grants thereunder. The Compensation Committee acted by unanimous written
consent twenty-one (21) times during the 1998 Fiscal Year.
Director Compensation
Board members who are employees of the Company do not receive cash
compensation for their services as directors.
Under the Automatic Option Grant Program contained in the Company's 1995
Stock Option/Stock Issuance Plan (the "1995 Plan"), each individual who first
joins the Board as a non-employee director any time after February 1, 1996
will receive, at the time of such initial election or appointment, an
automatic option grant, to purchase 40,000 shares of Common Stock, provided
such person has not previously been in the Company's employ. In addition, on
the date of each annual stockholders meeting, each individual who continues to
serve as a non-employee Board member, whether or not such individual is
standing for re-election at that particular Annual Meeting, will be granted an
option to purchase 4,000 shares of Common Stock, provided such individual
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has not received an option grant under the Automatic Option Grant Program
within the preceding six months. Each grant under the Automatic Option Grant
Program will have an exercise price per share equal to the fair market value
per share of the Company's Common Stock on the grant date, and will have a
maximum term of ten (10) years, subject to earlier termination should the
optionee cease to serve as a Board of Directors member.
On May 18, 1998, the date of the 1998 Annual Stockholders Meeting, each of
the non-employee Board members, Messrs. Cogan, Hawkins, Puckett and Sobczak,
received an automatic option grant to purchase 4,000 shares of Common Stock.
The exercise price per share in effect under each such option was $19.25, the
fair market value per share of Common Stock on the grant date. Each of the
options was immediately exercisable for all the option shares, but any shares
purchased under the option would be subject to repurchase by the Company, at
the exercise price paid per share, upon the optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each option
grant were to vest in a series of eight (8) successive equal quarterly
installments upon the optionee's completion of each successive three (3)-month
period of Board service over the twenty-four (24)-month period measured from
the grant date.
On July 31, 1998, each of the option grants made under the Automatic Grant
Program on May 18, 1998 with an exercise price of $19.25 per share was
cancelled, and a new option for 4,000 shares was granted to each of the four
non-employee Board members with an exercise price of $5.8125 per share, the
fair market value per share of Common Stock on the grant date of the new
option. Each of the new options is immediately exercisable for all the option
shares, but any shares purchased under the option will be subject to
repurchase by the Company, at the exercise price paid per share, upon the
optionee's cessation of Board service prior to vesting in those shares. The
shares subject to each new option will vest in a series of eight (8)
successive equal quarterly installments upon the optionee's completion of each
successive three (3)-month period of Board service over the twenty-four (24)-
month period measured from the July 31, 1998 grant date.
Please see the description of the Automatic Grant Program under Proposal Two
for further information concerning the remaining terms and provisions of these
automatic option grants.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the election of the nominees listed above.
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PROPOSAL TWO
APPROVAL OF AMENDMENT TO THE
1995 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1995 Stock Option/Stock Issuance Plan (the "1995 Plan") that will
increase the maximum number of shares of the Common Stock authorized for
issuance over the term of the 1995 Plan by an additional 1,500,000 shares,
from 13,434,459 shares to 14,934,459 shares of Common Stock and increase the
limitation on the maximum number of shares for which any one individual may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances over the term of the 1995 Plan from 1,600,000 shares to
2,400,000 shares. This proposed share increase is designed to assure that a
sufficient reserve of Common Stock will remain is available under the 1995
Plan to allow the Company to continue to utilize equity incentives to attract
and retain the services of key individuals essential to the Company's long-
term growth and success. The Company relies significantly on equity incentives
in the form of stock option grants in order to attract and retain key
employees in the market in which the Company competes for such talented
individuals. The Company believes that such equity incentives are necessary
for the Company to remain competitive in the marketplace for executive talent
and other key employees. Option grants will be made under the 1995 Plan to
newly-hired and continuing employees on the basis of competitive market
factors and individual performance levels.
The 1995 Plan was adopted by the Board of Directors in January 1995 and was
approved by the stockholders in February 1995. The 1995 Plan became effective
on March 2, 1995 in connection with the initial public offering of the
Company's Common Stock and serves as successor to the Company's 1992 Stock
Option Plan (the "1992 Plan"). All outstanding options under the 1992 Plan
have been incorporated into the 1995 Plan. In February 1996, the Board amended
the 1995 Plan to increase the shares of Common Stock available for issuance
under the 1995 Plan by an additional 1,600,000 shares and to enhance the
benefit and eligibility provisions of the Automatic Option Grant Program under
the 1995 Plan. The stockholders approved those amendments at the 1996 Annual
Meeting. In April 1997, the Board approved a series of amendments to the 1995
Plan, including (i) an increase of 3,000,000 shares of Common Stock in the
share reserve available for issuance under the 1995 Plan, (ii) an automatic
annual increase feature pursuant to which the number of shares available for
issuance under the 1995 Plan automatically increases on the first trading day
of each calendar year, beginning with the 1998 calendar year and continuing
through calendar year 2001, by an amount equal to one and six-tenths percent
(1.6%) of the total number of shares outstanding on the last trading day of
the immediately preceding calendar year and (iii) a series of technical
amendments to facilitate plan administration. The amendments were approved by
the stockholders at the 1997 Annual Meeting. On March 11, 1998, the Board
approved a 3,500,000-share increase in the maximum number of shares available
for issuance under the 1995 Plan. The amendment was approved by the
stockholders at the 1998 Annual Meeting. In March 1999, the Board approved the
1,500,000-share increase in the maximum number of shares available for
issuance under the 1995 Plan and the 800,000-share increase in the per
participant limit under the 1995 Plan that are the subject of this Proposal.
The proposed 1,500,000-share increase will assure that a sufficient reserve
of Common Stock remains available under the 1995 Plan in order for the Company
to provide a comprehensive equity incentive program for the Company's
officers, employees, non-employee Board members and independent consultants
which will encourage such individuals to remain in the Company's service and
more closely align their interests with those of the stockholders. The
proposed change to the limitation on the maximum number of shares for which
any one individual may be granted stock options, separately-exercisable stock
appreciation rights and direct stock issuances under the 1995 Plan will
provide the Company with the continuing opportunity to structure equity
incentive awards for senior management so that the compensation deemed paid to
the Company's executive officers in connection with their exercise of stock
options or stock appreciation rights granted under the 1995 Plan will qualify
as tax-deductible performance-based compensation under the federal tax laws
which will not otherwise be subject to the $1 million limitation per covered
individual on the tax deductibility of compensation paid to certain executive
officers of the Company.
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The following is a summary of the principal features of the 1995 Plan, as
most recently amended. This summary does not, however, purport to be a
complete description of all the provisions of the 1995 Plan. Any stockholder
of the Company who wishes to obtain a copy of the actual plan document may do
so upon written request to the Company's Chief Financial Officer at the
Company's principal executive offices in Campbell, California.
Equity Incentive Programs
The 1995 Plan consists of three separate equity incentive programs: (i) a
Discretionary Option Grant Program, (ii) a Stock Issuance Program and (iii) an
Automatic Option Grant Program. The principal features of each of these
programs are described below. The Compensation Committee of the Board
administers the provisions of the 1995 Plan (other than the Automatic Option
Grant Program) with respect to all officers and directors of the Company
subject to the short-swing trading restrictions of the federal securities laws
("Section 16 Insiders"). With respect to all other participants, the 1995 Plan
may be administered by either the Compensation Committee or a special stock
option committee (the "Secondary Committee") comprised of one or more Board
members appointed by the Board or by the entire Board itself. Each entity,
whether the Compensation Committee, the Secondary Committee or the Board, will
be referred to in this summary as the Plan Administrator with respect to its
particular administrative functions under the 1995 Plan, and each Plan
Administrator will have complete discretion (subject to the provisions of the
1995 Plan) to authorize option grants and direct stock issuances under the
1995 Plan within the scope of its administrative jurisdiction. However, all
grants under the Automatic Option Grant Program will be made in strict
compliance with the provisions of that program, and no administrative
discretion will be exercised by any Plan Administrator with respect to the
grants made under such program.
Share Reserve
14,934,459 shares of Common Stock have been reserved for issuance over the
ten year term of the 1995 Plan, including the 714,834-share increase effected
on January 2, 1999 pursuant to the automatic annual share increase feature of
the 1995 Plan and the 1,500,000-share increase that is the subject of this
Proposal. The number of shares available for issuance under the 1995 Plan will
automatically increase on the first trading day of each calendar year, through
calendar year 2001, by an amount equal to one and six-tenths percent (1.6%) of
the total number of shares of Common Stock outstanding on the last trading day
of the immediately preceding calendar year.
Should any option terminate prior to exercise in full, the shares subject to
the unexercised portion of that option will be available for subsequent option
grants. In addition, any unvested shares issued under the 1995 Plan and
subsequently repurchased by the Company at the option exercise or direct issue
price paid per share pursuant to the Company's repurchase rights under the
1995 Plan will be added back to the number of shares of Common Stock reserved
for issuance under the 1995 Plan and will accordingly be available for
reissuance through one or more subsequent option grants or direct stock
issuances made under the 1995 Plan. However, shares subject to any option
surrendered in accordance with the stock appreciation right provisions of the
1995 Plan will not be available for subsequent issuance.
In no event may any one participant in the 1995 Plan be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 2,400,000 shares in the aggregate under the 1995 Plan,
assuming stockholder approval of the 800,000-share increase to such limit
which forms part of this Proposal.
Changes in Capitalization
If any change is made to the outstanding shares of Common Stock by reason of
any recapitalization, stock dividend, stock split, combination of shares,
exchange of shares or other change in corporate structure effected without the
Company's receipt of consideration, appropriate adjustments will be made to
(i) the maximum
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number and class of securities issuable under the 1995 Plan, (ii) the maximum
number and class of securities for which any one participant may be granted
stock options, separately exercisable stock appreciation rights and direct
stock issuances under the 1995 Plan, (iii) the number and class of securities
for which option grants will subsequently be made under the Automatic Option
Grant Program to each newly-elected or continuing non-employee Board member
and (iv) the number and class of securities and the exercise price per share
in effect under each outstanding option under the Plan. All such adjustments
will be designed to preclude the enlargement or dilution of participant rights
and benefits under the 1995 Plan.
Eligibility
Employees, non-employee Board members, and independent consultants and
advisors to the Company and its subsidiaries (whether now existing or
subsequently established) will be eligible to participate in the Discretionary
Option Grant and Stock Issuance Programs. Non-employee members of the Board
will also be eligible to participate in the Automatic Option Grant Program.
As of April 1, 1999, five (5) executive officers, four (4) non-employee
Board members and approximately six hundred fifty-one (651) other employees
were eligible to participate in the Discretionary Option Grant and Stock
Issuance Programs, and the four (4) non-employee Board members were also
eligible to participate in the Automatic Option Grant Program.
Valuation
The fair market value per share of Common Stock on any relevant date under
the 1995 Plan will be the closing selling price per share on that date on the
Nasdaq National Market. On April 1, 1999, the closing selling price of the
Company's Common Stock was [ ] per share.
Discretionary Option Grant Program
Grants
The Plan Administrator has complete discretion under the Discretionary
Option Grant Program to determine which eligible individuals are to receive
option grants or stock issuances, the time or times when such grants or
issuances are to be made, the number of shares subject to each such grant or
issuance, the status of any granted option as either an incentive stock option
or a non-statutory option under the federal tax laws, the vesting schedule (if
any) to be in effect for the option grant or stock issuance and the maximum
term for which any granted option is to remain outstanding. All expenses
incurred in administering the 1995 Plan will be paid by the Company.
Price and Exercisability
The exercise price per share for options granted under the Discretionary
Option Grant Program may not be less than eighty-five percent (85%) of the
fair market value per share of Common Stock on the option grant date. No
option will have a term in excess of ten (10) years, and each option will
generally become exercisable in one or more installments over the optionee's
period of service with the Company. However, one or more options may be
granted which are immediately exercisable for all the option shares, but any
shares acquired under those options will be subject to repurchase by the
Company, at the exercise price paid per share, upon the optionee's cessation
of service with the Company prior to vesting in those shares. The Plan
Administrator may at any time cancel the Company's outstanding repurchase
rights with respect to any such unvested shares and thereby accelerate the
vesting of those shares.
The exercise price may be paid in cash or in shares of the Common Stock.
Outstanding options may also be exercised through a same-day sale program
pursuant to which a designated brokerage firm is to effect an immediate sale
of the shares purchased under the option and pay over to the Company, out of
the sale proceeds
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<PAGE>
available on the settlement date, sufficient funds to cover the exercise price
for the purchased shares plus all applicable withholding taxes.
No optionee will have any stockholder rights with respect to the option
shares until such optionee has exercised the option and paid the exercise
price for the purchased shares. Options are generally not assignable or
transferable other than by will or the laws of inheritance and, during the
optionee's lifetime, the option may be exercised only by such optionee.
However, the Plan Administrator may allow non-statutory options to be
transferred or assigned during the optionee's lifetime to one or more members
of the optionee's immediate family or to a trust established exclusively for
one or more such family members, to the extent such transfer or assignment is
in furtherance of the optionee's estate plan.
Termination of Service
Upon the optionee's cessation of employment or service, the optionee will
have a limited period of time in which to exercise his or her outstanding
options for any shares in which the optionee is vested at that time. However,
at any time while the options remain outstanding, the Plan Administrator will
have complete discretion to extend the period following the optionee's
cessation of employment or service during which his or her outstanding options
may be exercised. The Plan Administrator will also have complete discretion to
accelerate the exercisability or vesting of those options in whole or in part
at any time.
Stock Appreciation Rights
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for those shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
Limited stock appreciation rights may be provided to one or more Section 16
insiders as part of their option grants. Any option with such a limited
stock appreciation right may be surrendered to the Company upon the
successful completion of a hostile tender offer for more than fifty percent
(50%) of the Company's outstanding voting stock. In return for the
surrendered option, the officer will be entitled to a cash distribution
from the Company in an amount per surrendered option share equal to the
excess of (a) the highest price per share of Common Stock paid in
connection with the tender offer over (b) the exercise price payable for
such share.
Cancellation and Regrant of Options
The Plan Administrator has the authority to effect the cancellation of any
or all options outstanding under the 1995 Plan and to grant, in substitution
therefor, new options covering the same or different numbers of shares of
Common Stock but with an exercise price per share based upon the fair market
value of the Common Stock on the new grant date.
On July 15, 1998, the Plan Administrator implemented an option
cancellation/regrant program for all employees of the Company, excluding the
Company's executive officers. Pursuant to that program, each participant was
given the opportunity to surrender his or her outstanding options under the
1995 Plan with exercise prices in excess of $5.8125 per share in return for a
new option grant for the same number of shares but with an exercise price of
$5.8125 per share, the closing selling price per share of Common Stock as
reported on the Nasdaq National Market on July 31, 1998, the grant date of the
new option. Options for a total of 2,746,354 shares with a weighted average
exercise price of $16.45 per share were surrendered for cancellation, and new
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<PAGE>
options for the same number of shares were granted with an exercise price of
$5.8125 per share. The new options granted to employees did not vest or become
exercisable unless the participant continued in the Company's employ through
January 31, 1999. On that date, the option became exercisable for (i) the
number of shares for which the cancelled higher-priced option was exercisable
on July 31, 1998 plus (ii) the number of shares for which the higher-priced
option would have become exercisable over the period from August 1, 1998 to
January 31, 1999 had that option not been cancelled. The new option will
become exercisable for the balance of the option shares in a series of
installments, with each such installment to become exercisable on the same
date that installment would have become exercisable under the cancelled
higher-priced option. In addition, each new option will vest and become
exercisable on an accelerated basis in the event the Company were to be
acquired by a merger or asset sale in which those options were not assumed by
the successor entity.
Stock Issuance Program
Shares may be sold under the Stock Issuance Program at a price per share not
less than eighty-five percent (85%) of their fair market value, payable in
cash or through a promissory note payable to the Company. Shares may also be
issued as a bonus for past services.
The shares issued as a bonus for past services will be fully vested upon
issuance. All other shares issued under the program will be subject to a
vesting schedule tied to the performance of service or the attainment of
performance goals. The Plan Administrator will, however, have the
discretionary authority at any time to accelerate the vesting of any and all
unvested shares outstanding under the 1995 Plan.
Automatic Option Grant Program
Terms
Under the Automatic Option Grant Program, non-employee Board members will
receive option grants at specified intervals over their period of Board
service. All grants under the Automatic Option Grant Program will be made in
strict compliance with the express provisions of such program. Stockholder
approval of this Proposal will also constitute approval of each option granted
on or after the date of the 1998 Annual Meeting pursuant to the provisions of
the Automatic Option Grant Program summarized below and the subsequent
exercise of that option in accordance with such provisions.
1. Each individual serving as a non-employee Board member on February 1,
1996 was automatically granted on that date a non-statutory option to purchase
40,000 shares of Common Stock. Each individual who first becomes a non-
employee Board member after February 1, 1996, whether through election by the
stockholders or appointment by the Board, will automatically be granted, at
the time of such initial election or appointment, a non-statutory option to
purchase 40,000 shares of Common Stock, provided such individual has not
previously been in the Company's employ.
2. On the date of each Annual Meeting, beginning with the 1997 Annual
Meeting, each individual who is to continue to serve as a non-employee Board
member, whether or not such individual is standing for re-election at that
particular Annual Meeting, will automatically be granted a non-statutory
option to purchase 4,000 shares of Common Stock, provided such individual has
not received an option grant under the Automatic Option Grant Program within
the preceding six (6) months. There will be no limit on the number of such
4,000-share option grants any one non-employee Board member may receive over
his or her period of Board service, and non-employee Board members who have
previously been in the Company's employ will be eligible to receive one or
more of those annual grants.
3. Each automatic option grant will have an exercise price per share equal
to 100% of the fair market value per share of Common Stock on the grant date.
The option will have a maximum term of ten (10) years, subject to earlier
termination at the end of the twelve (12) month period measured from the date
of the optionee's
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<PAGE>
cessation of Board service. Each option will be immediately exercisable for
all of the option shares. However, any shares purchased under the option will
be subject to repurchase by the Company, at the exercise price paid per share,
upon the optionee's cessation of Board service prior to vesting in those
shares. The shares of Common Stock subject to each option grant, whether the
initial 40,000-share grant or the annual 4,000-share grant, will vest in a
series of eight (8) successive equal quarterly installments upon the
optionee's completion of each successive three (3)-month period of Board
service over the twenty (24)-month period measured from the grant date.
4. Each automatic option will remain exercisable for a twelve month period
following the optionee's cessation of service as a Board member. In no event,
however, may the option be exercised after the expiration date of the option
term. During the applicable post-service exercise period, the option may not
be exercised for more than the number of option shares (if any) in which the
Board member is vested at the time of his or her cessation of Board service.
5. The shares subject to each automatic option grant will immediately vest
upon (i) the optionee's death or permanent disability while a Board member,
(ii) an acquisition of the Company by merger or asset sale, (iii) the
successful completion of a tender offer for more than 50% of the Company's
outstanding voting stock or (iv) a change in the majority of the Board
effected through one or more proxy contests for Board membership.
6. Upon the successful completion of a hostile tender offer for more than
50% of the Company's outstanding voting stock, each outstanding automatic
option grant may be surrendered to the Company for a cash distribution per
surrendered option share in an amount equal to the excess of (a) the highest
price per share of Common Stock paid in connection with such tender offer over
(b) the exercise price payable for such share. Stockholder approval of this
Proposal will also constitute pre-approval of each option granted with such a
surrender right on or after the date of the 1999 Annual Meeting and the
subsequent exercise of that right in accordance with the foregoing terms.
The remaining terms and conditions of each automatic option grant will in
general conform to the terms summarized above for option grants made under the
Discretionary Option Grant Program and will be incorporated into the option
agreement evidencing the automatic grant.
General Provisions
Acceleration
If the Company is acquired by merger or asset sale, each outstanding option
under the Discretionary Option Grant Program that is not to be assumed by the
successor corporation will automatically accelerate in full, and all unvested
shares under the Discretionary Option Grant and Stock Issuance Programs will
immediately vest, except to the extent the Company's repurchase rights with
respect to those shares are to be assigned to the successor corporation. Any
options that are assumed in connection with such acquisition will immediately
become exercisable for all the option shares, and any unvested shares which do
not vest at the time of such acquisition will immediately vest in full, if the
optionee's service with the Company or any successor entity is subsequently
terminated within eighteen (18) months after the acquisition. However, the
Plan Administrator has the authority to grant options that will immediately
vest upon an acquisition of the Company, regardless of whether those options
are assumed by the successor corporation. The Plan Administrator also has the
discretionary authority to provide for the full and immediate vesting of all
outstanding stock options and unvested shares under the Discretionary Option
Grant and Stock Issuance Programs in connection with a change in control of
the Company (whether by successful tender offer for more than fifty percent
(50%) of the outstanding voting stock or a change in the majority of the Board
by reason of one or more proxy contests for the election of Board members),
with such vesting to occur either at the time of such change in control or
upon the subsequent termination of the individual's service.
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<PAGE>
The acceleration of vesting upon a change in the ownership or control of the
Company may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of the Company.
Financial Assistance
The Plan Administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options or the purchase
of shares under the Discretionary Option Grant or Stock Issuance Program. The
Plan Administrator will have complete discretion to determine the terms of any
such financial assistance. However, the maximum amount of financing provided
any individual may not exceed the cash consideration payable for the issued
shares plus all applicable taxes. Any such financing may be subject to
forgiveness in whole or in part, at the discretion of the Plan Administrator,
over the participant's period of service.
Option Grants
The table below shows, as to each of the executive officers named in the
Summary Compensation Table below and the various other indicated persons and
groups, the following information with respect to stock option grants effected
during the period from January 1, 1998 through February 28, 1999: (i) the
number of shares of Common Stock subject to options granted under the 1995
Plan during that period; and (ii) the weighted average exercise price payable
per share under such options. The number of shares and weighted average
exercise price calculations include all options that were granted during the
indicated period and were subsequently cancelled and regranted at a lower
exercise price per share on July 31, 1998.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
Options
Granted Weighted Average
(Number of Exercise Price of
Name Shares) Granted Options($)
- ---- ---------- -----------------
<S> <C> <C>
George P. Roberts
Chief Executive Officer and Chairman of the
Board of Directors.............................. 450,000 3.00
Pier Antoniucci
President and Chief Operating Officer........... 200,000 3.00
Michael Sophie
Chief Financial Officer and Vice President,
Finance and Administration...................... 200,000 3.00
John R. Wood
Senior Vice President, Engineering.............. 45,000 3.00
Kenneth E. Bean, II
Senior Vice President, Quality Assurance........ 90,000 3.00
All current executive officers as a group (5
persons)........................................ 985,000 3.00
All current non-employee directors as a group (4
persons)........................................ 32,000 12.53
All employees, including current officers who are
not executive officers,
as a group (651 persons)........................ 5,479,495 6.20
</TABLE>
The number of options granted on July 31, 1998 in cancellation of
outstanding higher-priced options originally granted during the period January
1, 1998 to February 28, 1999 was as follows for each of the indicated
individuals and groups: Mr. Roberts, options for 0 shares; Mr. Antoniucci,
options for 0 shares; Mr. Sophie, options for 0 shares; Mr. Wood, options for
0 shares; Mr. Bean, options for 0 shares; all executive officers as a group,
options for 0 shares; all directors who are not executive officers as a group,
options for 16,000 shares; and all employees as a group, excluding executive
officers, options for 2,730,354 shares.
As of February 28, 1999, options covering 7,834,272 shares of Common Stock
were outstanding under the 1995 Plan, 3,423,177 shares remained available for
future option grant or direct issuance (assuming stockholder
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<PAGE>
approval of the 1,500,000-share increase which is the subject of this
Proposal), and 3,677,010 shares have been issued pursuant to the exercise of
outstanding options under the 1995 Plan.
Special Tax Election
The Plan Administrator may provide one or more holders of options or
unvested shares with the right to have the Company withhold a portion of the
shares otherwise issuable to such individuals in satisfaction of the tax
liability incurred by such individuals in connection with the exercise of
those options or the vesting of those shares. Alternatively, the Plan
Administrator may allow such individuals to deliver previously acquired shares
of Common Stock in payment of such tax liability.
New Plan Benefits
As of February 28, 1999, no options have been granted, and no direct stock
issuances have been made, on the basis of the 1,500,000-share increase that is
the subject of this Proposal Two. At the 1999 Annual Meeting, each individual
who will continue to serve as a non-employee Board member will receive an
option grant under the Automatic Option Grant Program to purchase 4,000 shares
of Common Stock at an exercise price per share equal to the fair market value
per share of Common Stock on the grant date.
Amendment and Termination
The Board may amend or modify the 1995 Plan in any or all respects
whatsoever, subject to any stockholder approval required under applicable law
or regulation. The Board may terminate the 1995 Plan at any time, and the 1995
Plan will in all events terminate on January 10, 2005.
Federal Income Tax Consequences
Options granted under the 1995 Plan may be either incentive stock options
that satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options that are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made
the subject of a taxable disposition. For Federal income tax purposes,
dispositions are divided into two categories: qualifying dispositions and
disqualifying dispositions. A qualifying disposition occurs if the sale or
other disposition is made after the optionee has held the shares for more than
two (2) years after the option grant date and more than one (1) year after the
exercise date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then
the excess of (i) the fair market value of those shares on the exercise date
over (ii) the exercise price paid for the shares will be taxable as ordinary
income to the optionee. Any additional gain or loss recognized upon the
disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. If the optionee makes a qualifying disposition, the
Company will not be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised,
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<PAGE>
equal to the excess of the fair market value of the purchased shares on the
exercise date over the exercise price paid for the shares, and the optionee
will be required to satisfy the tax withholding requirements applicable to
such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the
optionee's termination of service prior to vesting in those shares, then the
optionee will not recognize any taxable income at the time of exercise but
will have to report as ordinary income, as and when the Company's repurchase
right lapses, an amount equal to the excess of (i) the fair market value of
the shares on the date the repurchase right lapses over (ii) the exercise
price paid for the shares. The optionee may, however, elect under Section
83(b) of the Internal Revenue Code to include as ordinary income in the year
of exercise of the option an amount equal to the excess of (i) the fair market
value of the purchased shares on the exercise date over (ii) the exercise
price paid for such shares. If the Section 83(b) election is made, the
optionee will not recognize any additional income as and when the repurchase
right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the
appreciation distribution. The Company will be entitled to an income tax
deduction equal to such distribution for the taxable year in which the
ordinary income is recognized by the optionee.
Direct Stock Issuance
The tax principles applicable to direct stock issuances under the 1995 Plan
will be substantially the same as those summarized above for the exercise of
non-statutory option grants.
Deductibility of Executive Compensation
The Company anticipates that any compensation deemed paid by it in
connection with the disqualifying disposition of incentive stock option shares
or the exercise of non-statutory options granted with exercise prices equal to
the fair market value of the shares on the grant date will qualify as
performance-based compensation for purposes of Code Section 162(m) and will
not have to be taken into account for purposes of the $1 million limitation
per covered individual on the deductibility of the compensation paid to
certain executive officers of the Company. Accordingly, all compensation
deemed paid under the 1995 Plan with respect to such dispositions or exercises
will remain deductible by the Company without limitation under Code Section
162(m).
Accounting Treatment
Option grants or stock issuances with exercise or issue prices less than the
fair market value of the shares on the grant or issue date will result in a
direct compensation expense to the Company's earnings equal to the difference
between the exercise or issue price and the fair market value of the shares on
the grant or issue date. Such expense will be accruable by the Company over
the period that the option shares or issued shares are to vest. Option grants
or direct stock issuances with an exercise or issue price per share equal to
100% of fair market value of the shares at the time of grant or issuance will
not result in any direct charge to the Company's earnings. However, the fair
value of those options must be disclosed in the notes to the Company's
financial statements, in the form of pro-forma statements to those financial
statements, the impact those options would have upon the Company's reported
earnings were the value of those options at the time of grant treated as
compensation expense. Whether or not granted at a discount, the number of
outstanding options may be a factor in determining the Company's earnings per
share on a fully-diluted basis.
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<PAGE>
Under a recently-proposed amendment to the current accounting principles,
option grants made to non-employee Board members or consultants after December
15, 1998 will result in a direct charge to the Company's reported earnings
based upon the fair value of the option measured initially as of the grant
date and subsequently as of on the vesting date of each installment of the
underlying option shares. Such charge will accordingly include the
appreciation in the value of the option shares over the period between the
grant date of the option (or, if later, the effective date of the final
amendment) and the vesting date of each installment of the option shares. In
addition, if the proposed amendment is adopted, any options which are repriced
after December 15, 1998 will also trigger a direct charge to Company's
reported earnings measured by the appreciation in the value of the underlying
shares over the period between the grant date of the option (or, if later, the
effective date of the final amendment) and the date the option is exercised
for those shares.
Should one or more optionees be granted stock appreciation rights under the
1995 Plan that have no conditions upon exercisability other than a service or
employment requirement, then such rights would result in a compensation
expense to be charged against the Company's reported earnings. Accordingly, at
the end of each fiscal quarter, the amount (if any) by which the fair market
value of the shares of common stock subject to such outstanding stock
appreciation rights has increased from the prior quarter-end would be accrued
as compensation expense, to the extent such fair market value is in excess of
the aggregate exercise price in effect for those rights.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1999 Annual Meeting
is required for approval of the amendment to the 1995 Plan. Should such
stockholder approval not be obtained, then the 1,500,000-share increase to the
share reserve will not be implemented, any stock options granted on the basis
of that share increase will immediately terminate without becoming exercisable
for the shares of Common Stock subject to those options, and no additional
options will be granted on the basis of such share increase. In addition, the
maximum number of shares for which any one participant may be granted stock
options, separately exerciseable stock appreciation rights and direct stock
issuances will remain at the 1,600,000-share limit. The 1995 Plan will,
however, continue to remain in effect, and option grants and direct stock
issuances may continue to be made pursuant to the provisions of the 1995 Plan,
until the available reserve of Common Stock as last approved by the
stockholders has been issued pursuant to option grants and direct stock
issuances made under the 1995 Plan.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the 1,500,000-share increase to the reserve available for issuance under the
1995 Plan.
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<PAGE>
PROPOSAL THREE
APPROVAL OF AMENDMENT TO THE
EMPLOYEE STOCK PURCHASE PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's Employee Stock Purchase Plan (the "Purchase Plan") that will
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Purchase Plan by an additional 250,000 shares to
1,400,000 shares.
The purpose of the share increase is to ensure that the Company will
continue to have a sufficient reserve of Common Stock available under the
Purchase Plan to provide eligible employees of the Company and its
participating affiliates with the opportunity to acquire a proprietary
interest in the Company through participation in a payroll-deduction based
employee stock purchase plan under Section 423 of the Internal Revenue Code.
The Purchase Plan was adopted by the Board of Directors in January 1995 and
approved by the Company's stockholders in February 1995. The Purchase Plan
became effective on March 2, 1995 in connection with the initial public
offering of the Company's Common Stock. In February 1996, the Board amended
the Purchase Plan to increase the number of shares of Common Stock available
for issuance under the Purchase Plan by an additional 200,000 shares, and the
stockholders approved that amendment at the 1996 Annual Meeting. In
April 1997, the Board amended the Purchase Plan to increase the number of
shares of Common Stock available for issuance under the Purchase Plan by an
additional 300,000 shares, and the stockholders approved that amendment at the
1997 Annual Meeting. On March 11, 1998, the Board of Directors amended the
Purchase Plan to increase the number of shares of Common Stock available for
issuance under the Purchase Plan by an additional 250,000 shares, and the
stockholders approved that amendment at the 1998 Annual Meeting. In
March 1999, the Board of Directors adopted an amendment to the Purchase Plan
to increase the share reserve by an additional 250,000 shares and that share
increase is the subject of this Proposal Three.
On July 15, 1998, the Board of Directors adopted a separate employee stock
purchase plan under which eligible employees in the service of the Company's
foreign affiliates may acquire shares of the Company's Common Stock pursuant
to payroll deductions (or direct payments) periodically applied to the
purchase of such shares (the "International Purchase Plan"). The International
Purchase Plan was adopted to provide appropriate incentives for the increasing
number of employees of the Company's affiliates who are based outside the
United States. The aggregate number of shares of Common Stock reserved for
issuance under the Purchase Plan and the International Purchase Plan will not
exceed 1,400,000 shares, assuming stockholder approval of this Proposal Three.
The following is a summary of the principal features of the Purchase Plan,
as amended. This summary does not, however, purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder who
wishes to obtain a copy of the actual plan document may do so by written
request to the Company's Chief Financial Officer at the Company's executive
offices in Campbell, California.
Administration
The Purchase Plan is currently administered by the Compensation Committee of
the Board. Such committee, as Plan Administrator, has full authority to adopt
administrative rules and procedures and to interpret the provisions of the
Purchase Plan. All costs and expenses incurred in plan administration are paid
by the Company without charge to participants.
Securities Subject to the Purchase Plan
1,400,000 shares of Common Stock have been reserved for issuance in the
aggregate over the ten year term of the Purchase Plan and the International
Purchase Plan, including the 250,000-share increase for which stockholder
approval is sought under this Proposal. The shares may be made available from
authorized but unissued shares of the Company's Common Stock or from shares of
Common Stock repurchased by the Company, including shares repurchased on the
open market.
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<PAGE>
If any change is made to the Company's outstanding Common Stock (whether by
reason of any recapitalization, stock dividend, stock split, exchange or
combination of shares or other change in corporate structure effected without
the Company's receipt of consideration), appropriate adjustments will be made
to (i) the class and maximum number of securities issuable in the aggregate
over the term of the Purchase Plan and the International Purchase Plan, (ii)
the class and maximum number of securities purchasable per participant on any
one semi-annual purchase date and (iii) the class and number of securities and
the price per share in effect under each outstanding purchase right.
Offering Periods and Purchase Rights
Shares of Common Stock will be offered under the Purchase Plan through a
series of successive offering periods, each with a maximum duration of twenty-
four (24) months. The first offering period began on March 2, 1995, in
connection with the initial public offering of the Common Stock, and ended on
the last business day in January 1997. The next offering period started on the
first business day in February 1997 and ended on the last business day of
January 1999. The next offering period began on the first business day in
February 1999 and will end on the last business day of January 2001.
Subsequent offering periods will begin as designated by the Plan
Administrator.
At the time the participant joins the offering period, he or she will be
granted a purchase right to acquire shares of Common Stock at semi-annual
intervals over the remainder of that offering period. The purchase dates will
occur on the last business day in January and July each year, and all payroll
deductions collected from the participant for the period ending with each such
semi-annual purchase date will automatically be applied to the purchase of
Common Stock.
Eligibility and Participation
Any individual who is employed on a basis under which he or she is expected
to work for more than twenty (20) hours per week for more than five (5) months
per calendar year in the employ of the Company or any participating parent or
subsidiary corporation (including any corporation which subsequently becomes
such at any time during the term of the Purchase Plan) is eligible to
participate in the Purchase Plan.
An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time or on any subsequent semi-
annual entry date (the first business day in February or August each year)
within that offering period. An individual who first becomes an eligible
employee after such start date may join the offering period on any semi-annual
entry date within that offering period on which he or she is an eligible
employee.
As of April 1, 1999, an aggregate of 732,186 shares of Common Stock had been
issued under the Purchase Plan and the International Purchase Plan, and an
aggregate of 667,814 shares were available for future issuance under the
Purchase Plan and the International Purchase Plan (assuming stockholder
approval of the 250,000-share increase which is the subject of this Proposal).
As of April 1, 1999, approximately [ ] employees, including 5 executive
officers, were eligible to participate in the Purchase Plan.
Purchase Price
The purchase price of the Common Stock acquired on each semi-annual purchase
date will be equal to 85% of the lower of (i) the fair market value per share
of Common Stock on the participant's entry date into the offering period or
(ii) the fair market value on the semi-annual purchase date. However, the
clause (i) amount for any participant whose entry date is other than the start
date of the offering period will not be less than the fair market value per
share of Common Stock on that start date.
The fair market value of the Common Stock on any relevant date under the
Purchase Plan will be deemed to be equal to the closing selling price per
share on such date on the Nasdaq National Market. On April 1, 1999, the fair
market value per share of Common Stock determined on such basis was [ ]
per share.
17
<PAGE>
Payroll Deductions and Stock Purchases
Each participant may authorize periodic payroll deductions in any multiple
of 1% (up to a maximum of 15%) of his or her base salary each offering period
to be applied to the acquisition of Common Stock on each semi-annual purchase
date. The payroll deductions of each participant will automatically be applied
on each semi-annual purchase date (the last business day in January and July
of each year) to the purchase of whole shares of Common Stock at the purchase
price in effect for the participant for that purchase date.
Special Limitations
The Purchase Plan imposes certain limitations upon a participant's right to
acquire Common Stock, including the following:
. Purchase rights may not be granted to any individual who owns stock
(including stock purchasable under any outstanding purchase rights)
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company or any of its affiliates.
. Purchase rights granted to a participant may not permit such individual
to purchase more than $25,000 worth of Common Stock (valued at the time
each purchase right is granted) for each calendar year those purchase
rights are outstanding at any time.
. No participant may purchase more than 4,000 shares of Common Stock on
any semi-annual purchase date.
Termination of Purchase Rights
The participant may withdraw from the Purchase Plan at any time, and his or
her accumulated payroll deductions will, at the participant's election, either
be refunded immediately or applied to the purchase of Common Stock on the next
semi-annual purchase date.
The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions that the participant may have made for the semi-annual period in
which such cessation of employment or loss of eligibility occurs will be
refunded and will not be applied to the purchase of Common Stock.
Stockholder Rights
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased
on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date
of such purchase.
Assignability
No purchase rights will be assignable or transferable by the participant,
and the purchase rights will be exercisable only by the participant.
Change in Control
If the Company is acquired by merger or asset sale, all outstanding purchase
rights will automatically be exercised immediately prior to the effective date
of such acquisition. The purchase price will be equal to 85% of the lower of
(i) the fair market value per share of Common Stock on the participant's entry
date into the offering period in which such acquisition occurs or (ii) the
fair market value per share of Common Stock immediately prior to the effective
date of such acquisition, but in no event will the clause (i) fair market
value be less than the fair market value per share of Common Stock on the
start date of the offering period in which such acquisition occurs.
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<PAGE>
Share Pro-Ration
Should the total number of shares of Common Stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares at the time available for issuance under the Purchase Plan, then the
Plan Administrator will make a pro-rata allocation of the available shares on
a uniform and nondiscriminatory basis, and the payroll deductions of each
participant, to the extent in excess of the aggregate purchase price payable
for the Common Stock allocated to such individual, will be refunded.
Amendment and Termination
The Purchase Plan will terminate upon the earliest of (i) the last business
day in January 2005, (ii) the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase rights or (iii) the date on
which all purchase rights are exercised in connection with an acquisition of
the Company.
The Board may at any time alter, suspend or discontinue the Purchase Plan.
However, the Board may not, without stockholder approval, (i) increase the
number of shares issuable under the Purchase Plan, except in connection with
certain changes in the Company's capital structure, (ii) alter the purchase
price formula so as to reduce the purchase price or (iii) modify the
requirements for eligibility to participate in the Purchase Plan.
Federal Tax Consequences
The Purchase Plan is intended to be an "employee stock purchase plan" within
the meaning of Section 423 of the Internal Revenue Code. Under a plan that so
qualifies, no taxable income will be recognized by a participant, and no
deductions will be allowable to the Company, upon either the grant or the
exercise of the purchase rights. Taxable income will not be recognized until
there is a sale or other disposition of the shares acquired under the Purchase
Plan or in the event the participant should die while still owning the
purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two (2) years after his or her entry date into the offering period in
which such shares were acquired or within one (1) year after the semi-annual
purchase date on which those shares were actually acquired, then the
participant will recognize ordinary income in the year of sale or disposition
equal to the amount by which the fair market value of the shares on the
purchase date exceeded the purchase price paid for those shares, and the
Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than two
(2) years after his or her entry date into the offering period in which the
shares were acquired and more than one (1) year after the semi-annual purchase
date of those shares, then the participant will recognize ordinary income in
the year of sale or disposition equal to the lower of (i) the amount by which
the fair market value of the shares on the sale or disposition date exceeded
the purchase price paid for those shares or (ii) fifteen percent (15%) of the
fair market value of the shares on the participant's entry date into that
offering period. Any additional gain upon the disposition will be taxed as a
long-term capital gain. The Company will not be entitled to an income tax
deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death, his
or her estate will recognize ordinary income in the year of death equal to the
lower of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) fifteen percent (15%) of the
fair market value of the shares on his or her entry date into the offering
period in which those shares were acquired.
Accounting Treatment
The issuance of Common Stock under the Purchase Plan will not result in a
direct compensation expense chargeable against the Company's reported
earnings. However, the Company must disclose, in pro-forma statements to the
Company's financial statements, the impact the purchase rights granted under
the Purchase Plan would have upon the Company's reported earnings were the
fair value of those purchase rights treated as compensation expense.
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Stock Issuances
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table of the Executive Compensation and Related
Information section of this Proxy Statement and the various indicated
individuals and groups, the number of shares of Common Stock purchased under
the Purchase Plan between the March 2, 1995 effective date of the Purchase
Plan and the most recent January 30, 1999 purchase date, together with the
weighted average purchase price paid per share.
PURCHASE PLAN TRANSACTIONS
<TABLE>
<CAPTION>
Weighted
Number of Average
Purchased Purchase
Name Shares Price($)
- ---- --------- --------
<S> <C> <C>
George P. Roberts......................................... 19,071 5.02
Chief Executive Officer and Chairman of the Board of
Directors
Pier Antoniucci........................................... 18,033 5.25
President and Chief Operating Officer
Michael Sophie............................................ 13,275 5.42
Chief Financial Officer and Vice President, Finance and
Administration
John Wood................................................. 1,063 4.94
Senior Vice President, Engineering
Kenneth E. Bean, II....................................... 1,847 5.14
Senior Vice President, Quality Assurance
All current executive officers as a group (5 persons)..... 53,289 5.20
All current non-employee directors as a group (4
persons)................................................. 0 0.00
All employees, including current executive officers, as a
group (324 persons)...................................... 678,897 6.20
</TABLE>
New Plan Benefits
No purchase rights have been granted, and no shares of Common Stock have
been issued, under the Purchase Plan on the basis of the 250,000-share
increase for which stockholder approval is sought under this Proposal.
Stockholder Approval
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1999 Annual Meeting
is required for approval of the 250,000-share increase to the Purchase Plan.
Should such stockholder approval not be obtained, then the 250,000-share
increase will not be implemented, no purchase rights will be granted on the
basis of such share increase, and the Purchase Plan will terminate once the
existing share reserve as previously approved by the stockholders has been
issued.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the 250,000-share increase to the reserve available for issuance under the
Purchase Plan.
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PROPOSAL FOUR
APPROVAL OF ISSUANCE OF SERIES B PREFERRED STOCK,
COMMON STOCK PURCHASE WARRANTS AND RELATED SHARES OF COMMON STOCK
The stockholders are being asked to approve the issuance of shares of Common
Stock issuable upon conversion of 15,000 shares of Series B Convertible
Participating Preferred Stock (the "Series B Preferred Stock") and warrants to
purchase 1,242,257 shares of Common Stock at an exercise price of $3.47 per
share (the "Warrants"). The Series B Preferred Stock and the Warrants were
sold on December 21, 1998 in a private offering pursuant to Regulation D of
the Securities Act of 1933, as amended (the "Private Placement"). Gross
proceeds to the Company pursuant to the Private Placement were $15,000,000.
Such approval would have the effect of removing certain limitations under the
rules of the National Association of Securities Dealers, Inc. (the "NASD"),
which would limit to 8,340,218, in the aggregate, the number of shares of
Common Stock issuable upon conversion of shares of Series B Preferred Stock
and exercise of Warrants. The Company agreed in connection with the Private
Placement to seek such approval. If the Company fails to obtain such approval
in a timely manner, then each outstanding share of the Series B Preferred
Stock is redeemable at a holder's option at the greater of $1,330 per share,
plus a 6% per year premium and any default amounts, or a predetermined
redemption formula based on the average of the closing bid prices for the
Company's Common Stock during the period beginning on the date of the holder's
redemption notice and ending on the date of redemption. Assuming no
limitations on the conversion of the Series B Preferred Stock and exercise of
the Warrants, the 15,000 shares of Series B Preferred Stock already sold are
currently convertible into approximately 2,484,513 shares of Common Stock, and
the Warrants already outstanding are exercisable for 1,242,257 shares of
Common Stock, or 3,726,770 shares of Common Stock in the aggregate.
Background
Pursuant to a Securities Purchase Agreement dated December 21, 1998 (the
form of which is attached hereto as Annex A) and the Certificate of
Designations, Preferences and Rights attached hereto as Annex B, the Company
sold the Series B Preferred Stock at a price per share of $1,000 and issued
the Warrants at an exercise price of $3.47 per share (subject to adjustment).
In connection with the sale and issuance of the Series B Preferred Stock and
Warrants, the Company filed a registration statement on Form S-3 to permit the
public sale of shares of Common Stock (i) issuable upon conversion of the
Series B Preferred Stock and (ii) upon exercise of the Warrants. With respect
to the Common Stock issuable upon conversion of Series B Preferred Stock or
upon exercise of the Warrants, the registration statement must remain
effective until the earlier to occur of (i) the date on which all Common Stock
issuable upon conversion of the Series B Preferred Stock or upon exercise of
the Warrants has been sold pursuant to the registration statement or (ii) the
date on which all Common Stock issuable upon conversion of the Series B
Preferred Stock or upon exercise of the Warrants may be immediately sold to
the public without registration and without regard to the amount to be sold by
the holder thereof.
The rights, preferences and privileges of the outstanding Series B Preferred
Stock are summarized as follows:
Premium. The Series B Preferred Stock accrues a 6% per year premium, payable
in cash or Common Stock at the Company's option.
Conversion Price. Each share of Series B Preferred Stock has a face value of
$1,000 and is convertible at the election of the holder into shares of Common
Stock. From and after June 21, 1999, upon sufficient notice, if the then-
effective conversion price for the Series B Preferred Stock is less than
$2.264025, instead of converting the Series B Preferred Stock into Common
Stock upon a holder's request, the Company may elect to pay such holder the
equivalent value of the Common Stock in cash. The conversion price of the
Series B Preferred Stock is $6.0374 per share until May 14, 1999, subject to
certain exceptions. Thereafter, the Series B Preferred Stock is convertible at
the lower of: (i) $6.0374 per share; (ii) 105% of the average closing bid
prices of the Company's Common Stock for the 15 consecutive trading days
immediately prior to and ending on May 14, 1999; and (iii) 101% of the lowest
average closing bid prices of the Company's Common Stock over any 3
consecutive days during the 15 consecutive day period ending on the day prior
to the applicable conversion date.
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<PAGE>
If the Company has not achieved $10 million of written contractual
commitments for sales of the Company's point to multipoint products and
services prior to March 24, 1999, the conversion price of 7,500 shares of the
Series B Preferred Stock shall adjust to the lower of $6.0374 or 101% of the
lowest average closing bid prices of the Company's 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. Further, the conversion price is subject to further adjustment if,
among other things, any material covenant of the Company's convertible bond
indenture or bank agreement is breached and uncured, which breach would or
could result in an acceleration, or which would give the counterparty to such
agreement a right to accelerate the maturity of the debt owed by the Company
to such counterparty. If such an event were to occur, then even prior to May
15, 1999, the conversion price shall adjust to the lower of $6.0374 and 101%
of the lowest average closing bid prices of the Company's Common Stock over
any 3 consecutive days during the 15 consecutive day period ending prior to
the applicable conversion date.
Also, if the Company does not obtain the approval requested by this proposal
at the Annual Meeting, the conversion price shall adjust so that two
alternative methods of calculation of the conversion price will apply: (i) on
each date after the Annual Meeting until the Company obtains such approval of
its stockholders, the conversion price will be the lower of $6.0374 or the
average of the closing bid prices of the Company's Common Stock for the period
beginning on the date of the Annual Meeting and ending on the applicable
conversion date, and (ii) alternatively, the conversion price will be the
lower of $6.0374 and the average of the closing bid prices of the Company's
Common Stock for the period beginning on the date of the Annual Meeting and
ending on the date the Company obtains such stockholder approval. Similarly,
if the Company's registration statement covering the shares of the Company's
common stock issuable upon conversion of the Series B Preferred Stock or
exercise of the Warrants has not been declared effective by the SEC on or
prior to June 21, 1999, then the conversion price shall adjust so that two
alternative methods of calculation of the conversion price will apply: (i) on
each date after June 21, 1999 until the SEC declares the registration
statement effective, the conversion price will be the lower of $6.0374 and the
average of the closing bid prices of the Company's Common Stock for the period
beginning on and including June 21, 1999 and ending on the applicable
conversion date, and (ii) alternatively, the conversion price will be the
lower of $6.0374 and the average of the closing bid prices of the Company's
Common Stock for the period beginning on and including June 21, 1999 and
ending on the date the SEC declares the registration statement effective.
In addition, the foregoing conversion price of the Series B Preferred Stock
is subject to adjustment upon the occurrence of certain other events,
including, but not limited to: (i) the Company's failure to timely deliver
Common Stock upon submission of a notice of conversion of the Series B
Preferred Stock; (ii) the Company's failure to redeem the Series B Preferred
Stock after providing to the holders of the Series B Preferred Stock a notice
of redemption at the Company's option; (iii) the public announcement of a
merger or consolidation involving the Company or any of its subsidiaries; (iv)
the Company's issuance of Common Stock or securities convertible or
exchangeable into Common Stock at a variable price per share or at a price per
share less than a predetermined amount; and (v) the sale by George Roberts,
Chief Executive Officer of the Company, or Michael Sophie, Chief Financial
Officer of the Company, of securities at less than a predetermined per share
price.
Automatic Conversion. Assuming certain conditions are met, the Series B
Preferred Stock will automatically convert into Common Stock on December 22,
2001.
Redemption at Holder's Option. Upon the occurrence of certain events deemed
within the Company's control and not otherwise avoided or cured, each then
outstanding share of the Series B Preferred Stock is redeemable at a holder's
option at the greater of $1,330 per share, plus a 6% per year premium and any
default amounts, or a predetermined redemption formula based on the average of
the closing bid prices for the Company's Common Stock during the period
beginning on the date of the holder's redemption notice and ending on the date
of redemption (the "Redemption Date"). Such events include: (i) the Company's
failure to obtain in a timely manner stockholder approval to issue more than
20% of the Company's Common Stock on conversion of the Series B Preferred
Stock and upon exercise of the warrants issued in connection with the Series B
Preferred Stock; (ii) the Company's failure to deliver in a timely manner
Common Stock upon submission by such
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<PAGE>
investors of a notice of conversion; (iii) the Company's failure to remove
restrictive legends on its Common Stock when required pursuant to the Series B
Preferred Stock financing agreements; (iv) the Company's announcement of its
intention not to issue Common Stock upon conversion of the Series B Preferred
Stock or exercise of the warrants; (v) the Company's knowing breach of any
material covenant or term in the Series B Preferred Stock financing
agreements; (vi) the Company's material breach, as a result of performance
under the Series B Preferred Stock financing agreements, of any agreement to
which it is or becomes a party; (vi) the Company's 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; (viii) the Company's
failure to maintain a sufficient Common Stock reserve to allow conversion of
the Series B Preferred Stock or exercise of the warrants (to the extent no
additional stockholder approval is required to obtain an increase in
authorized shares, if required); (ix) the Company's knowing and material
breach of any agreement involving indebtedness for borrowed money or purchase
price which results in or which would result in acceleration of the maturity
of such debt; and (x) the Company's failure to use best efforts to avoid the
occurrence of certain events that could result in cash payments to holders of
the Series B Preferred Stock as described below.
If the Company is unable to avoid redemption and is unable to redeem the
Series B Preferred Stock upon request, it must redeem that portion that is
permitted and, thereafter, use its best efforts to remedy the impairment
preventing redemption. In addition, certain of the foregoing events may also
require the Company to make additional payments, either in cash or additional
shares of Common Stock or Series B Preferred Stock.
Cash Payments. Upon the occurrence of certain other events deemed outside of
the Company's control, the Company is required to make significant cash
payments to the holders of the Series B Preferred Stock. Such events include,
but are not limited to: (i) the suspension or de-listing of the Company's
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 an aggregate of five (5) days in any nine (9) month period; (ii) the
suspension of the registration statement after its effective date for more
than a predetermined period of time; (iii) failure to maintain sufficient
Common Stock reserved for conversion of the Series B Preferred Stock or
exercise of the warrants (to the extent additional stockholder approval is
required to obtain an increase in authorized shares, if required); (iv)
failure to have declared effective additional registration statements that may
be required under the Series B Preferred Stock financing agreements for shares
of Common Stock issuable as a result of premiums, failures to satisfy certain
obligations, anti-dilution protections or adjustments in the conversion rate
of the Series B Preferred Stock; and (v) failure to obtain approval of this
proposal.
All cash payments required to be made as a result of such an event, together
with all cash payments required to be made under the other Series B Preferred
Stock financing agreements, are capped at an aggregate of $1,330 per share
plus a 6% per year premium and any default amounts. In addition to the
foregoing cash payments, upon the occurrence of such an event, the holders can
require the Company to list its 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 the Company's Common Stock or similar
restriction and, thereafter, require the Company to honor all requested
conversions.
Redemption at the Company's Option. So long as an event pursuant to which
the holders of Series B Preferred Stock are entitled to redemption or an event
requiring the Company 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 (6) immediately preceding consecutive months), the Series B
Preferred Stock is redeemable for cash at the Company's option in certain
limited circumstances, in whole or in part, at premiums varying from 115% to
160% of the original issue price of the Series B Preferred Stock, plus a 6%
premium per year and a default interest rate, if applicable. More
particularly, the Series B Preferred Stock is redeemable: (i) on three dates
between December 22, 1998 and December 22, 1999 at premiums varying between
130% and 120% of the original issue price of the Series B Preferred Stock,
plus a 6% premium per year and any default amounts, provided the Company's
Common Stock is then trading at less than $2.264025; (ii) after December 22,
1999 and prior to December 22, 2000, the Company may redeem the Series B
Preferred Stock at the greater of 160% of the original issue price of the
Series B Preferred Stock, plus a 6% premium per year and any default amounts,
or an amount predetermined by the redemption
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<PAGE>
formula; and (iii) after December 22, 2000, if (a) the closing bid price for
the Company's Common Stock for the ten (10) trading days immediately prior
exceeds a predetermined substantial threshold, the Company may redeem the
Series B Preferred Stock at 115% of the original issue price of the Series B
Preferred Stock, plus a 6% premium per year and any default amounts, or (b)
the Company simultaneously closes a firm commitment underwriting with a
minimum $8.00 per share price and a minimum aggregate amount of $30 million,
the Company may redeem the Series B Preferred Stock at the greater of 120% of
the original issue price of the Series B Preferred Stock plus a 6% premium per
year and any default amounts, or predetermined redemption formula based on the
average of the closing bid prices for the Company's Common Stock during the
period beginning on the date of the holder's redemption notice and ending on
the date of redemption.
The Company must redeem all of the Series B Preferred Stock unless in excess
of $5 million of Series B Preferred Stock (in $1 million increments) will be
redeemed. If the Company fails to redeem the Series B Preferred Stock after
providing a notice of redemption, the Company forfeits all future redemptions
at its option and the conversion rate of the Series B Preferred Stock will be
adjusted.
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 dividend
payments and liquidation preferences. The Series B Preferred Stock has no
voting power, except as otherwise provided by applicable law or pursuant to
certain contractual protections described herein. In connection with the
issuance of the Series B Preferred Stock, the Company has agreed, until
December 22, 1999, not to issue or agree to issue any equity securities at a
price less than fair market value or at a variable or re-settable price,
subject to limited exceptions. In addition, the Company is prohibited from,
among other things, altering, changing or otherwise adversely affecting the
terms of the Series B Preferred Stock; creating or issuing any senior or pari
passu securities; redeeming or paying any dividend on any junior securities;
acting so as to generate taxation under Section 305 of the Internal Revenue
Code of 1986, as amended; and selling or transferring all or substantially all
of its assets without prior approval by the purchasers of the Series B
Preferred Stock. The redemption is also subject to certain limitations imposed
by applicable laws and restrictions in connection with the Company's credit
agreements.
Change of Control. If the Company merges 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 Series B Preferred Stock the day before the
public announcement of the merger. If the Company merges with a private
company or a public company not meeting the threshold criteria, the holders of
the Series B Preferred Stock will be entitled, at their option, (1) to retain
their preferred stock, which will thereafter convert into Common Stock of the
surviving company, or (2) receive either the consideration they would have
received had they converted their Series B Preferred Stock the day before the
public announcement of the merger or receive $1,250 per share of Series B
Preferred Stock then outstanding, up to an aggregate of $18,750,000, in cash,
plus any accrued and unpaid premium and a default interest rate, if
applicable. Notwithstanding the foregoing, the Company is permitted to acquire
other companies without having to provide special consideration to the holders
of the Series B Preferred Stock if the Company does not issue more than 20% of
its Common Stock as merger consideration. The holders of the warrants are
entitled to similar protections in the event of the Company's merger or
consolidation with another Company. The Company is also prohibited from
selling or transferring all or substantially all of its assets without prior
approval by the purchasers of the Series B Preferred Stock.
Warrants. The warrants issued in connection with the Series B Preferred
Stock financing are immediately exercisable until the earlier of: (1) December
22, 2003 and (2) the date on which the closing of a consolidation, merger or
other business combination with or into another entity pursuant to which the
Company does not survive. The exercise price for the Common Stock underlying
the warrant is $3.47 per share (subject to adjustment). If the Company merges
or consolidates 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.
In addition, the number of shares issuable upon exercise of the warrants is
subject to anti-dilution adjustment if the Company sells Common Stock or
securities convertible into or
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<PAGE>
exercisable for Common Stock (excluding certain issuances such as Common Stock
issued under employee, director or consultant benefit plans) at a price per
share less than $3.47 (subject to adjustment).
Stockholder Approval
The issuance of the Company's Common Stock upon conversion of the Series B
Preferred Stock and upon exercise of all the Warrants issued or to be issued
in excess of 8,340,218 shares is subject to stockholder approval pursuant to
the Rules of Nasdaq National Market. Rule 4460(i)(1)(D) of the National
Association of Securities Dealers (the "20% Rule") sets forth designation
criteria for continued inclusion of the Common Stock on the Nasdaq National
Market. The 20% Rule requires companies that are listed on the Nasdaq National
Market to obtain stockholder approval prior to, among other things, issuing
common stock (or securities convertible into or exercisable for common stock)
in a private financing at a price less than the market value of the common
stock, where the amount of common stock to be issued exceeds 20% of either the
common stock outstanding or voting power outstanding immediately prior to the
issuance.
Because the conversion rate of the Series B Preferred Stock will vary with
the trading price of the Company's Common Stock, the number of shares of
Common Stock issuable upon conversion of all of the Series B Preferred Stock
and upon exercise of all of the Warrants may exceed 8,340,218 shares.
Therefore, conversion of all of the Series B Preferred Stock and sale and
issuance of the Common Stock upon exercise of the Warrants may be conditioned
on the approval of this Proposal Four by the Company's stockholders. Assuming
no limitations on the conversion of the Series B Preferred Stock and exercise
of the Warrants, the 15,000 shares already sold are currently convertible into
approximately 2,484,513 shares of Common Stock, and the Warrants already
outstanding are exercisable for 1,242,257 shares of Common Stock, or 3,726,770
shares of Common Stock in the aggregate.
Consequences if Stockholder Approval is Not Obtained
If the stockholder approval sought hereby is not obtained, the Company will
be prohibited by Nasdaq Rule 4460(i) from issuing 20% or more of its Common
Stock in connection with the Private Placement. If the approval sought hereby
is not granted by the stockholders, the Company will be obligated to
immediately redeem, at the Redemption Price (as defined above), all
outstanding shares of Series B Preferred Stock. The "Redemption Price" means a
cash payment equal to the greater of (i) $1,330 (subject to adjustments under
certain circumstances) plus a 6% per year premium and any default amounts or
(ii) a predetermined redemption formula based on the average of the closing
bid prices for the Company's Common Stock.
There can be no assurance that the Company will have available the cash
resources to satisfy its redemption obligations or that it would be able to
effectuate the redemption in compliance with applicable law. If the
stockholder approval sought hereby is not obtained, compliance with the
redemption obligation would likely have a material adverse effect on the
company's financial condition and ability to implement its business strategy.
In addition, any delay in payment will cause such redemption amount to accrue
default interest at the rate of 18% per annum until paid.
Furthermore, in the event that stockholder approval of this proposal is not
obtained, holders of the Series B Preferred Stock can require the Company to
list its 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 the Company's Common Stock or similar restriction and, thereafter, require
the Company to honor all requested conversions. If the Company's Common Stock
were traded on the Nasdaq Over-the-Counter Bulletin Board, the Company's
Common Stock may be subject to reduced liquidity and reduced analyst coverage,
its ability to raise capital in the future may be inhibited and its business,
financial condition and results of operations could be materially adversely
affected. In addition, if the Company's Common Stock is listed on the Nasdaq
Over-the-Counter Bulletin Board rather than on a national exchange, the
Company may be in default under various agreements with certain of its
financing sources, investors and stockholders. Redemption of the Series B
Preferred Stock and any defaults under other agreements could significantly
accelerate the Company's cash expenditures and capital
25
<PAGE>
requirements beyond the levels currently anticipated and would materially and
adversely affect its ability to conduct its business.
In addition, in consideration for the purchasers' agreement to purchase the
Series B Preferred Stock and Warrants, the Company agreed to use its best
efforts to obtain stockholder approval of the conversion and exercise of those
securities. Therefore, if Proposal Four is not approved, this agreement could
require the Company to continue to seek stockholder approval of the conversion
and exercise of those securities, which could be expensive for the Company.
Reasons for the Financing and Use of Proceeds
The Company entered into the Private Placement as described above to raise
capital for operating activities, and currently intends to use the proceeds of
the financing for working capital, purchases of capital equipment and to pay
the costs of the Private Placement.
Further Information
The terms of the Series B Preferred Stock and Warrants are complex and are
only briefly summarized in this Proxy Statement. Stockholders wishing further
information concerning the rights, preferences and terms of the Series B
Preferred Stock and Warrants are referred to the full description thereof
contained in the Company's Current Report on Form 8-K and exhibits thereto
filed with the Securities and Exchange Commission on December 24, 1998, which
may be viewed in the public reading rooms maintained by the Commission at
Securities Exchange Commission, Public Reference Branch, Stop 1-2, 450 Fifth
Street, NW, Washington, DC, 20549-1004. The Company's Current Report on Form
8-K may also be viewed on the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov. The description of terms,
preferences and rights of the Company and holders of Series B Preferred Stock
with respect to the outstanding Series B Preferred Stock and of the Warrants
contained herein is qualified in its entirety by reference to the complete
description of these preferences, rights and terms set forth in the Company's
Current Report on Form 8-K. In addition, the description is qualified in its
entirety by the more detailed information set forth in the forms of Securities
Purchase Agreement and Certificate of Designations, Preferences and Rights of
Series B Preferred Stock that are included as Annex A and Annex B,
respectively, both of which are attached to this proxy statement. Stockholders
are urged to review such information.
The affirmative vote of a majority of the total votes cast on the proposal
in person or by proxy at the Annual Meeting is required to approve this
Proposal Four.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote
"FOR" the issuance of 15,000 shares of Series B Preferred Stock and warrants
to purchase 1,242,257 shares of Common Stock.
26
<PAGE>
PROPOSAL FIVE
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of PriceWaterhouseCoopers LLP,
independent public auditors for the Company during the 1998 Fiscal Year, to
serve in the same capacity for the fiscal year ending December 31, 1999, and
is asking the stockholders to ratify this appointment. The affirmative vote of
a majority of the shares represented and voting at the Annual Meeting is
required to ratify the selection of PriceWaterhouseCoopers LLP.
If the stockholders fail to ratify the appointment, the Board of Directors
will reconsider its selection. Even if the selection is ratified, the Board of
Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of
Directors believes that such a change would be in the best interests of the
Company and its stockholders.
A representative of PriceWaterhouseCoopers LLP is expected to be present at
the Annual Meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions.
Recommendation of the Board of Directors
The Board of Directors unanimously recommends that the stockholders vote FOR
the ratification of the selection of PriceWaterhouseCoopers LLP to serve as
the Company's independent auditors for the fiscal year ending December 31,
1999.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board of Directors may
recommend. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed Proxy.
27
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
February 28, 1999, by (i) all persons who are beneficial owners of five
percent (5%) or more of the Company's Common Stock, (ii) each director and
nominee for director, (iii) the executive officers named in the Summary
Compensation Table of the Executive Compensation and Related Information
section of this Proxy Statement and (iv) all current directors and executive
officers as a group. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially
owned, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
Percentage
Shares of Shares
Beneficially Beneficially
Beneficial Owner Owned(#) Owned(1)
- ---------------- ------------ ------------
<S> <C> <C>
Wellington Management Company, L.L.C.(2)............ 2,272,400 5.22
75 State Street
Boston, MA 02109
Pilgrim Baxter & Associates, Ltd.(3)................ 3,109,860 7.14
825 DuPortail Road
Wayne, PA 19087
State of Wisconsin Investment Board(4).............. 2,659,200 6.11
P.O. Box 7842
Madison, WI 53707
Entities deemed to be affiliated with Putnam
Investments, Inc.(5)............................... 3,353,661 7.70
One Post Office Square
Boston, MA 02109
George P. Roberts(6)................................ 1,473,009 3.29
Pier Antoniucci(7).................................. 591,808 1.34
Michael J. Sophie(8)................................ 431,750 *
John R. Wood(9)..................................... 164,769 *
Kenneth E. Bean, II(10)............................. 143,623 *
M. Bernard Puckett(11).............................. 101,332 *
Gill Cogan(12)...................................... 58,564 *
John A. Hawkins(13)................................. 30,000 *
James J. Sobczak(14)................................ 44,000 *
All current directors and executive officers as a
group (9 persons)(15).............................. 3,034,055 6.58
</TABLE>
- --------
*Less than one percent of the outstanding Common Stock
(1) Percentage of ownership is based on 43,532,000 shares of Common Stock
outstanding on February 28, 1999. Shares of Common Stock subject to stock
options that are currently exercisable or will become exercisable within
60 days after February 28, 1999 are deemed outstanding for computing the
percentage of the person or group holding such options, but are not
deemed outstanding for computing the percentage of any other person or
group.
(2) Pursuant to a Schedule 13G dated January 24, 1998 filed with the
Securities and Exchange Commission, Wellington Management Company, L.L.C.
has reported that as of January 24, 1998 it had shared power to vote or
to direct the vote of 972,400 shares and shared power to dispose or to
direct the disposition of all of the shares.
(3) Pursuant to a Schedule 13G/A dated February 13, 1998, filed with the
Securities and Exchange Commission, Pilgrim Baxter & Associates, Ltd.
reported that as of December 31, 1997 it had sole voting power over
2,487,960 shares, shared voting power over all 3,109,860 shares and sole
dispositive power over all 3,109,860 shares.
(4) Pursuant to a Schedule 13G dated February 1, 1999, filed with the
Securities and Exchange Commission, the State of Wisconsin Investment
Board reported that as of February 1, 1999 it had sole voting power over
all 2,659,200 shares and sole dispositive power over all shares.
28
<PAGE>
(5) Pursuant to a Schedule 13G/A dated January 16, 1998, filed with the
Securities and Exchange Commission, Putnam Investments, Inc., on its own
behalf and on behalf of Marsh & McLennan Companies, Inc., Putnam
Investment Management, Inc. and the Putnam Advisory Company, Inc.
reported that as of January 16, 1998 it had shared voting power over
91,100 shares and shared dispositive power over all 3,353,661 shares.
(6) Includes 1,247,707 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(7) Includes 530,732 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(8) Includes 429,436 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(9) Includes 99,374 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(10) Includes 142,430 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(11) Includes 81,332 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(12) Includes 8,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(13) Includes 30,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(14) Includes 44,000 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
(15) Includes 2,613,011 shares issuable upon exercise of options that are
currently exercisable or will become exercisable within 60 days after
February 28, 1999.
29
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following table provides certain information summarizing the
compensation earned, by (i) the Company's Chief Executive Officer and (ii)
each of the Company's other four executive officers whose salary and bonus for
the fiscal year ended December 31, 1998 (the "1998 Fiscal Year") was in excess
of $100,000 (collectively, the "Named Executive Officers"), for services
rendered in all capacities to the Company and its subsidiaries for each of the
last three fiscal years. No other executive officer who would otherwise have
been included in such table on the basis of salary and bonus earned for the
1998 Fiscal Year resigned or terminated employment during that fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Number of
Annual Compensation Securities
-------------------------- ------------
Long-Term
Compensation
Name and Principal Position Year Salary($)(1) Bonus($) Awards
--------------------------- ---- ------------ -------- ------------
<S> <C> <C> <C> <C>
George P. Roberts....................... 1998 366,600 0 450,000
Chief Executive Officer and 1997 330,069 358,000 300,000
Chairman of the Board of Directors 1996 250,000 162,500 570,000
Pier Antoniucci......................... 1998 270,855 0 200,000
President and Chief Operating Officer 1997 244,962 165,000 200,000
1996 165,769 81,900 300,000
Michael Sophie.......................... 1998 195,000 0 200,000
Chief Financial Officer, Vice President, 1997 175,673 109,000 150,000
Finance and Administration 1996 117,308 48,750 220,000
John Wood............................... 1998 141,278 0 45,000
Senior Vice President, Technology 1997 147,421 28,980 10,000
1996 138,000 44,850 10,000
Kenneth E. Bean, II..................... 1998 107,250 0 90,000
Senior Vice President, Quality Assurance 1997 109,462 25,000 60,000
1996 93,000 30,225 0
</TABLE>
- --------
(1) Includes amounts deferred under the Company's 401(k) Plan.
30
<PAGE>
Option Grants in 1998 Fiscal Year
The following table contains information concerning the stock option grants
made to each of the executive officers named in the Summary Compensation Table
for the 1998 Fiscal Year. No stock appreciation rights were granted to these
individuals during such fiscal year.
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price
Appreciation for
Individual Grant Option Term(1)
--------------------------------------------- -----------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date 5%($) 10%($)
- ---- ---------- ------------ -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
George P. Roberts....... 416,667(2) 6.49 3.00 09/17/08 786,118 1,992,179
33,333(2) .52 3.00 09/17/08 62,889 259,372
Pier Antoniucci......... 166,667(2) 2.59 3.00 09/17/08 314,448 796,873
33,333(2) .52 3.00 09/17/08 62,889 259,372
Michael Sophie.......... 166,667(2) 2.59 3.00 09/17/08 314,448 796,873
33,333(2) .52 3.00 09/17/08 62,889 259,372
John R. Wood............ 33,245(2) .52 3.00 09/17/08 62,733 158,952
11,755(2) .18 3.00 09/17/08 22,178 56,203
Kenneth E. Bean, II..... 2,667(2) .66 3.00 09/17/08 80,499 204,001
47,333(2) .74 3.00 09/17/08 89,302 226,310
</TABLE>
- --------
(1) There can be no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the ten-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock appreciates over the option term, no value will be realized
from the option grants made to the executive officers.
(2) Each option is immediately exercisable for all the option shares, but any
shares purchased under the option will be subject to repurchase by the
Company, at the option exercise price paid per share, should the
individual cease service with the Company prior to vesting in those
shares. Twenty-five percent (25%) of the option shares will vest upon the
optionee's continuation in service through one year following the grant
date and the balance of the shares will vest in thirty-six (36) successive
equal monthly installments upon the optionee's completion of each of the
next thirty-six (36) months of service thereafter. The shares subject to
the option will immediately vest in full should (i) the Company be
acquired by merger or asset sale in which the option is not assumed or
replaced by the acquiring entity or (ii) the optionee's employment be
involuntarily terminated within eighteen (18) months after certain changes
in control or ownership of the Company. The grant date for all of these
options to purchase shares of the Company's Common Stock was September 18,
1998.
31
<PAGE>
Aggregated Option Exercises and Fiscal Year-End Values
The table below sets forth certain information with respect to the Company's
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table concerning the exercise of options during the 1998 Fiscal
Year and unexercised options held by such individuals as of the end of such
fiscal year. No SARs were exercised during the 1998 Fiscal Year, nor were any
SARs outstanding at the end of such fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Aggregate Underlying Unexercised in-the-Money Options
Shares Value Options at FY-End(#) at FY-End(1)
Acquired on Realized ---------------------------- -------------------------------
Name Exercise(#) ($)(2) Exercisable(3) Unexercisable Exercisable($) Unexercisable($)
- ---- ----------- --------- -------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
George P. Roberts ...... 60,000 1,171,875 1,206,457 206,875 712,635 0
Pier Antoniucci ........ 120,000 1,668,296 507,793 121,875 208,207 0
Michael Sophie ......... 79,759 781,632 417,770 70,000 201,243 0
John R. Wood ........... 53,332 1,075,240 98,541 6,459 44,280 0
Kenneth E. Bean, II .... 8,194 92,956 137,014 37,918 89,036 0
</TABLE>
- --------
(1) Based on the fair market value of the option shares at the 1998 Fiscal
Year-end ($3.984 per share based on the closing selling price on the
Nasdaq National Market as of December 31, 1998) less the exercise price.
(2) Based on the fair market value of the shares on the exercise date less the
exercise price paid for those shares.
(3) The exercisable options are immediately exercisable for all the option
shares. However, any shares purchased under the options are subject to
repurchase by the Company, at the original exercise price paid per share,
upon the optionee's cessation of service prior to vesting in such shares.
As of December 31, 1998, the following number of shares were unvested: Mr.
Roberts--892,292 shares; Mr. Antoniucci--478,126 shares; Mr. Bean--138,542
shares; Mr. Sophie--405,206 shares; and Mr. Wood--59,586 shares.
Employment Contracts, Termination of Employment Arrangements and Change of
Control Agreements
The Compensation Committee of the Board of Directors, as Plan Administrator
of the 1995 Stock Option/Stock Issuance Plan, has the authority to provide for
accelerated vesting of the shares of Common Stock subject to any outstanding
options held by the Chief Executive Officer and any other executive officer or
any unvested share issuances actually held by such individual, in connection
with certain changes in control of the Company or the subsequent termination
of the officer's employment following the change in control event.
The Company has entered into severance agreements (the "Agreements") with
George Roberts, Chairman of the Board of Directors and Chief Executive
Officer, Pier Antoniucci, President and Chief Operating Officer, and Michael
Sophie, Chief Financial Officer and Vice President, Finance and Administration
(individually, the "Officer" and collectively the "Officers"), each dated
December 15, 1997. Each of these Agreements provides for the following
benefits should the Officer's employment terminate, either voluntarily or
involuntarily, for any reason within twenty-four (24) months following a
Change in Control: (a) a severance payment in an amount equal to two (2) times
his annual rate of base salary; (b) a bonus in an amount equal to the greater
of either (i) two (2) times the full amount of the Officer's target bonus for
the fiscal year in which the termination occurs or (ii) two (2) times the full
amount of his target bonus for the fiscal year in which a Change in Control
occurs; (c) the shares subject to each outstanding option held by the Officer
(to the extent not then otherwise fully vested) will automatically vest so
that each such option will become immediately exercisable for all the option
shares as fully-vested shares (notwithstanding anything in this Proxy
Statement to the contrary); and (d) the Company will, at its own expense,
provide (i) both Messrs. Sophie and Antoniucci and their respective dependents
with continued health care coverage for a period of up to twenty-four (24)
months following their termination of employment, and (ii) Mr. Roberts and his
dependents continued health care coverage for life. A Change in Control will
be deemed to occur under the Agreements upon: (a) a merger or consolidation in
which securities possessing fifty percent (50%) or more of the total combined
voting power of the Company's outstanding securities are transferred to person
or persons different from the persons holding those securities immediately
prior to such transaction, (b) the sale, transfer or other disposition of all
or substantially all of the assets of the
32
<PAGE>
Company in complete liquidation or dissolution of the Company; (c) a hostile
take-over of the Company, whether effected through a tender offer for more
than twenty-five percent (25%) of the Company's outstanding voting securities
or a change in the majority of the Board by one or more contested elections
for Board membership; or (d) the acquisition, directly or indirectly by any
person or related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company), of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934) of securities possessing more than
thirty percent (30%) of the total combined voting power of the Company's
outstanding securities pursuant to a tender or exchange offer made directly to
the Company's stockholders. In addition, each Officer will be entitled to a
full tax gross-up to the extent one or more of the severance benefits provided
under his Agreement are deemed to constitute excess parachute payments under
the federal income tax laws.
The Company does not have any existing agreements with the Chief Executive
Officer or any other executive officer named in the Summary Compensation Table
that establish a specific term of employment for them, and their employment
may accordingly be terminated at any time at the discretion of the Board of
Directors. The Compensation Committee of the Board of Directors has the
authority as Plan Administrator of the 1995 Plan to provide for the
accelerated vesting of the shares of Common Stock subject to outstanding
options held by the Company's executive officers, whether granted under that
plan or any predecessor plan, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following
certain changes in control or ownership of the Company.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors currently
consists of Mr. Cogan and Mr. Hawkins. Neither of these individuals was an
officer or employee of the Company at any time during the 1998 Fiscal Year or
at any other time.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has
or has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
33
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is responsible for
establishing the base salary and incentive cash bonus programs for the
Company's executive officers. The Committee also has the exclusive
responsibility for the administration of the Company's 1995 Stock Option/Stock
Issuance Plan, under which grants may be made to executive officers and other
key employees of the Company.
Compensation Philosophy
Since the initial public offering of the Company's Common Stock in March
1995, it has been the Committee's policy and objective to provide the
Company's executive officers and other key employees with competitive
compensation opportunities based upon their contribution to the financial
success of the Company, the enhancement of corporate and stockholder values,
the market levels of compensation in effect at companies with which the
Company competes for executive talent and the personal performance of such
individuals. The primary factors that the Committee considered in establishing
the compensation levels of the executive officers for the 1998 fiscal year are
summarized below. The Committee may, however, in its discretion, apply
different factors in setting executive compensation for future fiscal years.
It is the Committee's current objective to have a significant portion of
each officer's compensation contingent upon the Company's performance as well
as upon the officer's own level of performance. Accordingly, the compensation
package for each executive officer and key employee is comprised of three
elements: (i) base salary that reflects individual performance and is designed
primarily to be competitive with salary levels in effect at a select group of
companies with which the Company competes for executive talent, (ii) annual
performance awards payable in cash and based upon the Company's financial
performance and the market performance of the Company's common stock and (iii)
long-term equity incentive awards with overlapping vesting schedules that
strengthen the mutuality of interests between the executive officers and the
Company's stockholders while fostering retention of existing personnel.
The Committee recognizes that the highly-specialized industry sector in
which the Company operates is both extremely competitive and globally-
challenging, with the result that there is substantial demand for high-
caliber, seasoned executives with a high level of industry-specific knowledge
and industry contacts, especially overseas contacts. It is crucial that the
Company reward and be assured of retaining the executive personnel essential
to the attainment of the Company's performance goals. For these reasons, the
Committee believes the Company's executive compensation arrangements must
remain competitive with those offered by other companies of similar magnitude,
complexity and performance records (the "peer group") in order to provide
adequate incentive to the Company's executive officers to continue to provide
services to the Company.
Cash Compensation
A key objective of the Company's current executive compensation program is
to position its key executives to earn annual cash compensation (base salary
plus bonus) equaling or exceeding that which the executive would earn at other
peer group companies. During 1998, the Committee reviewed and relied on
technology industry compensation surveys in its assessment of appropriate
compensation levels.
The fiscal year 1998 base salaries for the named executive officers are
based upon a number of factors, including, without limitation, each
executive's performance and contribution to overall Company performance and
the levels of base salary in effect for comparable positions with the peer
group companies. Base salary decisions are made as part of a formal review
process. Generally, the base salaries of the Company's executive officers for
the 1998 fiscal year ranged from the 10th percentile to the 75th percentile of
the salaries surveyed for comparable positions at the peer group companies. In
defining "peer group companies," the Company considered companies with
revenues between $100 million and $200 million. In 1997, the Company was, and
in
34
<PAGE>
1999 the Company expects to be, in the range from $200 million to $500 million
in revenues. In comparison to other companies in the $200 million to $500
million range, the base salaries for the Company's executive officers ranged
from the 10th percentile to the 50th percentile.
For purposes of the stock price performance graph that appears later in this
Proxy Statement, the Company has selected the Standard and Poors 500
Communications Equipment Manufacturers Index as the industry index. Several of
the companies included in that index were also among the companies that the
Committee surveyed as part of the peer group for comparative compensation
purposes. However, in selecting companies to survey for such compensation
purposes, the Committee focused primarily on whether those companies were
actually competitive with the Company in seeking executive talent and whether
those companies had a management style and corporate culture and annual
revenues similar to the Company's. For this reason, the number of companies
surveyed for compensation data was substantially less than the number of
companies included in the Standard and Poors 500 Communications Equipment
Manufacturers Index.
The annual incentive compensation provided to the Company's executive
officers is in the form of cash bonuses based on the Committee's assessment of
the Company's financial performance for the year and the individual officer's
contribution to that performance. For the 1998 fiscal year, the Committee
determined not to award any cash bonus to the executive officers.
Stock Options
Equity incentives are provided primarily through stock option grants under
the 1995 Plan. The grants are designed to align the interests of each
executive officer with those of the stockholders and provide each individual
with a significant incentive to manage the Company from the perspective of an
owner with an equity stake in the business. Each grant allows the individual
to acquire shares of the Company's Common Stock at a fixed price per share
(the market price on the grant date) over a specified period of time (up to 10
years). The shares subject to each option generally vest in installments over
a two-to-four-year period, contingent upon the executive officer's continued
employment with the Company. Accordingly, the option will provide a return to
the executive officer only if the executive officer remains employed by the
Company during the applicable vesting period, and then only if the market
price of the underlying shares appreciates over the option term.
The number of shares subject to each option grant is set at a level intended
to create a meaningful opportunity for stock ownership based on the officer's
current position with the Company, the base salary associated with that
position, the size of comparable awards made to individuals in similar
positions within the industry, the individual's potential for increased
responsibility and promotion over the option term, and the individual's
personal performance in recent periods. The Committee will also take into
account the executive officer's existing holdings of the Company's Common
Stock and the number of vested and unvested options held by that individual in
order to maintain an appropriate level of equity incentive. However, the
Committee does not intend to adhere to any specific guidelines as to the
relative option holdings of the Company's executive officers.
Chief Executive Officer Performance and Compensation
In setting the base salary for Mr. Roberts for the 1998 fiscal year, the
Committee sought to achieve two objectives: (i) make his base salary
competitive with the base salaries paid to the chief executive officers of the
same peer group of companies which the Committee surveyed for comparative
compensation purposes for all other executive officers of the Company and (ii)
make a significant percentage of his total compensation package contingent
upon Company performance. For the 1998 fiscal year, the base salary of Mr.
Roberts was set at the 75th percentile of the base salary levels in effect for
those other chief executive officers. In comparison to companies in the range
from $200 million to $500 million in revenues, Mr. Roberts' base salary was
set at the 50th percentile of the base salary levels for those chief executive
officers. As indicated above, the Committee decided not to award any cash
bonus to Mr. Roberts or any other executive officer for the 1998 fiscal year.
However, the Committee did grant Mr. Roberts options to purchase an
additional 450,000 shares of the Company's Common Stock during the 1998 fiscal
year. The options have an exercise price equal to the fair
35
<PAGE>
market value of the underlying shares on the grant date, and those shares will
vest in a series of installments over his continued period of employment with
the Company and are accordingly designed to serve an a meaningful incentive
for him to remain in the Company' employ and to further align his interests
with those of the stockholders. Accordingly, the options will have value only
if Mr. Roberts remains in the Company's employ and then only if the market
price of the underlying securities appreciates over the option term.
It is the Committee's view that the total compensation package provided Mr.
Roberts for the 1998 fiscal year is competitive with the typical compensation
packages awarded to chief executive officers in the Company's peer group.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation
exceeding $1 million paid to certain of the corporation's executive officers.
The limitation applies only to compensation that is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1998 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999
will exceed that limit. Options granted under the Company's 1995 Plan are
structured so that any compensation deemed paid to an executive officer in
connection with the exercise of those options will qualify as performance-
based compensation that will not be subject to the $1 million limitation.
Because it is very unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will approach the $1
million limit, the Compensation Committee has decided at this time not to take
any other action to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Compensation Committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
It is the opinion of the Compensation Committee that the executive
compensation policies and programs in effect for the Company's executive
officers provide an appropriate level of total remuneration which properly
aligns the Company's performance and the interests of the Company's
stockholders with competitive and equitable executive compensation in a
balanced and reasonable manner, for both the short and long-term.
Gill Cogan
Member, Compensation Committee
John A. Hawkins
Member, Compensation Committee
36
<PAGE>
Stock Performance Graph
The graph depicted below shows a comparison of cumulative total stockholder
returns for the Company, the Standard and Poors 500 Index and the Standard and
Poors Communications Equipment Manufacturers' Index.
- --------
(1) The graph covers the period from March 2, 1995, the commencement date of
the Company's initial public offering of shares of its Common Stock to
December 31, 1998.
(2) The graph assumes that $100 was invested in the Company on March 2, 1995,
in the Company's Common Stock and in each index, and that all dividends
were reinvested. No cash dividends have been declared on the Company's
Common Stock.
(3) Stockholder returns over the indicated period should not be considered
indicative of future stockholder returns.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated
by reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
37
<PAGE>
CERTAIN TRANSACTIONS
In addition to the indemnification provisions contained in the Company's
Restated Certificate of Incorporation and Bylaws, the Company has entered into
separate indemnification agreements with each of its directors and officers.
These agreements require the Company, among other things, to indemnify such
director or officer against expenses (including attorneys' fees), judgments,
fines and settlements (collectively, "Liabilities") paid by such individual in
connection with any action, suit or proceeding arising out of such
individual's status or service as a director or officer of the Company (other
than Liabilities arising from willful misconduct or conduct that is knowingly
fraudulent or deliberately dishonest) and to advance expenses incurred by such
individual in connection with any proceeding against such individual with
respect to which such individual may be entitled to indemnification by the
Company.
Mr. Roberts' adult son and Mr. Antoniucci's adult daughter each holds a
minority interest in a private company that supplies synthesizers to the
Company for use in its products. To date, the Company has purchased
approximately $10.2 million of synthesizers from such supplier, including
approximately $965,000 in 1998 which is down from $2.3 million in 1997. Sales
of synthesizers to the Company, for fiscal year 1998, accounted for 62% of the
sales of such supplier. The terms of the Company's purchase agreement with
such supplier are no less favorable to the Company than could be obtained from
an unaffiliated third party supplier. The Company also purchases synthesizers
from Geritel S.p.A., Communication Techniques, Inc. and SPC Electronics Corp.
at competitive prices approximately equal to those of such supplier. Each such
adult is financially independent of his or her parent and resides at a
different address from his or her parent.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than 10% of the Company's outstanding Common Stock
are subject to the reporting requirements of Section 16(a) of the Securities
Exchange Act of 1934, as amended that require them to file reports with
respect to their ownership of the Common Stock and their transactions in such
Common Stock. Based upon (i) the copies of Section 16(a) reports which the
Company received from such persons for their 1998 Fiscal Year transactions in
the Common Stock and their Common Stock holdings, and (ii) the written
representations received from one or more of such persons that no annual Form
5 reports were required to be filed by them for the 1998 Fiscal Year, the
Company believes that all reporting requirements under Section 16(a) for such
fiscal year were met in a timely manner by its directors, executive officers
and greater than ten percent beneficial owners.
38
<PAGE>
ANNUAL REPORT
A copy of the Annual Report of the Company for the 1998 Fiscal Year has been
mailed concurrently with this Proxy Statement to all stockholders entitled to
notice of and to vote at the Annual Meeting. The Annual Report is not
incorporated into this Proxy Statement and is not considered proxy
solicitation material.
FORM 10-K
The Company filed an Annual Report on Form 10-K with the Securities and
Exchange Commission on or about March 31, 1999. Stockholders may obtain a copy
of this report, without charge, by writing to Mr. Michael Sophie, Chief
Financial Officer and Vice President, Finance and Administration of the
Company, at the Company's principal executive offices which are located at
3175 South Winchester Boulevard, Campbell, California 95008.
THE BOARD OF DIRECTORS OF P-COM, INC.
Dated: April [ ], 1999
39
<PAGE>
4940-PS-99
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
THIS SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
---------
December 21, 1998, by and among P-Com, Inc., a Delaware corporation (the
"Company"), with headquarters located at 3175 South Winchester Boulevard,
- --------
Campbell, California 95008 and the purchasers (each a "Purchaser" and together
---------
the "Purchasers") set forth on the execution pages hereof, with regard to the
----------
following:
RECITALS
--------
A. The Company and Purchasers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by the
provisions of Regulation D ("Regulation D"), as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
---
as amended (the "Securities Act").
--------------
B. Purchasers desire to purchase, upon the terms and conditions stated in
this Agreement (and, as applicable, the Registration Rights Agreement (as
defined below)), (i) Series B Convertible Participating Preferred Stock of the
Company having the rights set forth in the Certificate of Designations,
Preferences and Rights (the "Certificate of Designation") attached hereto as
--------------------------
Exhibit A (the "Preferred Stock"), which shall be convertible into shares of the
- --------- ---------------
Company's Common Stock, par value $0.0001 per share (the "Common Stock") and
------------
(ii) a Warrant in the form of Exhibit B hereto (a "Warrant" and, when taken
--------- -------
together with all of the warrants issued hereunder, the "Warrants") entitling
--------
the holder thereof to purchase the number of shares (the "Warrant Shares") of
--------------
Common Stock as set forth below. The Preferred Stock and the Warrants are
sometimes collectively referred to herein as the "Convertible Securities." The
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Preferred Stock are referred to herein as the "Conversion Shares." The
-----------------
Preferred Stock, the Warrants, the Conversion Shares and the Warrant Shares are
collectively referred to herein as the "Securities."
----------
C. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
--------- -----------------------------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws. The Certificate of Designation, the Warrants
and the Registration Rights Agreement, together with any other agreements,
documents and instruments to be delivered in connection with the transactions
contemplated hereby, are collectively referred to as the "Ancillary Documents".
-------------------
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each Purchaser
hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Preferred Stock and Warrants. The purchase price (the
----------------------------------------
"Purchase Price") to be paid by each Purchaser for the Preferred Stock and
--------------
Warrant being purchased by such Purchaser shall be equal to $1,000 times the
-----
number of shares of Preferred Stock so purchased. Each Purchaser shall purchase
the number of shares of Preferred Stock set forth on the signature page executed
by such Purchaser.
On the date of the Closing (as defined herein), subject to the terms
and the satisfaction (or waiver) of the conditions set forth in Articles VI and
VII, the Company shall issue and sell to each Purchaser, and each Purchaser
shall purchase from the Company (i) the number of shares of Preferred Stock set
forth below such Purchaser's name on the signature pages hereof and (ii) a
Warrant entitling the holder thereof to purchase the number of Warrant Shares as
set forth in such Warrant. The aggregate purchase price for the Securities
purchased at the Closing shall be fifteen million dollars ($15,000,000).
1.2 Form of Payment. At the Closing, each Purchaser shall pay the
---------------
aggregate Purchase Price for the Preferred Stock and Warrant being purchased by
such Purchaser by wire transfer to the Company, in accordance with the Company's
written wiring instructions, against delivery of duly executed certificates for
the same, and the Company shall deliver such Preferred Stock and certificates
representing the Warrants against delivery of such aggregate Purchase Price. The
obligations in this Agreement of each Purchaser shall be separate from the
obligations of each other Purchaser and shall relate solely to the number of
shares to be purchased by such Purchaser. The obligations of the Company with
respect to each Purchaser shall be separate from the obligations of each other
Purchaser and shall not be conditioned as to any Purchaser upon the performance
of the obligations of any other Purchaser.
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
------------
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Securities pursuant to this Agreement shall
be as soon as practicable after execution of this Agreement, but in any event
within two (2) business days of the execution of this Agreement (the "Closing").
The Closing shall occur at 11:00 a.m. Chicago time, at the offices of Altheimer
& Gray, 10 S. Wacker Drive, Chicago, IL 60606. The date of the Closing is
hereinafter referred to as the "Closing Date."
2
<PAGE>
ARTICLE II
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself and
its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by a Purchaser
to the Company in connection with the transactions contemplated hereby shall be
deemed to have been merged in this Agreement and any such prior representations
and warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 Purchase for Own Account. Purchaser is purchasing the Convertible
------------------------
Securities for investment and for Purchaser's own account and not with a view
toward or in connection with the public sale or distribution thereof. Purchaser
will not resell the Convertible Securities or any securities which may be issued
upon conversion thereof except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment until such time as the Convertible Securities and/or the
Conversion Shares are registered for resale pursuant to the Securities Act or an
exemption from such registration is available (and such securities are sold),
and that the Company has no present intention of registering the Convertible
Securities or the Conversion Shares other than as contemplated by the
Registration Rights Agreement. By making the representations in this Section
2.1, Purchaser does not agree to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose of any of the Securities
at any time pursuant to a registration statement or an exemption from
registration under the Securities Act.
2.2 Accredited Investor Status. Purchaser is an "accredited investor" as
--------------------------
that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. Purchaser understands that the Convertible
----------------------
Securities are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Convertible Securities.
2.4 Information. Purchaser and its counsel have been furnished or given
-----------
access to all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Convertible
Securities which have been specifically requested by Purchaser. Purchaser has
been afforded the opportunity to ask questions of the Company and has received
what Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such
3
<PAGE>
inquiries nor any other due diligence investigation conducted by Purchaser or
any of its representatives shall modify, amend or affect Purchaser's right to
rely on the Company's representations and warranties contained in Article III.
Purchaser understands that Purchaser's investment in the Securities involves a
high degree of risk. Purchaser acknowledges that the Company's filings available
via the SEC's EDGAR document retrieval system as of November 20, 1998 shall be
deemed available to the Purchasers.
2.5 Governmental Review. Purchaser understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
2.6 Transfer or Resale. Purchaser understands that (i) except as provided
------------------
in the Registration Rights Agreement, the Securities have not been and are not
being registered under the Securities Act or any state securities laws, and may
not be transferred unless subsequently registered thereunder or an exemption
from such registration is available (which exemption the Company expressly
agrees may be established as contemplated in clauses (b) and (c) of Section 5.1
hereof); (ii) any sale of such Securities made in reliance on Rule 144 under the
Securities Act (or a successor rule) ("Rule 144") may be made only in accordance
--------
with the terms of said Rule and further, if said Rule is not applicable, any
resale of such Securities without registration under the Securities Act may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
this Agreement or the Registration Rights Agreement). The Company may issue stop
transfer instructions in the event that a Purchaser does not comply with the
provisions in this Section 2.6.
2.7 Legends. Purchaser understands that, subject to Article V hereof, the
-------
certificates for the Convertible Securities, and until such time as the
Conversion Shares or Warrant Shares (as the case may be) have been registered
under the Securities Act as contemplated by the Registration Rights Agreement or
may be sold by Purchaser pursuant to Rule 144 or otherwise without registration,
the certificates for the Conversion Shares or Warrant Shares (as the case may
be) will bear a restrictive legend (the "Legend") in the following form:
------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS
OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
4
<PAGE>
2.8 Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms except as such
enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
---------
under Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the date hereof
as set forth in this Article III. The Company makes no other representations or
warranties, express or implied, to any Purchaser in connection with the
transactions contemplated hereby and any and all prior representations and
warranties, if any, which may have been made by the Company to any Purchaser in
connection with the transactions contemplated hereby shall be deemed to have
been merged in this Agreement and any such prior representations and warranties,
if any, shall not survive the execution and delivery of this Agreement (provided
the foregoing shall not limit the scope of the Company's representation and
warranty in Section 3.9 hereof or any officer certification of the Company
delivered at the Closing).
3.1 Organization and Qualification. The Company and each of its
------------------------------
subsidiaries is a corporation duly organized, validity existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. The Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction where the failure to so qualify would have a
Material Adverse Effect. "Material Adverse Effect" means any material adverse
-----------------------
effect on either (i) the business, operations, properties, financial condition,
operating results or publicly-announced prospects (which prospects have not been
publicly modified prior to November 20, 1998) of the Company and its
subsidiaries, taken as a whole on a consolidated basis or (ii) the transactions
contemplated hereby or the validity or enforceability of, or the authority or
ability of the Company to perform its obligations under this Agreement or any
Ancillary Document.
3.2 Authorization; Enforcement. (a) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, and to issue
and sell and perform its obligations with respect to, the Convertible Securities
in accordance with the terms hereof and to issue the Conversion Shares in
accordance with the terms and conditions of the Certificate of Designation and
the Warrant Shares in accordance with the terms and conditions of the Warrant;
(b) the execution, delivery and performance of this Agreement and the
Registration Rights Agreement by the Company, the
5
<PAGE>
execution and filing of the Certificate of Designations and the execution and
delivery of the Warrant, and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation the issuance of
the Convertible Securities and the reservation for issuance and issuance of the
Conversion Shares and the Warrant Shares) have been duly authorized by all
necessary corporate action and, except as set forth on Schedule 3.2 hereof, no
------------
further consent or authorization of the Company, its board of directors, or its
stockholders or any other person, body or agency is required with respect to any
of the transactions contemplated hereby or thereby (whether under rules of the
Nasdaq National Market System ("Nasdaq"), the National Association of
--------
Securities Dealers or otherwise); (c) this Agreement, the Registration Rights
Agreement and the Convertible Securities have been (or will be when executed and
delivered) duly executed and delivered by the Company; and (d) this Agreement,
the Registration Rights Agreement and the Convertible Securities constitute (or
will, when issued, constitute) legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency, fraudulent conveyance
or transfer, reorganization, moratorium or other similar laws now or hereafter
in effect relating to creditors' rights generally.
3.3 Capitalization. The capitalization of the Company, including the
--------------
authorized capital stock, the number of shares issued and outstanding, the
number of shares reserved for issuance pursuant to the Company's stock option
and stock issuance plans, the number of shares reserved for issuance pursuant to
securities (other than the Convertible Securities and those shares reserved
under the Company's stock option and stock issuance plans) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be initially reserved for issuance upon conversion of the
Convertible Securities and the exercise of the Warrants is set forth on Schedule
--------
3.3. All of such outstanding shares of capital stock have been, or upon
- ---
issuance will be, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company (including the Preferred Stock, the Conversion
Shares and the Warrant Shares) are subject to preemptive rights or to the
Company's knowledge after reasonable investigation any other similar rights of
the stockholders of the Company or any liens or encumbrances (other than as
caused by the Company's stockholders or the Purchasers). There are no
antidilution or any similar provisions triggered (either alone or together with
other action and either currently or after passage of time) by this Agreement or
the issuance of the Convertible Securities or any securities which may be issued
upon conversion or exercise thereof in accordance with the terms thereof.
Except as disclosed in Schedule 3.3, (i) there are no outstanding options,
------------
warrants, scrip, legally binding rights to subscribe for, legally binding calls
or legally binding commitments of any character whatsoever relating to, or
securities or legally binding rights convertible into or exercisable or
exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries (or any securities exercisable or exchangeable therefor or
convertible thereto), or contracts, legally binding commitments, legally binding
understandings or legally binding arrangements by which the Company or any of
its subsidiaries is or may become (as a result of any of the foregoing in
existence as of the date hereof) legally bound to issue additional shares of
capital stock of the Company or any of its subsidiaries (or any such
securities), and (ii) there are no legally binding agreements or legally binding
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). The Company has furnished to
Purchaser true and
6
<PAGE>
correct copies of the Company's Certificate of Incorporation as currently in
effect ("Certificate of Incorporation"), and the Company's By-laws as currently
----------------------------
in effect (the "By-laws"). The Company has set forth on Schedule 3.3 all
------- ------------
instruments and agreements (other than the Certificate of Incorporation and By-
laws) governing securities convertible into or exercisable or exchangeable for
Common Stock of the Company (or any such securities) (and the Company shall
provide to Purchaser copies thereof upon the request of Purchaser). The Company
shall provide Purchaser with a written update of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on behalf of
the Company as of the date of the Closing.
3.4 Issuance of Shares. The Conversion Shares and Warrant Shares are duly
------------------
authorized and reserved for issuance, and, upon conversion or exercise (as the
case may be) of the Convertible Securities in accordance with the terms thereof,
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens, claims and encumbrances, except as created by the Purchasers, and will
not be subject to preemptive rights, except as created by the Purchasers, or to
the Company's knowledge after reasonable investigation other similar rights of
stockholders of the Company. The Convertible Securities are duly authorized and
reserved for issuance, and are validly issued, fully paid and non-assessable,
and free from all taxes, liens claims and encumbrances (except as granted by the
Purchasers) and are not and will not be subject to preemptive rights (except as
granted by the Purchasers) or to the Company's knowledge after reasonable
investigation other similar rights of stockholders of the Company (other than as
created by the Purchasers). The Certificate of Designations has been duly filed
(or will be) as of the Closing Date with the Secretary of State of the State of
Delaware, and the Preferred Stock is (or shall be upon such filing) entitled to
all of the rights, preferences and privileges set forth therein. The Board of
Directors of the Company (the "Board") has unanimously approved the issuance of
shares of Common Stock upon conversion of shares of Preferred Stock and upon the
exercise of the Warrants pursuant to the terms hereof and thereof, including the
circumstance where such conversion would, in the aggregate, require issuance in
excess of twenty percent (20%) of the outstanding shares of Common Stock (the
"Rule 4460(i) Authorization") and has unanimously recommended to the
- ---------------------------
stockholders of the Company the approval of the Rule 4460(i) Authorization.
Accordingly, no further corporate authorization or approval (other than the
Stockholder Approval (as defined in Section 4.13)) is required under the rules
of Nasdaq with respect to the transaction contemplated by this Agreement,
including, without limitation, the issuance of the Conversion Shares and the
Warrant Shares and the inclusion thereof on Nasdaq.
3.5 No Conflicts. The execution, delivery and performance of this
------------
Agreement and the Registration Rights Agreement by the Company, and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance, as
applicable, of the Convertible Securities, Conversion Shares and the Warrant
Shares) does not and will not (a) result in a violation of the Certificate of
Incorporation or By-laws, (b) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party (except for such conflicts, defaults,
terminations, amendments, accelerations, and cancellations as would not,
individually or in the aggregate, have a Material
7
<PAGE>
Adverse Effect), or (c) result in a violation of any law, rule, regulation,
order, judgment or decree (including, without limitation, U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries, or by which any property or asset of the Company or any of its
subsidiaries, is bound or affected. Neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, by-laws or
other organizational documents, and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which, with notice or
lapse of time or both, would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its subsidiaries is not being conducted, in
violation of any law, ordinance, rule, regulation, order, judgment or decree of
any governmental entity, court or arbitration tribunal except for possible
violations the sanctions for which either singly or in the aggregate would not
have a Material Adverse Effect. Except as set forth on Schedule 3.5, the
------------
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement or the
Registration Rights Agreement or the Convertible Securities or to perform its
obligations in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of Nasdaq and does not reasonably
anticipate that the Common Stock will be de-listed by Nasdaq for the foreseeable
future.
3.6 Registration and SEC Documents. The Common Stock is registered under
------------------------------
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and has been so registered since March 2, 1995. Except as disclosed in
Schedule 3.6, since March 2, 1995, the Company has timely filed all reports,
- ------------
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Exchange Act (all of the
foregoing filed after March 2, 1995 and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, being referred to herein as the "SEC Documents"). The
-------------
Company has delivered or made available to each Purchaser true and complete
copies of the SEC Documents, except for exhibits, schedules and incorporated
documents (the SEC Documents filed prior to November 20, 1998, collectively, the
"Filed SEC Documents"). As of their respective dates, the SEC Documents complied
-------------------
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is
currently required to be updated or amended under applicable law and has not
been updated or amended in a subsequent filing with the SEC by November 20,
1998. The financial statements of the Company included in the SEC Documents have
been prepared in accordance with U.S. generally accepted accounting principles,
consistently applied, and the rules and regulations of the SEC during the
periods involved (except (i) as may be otherwise indicated in such financial
8
<PAGE>
statements or the notes thereto, or (ii) in the case of unaudited interim
financial statements, to the extent they do not include footnotes or are
condensed or summary statements) and present accurately and completely the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal, immaterial year-end audit adjustments). Except as clearly
set forth as an actual or potential liability of the Company in the Filed SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred subsequent to the date of such financial statements in
the ordinary course of business consistent with past practice and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, in each case of clause (i) and (ii) next
above which, individually or in the aggregate, are not material to the financial
condition, business, operations, properties, operating results or publicly-
announced prospects (which prospects have not been publicly modified prior to
November 20, 1998) of the Company and its subsidiaries taken on a whole. Except
as otherwise permitted by the rules and regulations of the SEC, the Filed SEC
Documents contain a complete and accurate list or description of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"). None of the Company, its
--------
subsidiaries or, to the knowledge of the Company, any of the other parties
thereto, is in breach or violation (or breach or violation alleged in writing)
of any Contract, which breach or violation (or breach or violation alleged in
writing) would have a Material Adverse Effect. Except as clearly set forth as
such in the Filed SEC Documents, no event, occurrence or condition exists which,
with the lapse of time, the giving of notice, or both, or the happening of any
further event or condition, would become a breach or default by the Company or
its subsidiaries under any Contract which breach or default would have a
Material Adverse Effect.
3.7 Absence of Certain Changes. Since December 31, 1997, there has been
--------------------------
no material adverse change and no material adverse development in the business,
properties, operations, financial condition or results of operations or
publicly-announced prospects (which prospects have not been publicly modified
prior to November 20, 1998) of the Company, except as disclosed in Schedule 3.7
------------
or as clearly disclosed as such in the Filed SEC Documents filed with the SEC
since December 31, 1997.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there is
--------------------- ------------
no action, suit, proceeding, inquiry or investigation before or by any court,
public board, governmental agency or authority, or self-regulatory organization
or body pending or, to the knowledge of the Company or any of its subsidiaries,
threatened against the Company, any of its subsidiaries, or any of their
respective directors or officers in their capacities as such, wherein an
unfavorable decision, ruling or finding would have a Material Adverse Effect. To
the knowledge of the Company, there are no facts which, if known by a potential
claimant or governmental agency or authority, would reasonably be expected to
have a Material Adverse Effect.
9
<PAGE>
3.9 Disclosure. No information (written or oral) relating to or concerning
----------
the Company and set forth in this Agreement or provided to Purchaser in
connection with the transactions contemplated hereby contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. No material adverse
fact (within the meaning of the federal securities laws of the United States)
exists with respect to the Company or any of its subsidiaries which has not been
publicly disclosed. The Company has not provided any Purchaser with any material
non-public information. In making the foregoing representation and warranty, it
is understood and agreed to that the Company has not provided any Purchaser with
any projections prepared by or on behalf of the Company or any assurances
concerning future stock prices.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities. The
---------------------------------------------------------------
Company acknowledges and agrees that Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by Purchaser, or
any of its representatives or agents, in connection with this Agreement or the
transactions contemplated hereby is not advice or a recommendation, is merely
incidental to Purchaser's purchase of the Securities and has not been relied
upon in any way by the Company, its officers, directors or other
representatives. The Company further represents to Purchaser that the Company's
decision to enter into this Agreement and the transactions contemplated hereby
has been based solely on an independent evaluation by the Company and its
representatives.
3.11 Current Public Information. The Company is currently eligible to
---------------------------
register the resale of the Conversion Shares for the account of the Purchasers
on a registration statement on Form S-3 under the Securities Act.
3.12 No General Solicitation. Neither the Company, nor to the Company's
-----------------------
knowledge after reasonable investigation any person acting on behalf of the
Company, has conducted any "general solicitation," as described in Rule 502(c)
under Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor to the Company's
----------------------
knowledge after reasonable investigation any of its affiliates, nor to the
Company's knowledge after reasonable investigation any person acting on its or
their behalf, has directly or indirectly made any offers or sales of any
security or solicited any offers to buy any security under circumstances that
would prevent the parties hereto from consummating the transactions contemplated
hereby pursuant to an exemption from registration under the Securities Act
pursuant to the provisions of Regulation D. The transactions contemplated hereby
are exempt from the registration requirements of the Securities Act, assuming
the accuracy of the representations and warranties herein contained of each
Purchaser to the extent relevant for such determination.
10
<PAGE>
3.14 No Brokers. The Company has taken no action which would give rise to
----------
any claim by any person for brokerage commissions, finder's fees or similar
payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with PaineWebber Incorporated (the fees
of which shall be paid in full by the Company).
3.15 Acknowledgment of Dilution. The number of Conversion Shares issuable
--------------------------
upon conversion of the Convertible Securities may increase substantially in
certain circumstances, including the circumstance wherein the trading price of
the Common Stock declines. The Company's executive officers and directors
understand the nature of the securities being issued and sold hereunder and
recognize that they have a potential dilutive effect. The board of directors of
the Company has unanimously concluded in its good faith business judgment that
such issuance is in the best interests of the Company. The Company acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Stock and the Warrant Shares upon exercise of the Warrants is binding upon it
and enforceable regardless of the dilution that such issuance may have on the
ownership interests of other stockholders.
3.16 Intellectual Property. Each of the Company and its subsidiaries owns
---------------------
or possesses adequate and enforceable rights to use all material patents, patent
applications, trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, licenses, know-how (including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar material rights and
proprietary knowledge (collectively, "Intangibles") used or necessary for the
-----------
conduct of its business as now being conducted and as previously described in
the Company's Annual Report on Form 10-K for its most recently ended fiscal
year. Except as clearly specified in the Filed SEC Documents, to the Company's
knowledge after reasonable investigation, neither the Company nor any subsidiary
of the Company infringes on or is in conflict with any right of any other person
with respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
3.17 Foreign Corrupt Practices. To the Company's knowledge after
-------------------------
reasonable investigation, neither the Company, nor any of its subsidiaries, nor
to the Company's knowledge after reasonable investigation, any director,
officer, agent, employee or other person acting on behalf of the Company or any
subsidiary has, in the course of his actions for, or on behalf of, the Company,
used any corporate funds for any unlawful contribution, gift, entertainment or
other unlawful expenses relating to political activity; made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or, to the Company's knowledge after
reasonable investigation, is currently in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment to any foreign or
domestic government official or employee. Without limiting the generality of the
foregoing, to the Company's knowledge after reasonable investigation, the
Company and its subsidiaries have not directly or indirectly made or agreed to
make (whether or not said payment is lawful) any payment to obtain, or with
respect to, sales other than
11
<PAGE>
usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.18 Inapplicability of Rights Agreement. The Company and the Board have
-----------------------------------
heretofore taken all necessary action and the Rights Agreement (as defined
below) has heretofore been amended so that (a) no Purchaser (or any
transferee, other than a Competitor (as herein defined), of Convertible
Securities approved by the Company's Board of Directors, which approval shall
not be unreasonably withheld) has ever been or will ever be included in the
definition of "Acquiring Person" under the Company's Amended and Restated
Rights Agreement dated as of December 18, 1998 between the Company and
BankBoston, N.A. (the "Rights Agreement") by virtue of entry into this
Agreement, any of the transactions contemplated hereby or the acquisition by
such Purchaser (or such transferee) of any or all of the Securities and (b)
none of the entry into this Agreement, any of the transactions contemplated
hereby or the acquisition of Securities by the Purchaser (or any transferee,
other than a Competitor, of Convertible Securities approved by the Company's
Board of Directors, which approval shall not be unreasonably withheld) has
ever caused or will ever cause under any circumstances whatsoever any adverse
consequence to any of the Purchasers (or any of such transferees) or the
Company pursuant to the Rights Agreement, including, without limitation, the
occurrence of a Distribution Date (as defined in the Rights Agreement) or any
adjustment to the Purchase Price (as defined in the Rights Agreement).
ARTICLE IV
COVENANTS
4.1 Best Efforts. The Company and each Purchaser shall use their best
------------
efforts to timely cause to be satisfied (consistent with the terms of the
Transaction Documents (as defined herein)) each of the conditions described in
Articles VI and VII of this Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect to
---------------
the Securities with the SEC as required under Regulation D and to provide a copy
thereof to each Purchaser or its counsel on or within twenty (20) days of the
date of the Closing. The Company shall, on or prior to the date of the Closing,
take such action as is necessary to sell the Securities to each Purchaser in
accordance with applicable securities laws of the states of the United States,
and shall provide evidence of any such action so taken to each Purchaser on or
prior to the date of the Closing. Without limiting any of the Company's
obligations under this Agreement, the Registration Rights Agreement or the
Certificate of Designation or the Convertible Securities, from and after the
date of the Closing, neither the Company nor any person acting on its behalf
shall take any action which would adversely affect any exemptions from
registration under the Securities Act with respect to the transactions
contemplated hereby.
4.3 Reporting Status. So long as any Purchaser beneficially owns any of
----------------
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
12
<PAGE>
4.4 Use of Proceeds. The Company shall use the proceeds from the sale of
---------------
the Preferred Stock and the Warrants for working capital and general corporate
purposes.
4.5 Restriction on Issuance of Securities. For a period of three hundred
-------------------------------------
and sixty five (365) days following the date of the Closing, the Company shall
not issue or agree to issue (except (i) to Purchasers and their assignees
pursuant to this Agreement and the Ancillary Agreements, (ii) to an industry
partner(s) as part of "strategic investments" in the Company, (iii) in
connection with the grant and/or exercise of options by employees, consultants
or directors, (iv) in connection with direct stock issuances to employees,
consultants or directors, (v) in exchange solely for existing securities, (vi)
in exchange for the Securities, (vii) pursuant to the Stockholders Rights Plan
and the Series A Preferred Stock, as amended, (viii) in connection with
acquisitions of other companies, material technologies or business entities,
(ix) to equipment lessors or banks as an incentive in connection with an
ordinary course of business equipment financings or commercial loans which is
primarily for non-equity financing purposes, and (x) shares of Common Stock in
accordance with Article V of the Company's indenture dated November 1, 1997 and
Paragraph Nine of the notes thereunder) any equity securities at a price less
than the fair market value thereof or any variably or re-set priced equity
securities or equity like securities of the Company (or any security convertible
into or exercisable or exchangeable, directly or indirectly, for equity or
equity like securities of the Company) (each of the foregoing being a
"Restricted Security").
-------------------
4.6 Expenses. The Company shall pay to each Purchaser, or at its
--------
direction, at the Closing, reimbursement for the expenses reasonably incurred
by it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, such
Purchaser's and its affiliates' and advisors' due diligence and attorneys' fees
and expenses (including the review and/or preparation of this Agreement, the
Certificate of Designation, the Warrant and the Registration Rights Agreement
(collectively, the "Transaction Documents"), the associated Registration
---------------------
Statement and all related due diligence and other documents) (the "Expenses");
--------
provided, however, that such reimbursement of Expenses for all Purchasers
shall not exceed $75,000 in the aggregate. In addition, from time to time
thereafter, upon any Purchaser's written request, subject to such $75,000
aggregate limit, the Company shall pay to such Purchaser such Expenses, if
any, not so paid at the Closing and/or covered by such payment, in each case
to the extent reasonably incurred by such Purchaser.
4.7 Information. The Company agrees to send the following reports to each
-----------
Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (a) within five (5) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy
statements and any Current Reports on Form 8-K; and (b) within one (1) day after
release, copies of all material press releases issued by the Company or any of
its subsidiaries. The Company further agrees to promptly provide to any
Purchaser any information with respect to the Company, its properties, or its
business or Purchaser's investment as such Purchaser may reasonably request in
writing; provided, however, that the Company shall not be required to give any
Purchaser any material non-public information. If any information requested by a
Purchaser from the Company
13
<PAGE>
contains material non-public information, the Company shall inform the Purchaser
in writing that the information requested contains material non-public
information and shall in no event provide such information to Purchaser without
the express prior written consent of such Purchaser after being so informed;
provided, however, that the Company shall not be required to give any Purchaser
information subject to the attorney-client privilege or attorney work product
privileges. To the extent any such information is confidential, Purchaser agrees
to execute a customary confidentiality agreement prior to receipt of such
information.
4.8 [Intentionally Deleted]
4.9 Listing. For so long as any Purchaser owns any of the Securities, the
-------
Company shall use its best efforts to continue the listing and trading of its
Common Stock on The Nasdaq SmallCap Market, Nasdaq, the New York Stock Exchange,
the American Stock Exchange, or, in accordance with the Certificate of
Designation, on the over-the-counter electronic bulletin board, secure and
maintain listing and trading of the Conversion Shares and Warrant Shares on such
exchange, and comply in all material respects with the Company's reporting,
filing and other obligations under the by-laws or rules of such exchange.
4.10 Prospectus Delivery Requirement. Each Purchaser understands that the
-------------------------------
Securities Act may require delivery of a prospectus relating to the Common Stock
in connection with any sale thereof pursuant to a registration statement under
the Securities Act covering the resale by such Purchaser of the Common Stock
being sold, and each Purchaser shall comply with the applicable prospectus
delivery requirements of the Securities Act in connection with any such sale.
4.11 [Intentionally Deleted]
4.12 Corporate Existence. Without limiting any rights of the holders of
-------------------
Preferred Stock or Warrants, so long as any Purchaser beneficially owns any
Preferred Stock or Warrants, the Company shall maintain its corporate existence,
except in the event of a merger, consolidation or sale of all or substantially
all of the Company's assets, as long as the surviving or successor entity in
such transaction assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all Preferred Stock outstanding as of the date of such
transaction.
4.13 Share Authorization. The Company shall, unless otherwise consented to
-------------------
by each initial Holder (as defined in the Certificate of Designation), use its
best efforts to obtain the Stockholder Approval (as defined below) no later
than the Approval Date (as defined below). For purposes hereof, the "Approval
--------
Date" means the earliest to occur of (i) sixty (60) days (one hundred and five
- ----
(105) days in the event of SEC review of the Company's proxy statement with
respect to Stockholder Approval) following the earlier of a Trading Market
Trigger Event (as herein defined) or the issuance to any Holder upon conversion
of the Preferred Stock and/or exercise of the Warrants of a number of shares of
the Company's Common Stock equal to 3.3% of the Company's outstanding
14
<PAGE>
Common Stock as of the Closing Date, (ii) six (6) months from the Closing Date,
or (iii) the Company's next annual meeting of stockholders. For purposes hereof,
"Stockholder Approval" means authorization by the stockholders of the Company of
--------------------
the issuance of shares of Common Stock upon conversion of shares of Preferred
Stock pursuant to the terms hereof and the exercise of the Warrants pursuant to
the terms thereof in the aggregate in excess of twenty percent (20%) of the
outstanding shares of Common Stock and, if necessary, the elimination of any
prohibitions under the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Company or any of its securities on the Company's ability to issue shares of
Common Stock in excess of the Cap Amount (as defined in the Certificate of
Designation). In addition, the Company shall, unless otherwise consented to by
each initial Holder, have a definitive proxy statement mailed to each
stockholder of the Company at least twenty (20) days prior to the Approval Date.
The Company shall deliver any SEC comments it receives with respect to its proxy
statement to each Holder and will not file such proxy statement (or any
revisions thereto), whether such proxy statement is in preliminary or definitive
form, without the approval of each initial Holder (as defined in the
Certificate of Designation), which approval shall not be unreasonably withheld
or delayed.
4.14 Conduct of Business. So long as any Purchaser beneficially owns any
-------------------
Securities, the business of the Company and its subsidiaries shall not be
conducted in violation of any law, ordinance, rule, regulation, order, judgement
or decree of any governmental entity, court or arbitration tribunal except for
possible violations the sanctions for which either singularly or in the
aggregate, would not have a Material Adverse Effect.
4.15 Indemnification. The Company will indemnify each Purchaser from and
---------------
against any fees and expenses sought or other claims made by PaineWebber
Incorporated relating to this Agreement and the transactions contemplated
hereby.
ARTICLE V
LEGEND REMOVAL, TRANSFER, AND CERTAIN SALES
5.1 Removal of Legend. The Legend shall be removed and the Company shall
-----------------
issue a certificate without any legend to the holder of any Security upon which
such Legend is stamped, and a certificate for a Security shall be originally
issued without the Legend, unless otherwise required by applicable state
securities laws if (a) the sale of such Security is registered under the
Securities Act, (b) such holder provides the Company with an opinion of
counsel, in form, substance and scope customary or otherwise reasonable for
opinions of counsel (with the expense of such opinion paid by such holder) in
comparable transactions to the effect that a sale or transfer of such Security
may be made without registration under the Securities Act and without the
inclusion of the Legend on the certificate for such Security or (c) such
Security can be sold pursuant to Rule 144. Each Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
Legend has been removed, or which were originally issued without the Legend,
pursuant to an effective registration statement and to deliver a prospectus in
connection with such sale or in compliance with an exemption from the
registration requirements of the Securities Act. In the event the Legend is
15
<PAGE>
removed from any Security or any Security is issued without the Legend and
thereafter such Security may not be sold pursuant to an effective registration
statement under the applicable securities laws, then upon reasonable advance
notice to Purchaser holding such Security, the Company may require that the
Legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 or with respect to which the
opinion referred to in clause (b) next above has not been rendered, which Legend
shall be removed when such Security may be sold pursuant to an effective
registration statement or Rule 144 or such holder provides the opinion with
respect thereto described in clause (b) next above.
5.2 Transfer Agent Instructions. The Company shall instruct its transfer
---------------------------
agent to issue certificates, registered in the name of each Purchaser or its
nominee, for the Conversion Shares and the Warrant Shares in such amounts as
specified from time to time by such Purchaser to the Company upon, and in
accordance with, the conversion of the Preferred Stock and the exercise of the
Warrants. Such certificates shall bear a legend only in the form of the Legend
and only to the extent permitted by Section 5.1 above. The Company warrants
that no instruction other than such instructions referred to in this Article V,
and no stop transfer instructions other than stop transfer instructions (i) to
give effect to Section 2.6 hereof in the case of the Conversion Shares prior to
registration of the Conversion Shares under the Securities Act, (ii) to comply
with SEC or court order and (iii) to suspend the use of the Company's then
effective Registration Statement(s) in the event an amendment or supplement
thereto must be filed in order to make a statement therein not misleading or to
correct the omission of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, but, in the case of this clause (iii), only with respect to
transfers under such Registration Statement and only during the pendency of a
"Permitted Blackout" (as defined in the Registration Rights Agreement), will be
------------------
given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company.
Nothing in this Section shall affect in any way a Purchaser's obligations and
agreement set forth in Section 5.1 hereof to re-sell the Securities pursuant to
an effective registration statement and to deliver a prospectus in connection
with such sale or in compliance with an exemption from the registration
requirements of applicable securities laws. In addition, if (a) a Purchaser
provides the Company with an opinion of counsel, which opinion of counsel shall
be in form, substance and scope customary for opinions of counsel in comparable
transactions and reasonably satisfactory to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Purchaser transfers Securities to an
affiliate or pursuant to Rule 144, the Company shall permit the transfer, and,
in the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Purchaser in order to effect such a transfer
or sale. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss
16
<PAGE>
and without any bond or other security being required. Purchasers shall not
knowingly transfer or otherwise dispose of, in any private off-market offering,
any Convertible Securities to any Competitor of the Company (or any of its
subsidiaries). For purposes of this section, "Competitor" shall mean any person
----------
or entity engaged in the manufacture, sale, distribution, installation,
relocation, engineering, commissioning or program management of microwave radio
equipment that directly competes with the Company.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 Conditions to the Company's Obligation to Sell. The obligation of the
----------------------------------------------
Company hereunder to issue and sell the Convertible Securities to a Purchaser at
the Closing is subject to the satisfaction, as of the date of the Closing and
with respect to such Purchaser, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same to
the Company.
(ii) Such Purchaser shall deliver the applicable Purchase Price for
the Convertible Securities purchased at the Closing.
(iii) The representations and warranties of such Purchaser shall be
true and correct as of the date when made and as of the Closing as though
made at that time, and such Purchaser shall have performed, satisfied and
complied in all material respects with the covenants and agreements
required by this Agreement to be performed or complied with by such
Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which restricts or prohibits the consummation of any of the
transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 Conditions to the Closing. The obligation of each Purchaser
-------------------------
hereunder to purchase the Convertible Securities to be purchased by it on the
date of the Closing is subject to the satisfaction of each of the following
conditions, provided that these conditions are for each Purchaser's sole benefit
and may be waived by such Purchaser (with respect to it) at any time in such
Purchaser's sole discretion:
17
<PAGE>
(i) The Company shall have executed the signature page to this
Agreement, the Warrant and the Registration Rights Agreement and delivered
the same to Purchaser.
(ii) The Company shall have delivered duly executed certificates for
the Preferred Stock (in such denominations as Purchaser shall reasonably
request) and the Warrant being so purchased by Purchaser at the Closing.
(iii) The Common Stock shall be listed on Nasdaq, the New York Stock
Exchange or the American Stock Exchange and trading in the Common Stock
shall not have been suspended by Nasdaq, the New York Stock Exchange or the
American Stock Exchange, the SEC or other regulatory authority and no de-
listing or suspension shall be reasonably likely for the foreseeable
future.
(iv) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as
of the Closing as though made at that time and the Company shall have
performed, satisfied and complied in all material respects with the
covenants and agreements required by any of this Agreement or the
Ancillary Documents to be performed or complied with by the Company at or
prior to the Closing. Purchaser shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of the
Company, dated as of the Closing to the foregoing effect and as to such
other matters as may be reasonably requested by Purchaser.
(v) No statute, rule, regulation, executive order, decree, ruling
or injunction shall have been enacted, entered, promulgated or endorsed by
any court or governmental authority of competent jurisdiction or any self-
regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vi) Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received an opinion of the Company's
outside legal counsel, dated as of the Closing from Brobeck, Phleger &
Harrison LLP and in form and substance reasonably acceptable to Purchasers.
(viii) The Company's transfer agent has agreed to act in accordance
with irrevocable instructions in the form attached hereto as Exhibit D.
---------
(ix) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy
thereof certified by the Secretary of State of Delaware shall have been
delivered to Purchaser and the Certificate of Designation shall not have
been amended, modified or rescinded.
18
<PAGE>
(x) The Company shall have received and delivered to Purchaser the
third amendment under its existing credit facility with Union Bank, N.A.
and Bank of America (the "Credit Agreement") and the Security Agreement
thereunder, in each case satisfactory to Purchaser in its sole discretion.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The parties hereto
irrevocably consent to the jurisdiction of the United States federal courts
located in the State of Delaware and the state courts located in the County of
New Castle in the State of Delaware in any suit or proceeding based on or
arising under this Agreement or the transactions contemplated hereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
further agrees that service of process upon the Company mailed by the first
class mail shall be deemed in every respect effective service of process upon
the Company in any suit or proceeding arising hereunder. Nothing herein shall
affect Purchaser's right to serve process in any other manner permitted by law.
The parties hereto agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
8.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be delivered to the other parties.
8.3 Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
8.5 Scope of Agreement; Amendments. Except as specifically set forth
------------------------------
herein, no Purchaser makes any representation, warranty, covenant or undertaking
with respect to the transactions contemplated hereby. No provision of this
Agreement may be waived other than by an instrument in writing signed by the
party to be charged with enforcement and no provision of this
19
<PAGE>
Agreement may be amended other than by an instrument in writing signed by the
Company, each initial Purchaser and Purchasers holding a majority in interest of
the Convertible Securities.
8.6 Notice. Any notice herein required or permitted to be given shall be
------
in writing and may be personally served or delivered by courier or by facsimile-
machine confirmed telecopy, and shall be deemed delivered at the time and date
of receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
P-Com, Inc.
3175 S. Winchester Blvd.
Campbell, California 95008
Telecopy: (408) 866-3678
Attention: Chief Financial Officer and
Chief Executive Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Palo Alto, California 94303-0913
Telecopy: (650) 496-2733
Attention: Warren T. Lazarow, Esq.
If to any Purchaser, to such address set forth under such Purchaser's name on
the signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.
8.7 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder to any of its "affiliates," as that term is defined under
the Exchange Act, and to any permitted purchaser of Convertible Securities (in
connection with a permitted transfer) without the consent of the Company so long
as such affiliate or purchaser is an accredited investor and signs an assumption
agreement. This provision shall not limit each Purchaser's right to transfer the
Securities pursuant to the terms of this Agreement. In addition, and
notwithstanding anything to the contrary contained in this Agreement, the
Certificate of Designation, the Warrants or the Registration Rights Agreement,
the Securities may be pledged, and all rights of Purchaser under this Agreement
or any other agreement or document related to the transaction contemplated
hereby may be assigned, without further consent of the Company, to a bona fide
pledgee in connection with a Purchaser's margin or brokerage accounts.
20
<PAGE>
8.8 Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
8.9 Survival. The representations and warranties and the agreements and
--------
covenants set forth in Articles II, III, IV, V and VIII shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of Purchaser. Notwithstanding such survival, no party shall bring
any claim or action after the second (2nd) anniversary of the Closing Date based
upon a breach of such representations and warranties. The Company agrees to
indemnify and hold harmless each Purchaser and each of each Purchaser's
officers, directors, employees, partners, agents and affiliates for actual loss
or damage to the extent arising as a result of (a) any breach by the Company of
any of its representations or covenants set forth herein or (b) any cause of
action, suit or claim brought or made against such indemnitee, other than by the
Company solely for breach of this Agreement or any of the other Transaction
Documents by the indemnitee or by governmental or regulatory authorities, and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto or contemplated hereby, any transaction financed or to
be financed in whole or in part, directly or indirectly, with the proceeds of
the issuance of the Preferred Stock or the status of any Purchaser as an
investor in the Company, except to the extent that such actual loss or damage
directly results from a breach by such indemnitee of this Agreement or any of
the Other Transaction Documents or from a violation of law. The right to
indemnification shall include the right to advancement of expenses as they are
incurred.
8.10 Public Filings; Publicity. Immediately following execution of this
-------------------------
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. Prior to the expiration of three (3) days
following the date of the Closing, the Company shall file a Form 8-K regarding
the transaction contemplated by this Agreement; such Form 8-K shall have as
exhibits thereto this Agreement, the Certificate of Designation, the Warrant and
the Registration Rights Agreement. The Company and each Purchaser shall have
the right to review before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although each
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof). Notwithstanding the foregoing, without further
review or approval by the Purchasers or the consent of the Purchasers (provided
such filing or press release was originally reviewed and consented to by the
Purchasers, such filing or press release is not misleading, such filing or press
release has not been subsequently determined to be incorrect in any material
respect and the Purchasers do not otherwise reasonably request changes to or
restrictions on use of such descriptions) the Company may continue to use the
descriptions in the initial press release, the Form 8-K filing (if such filing
has been previously reviewed and approved by the Purchasers), or any other press
release or SEC filing previously reviewed by the Purchasers to describe the
transactions contemplated hereby in future public SEC filings as required by
law.
21
<PAGE>
8.11 Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy to
--------
a Purchaser or the Company shall limit any remedy which would otherwise be
available to such Purchaser or the Company at law or in equity. Nothing in this
Agreement shall limit any rights a Purchaser or the Company may have under any
applicable federal or state securities laws with respect to the investment
contemplated hereby.
8.13 Termination. In the event that the Closing shall not have occurred
-----------
within two (2) business days of the execution of this Agreement, unless the
parties agree otherwise, this Agreement shall terminate. No such termination
shall relieve a party of its breach of this Agreement prior to such termination.
8.14 No Reliance. Each party acknowledges, without limiting any
-----------
representations or warranties or rights or obligations under this Agreement or
the Ancillary Documents, that (i) it has such knowledge in business and
financial matters as to be fully capable of evaluating the Transaction Documents
and the transactions contemplated hereby and thereby, (ii) it is not relying on
any advice or representation or warranty of the other party in connection with
entering into the Transaction Documents or such transactions (other than the
representations made in this Agreement or the Registration Rights Agreement or
certificates delivered at closing), and (iii) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary.
8.15 Integration. This Agreement, the Certificate of Designation, Warrants
-----------
and the Registration Rights Agreement (including all schedules and exhibits
thereto and all certificates and opinions and other documents required thereby)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement, the Certificate of Designation, the Warrants and the
Registration Rights Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
* * *
22
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused
this Agreement to be duly executed as of the date first above written.
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
BY: Castle Creek Partners LLC
ITS: Managing Member
BY: /s/ John D. Ziegelman
----------------------
NAME: John D. Ziegelman
TITLE: Managing Member
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
BY: /s/ Allan Weine
---------------
NAME: Allan Weine
Title: President
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
PURCHASER:
CAPITAL VENTURES INTERNATIONAL
BY: Heights Capital Management, Inc.
ITS: Authorized Agent
BY: /s/ Michael L. Spolan
----------------------
NAME: Michael L. Spolan
TITLE: General Counsel and Secretary
ADDRESS: COPY TO:
----------------------- --------------------
AGGREGATE NUMBER OF PREFERRED SHARES:
------
COMPANY:
BY: /s/ George P. Roberts
----------------------
NAME: George P. Roberts
TITLE: Chairman and Chief Executive Officer
23
<PAGE>
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
P-COM, INC.
The undersigned, Michael J. Sophie hereby certifies that:
(a) he is the duly elected and acting Vice President of Finance and
Administration and Chief Financial Officer of P-Com, Inc., a Delaware
corporation (the "Company");
(b) pursuant to the authority conferred upon the Board of Directors of the
Company by the Company Certificate of Incorporation (the "Certificate"), the
Board of Directors on November 28, 1998, adopted the following resolutions
creating a series of preferred stock designated as Series B Convertible
Participating Preferred Stock;
WHEREAS, the Certificate provides for a class of shares of Preferred Stock,
issuable from time to time in one or more series without stockholder approval,
and
WHEREAS, the Board of Directors of the Company is authorized by the
Certificate to determine the powers, rights, preferences, qualifications,
limitations and restrictions granted to or imposed upon any such series of
Preferred Stock, to fix the number of shares constituting any such series, and
to determine the designation thereof;
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid to determine and fix the powers, rights, preferences, qualification,
limitations and restrictions relating to series of Preferred Stock and the
number of shares constituting, and the designation of, each such series;
NOW THEREFORE, BE IT RESOLVED, that pursuant to the authority vested in the
Board of Directors in accordance with the provisions of the Certificate, a
series of Preferred Stock is hereby created, and the Board of Directors hereby
fixes and determines the designation of, the number of shares constituting, and
the rights, privileges and restrictions relating to Series B Convertible
Participating Preferred Stock as follows:
I. DESIGNATION AND AMOUNT
The designation (this "Certificate of Designation") of this series, which
consists of 20,000 shares of Preferred Stock of P-Com, Inc. a Delaware
corporation (the "Company"), is the Series B Convertible Participating
-------
Preferred Stock (the "Preferred Stock") and the stated value shall be One
---------------
Thousand Dollars ($1,000.00) per share (the "Face Amount").
-----------
II. DIVIDENDS
The Preferred Stock will bear no dividends.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms shall
have the following meanings:
A. "Bankruptcy Event" shall mean any one or more of the following: (i) the
----------------
commencement of any voluntary proceeding by the Company seeking entry of an
order for relief under Title 11 of the United States Code or seeking any similar
or equivalent relief under any other applicable federal or state law concerning
bankruptcy, insolvency, creditors' rights or any similar law; (ii) the making by
the Company of a general assignment for the benefit of its creditors; (iii) the
commencement of any involuntary proceeding respecting the Company seeking entry
of an order for relief against the Company in a case under Title 11 of the
United States Code or seeking any similar or equivalent relief under any other
applicable federal or state law concerning bankruptcy, insolvency, creditors'
rights or any similar law; (iv) entry of a decree or order respecting the
Company by a court having competent jurisdiction, which decree or order (x)
results in the appointment of a receiver, liquidator, assignee, examiner,
custodian, trustee, sequestrator (or other similar official) for the Company or
for any substantial part of its property or (y) orders the winding up,
liquidation, dissolution, reorganization, arrangement, adjustment, or
composition of the Company or any of its debts; (v) the appointment, whether or
not voluntarily by the Company, of a receiver, liquidator,
<PAGE>
assignee, examiner, custodian, trustee, sequestrator (or other similar official)
for the Company or for any substantial part of its property; (vi) the failure by
the Company to pay, or its admission in writing of its inability to pay, its
debts generally as they become due; (vii) the exercise by any creditor of any
right in connection with an interest of such creditor in any substantial part of
the Company's property, including, without limitation, foreclosure upon all or
any such part of the Company's property, replevin, or the exercise of any rights
or remedies provided under the Uniform Commercial Code with regard thereto;
(viii) the making of, or the sending of a notice of, a bulk transfer by the
Company; (ix) the calling by the Company of a general meeting of its creditors;
(x) the failure by the Company to file an answer or other pleading denying the
material allegations of any proceeding described herein that is filed against
it; and (xi) the consent by the Company to any of the actions, appointments, or
proceedings described herein or the failure of the Company to contest in good
faith any such actions, appointments, or proceedings.
B. "Closing Date" shall have the meaning set forth in the Securities
------------
Purchase Agreement, dated as of December 18, 1998, by and among the Company and
the other signatories thereto (the "Securities Purchase Agreement").
-----------------------------
C. "Closing Bid Price" means, for any security as of any date, the closing
-----------------
bid price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to each initial holder of the
Preferred Stock and the holders of the Preferred Stock (each, a "Holder") then
------
holding a majority of the then outstanding shares of Preferred Stock
("Majority Holders") if Bloomberg Financial Markets is not then reporting
----------------
closing bid prices of such security (collectively, "Bloomberg"), or if the
---------
foregoing does not apply, the last reported sale price of such security in the
over-the-counter market on the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to
each initial holder of the Preferred Stock and the Majority Holders, with the
costs of such appraisal to be borne by the Company.
D. "Conversion Date" means the date on which the notice of conversion
---------------
attached hereto as Exhibit A (the "Notice of Conversion") is faxed (or
--------- --------------------
delivered by other means) to and received by the Company; provided, however,
that if such time of receipt is after 7:00 p.m., Eastern time, on a business
day, or at any time on a day which is not a business day, the Conversion Date
shall be the first business day following the date on which the Notice of
Conversion is so delivered; provided, further that the Conversion Date shall
be any future business day after the date of receipt of the Notice of
Conversion as so specified by a Holder in the Notice of Conversion. The
Conversion Date for the Required Conversion at Maturity shall be the Maturity
Date (as such terms are defined herein). A Holder's facsimile machine-
generated confirmation of receipt at the Company's facsimile number is
definitive proof of receipt by the Company.
-2-
<PAGE>
E. "Conversion Price" means, (i) the Fixed Conversion Price with respect
----------------
to any Conversion Date that occurs up to and including May 14, 1999 and (ii) the
lower of the Fixed Conversion Price and the Variable Conversion Price with
respect to any Conversion Date that occurs on or after May 15, 1999, each as in
effect as of any such date and subject to adjustment as provided elsewhere
herein; provided however, that if the Company does not achieve Ten Million
----------------
Dollars ($10,000,000) of bona fide, third-party, unaffiliated written
contractual commitments for sales of its Point to Multipoint products and
services (which are commercial systems that include central locations with
various remote units sharing the capacity in the central location, and related
installation and maintenance services) (the "Milestone") during the period
beginning on the Closing Date and ending on March 24, 1999, then, as to fifty
percent (50%) of the Preferred Stock originally held by each Holder, the
Conversion Price with respect to any Conversion Date from and after March 25,
1999 through May 14, 1999 shall be the lower of the Fixed Conversion Price and
the Variable Conversion Price, each as in effect as of any such date and subject
to adjustment as provided elsewhere herein; provided further that if any
material covenant of the Company's convertible bond indenture or bank agreement
is breached and uncured (it being understood that any waiver (except for any
waiver specified in the amendments contemplated by Section 7.1(x) of the
Securities Purchase Agreement) shall not constitute cure) and which breach
(without giving effect to any waiver) (except for any waiver specified in the
amendments contemplated by Section 7.1(x) of the Securities Purchase Agreement))
would or could result in an acceleration (or which, with the passage of time or
the giving of notice, would or could result in an acceleration) or which would
give the counterparty to such agreement a right to accelerate the maturity of
the debt owed by the Company to such counterparty, the Conversion Price on 100%
of the Preferred Stock on any Conversion Date thereafter and prior to May 15,
1999 shall, until cure of such breach, be the lower of the Fixed Conversion
Price and the Variable Conversion Price, each as in effect as of any such date
and subject to adjustment as provided elsewhere herein. If the Company has not
publicly announced by the close of business on March 26, 1999 that it has
achieved the Milestone, then it is definitively presumed under this Certificate
of Designation that the Company has not achieved the Milestone. If the Milestone
has not been achieved by March 24, 1999, upon each conversion of Preferred Stock
by a Holder prior to May 15, 1999, that Holder may elect whether that conversion
will be counted against that Holder's 50% limit for variable priced conversions
under this Section. The Conversion Price is also subject to adjustment as
provided elsewhere herein.
F. "Fixed Conversion Price" means: (i) up to and including May 14, 1999
----------------------
two hundred percent (200%) of the average of the Closing Bid Prices of the
common stock, $0.0001 par value per share, of the Company (the "Common Stock")
------------
for the fifteen (15) consecutive trading days ending on the day prior to the
Closing Date (the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of
-------------
the Fixed Conversion Price as defined in (i) of this section and one hundred and
five percent (105%) of the average of the Closing Bid Prices of the Common Stock
for the fifteen (15) consecutive trading days immediately prior to and ending on
May 14, 1999; (iii) if the Company has not obtained Stockholder Approval (as
herein defined) by the Approval Date (as defined herein), then on each day
thereafter until the Company obtains Stockholder Approval, the lesser of the
Fixed Conversion Price in effect on such day and the Average Closing Bid Price
(as herein defined) for the period beginning on, and including, such Approval
Date through and including such day; (iv) if the Company has not obtained
Stockholder Approval (as herein defined) by the Approval Date, then beginning on
the date on which the Company obtains Stockholder Approval, the lesser of the
Fixed
-3-
<PAGE>
Conversion Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the date
on which the Company obtained Stockholder Approval; (v) if the Registration
Statement (as such term is defined in the Registration Rights Agreement, dated
as of December 18, 1998, by and among the Company and the other signatories
thereto (the "Registration Rights Agreement")) required to be filed by the
-----------------------------
Company pursuant to Section 2.1 of the Registration Rights Agreement has not
been declared effective by the SEC by the one hundred eightieth (180th) day
following the Closing Date, then on each day thereafter until such Registration
Statement is declared effective, the lesser of the Fixed Conversion Price in
effect on any such day and the Average Closing Bid Price for the period
beginning on, and including, the 180th day following the Closing Date through
and including such day; and (vi) if the Registration Statement required to be
filed by the Company pursuant to the Registration Rights Agreement has not been
declared effective by the SEC by the 180th day following the Closing Date,
beginning on the date on which such Registration Statement is declared
effective, the lesser of the Fixed Conversion Price then in effect and the
Average Closing Bid Price for the period beginning on, and including, the 180th
day following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to equitable
adjustment for any stock splits, stock dividends, reclassifications or similar
events during such period and in each case subject to further adjustment as
provided elsewhere herein. For purposes of this Section F, "Average Closing Bid
-------------------
Price" shall mean the average of the five (5) lowest Closing Bid Prices during
- -----
the applicable period (including the last day of the period); provided, however,
that (x) in clauses (iii) and (iv), if fewer than five (5) trading days have
elapsed between the Approval Date and the last day of the applicable period,
Average Closing Bid Price shall mean the average of the Closing Bid Prices on
each trading day during the period from and including the Approval Date through
and including the last day of the applicable period, and; (y) in clauses (v) and
(vi), if fewer than five (5) trading days have elapsed between the 180th day
following the Closing Date and the last day of the applicable period, Average
Closing Bid Price shall mean the average of the Closing Bid Prices on each
trading day during the period from and including the 180th day following the
Closing Date through and including the last day of the applicable period.
G. "Lowest Trade Price" means, for any security as of any date, the lowest
------------------
trade price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing does not apply, the lowest reported sale price of such security in
the over-the-counter market on the electronic bulletin board of such security as
reported by Bloomberg, or, if no sale price is reported for such security by
Bloomberg, the average of the lowest trade prices of any market makers for such
security as reported in the "pink sheets" by the National Quotation Bureau, Inc.
If the Lowest Trade Price cannot be calculated for such security on such date on
any of the foregoing bases, the Lowest Trade Price of such security on such date
shall be the fair market value as reasonably determined by an investment banking
firm selected by the Company and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Company.
H. "Premium" means $1000 x (N/365) x (.06).
-------
-4-
<PAGE>
N = the number of days from the Closing Date to, and including, the
Conversion Date.
I. "Variable Conversion Price" means, as of any Conversion Date, 101% of
-------------------------
the lowest average of the Closing Bid Prices of the Common Stock occurring over
any three (3) consecutive trading days during the fifteen (15) consecutive
trading day period ending the day prior to the applicable Conversion Date
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during the such fifteen (15) trading day
period) subject to adjustment as provided elsewhere herein.
IV. CONVERSION
A. Conversion at the Option of the Holder. Subject to the limitations
--------------------------------------
on conversions contained in Section IV.G., each Holder may, at any time and from
time to time convert (an "Optional Conversion") any or all of its shares of
Preferred Stock into a number of fully paid and non-assessable shares of Common
Stock determined, for each share of Preferred Stock so to be converted, in
accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
---------------------
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional
-----------------------
Conversion, a Holder shall fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Company (substantially in the form attached
hereto) (the "Notice of Conversion"). As soon as possible following receipt by
the Company of the fax copy of a Notice of Conversion from a Holder, the Company
shall send, via fax, a confirmation to such Holder stating that the Notice of
Conversion has been received, the date upon which the Company expects to deliver
the Common Stock issuable upon such conversion and the name and telephone number
of a contact person at the Company regarding the conversion. No later than one
(1) business day after receipt of such confirmation of receipt to Notice of
Conversion the Holder shall surrender or cause to be surrendered to a reputable
overnight courier for next business day delivery (two (2) business day delivery
if from outside the United States) to the Company or its designee (provided such
designee is located in the continental United States and provided that the
Company must deliver to each Holder notice including the name, address, and
facsimile number of such designee; such designee will not be considered
designated for the purpose of this Section until ten (10) days after receipt of
such notice by each Holder), the certificates representing the Preferred Stock
being converted (the "Preferred Stock Certificates") and a copy of the Notice of
----------------------------
Conversion (or, in lieu thereof, materials contemplated by Section XIV.B, if
applicable).
C. Delivery of Common Stock Upon Conversion. Upon the delivery of a
----------------------------------------
Notice of Conversion, the Company shall, no later than the later of (a) the
third (3rd) business day following the Conversion Date (provided the recipient
is a U.S. addressee and the Company has received
-5-
<PAGE>
delivery of the Preferred Stock Certificates (or satisfaction of the provisions
of Section XIV.B, if applicable) and (b) the day that is the first business day
following the date of delivery of the Preferred Stock Certificates (or
satisfaction of the provisions of Section XIV.B, if applicable) (the "Delivery
--------
Period"), deliver to the Holder (or at its direction) (x) that number of shares
- ------
of Common Stock issuable upon conversion of such shares of Preferred Stock being
converted and (y) a certificate representing the number of shares of Preferred
Stock not being converted, if any. The person or persons entitled to receive
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares at the close of business on the
Conversion Date and such shares shall be issued and outstanding as of such date.
D. Taxes. The Company shall pay any and all taxes (other than transfer
-----
taxes) which may be imposed with respect to the issuance and delivery of the
shares of Common Stock pursuant to conversion of the Preferred Stock.
E. No Fractional Shares. No fractional shares of Common Stock are to be
--------------------
issued upon the conversion of Preferred Stock, but the Company shall instead
round up to the next whole number the number of shares of Common Stock to be
issued upon such conversion.
F. Conversion Disputes. In the case of any dispute with respect to a
-------------------
conversion, the Company shall promptly issue such number of shares of Common
Stock as are not disputed in accordance with Sections IV.A and IV.C hereof. If
such dispute involves the calculation of the Conversion Price, the Company shall
submit the disputed calculations to an independent accounting firm of national
standing, reasonably acceptable to Holder, via facsimile within five (5)
business days of receipt of the Notice of Conversion. The accounting firm shall
audit the calculations and notify the Company and the Holder of the results no
later than five (5) business days from the date it receives the disputed
calculations. The accounting firm's calculation shall be deemed conclusive,
absent manifest error. As soon as possible thereafter, the Company shall then
issue the appropriate number of shares of Common Stock in accordance with
Sections IV.A and IV.C hereof.
G. Limitation on Conversions. The conversion of shares of Preferred
-------------------------
Stock shall be subject to the following limitations (each of which limitations
shall be applied independently):
(i) Cap Amount. Prior to Stockholder Approval, unless otherwise
----------
permitted by the Nasdaq National Market System or unless such rules are no
longer applicable to the Company, in no event shall the total number of shares
of Common Stock issued upon conversion of the Preferred Stock and exercise of
the Warrants (as defined in the Securities Purchase Agreement) exceed the
maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon the conversion of the Preferred Stock and the
exercise of the Warrants, which, as of the date of initial issuance of shares of
Preferred Stock and Warrants, shall be eight million, seven hundred six
thousand, four hundred and eighty three (8,706,483) shares. The Cap Amount shall
be allocated pro-rata to the Holders as provided in Section XIV.C. A Holder's
allocable portion of the Cap Amount shall be applicable to both shares of
Preferred Stock and Warrants held by it and shall be applied to
-6-
<PAGE>
such Preferred Stock and Warrants on the basis of the time of conversion or
exercise, as the case may be, thereof. In the event the Company is prohibited
from issuing shares of Common Stock as a result of the operation of this
subparagraph (i), the Company shall comply with Article VIII.
(ii) Five Percent Holdings. Notwithstanding anything to the contrary
---------------------
contained herein, the Preferred Stock shall not be convertible by a Holder to
the extent (but only to the extent) that, if convertible by such Holder, such
Holder would beneficially own in excess of 4.9% of the shares of Common Stock.
To the extent the foregoing limitation applies, the determination of whether
Preferred Stock shall be convertible (vis-a-vis other securities owned by such
Holder) and of which Preferred Stock shall be convertible (as among shares of
Preferred Stock) shall be made by the Holder and submission of the Preferred
Stock for conversion shall be deemed to be the Holder's determination of whether
such Preferred Stock is convertible (vis-a-vis other securities owned by such
Holder) and of which shares of Preferred Stock are convertible (as among shares
of Preferred Stock), subject to such aggregate percentage limitation. No prior
inability to convert Preferred Stock pursuant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of convertibility. For the purposes of this
Section, beneficial ownership and all determinations and calculations, including
without limitation, with respect to calculations of percentage ownership, shall
be made in accordance with Section 13(d) of the Securities Exchange Act of 1934,
as amended, and Regulation 13D and G thereunder. The provisions of this Section
may be implemented in a manner otherwise than in strict conformity with the
terms of this Section with the approval of the Board of Directors of the Company
and a Holder: (i) with respect to any matter to cure any ambiguity herein, to
correct this subsection (or any portion thereof) which may be defective or
inconsistent with the intended 4.9% beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such 4.9% limitation; and (ii) with respect to any other matter,
only with the further consent of the holders of majority of the then outstanding
shares of Common Stock. For clarification, it is expressly a term of this
security that the limitations contained in this Section shall apply to each
successor Holder of Preferred Stock.
H. Required Conversion at Maturity. Subject to the limitations set
-------------------------------
forth in Section IV.G. and provided all shares of Common Stock issuable upon
conversion of all outstanding shares of Preferred Stock and exercise of all
outstanding Warrants (in each case, without giving effect to any limitation on
conversion or exercise) are then (collectively, the "Liquidity Conditions") (i)
--------------------
authorized and reserved for issuance, (ii) registered under the Securities Act
of 1933, as amended (the "Securities Act") for resale by all Holders of such
--------------
shares of Preferred Stock and Warrants, (iii) listed for trading on any of the
Nasdaq National Market System, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, each share of Preferred Stock
outstanding on the third (3rd) anniversary of the Closing Date (the "Maturity
--------
Date") (and any accrued and unpaid Conversion Default Payments), automatically
- ----
shall be converted into shares of Common Stock on such date in accordance with
the conversion formula set forth in Section IV.A (the "Required Conversion at
----------------------
Maturity"), except as to any Holder who elects otherwise in the event that a
- --------
Bankruptcy Event or Event Within Company Control (as defined herein) or Override
Election Event (as defined herein) has occurred and is continuing (or any facts
and circumstances exist which, if
-7-
<PAGE>
continued, would give rise to a Event Within Company Control or Override
Election Event). If a Required Conversion at Maturity occurs, the Company and
the Holders shall follow the applicable conversion procedures set forth in this
Article IV; provided, however, that a Notice of Conversion shall be deemed to be
delivered to the Company on the Maturity Date. In the event that the limitations
set forth above or in Section IV.G prevent the conversion of all of the
Preferred Stock on the Maturity Date, any unconverted Preferred Stock shall
continue to be subject to Required Conversion at Maturity as set forth in this
Section IV.H at such time as the limitations set forth above and in Section IV.G
no longer prevent such conversion. Each share of Preferred Stock which, as a
result of the limitations above or in Section IV.G (except the limitations of
Section IV.G(ii)), remains unconverted at the Maturity Date, shall remain fully
convertible in accordance with this Certificate of Designation until such time
as the limitations set forth above and in Section IV.G (except those of Section
IV.G(ii)) no longer prevent such conversion and such limitations have not
prevented such conversion for a period of sixty (60) days, and such share is in
fact converted pursuant to this Section. Each share of Preferred Stock which as
a result of the limitations of Section IV.G(ii) remains unconverted at the
Maturity Date, shall remain fully convertible in accordance with the Certificate
of Designation until such time as the limitations of Section IV.G(ii) no longer
prevent such conversion and such share is in fact converted pursuant to this
Section.
I. Electronic Transmission. In lieu of delivering physical certificates
-----------------------
representing the Common Stock issuable upon conversion, upon request of a
Holder, the Company shall use its reasonable best efforts to cause its transfer
agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of Holder's prime broker with DTC through
its Deposit Withdrawal Agent Commission ("DWAC") system or other electronic
delivery system selected by Holder upon reasonable notice.
V. RESERVATION OF AUTHORIZED SHARES OF COMMON STOCK
A. Reserved Amount. The Company shall have authorized and reserved
---------------
and keep available for issuance not less than seventeen million (17,000,000)
shares of Common Stock (subject to equitable adjustment for any stock splits,
stock dividends, reclassification or similar events) (the "Reserved Amount")
---------------
solely for the purpose of effecting the conversion of the Preferred Stock and
the Warrants. The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock a sufficient number of shares
of Common Stock to provide for the full conversion of all outstanding Preferred
Stock and exercise of the Warrants and issuance of the shares of Common Stock in
connection therewith (in each case without giving effect to any limitation on
conversion or exercise thereof). The Reserved Amount shall be allocated among
the Holders as provided in Section XIV.C.
B. Increases to Reserved Amount. Without limiting any other provision
----------------------------
of this Article V, if the Reserved Amount for any five (5) consecutive trading
days (the last of such five (5) trading days being the "Authorization Trigger
---------------------
Date") is less than one hundred fifty percent (150%) of the number of shares of
- ----
Common Stock issuable on such trading days upon conversion of the then
outstanding Preferred Stock and exercise of the then outstanding Warrants (in
each case without
-8-
<PAGE>
giving effect to any limitation on conversion or exercise thereof) then the
Company shall promptly (but in any event within three (3) business days) notify
the Holders of such occurrence and shall use its best efforts (including
solicitation of stockholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to two hundred percent
(200%) of the number of shares of Common Stock issuable upon conversion of the
then outstanding Preferred Stock and exercise of all outstanding Warrants (in
each case, without giving effect to any limitation on conversion or exercise
thereof).
VI. COMPLIANCE WITH CAP AMOUNT RESTRICTIONS
A. Share Authorization. The Company shall, unless otherwise consented
-------------------
to by each initial Holder, use its best efforts to obtain the Stockholder
Approval (as defined below) no later than the Approval Date (as defined below).
For purposes hereof, the "Approval Date" means the earliest to occur of (i)
-------------
sixty (60) days (one hundred and five (105) days in the event of SEC review of
the Company's proxy statement with respect to Stockholder Approval) following
the earlier of a Trading Market Trigger Event (as herein defined) or the
issuance to any Holder upon conversion of the Preferred Stock and/or exercise of
the Warrants of a number of shares of the Company's Common Stock equal to 3.3%
of the Company's outstanding Common Stock as of the Closing Date, (ii) six (6)
months from the Closing Date, or (iii) the Company's next annual meeting of
stockholders. For purposes hereof, "Stockholder Approval" means authorization by
--------------------
the stockholders of the Company of the issuance of shares of Common Stock upon
conversion of shares of Preferred Stock pursuant to the terms hereof and the
exercise of the Warrants pursuant to the terms thereof in the aggregate in
excess of twenty percent (20%) of the outstanding shares of Common Stock and, if
necessary, the elimination of any prohibitions under the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities on the
Company's ability to issue shares of Common Stock in excess of the Cap Amount.
In addition, the Company shall, unless otherwise consented to by each initial
Holder, have a definitive proxy statement mailed to each of stockholder of the
Company at least twenty (20) days prior to the Approval Date. The Company shall
deliver any SEC comments it receives with respect to its proxy statement to each
Holder and will not file such proxy statement, (or any revisions thereto)
whether such proxy statement is in preliminary or definitive form, without the
approval of each initial Holder, which approval shall not be unreasonably
withheld or delayed.
B. Obligation to Notify. If at any date following the Closing Date
--------------------
the then unissued portion of any Holder's Cap Amount is less than one hundred
and seventy-five percent (175%) of the number of shares of Common Stock then
issuable upon conversion of such Holder's shares of Preferred Stock and exercise
of such Holder's Warrants (in each case without giving effect to any limitation
on conversion or exercise thereof) (a "Trading Market Trigger Event"), the
----------------------------
the Company shall within three (3) business days notify the Holders of such
occurrence.
VII. FAILURE TO SATISFY CONVERSIONS
-9-
<PAGE>
A. Conversion Default Payments. If, at any time, (x) a Holder submits
---------------------------
a Notice of Conversion (or is deemed to submit such notice pursuant to Section
IV.H) and the Company fails for any reason (other than because such issuance
would exceed such Holder's allocated portion of the Cap Amount, for which
failure the Holders shall have the remedies set forth in Article VIII) to
deliver, on or prior to the expiration of the Delivery Period for such
conversion, such number of shares of Common Stock to which such Holder is
entitled upon such conversion, or (y) the Company provides notice (including by
way of public announcement) to any Holder at any time of its intention not to
issue shares of Common Stock upon exercise by any Holder of its conversion
rights in accordance with the terms of this Certificate of Designation (other
than because such issuance would exceed such Holder's allocated portion of the
Cap Amount) (each of (x) and (y) being a "Conversion Default"), then if, in the
------------------
case of (x), following the tenth (10th) business day following the Conversion
Date, or in the case of (y), the tenth (10th) day following receipt by the
Holder of notice of the Company's intention not to issue shares, the Company
continues to fail for any reason, in the case of clause (x) above, to deliver
such shares of Common Stock to which such Holder is entitled upon such
conversion, or in the case of clause (y) above, to retract such public notice,
then the Company shall pay to the affected Holder, in the case of a Conversion
Default described in clause (x) above, and to each Holder, in the case of a
Conversion Default described in clause (y) above, an amount equal to one percent
(1%) of the Face Amount of the Preferred Stock with respect to which the
Conversion Default exists (which amount shall be deemed to be the aggregate Face
Amount of all then outstanding Preferred Stock in the case of a Conversion
Default described in clause (y) above) for each subsequent day such Conversion
Default exists, up to a maximum of the theretofore unpaid portion of the Total
Amount. The "Total Amount" shall be the limitation on aggregate payments under
------------
Sections VII.A and VIII.C of this Certificate of Designation and Section 2.3 of
the Registration Rights Agreement and shall be equal to thirty three percent
(33%) of the aggregate Face Amount of Preferred Stock originally outstanding
pursuant to the Securities Purchase Agreement. In the event of a Conversion
Default, the applicable Holder shall not be entitled to receive more than its
previously unpaid allocable portion of the Total Amount (as provided in Section
XIV.C hereof).
The payments to which a Holder shall be entitled pursuant to this
Section VII.A are referred to herein as "Conversion Default Payments."
---------------------------
Conversion Default Payments shall be made the fifth (5th) business day following
written demand by a Holder for payment therefor and otherwise in accordance with
and subject to the provisions of Section XIV.E. "Cure Date" means (i) with
respect to a Conversion Default described in clause (x) of its definition, the
date the Company effects the conversion of the portion of the Preferred Stock
submitted for conversion and (ii) with respect to a Conversion Default described
in clause (y) of its definition, the date the Company undertakes in writing to
issue Common Stock in satisfaction of all conversions of Preferred Stock in
accordance with the terms of this Certificate of Designation (provided the
Company in fact thereafter so satisfies such conversions).
B. Adjustment to Conversion Price. If a Holder has not received
------------------------------
certificates for all shares of Common Stock prior to the tenth (10th) day after
the expiration of the Delivery Period with respect to a conversion of Preferred
Stock for any reason (other than because such issuance would exceed such
Holder's allocated portion of the Cap Amount, for which failure the Holders
shall have
-10-
<PAGE>
the remedies set forth in Article VIII), then the Holder, upon written notice to
the Company, may void its Notice of Conversion with respect to, and retain or
have returned, as the case may be, any shares of Preferred Stock that have not
been converted pursuant to such Holder's Notice of Conversion; provided that the
voiding of a Holder's Notice of Conversion shall not affect the Company's
obligations to make any payments which have accrued prior to the date of such
notice pursuant to Section VII.A or otherwise, and the Fixed Conversion Price in
respect of any shares of Preferred Stock held by such Holder (including any
shares as to which the Notice of Conversion has been so voided) shall thereafter
be the lesser of (i) the Fixed Conversion Price on the Conversion Date specified
in the Notice of Conversion which resulted in the Conversion Default and (ii)
the average of the three (3) lowest Closing Bid Prices occurring during the
fifteen (15) consecutive trading day period ending on the earlier of the Cure
Date and the date such Holder voided the Notice of Conversion, or a shorter
period if the Company cures such failure or such Holder voids such shares prior
to the fifteenth (15th) trading day after the Conversion Date specified in the
Notice of Conversion which resulted in the Conversion Default. If there shall
occur a Conversion Default of the type described in clause (y) of Section VII.A,
then the Fixed Conversion Price with respect to any conversion thereafter shall
be the lower of the Fixed Conversion Price and the average of the three (3)
lowest Closing Bid Prices occurring during the fifteen (15) consecutive trading
day period ending on the Cure Date, or a shorter period if the Company retracts
such statement prior to the fifteenth (15th) trading day after the Holder's
receipt of the notice which resulted in the Conversion Default. The Fixed
Conversion Price shall thereafter be subject to further adjustment under this
Certificate of Designation to the extent such adjustments result in a lower
Fixed Conversion Price.
VIII. CONSEQUENCES OF CERTAIN EVENTS
A. Events Within Company Control. An "Event Within Company Control" means
----------------------------- ----------------------------
any one of the following events, provided such event is Within the Company's
Control (as herein defined):
(i) (A) the Company does not file the Registration Statement
required to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement, within thirty (30) days of the Closing Date; (B) the Company
fails to use its best efforts to obtain effectiveness of the Registration
Statement or to have solicited by proxy, and to obtain, the Stockholder Approval
prior to the Approval Date; (C) the Company does not respond to written or oral
comments from the SEC or its staff regarding such Registration Statement or such
proxy statement, as applicable, as soon as practicable (it is understood that
the Company has an obligation to provide all such SEC comments to all Holders
and to offer the Holders the opportunity to review and comment on such SEC
comments; it is further understood that each Holder has only a limited time to
respond to the Company under the Registration Rights Agreement and hereunder and
that, failing such response, a Holder is deemed to accept the Company's response
to the SEC's comments); or (D) the Company fails to request acceleration of
effectiveness of such registration statement from the SEC as soon as
practicable, but in any case within three (3) business days of the actual
knowledge of a senior officer or the Company's outside counsel that the SEC and
the staff of the SEC have no comments (or further comments, as the case may be)
concerning such Registration Statement; except if any such failure under this
clause (i) was caused by an Act of God or was required by injunction or court or
-11-
<PAGE>
SEC order, provided that the Company shall have used its best efforts to oppose,
remove and appeal such order or injunction;
(ii) upon a valid conversion of Preferred Stock or valid exercise of
Warrants by any Holder, the Company fails for any reason to issue shares of
Common Stock within ten (10) business days after the expiration of the Delivery
Period with respect to any such conversion of Preferred Stock or exercise of
Warrants (other than because such issuance would exceed such Holder's allocated
portion of the Cap Amount or other than to the extent the Company does not have
sufficient shares of Common Stock which are authorized but not outstanding with
which to honor such conversion or exercise), except if such failure was caused
by an Act of God or was otherwise Outside the Company's Control (as defined
below) or was required by injunction or court or SEC order, provided that the
Company shall have used its best efforts to oppose, remove and appeal such order
or injunction;
(iii) the Company fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the Holders of Preferred
Stock or Warrants upon conversion of the Preferred Stock or exercise of the
Warrants (as the case may be) as and when required by Section 5.1 and 5.2 of the
Securities Purchase Agreement, except if such failure was caused by an Act of
God or was otherwise Outside the Company's Control or was required by injunction
or court or SEC order, provided that the Company shall have used its best
efforts to oppose, remove and appeal such order or injunction;
(iv) the Company provides notice to any Holder, including by way of
public announcement, at any time, of its intention not to issue shares of Common
Stock to any Holder upon conversion in accordance with the terms of this
Certificate of Designation (other than because such issuance would exceed such
Holder's allocated portion of the Cap Amount, or other than to the extent the
Company does not have sufficient shares of Common Stock which are authorized but
not outstanding with which to honor such conversion or exercise), except if such
notice was required by injunction or court or SEC order or was otherwise Outside
the Company's Control, provided that the Company shall have used its best
efforts to oppose, remove and appeal such order or injunction;
(v) the Company knowingly commits any act or omission which
constitutes a breach of any material covenant or other material term of this
Certificate of Designation, the Warrants, the Securities Purchase Agreement or
the Registration Rights Agreement, except if the facts underlying such breach
are the subject matter under another clause of this Section VIII.A or under
Section VIII.C, and except if such breach was caused by an Act of God or was
required by injunction or court or SEC order or was otherwise Outside the
Company's Control, provided that the Company shall have used its best efforts to
oppose, remove and appeal such order or injunction;
(vi) subject to clause (ii) of Section VIII.H the Company's
execution or performance of its obligations under this Certificate of
Designation, the Warrants, the Securities Purchase Agreement or the Registration
Rights Agreement (the "Documents") constitutes an actual breach under any
---------
existing agreement of the Company (or would cause a default or acceleration (or
right of acceleration)
-12-
<PAGE>
under such existing agreement), or the Company enters into any new agreement
under which performance of any material obligation under the Documents would be
a breach or cause a default or acceleration (or right of acceleration) under
such new agreement, unless the entry into such new agreement was required by
injunction or court or SEC order, provided that the Company shall have used its
best efforts to oppose, remove and appeal such order or injunction or unless
such breach (and the consequences thereof, including any cross-defaults) are not
material to the Company;
(vii) the Company knowingly commits any act or omission which
constitutes a breach of any representation or warranty (at the time made)
contained in any of the Securities Purchase Agreement, the Registration Rights
Agreement, the Certificate of Designation, the Warrant, or any officer's
certificate given in writing in connection with the issuance of the Preferred
Stock if the facts underlying such breach would have a Material Adverse Effect
or such breach would have a material adverse effect on a Holder with respect to
its investment in the Securities (as defined in the Securities Purchase
Agreement);
(viii) the Company fails to increase the Reserved Amount as required
hereby within ten (10) days following an Authorization Trigger Date if such
increase requires solely approval of the Company's Board of Directors, unless
such failure was required by injunction or court or SEC order, provided that the
Company shall have used its best efforts to oppose, remove and appeal such order
or injunction or was caused by an Act of God;
(ix) the Company knowingly and materially breaches any agreement
involving indebtedness for borrowed money or purchase price, other than as set
forth in the Schedule of Exceptions to the Securities Purchase Agreement, the
breach of which results in the acceleration or right of acceleration (or with
the passage of time or the giving of notice or both would result in the
acceleration or right of acceleration) of the maturity of such debt owed by the
Company, or which would (or, with the passage of time or the giving of
notice or both, would) give rise to a right to accelerate the maturity
of such debt, unless such breach was caused by an Act of God or was otherwise
Outside the Company's Control or was required by injunction or court or SEC
order, provided that the Company shall have used its best efforts to oppose,
remove or appeal such order or injunction or unless such breach (and the
consequences thereof, including any cross-defaults) are not material to the
Company (taking into account the Company's good faith contesting off its rights
and obligations thereunder); or
(x) without the consent of each initial Holder and the Majority
Holders, (A) the Company fails to use its best efforts to avoid the occurrence
of an Override Election Event, or (B) if an Override Election Event occurs and
is continuing and the Company fails to make an Override Election for a period of
ten (10) business days, or (C) the Company makes an Override Election under
Section VIII.D hereof and fails to pay to the Holders, without having first made
a voluntary filing under Chapter 11 of the United States Bankruptcy Code, the
amounts required under that Section at the times required under that Section,
unless any such failure was caused by an Act of God or was required by
injunction or court or SEC order, provided that the Company shall have used its
best efforts to oppose, remove and appeal such order or injunction; or
-13-
<PAGE>
An event shall be "Outside the Company's Control" if the event shall be
caused by factors beyond the Company's control (notwithstanding the Company
having used its best efforts to avoid the occurrence of such event).
An event shall be "Within the Company's Control" if such event was a
voluntary choice by the Company or was otherwise within the Company's control.
B. Consequences of Events Within Company Control. Upon the occurrence of
---------------------------------------------
an Event Within Company Control, each Holder shall have the right to elect at
any time and from time to time by delivery of a Redemption Notice (as defined
herein) to the Company to require the Company to purchase for cash for an amount
per share equal to the Redemption Amount (as defined herein), any or all of the
then outstanding shares of Preferred Stock held by such Holder; provided,
however, that if the Company has used its best efforts to avoid such Event
Within Company Control, and not more than five (5) prior Events Within Company
Control and/or Override Election Events have occurred, such election must be
made prior to the cure (if possible) of such Event Within Company Control;
provided further that no inability to make an election pursuant to the
immediately foregoing proviso shall relieve the Company of any of its
obligations under this Certificate of Designation or the other Transaction
Documents (as defined in the Securities Purchase Agreement) or limit any rights
or remedies of the Holder hereunder or thereunder, in each case with respect to
the facts and circumstances giving rise to such Event Within Company Control. If
a Holder asserts by service of a Redemption Notice that an Event Within Company
Control has occurred, the service of such a Redemption Notice shall be a
definitive determination of the occurrence of such an Event within Company
Control unless the Company within five (5) business days provides a detailed
written statement to each Holder explaining why such purported Event Within
Company Control was not an Event Within Company Control.
C. Override Election Events. An "Override Election Event" means any one
------------------------ -----------------------
of the following:
(i) any event which, but for the fact that it was not knowingly
committed by the Company or was required by injunction, court or SEC order, or
was caused by an Act of God or was otherwise Outside the Company's Control or
was not Within the Company's Control, would be an Event Within Company Control;
(ii) the Common Stock (or any portion thereof) is suspended from
trading on any of, or de-listed (or unauthorized) for trading on any of, the
Nasdaq National Market System, the Nasdaq SmallCap Market, the American Stock
Exchange, or the New York Stock Exchange for an aggregate of five (5) trading
days in any nine (9) month period;
(iii) the Registration Statement required to be filed by the Company
pursuant to Section 2.1 of the Registration Rights Agreement is not declared
effective by the one hundred and eightieth (180th) day following the Closing
Date;
-14-
<PAGE>
(iv) a Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement, after being declared effective,
cannot be utilized by the holders of Registrable Securities (as defined in the
Registration Rights Agreement) for the re-sale of all Registrable Securities for
a period of ten (10) consecutive business days or for an aggregate of more than
twenty (20) days in any twelve month period (not including any Permitted
Blackouts) (as defined in the Registration Rights Agreement));
(v) if shareholder approval is required for the Company to increase
the Reserved Amount as required hereby, the Reserved Amount is not so increased
within sixty (60) days (or one hundred and five (105) days in the event of SEC
review) following an Authorization Trigger Date;
(vi) the Company fails to obtain the effectiveness of any amendment
to an existing registration statement or of any new registration statement
within five (5) business days (in the case of an amendment) or within ten (10)
days following a Registration Trigger Date (as defined in the Registration
Rights Agreement) (in the case of a new registration statement), in each case as
required by Section 2.3 of the Registration Rights Agreement;
(vii) the Company fails to obtain the Stockholder Approval on or
before the Approval Date;
(viii) the Company at any time fails to fully honor a valid conversion
of Preferred Stock or a valid exercise of Warrants because the Company does not
have sufficient shares of Common Stock which are authorized but not outstanding
with which to honor such conversion or exercise; or
(ix) a Bankruptcy Event occurs.
D. Consequences of Override Election Events. Upon the occurrence of an
----------------------------------------
Override Election Event, the Company may elect (an "Override Election"), within
-----------------
five business days following notice to the Company of the occurrence of such an
event, to pay each Holder its pro rata portion, in cash, three percent (3%) the
first week, and five percent (5%) per week thereafter, of the sum of the
aggregate Face Amount of the Preferred Stock originally issued by the Company
plus any accrued and unpaid Premium with respect thereto, until such event no
longer exists, but in no event shall the Company be required to pay more than
the Total Amount, and in no event shall the Company pay any Holder more than
such Holder's theretofore unpaid allocable portion of the Total Amount (as
determined pursuant to Section XIV.C hereof). Any Override Election by the
Company shall be made by written notice to each Holder (via facsimile with a
copy by reputable overnight courier). Regardless of the number of Override
Elections, the Company shall not be required to pay more than the theretofore
unpaid portion of the Total Amount.
E. Definition of Redemption Amount. The "Redemption Amount" with respect
------------------------------- -----------------
to a share of Preferred Stock means an amount equal to the greater of (i) 1.33
times the aggregate Face
-15-
<PAGE>
Amount of the Preferred Stock for which a demand is being made and (ii) an
amount determined by the following formula:
( Face Amount + Premium + other applicable amounts due ) x M
--------------------------------------------------------
C P
where:
"CP" means the Conversion Price in effect on the date of the Redemption
--
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
-
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
F. Redemption Defaults. The Company shall pay a Holder the Redemption
-------------------
Amount, in cash, with respect to each share of Preferred Stock which is subject
to a written notice electing such redemption (a "Redemption Notice") within five
-----------------
(5) business days of the Company's receipt of such Redemption Notice. In the
event the Company is not able to purchase all of the shares of Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Preferred
Stock from each Holder pro rata, based on the total number of shares of
Preferred Stock included by such Holder in the Redemption Notice relative to the
total number of shares of Preferred Stock in all of the Redemption Notices;
provided the foregoing shall not be deemed to limit the Company's obligation to
purchase shares of Preferred Stock hereunder. In addition, and notwithstanding
anything to the contrary contained in this Section VIII.F, so long as the
Company is prevented from redeeming shares of Preferred Stock pursuant to this
Section VIII.F, the Company shall be (and shall be deemed to be) in breach of
the redemption obligations set forth in this Article VIII and each Holder shall
have all rights and remedies under this Certificate of Designation or otherwise
at law for damages, with respect to such breach. In addition, during any such
period, without the prior written consent of each initial Holder, the Company
shall not enter into any agreement, consummate any transaction or otherwise
operate its business in any way outside of the ordinary course of the Company's
business. Furthermore, in this event, each Holder, upon written notice to the
Company, may void its Redemption Notice with respect to, and retain or have
returned, as the case may be, any shares of Preferred Stock that have not been
redeemed pursuant to such Holder's Redemption Notice; provided that the voiding
of a Holder's Redemption Notice shall not affect the Company's obligations to
make any payments which have accrued prior to the date of such notice of voiding
pursuant to this Section.
G. Additional Cap Amount Remedies. Upon the occurrence of an Override
------------------------------
Election Event described in clause (vii) of Section VIII.C, any Holder who is at
any time thereafter prohibited from converting its Preferred Stock or exercising
its Warrants as a result of the Cap Amount may, notwithstanding the Cap Amount
or restrictions with respect thereto, in addition to its other rights under this
Article VIII or otherwise, provided at least one hundred thousand dollars
($100,000) aggregate Face Amount of the Preferred Stock remains outstanding or
Warrants to purchase one
-16-
<PAGE>
hundred thousand (100,000) shares of Common Stock (appropriately adjusted for
stock splits, combinations and the like) remain outstanding, elect to require
the Company to use its best efforts to list its Common Stock on the over-the-
counter electronic bulletin board and to honor all valid conversions and
exercises, notwithstanding and without giving effect to the Cap Amount
restrictions. After any such election, the Company shall so use its best efforts
and so honor all conversions and exercises and the Cap Amount shall no longer
apply to the Preferred Stock or Warrants for all purposes.
H. Capital Impairment and Bank Document Limitation.
-----------------------------------------------
(i) In the event that Section 160 of the Delaware General Corporation
Law ("GCL"), would be violated by the redemption of any shares of Preferred
---
Stock that are otherwise subject to redemption pursuant to this Article VIII,
the Company: (I) will redeem the greatest number of shares of Preferred Stock
possible without violation of said Section; (II) the Company thereafter shall
use its best efforts to take all necessary steps permitted pursuant to this
Certificate of Designation and the agreements entered into in connection with
the issuance of Preferred Stock pursuant thereto in order to remedy its capital
structure in order to allow further redemptions without violation of said
Section (and not take any action inconsistent with so remedying such capital
structure); and (III) from time to time thereafter as promptly as possible the
Company shall redeem shares of Preferred Stock at the request of a Holder to
the greatest extent possible without causing a violation of Section 160 of the
GCL (such redemption to be at the greater of the redemption price in effect at
the time of the original Event Within Company Control giving rise to such
violation and the redemption price which would be applicable for an Event Within
Company Control at the time of such later election under this clause (III)). In
the event the Company is not able to redeem all the shares of Preferred Stock
subject to Redemption Notices, the Company shall redeem shares of Preferred
Stock from each Holder pro rata, based on the total number of shares of
Preferred Stock included by such Holder in the Redemption Notice relative to the
total number of Preferred Stock in all Redemption Notices. In addition, and
notwithstanding anything to the contrary contained in this Section VIII.H, so
long as the Company is prevented from redeeming shares of Preferred Stock
pursuant to this Section VIII.H, the Company shall be (and shall be deemed to
be) in breach of the redemption obligations set forth in this Article VIII and
each Holder shall have all rights and remedies under this Certificate of
Designation or otherwise at law for damages, with respect to such breach. In
addition, during any such period, without the prior written consent of each
initial Holder, the Company shall not enter into any agreement, consummate any
transaction or otherwise operate its business in any way outside of the ordinary
course of the Company's business.
(ii) In the event that the certain Credit Agreement dated as of May
15, 1998 among the Company and certain lenders, amended as of December 17, 1998
(the "Credit Agreement"), or any extension thereof or replacement facility which
----------------
does not adversely affect the rights, privileges or preferences of the Preferred
the Stock or the Holders thereof in any manner and to any extent materially
greater than such rights, privileges and preferences and such Holders are, as of
the initial issuance of the Preferred Stock, already adversely affected as a
result of the terms of the Credit Agreement (collectively, the "Loan
----
Documents"), would be violated by the redemption of, or Override Election
- ---------
-18-
<PAGE>
payments with respect to, any shares of Preferred Stock that are otherwise
subject to redemption or Override Election payments pursuant to this Article
VIII, the Company: (I) will redeem the greatest number of shares of Preferred
Stock possible and make the greatest Override Election payments possible, in
each case, without violation of the Loan Documents; (II) the Company thereafter
shall use its reasonable best efforts to take all reasonably necessary steps
permitted pursuant to this Certificate of Designation and the agreements entered
into in connection with the issuance of Preferred Stock would not result in a
violation or breach hereunder or thereunder) in order to allow further
redemptions and Override Election payments without violation of the Loan
Documents (including, without limitation replacement of or repayments under
under such Loan Documents); and (III) from time to time thereafter as promptly
as possible the Company shall redeem shares of Preferred Stock at the request of
a Holder to the greatest extent possible without causing a violation of the
Loan Documents. In the event the Company is not able to redeem all the shares of
Preferred Stock subject to Redemption Notices due to limitations in the Loan
Documents, the Company shall redeem shares of Preferred Stock from each Holder
pro rata, based on the total number of shares of Preferred Stock included by
such Holder in the Redemption Notice relative to the total number of Preferred
Stock in all Redemption Notices. In addition, and notwithstanding anything to
the contrary contained in this Article VIII, so long as the Company is prevented
from redeeming shares of Preferred Stock or from making Override Election
payments pursuant to this Section VIII.H, the Company shall not be (and shall
not be deemed to be) in breach of such obligations set forth in this Article
VIII.
I. Redemption at Company's Option.
------------------------------
(i) (A) So long as no Override Election Event and no Event Within
Company Control shall have occurred and remain uncured (such cure to have been
effective for at least the six (6) immediately preceding consecutive months),
and provided the Company is not then (and has not for the immediately preceding
six (6) consecutive months been) in violation of any of its material obligations
under the Securities Purchase Agreement, the Warrants, the Registration Rights
Agreement or this Certificate of Designation, then the Company shall have the
right to redeem for cash ("Redemption at Company's Election") all the then
--------------------------------
outstanding Preferred Stock (or a Partial Redemption as set forth below) for the
Optional Redemption Amount (as herein defined), which right shall be exercisable
by delivery of an Optional Redemption Notice (as defined herein) in accordance
with the procedures set forth below. The Company shall have the right to redeem
for cash (a "Partial Redemption", also a Redemption at Company's Election) less
------------------
than all the then outstanding Preferred Stock for the Optional Redemption Amount
upon delivery of an Optional Redemption notice in accordance with the procedures
set forth below, provided that (x) such Partial Redemption is allocated pro rata
among the Holders, based upon the number of shares of Preferred Stock held by
each Holder, and (y) such Partial Redemption is of at least five million dollars
($5,000,000) and, if more than $5,000,000, equal to an integer multiple of one
million dollars ($1,000,000) greater than $5,000,000. If the aggregate Optional
Redemption Amount for all outstanding shares of Preferred Stock is less than
$5,000,000, no Partial Redemption is permitted. Notwithstanding the delivery of
an Optional Redemption Notice, the Holders shall have the right to convert up to
and including the Effective Time of Redemption (as defined herein).
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<PAGE>
(B) The Company may, subject to the other provisions of this
Article VIII (including of this clause (i)), effect a Redemption at Company's
Election in the following circumstances:
(1) on the dates set forth below, if the Closing Bid Price
of the Common Stock as of the tenth (10th) day immediately preceding both the
Optional Redemption Notice and the redemption itself is less than seventy-five
percent (75%) of the Closing Price. The "Optional Redemption Amount" with
--------------------------
respect to each share of Preferred Stock under this clause (1) means X% of the
sum of the Face Amount plus accrued but unpaid Premium plus any other amounts
due with respect thereto, where "X" is determined according to the following
schedule.
Redemption Dates (from the Closing Date) "X"
---------------------------------------- ---
180 days 130%
270 days 125%
360 days 120%
If a Redemption Date as set forth in the table above
falls on a weekend or on a national holiday, the Redemption Date shall be the
next business day following the day set forth in the table.
(2) at any time after the second anniversary of the Closing
Date if the Closing Bid Price of the Common Stock for ten (10) consecutive
trading days immediately prior to the deliver of an Optional Redemption Notice
and on the date of redemption exceeds two hundred percent (200%) of the
applicable Fixed Conversion Price. The "Optional Redemption Amount" with respect
--------------------------
to each share of Preferred Stock under this clause (2) means one hundred and
fifteen percent (115%) of the sum of the Face Amount plus accrued but unpaid
Premium plus any other amounts due with respect thereto.
(3) at any time after the second (2nd) anniversary of the
Closing Date and simultaneously with the closing of a firm commitment
underwriting for at least a minimum of eight dollars ($8.00) per share (subject
to equitable adjustment for any stock splits, stock dividends, reclassifications
or similar events) for a minimum aggregate amount of thirty million dollars
($30,000,000). The Company may not effect a redemption pursuant to this clause
(3) unless, simultaneously with the service of the Optional Redemption Notice,
the Company provides to the Holders a letter from a nationally recognized
underwriting firm advising the Holders that such firm is highly confident that
it can effect such underwriting. The "Optional Redemption Amount" with respect
to each share of Preferred Stock under this clause (3) means the greater of (x)
one hundred and twenty percent (120%) of the sum of the Face Amount plus the
accrued and unpaid Premium plus any other amounts due with respect thereto, and
(y) an amount determined by the following formula:
( Face Amount + Premium + other applicable amounts due ) x M
--------------------------------------------------------
C P
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<PAGE>
where:
"CP" means the Conversion Price in effect on the date of the Redemption
--
Notice; and
"M" means the highest Closing Bid Price of the Company's Common Stock
-
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption, as reported on the principal securities exchange or
trading market on which the Common Stock is traded.
(4) at any time after the first (1st) anniversary of the
Closing Date and before the second (2nd) anniversary of the Closing Date. The
"Optional Redemption Amount" with respect to each share of Preferred Stock under
this clause (4) means the greater of (x) one hundred and sixty percent (160%)
(annualized from the Closing Date to the date of redemption pursuant to this
clause (4)) of the sum of the Face Amount plus the accrued and unpaid Premium
plus other amounts due with respect thereto, and (y) an amount determined by the
formula contained in clause (3)(y) hereof.
(ii) The Company may not deliver an Optional Redemption Notice for a
redemption for cash unless such redemption is with respect to all then-
outstanding shares of Preferred Stock (or as otherwise contemplated in clause
(i)(A) above) and unless the Company has ("Funding Availability"): (a) the full
--------------------
amount of the Optional Redemption Amount in cash, available in a demand or other
immediately available account in a bank or similar financial institution; or (b)
immediately available credit facilities, in the full amount of the Optional
Redemption Amount in cash with a bank or similar financial institution (or
binding commitment letters with respect thereto which commitment letters shall
be subject only to commercially reasonable conditions to closing as to which the
Company's Board of Directors has made a good faith business judgment will be
fulfilled to permit consummation of the redemption hereunder); or (c) an
agreement with a standby underwriter or qualified buyer ready, willing and able
to purchase from the Company a sufficient face amount or number of shares or any
debt or equity securities, subject to the limitations contained in the
Securities Purchase Agreement and herein, to provide net proceeds in the full
amount of the Optional Redemption Amount; or (d) a combination of the items set
forth in the preceding clauses (a), (b) and (c), aggregating the full amount of
the Optional Redemption Amount in cash. The Company may not deliver an Optional
Redemption Notice and the Company may not effect a Redemption at Company's
Election unless all of the Common Stock issuable upon conversion of the
Preferred Stock (at the time of delivery of the Optional Redemption Notice and
for each day thereafter through the Effective Time of Redemption) is covered by
an effective Registration Statement and all such Common Stock can be sold
pursuant thereto at all times during such period and all other Liquidity
Conditions (as defined in Section III.H hereof) are then met. Any Optional
Redemption Notice delivered in accordance with the foregoing shall be
accompanied by a statement executed by a duly authorized officer of the Company
certifying that the Company has Funding Availability and by other appropriate
documentation as evidence of the other provisions of this Section.
-20-
<PAGE>
(iii) The Company shall effect the Redemption at Company's Election
under this Section VIII.I by delivering written notice thereof (the "Optional
--------
Redemption Notice") on a business day that is at least 30 days, and not more
- -----------------
than 60 days, prior to the date on which such redemption is to become effective
(the "Effective Time of Redemption") to each Holder at the facsimile number of
----------------------------
each Holder appearing in the Company's register for the Preferred Stock. Once
the Company has made such an Election, it is irrevocable and binding. The
Optional Redemption Notice shall be deemed to have been delivered to a Holder:
(i) if such fax is received by such Holder on or prior to 3:00 p.m. New York
time, on the date of transmission of the Company's fax; and (ii) if such fax is
received by Holder after 3:00 p.m. New York time, on the next business day
following the date of transmission provided that, for any notice required under
this subsection to be valid, a copy of such notice must be sent to the Holders
on the same day by overnight courier.
(iv) The Optional Redemption Amount shall be paid to each Holder on
the third (3rd) day following the Effective Time of Redemption.
(v) If the Company fails to pay, when due and owing, any Optional
Redemption Amount, then each Holder entitled to receive such Optional Redemption
Amount shall have the right, at any time and from time to time, to require the
Company, upon written notice, to immediately convert (in accordance with the
terms of and subject to the limitations contained in Article IV) any or all of
the shares of Preferred Stock which are the subject of Redemption at Company's
Election into shares of Common Stock at the lower of the Fixed Conversion Price
and the lowest Conversion Price in effect following the Effective Time of
Redemption. In the event of such a default, (a) any future right to effect a
Redemption at Company's Election would be forfeited, and (b) if the average of
the lowest Closing Bid Prices of the Common Stock for any three (3) trading days
(the "Lowest Trade Average") during the during the period (the "Trade Period")
-------------------- ------------
beginning on the date of the Optional Redemption Notice and ending on the
Effective Time of Redemption is lower than the Fixed Conversion Price, then the
Fixed Conversion Price shall be adjusted to the Lowest Trade Average.
(vi) Commencing upon the date that is 181 days from the Closing Date
the Company may, upon advance notice by the Company as provided below and upon
receipt from a Holder of a Notice of Conversion with a Conversion Price that is
less than seventy-five percent (75%) of the Closing Price, elect to pay to such
Holder the "Equivalent Value" of the conversion in cash. In order for the
----------------
Company to elect to pay Equivalent Value with respect to conversions as
aforesaid during any given calendar month, the Company must give written notice
to the Holders at least ten (10) days prior to the first day of that calendar
month. Once the Company makes such an election, it is irrevocable and binding
for the entire following calender month. Any such notice shall be effective for
conversions for no more than one calendar month. If the Company sets a maximum
amount on the total Equivalent Value payments for a given calendar month, such
amount shall be allocated pro rata among the Holders. In the event of a default
in payment of Equivalent Value following such a notice, any right to effect
additional conversions for Equivalent Value shall be forfeited. The Equivalent
Value with respect to each share of Preferred Stock is computed according to the
following formula:
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<PAGE>
Closing Bid Price on
the Conversion Date x A
--------------------------
Conversion Price on
the Conversion Date
A = $1000 + Premium (accrued but unpaid) + other amounts owing in
respect of such shares
Payment of Equivalent Value shall be made within three (3) business
days of the receipt of a Notice of Conversion.
(vii) If the Company redeems all outstanding shares of Preferred
Stock pursuant to this Article VIII and simultaneously issues securities for the
purpose of creating proceeds to effect such redemption, such issuance shall not
of itself constitute a breach of any obligations of, or limitations imposed on,
the Company under Sections IX.A, XIII.C or XIII.D hereof.
IX. RANK; PARTICIPATION
A. Rank. All outstanding shares of the Preferred Stock shall rank (i)
----
prior to the Common Stock; (ii) prior to any other class of capital stock of the
Company now outstanding and prior to any class or series of capital stock of the
Company hereafter created (unless, with the consent of the Holders obtained in
accordance with Article XIII hereof, such class or series of capital stock
specifically, by its terms, ranks senior to or pari passu with the Preferred
---- -----
Stock) (collectively, with the Common Stock, "Junior Securities"); (iii) pari
----------------- ----
passu with any class or series of capital stock of the Company hereafter created
- -----
(with the consent of the Holders obtained in accordance with Article XIII
hereof) specifically ranking, by its terms, on parity with the Preferred Stock
(the "Pari Passu Securities"); and (iv) junior to any class or series of capital
---- ----- ----------
stock of the Company hereafter created (with the consent of the Holders obtained
in accordance with Article XIII hereof) specifically ranking, by its terms,
senior to the Preferred Stock (the "Senior Securities"); in each case as to
-----------------
dividends or as to distribution of assets upon liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary.
B. Participation. Subject to the rights of the holders (if any) of Pari
------------- ----
Passu Securities and Senior Securities, each Holder shall, as a Holder of
- -----
Preferred Stock, be entitled to dividends paid and distributions made to the
holders of Common Stock to the same extent as if such Holder had converted all
of the Preferred Stock held by such Holder on the record date for such dividends
or distributions into Common Stock (without regard to any limitations on
conversion herein or elsewhere contained) at the Conversion Price applicable on
such record date and such Common Stock had been issued on the day before such
record date. Payments under the preceding sentence shall be made concurrently
with the dividend or distribution to the holders of Common Stock.
-22-
<PAGE>
X. LIQUIDATION PREFERENCE
A. Liquidation of the Company. If a Bankruptcy Event shall occur and, on
--------------------------
account of any such event, the Company shall liquidate, dissolve or wind up, or
if the Company shall otherwise liquidate, dissolve or wind up (a "Liquidation
-----------
Event"), no distribution shall be made to the Holders of any shares of capital
- -----
stock of the Company (other than Senior Securities) upon liquidation,
dissolution or winding up unless prior thereto the Holders shall have received
the Liquidation Preference (as herein defined) with respect to each share. If,
upon the occurrence of a Liquidation Event, the assets and funds available for
distribution among the Holders and holders of Pari Passu Securities shall be
---- -----
insufficient to permit the payment to such Holders of the preferential amounts
payable thereon, then the entire assets and funds of the Company legally
available for distribution to the Preferred Stock and the Pari Passu Securities
---- -----
shall be distributed ratably among such shares in proportion to the ratio that
the Liquidation Preference payable on each such share bears to the aggregate
Liquidation Preference payable on all such shares.
B. Certain Acts Not a Liquidation. The purchase or redemption by the
------------------------------
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other entity nor the sale or transfer by the Company of less than substantially
all of its assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company.
C. Definition of Liquidation Preference. The "Liquidation Preference"
------------------------------------ ----------------------
with respect to a share of Preferred Stock means an amount equal to the Face
Amount thereof plus the accrued but unpaid Premium and other amounts unpaid
hereunder, including without limitation Redemption Amounts and Override Election
Amounts, with respect thereto plus any other amounts that may be due from the
Company with respect thereto through the date of final distribution. The
Liquidation Preference with respect to any Pari Passu Securities shall be as set
---- -----
forth in the charter of the Company.
XI. ADJUSTMENTS TO THE CONVERSION PRICE; CERTAIN PROTECTIONS
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
----------------------------------
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased.
B. Certain Public Announcements. In the event that (i) the Company makes
----------------------------
a public announcement that it intends to consolidate or merge with any other
entity (other than a merger in
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<PAGE>
which the Company is the surviving or continuing entity and its capital stock is
unchanged and there is no issuance thereof) (or that any subsidiary of the
Company will merge or consolidate with any other person (other than a merger in
which the Company issues no securities)) or to sell or transfer all or
substantially all of the assets of the Company or (ii) any person, group or
entity (including the Company) publicly announces a tender offer in connection
with which such person, group or entity seeks to purchase 50% or more of the
Common Stock (the date of the announcement referred to in clause (i) or (ii) of
this paragraph is hereinafter referred to as the "Announcement Date"), then the
-----------------
Conversion Price shall, effective upon the Announcement Date and continuing
through the consummation of the proposed tender offer or transaction or the
Abandonment Date (as defined below), be equal to the lesser of (x) the
Conversion Price calculated as provided in Article IV and (y) the Conversion
Price which would have been applicable for a conversion occurring on the
Announcement Date (and in each case of (x) and (y), the Conversion Price shall
be deemed to be the lesser of the Fixed Conversion Price and the Variable
Conversion Price prior to May 15, 1999). From and after the Abandonment Date, as
the case may be, the Conversion Price shall be determined as set forth in
Article IV. The "Abandonment Date" means with respect to any proposed
-----------------
transaction or tender offer for which a public announcement as contemplated by
this paragraph has been made, the date which is sixteen (16) trading days after
the date upon which the Company (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer which
causes this paragraph to become operative.
C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge with
any other corporation or entity (other than a merger in which the Company is
the surviving or continuing entity and its capital stock is unchanged and
unissued in such transaction (except for Common Stock constituting less than
twenty percent (20%) of the Company's Common Stock then outstanding)) or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each Holder shall thereafter
be entitled to (a) in the event that the Common Stock remains outstanding or
holders of Common Stock receive any common stock or substantially similar
equity interest, in each of the foregoing cases which is publicly traded,
retain its Preferred Stock and such Preferred Stock shall continue to apply to
such Common Stock or shall apply, as nearly as practicable, to such other
common stock or equity interest, as the case may be, or (b) regardless or
whether (a) applies, receive consideration, in exchange for each share of
Preferred Stock held by it, equal to the greater of, as determined in the sole
discretion of such Holder: (i) the number of shares of stock or securities or
property of the Company, or of the entity resulting from such Major Transaction
(the "Major Transaction Consideration"), to which a holder of the number of
-------------------------------
shares of Common Stock delivered upon conversion of such shares of Preferred
Stock would have been entitled upon such Major Transaction had the Holder
exercised its right of conversion (without regard to any limitations on
conversion herein or elsewhere contained) (at the lesser of the Fixed Conversion
Price and the Variable Conversion Price (prior to, on or after May 15, 1999)) on
the trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock been
issued and outstanding and had such Holder been the holder of record of such
Common Stock at the time of the consummation of such Major Transaction, and (ii)
one hundred twenty five percent (125%) of the Face Amount plus accrued and
unpaid premiums of such shares of Preferred Stock in cash; and the Company shall
make lawful provision for the forgoing as a part of such Major Transaction and
shall cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume all
of the Company's obligations under the Registration Rights Agreement. In the
event that the Company shall consolidate or merge with any
-24-
<PAGE>
corporation in a transaction in which common stock of the surviving corporation
or parent thereof (the "Exchange Securities") is issued to the holders of Common
Stock in such transaction in exchange for all such Common Stock, and (a) the
Exchange Securities are publicly traded, (b) the average daily trading volume of
the Exchange Securities reported by Bloomberg during the ninety (90) day period
ending on the date on which such transaction is publicly disclosed is greater
than two million dollars ($2,000,000) per day, (c) the historical one hundred
(100) day volatility of the Exchange Securities reported by Bloomberg during the
period ending on the date on which such transaction is publicly disclosed is
greater than fifty percent (50%) and (d) the last sale price of the Exchange
Securities on the date immediately before the date on which such transaction is
publicly disclosed is not less than sixty five percent (65%) of the last sale
price of the Exchange Securities on any day during the twenty (20) trading day
period ending on such date (in each case as reported by Bloomberg) (a "Common
Stock Major Transaction"), then each Holder shall following consummation of such
transaction have the right to receive solely, in exchange for each share of
Preferred Stock held by it, consideration equal to the number of shares of
stock or securities or property issued or paid in such Common Stock Major
Transaction to which a holder of the number of shares of Common Stock which
would have been delivered upon conversion of a share of Preferred Stock would
have been entitled upon such Common Stock Major Transaction had the Holder of
such share of Preferred Stock exercised its right of conversion (without
regard to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price (prior
to, on or after May 15, 1999)) with respect to such share of Preferred Stock
on the trading date immediately preceding the public announcement of the
transaction resulting in such Common Stock Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder
of record of such Common Stock at the time of the consummation of such Common
Stock Major Transaction; and the Company shall make lawful provision
for the foregoing as a part of such Common Stock Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume all
of the Company's obligations under the Registration Rights Agreement. No sooner
than ten (10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction or Common Stock Major Transaction, as
the case may be, (each, a "Transaction") but not prior to the public
announcement of such Transaction, the Company shall deliver written notice
("Notice of Transaction") to each Holder, which Notice of Transaction shall
---------------------
be deemed to have been delivered one (1) business day after the Company's
sending such notice by telecopy (provided that the Company sends a confirming
copy of such notice on the same day by overnight courier) of such Notice of
Transaction. Such Notice of Transaction shall indicate the amount and type of
the Transaction consideration which such Holder would receive under this
Section. If the Major Transaction consideration does not consist entirely of
United States currency, such Holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of the
Holder's receipt of the Notice of Transaction.
D. If George Roberts or Michael Sophie, during the period from December
1, 1998 until the date which is three hundred and sixty five (365) days from the
Closing Date, and while an officer or director, directly or indirectly, offer,
sell, transfer, assign, pledge, or otherwise dispose of any shares of Common
Stock, or any securities directly or indirectly convertible into or exercisable
or exchangeable for, or warrants, options or rights to purchase or acquire
shares of Common Stock (all such securities, "Options") or enter into any
agreement, contract, arrangement or understanding with respect to any such
offer, sale, transfer, assignment, pledge or other disposition of any Common
Stock or Options, in each case based upon a price of the Common Stock less than
the Fixed Conversion Price on the Closing Date (as adjusted for stock splits,
stock dividends, reclassifications or similar events during such period), then,
if the Lowest Trade Price during the period beginning on such date and ending on
the date twenty (20) days following public announcement of such event is
-25-
<PAGE>
less than the Fixed Conversion Price, then the Fixed Conversion Price shall be
adjusted to such Lowest Trade Price. The adjustments of this Section XI.D shall
not apply if and after the Company is sold or with respect to transfers made for
bona fide estate planning (for creation of trusts for spouses and relatives)
and/or charitable purposes (provided any transfers by such a transferee shall be
treated as a transfer by the transferor).
E. Issuance of Other Securities. If, at any time after the Closing Date
----------------------------
the Company shall issue any securities which are convertible into or
exchangeable or exercisable for Common Stock ("Convertible Securities") either
----------------------
(i) at a conversion, exercise or exchange rate based on a specified percentage
discount from the market price of the Common Stock at the time of conversion,
exercise or exchange or based upon a market-based rate (for clarification, a
discount would not include standard price-based anti-dilution protection
provisions) or (ii) with a fixed conversion, exchange or exercise price less
than the Fixed Conversion Price, then, at the Holder's option: (x) in the case
of clause (i), the Variable Conversion Price in respect of any conversion of
Preferred Stock after such issuance shall be calculated utilizing the greatest
discount applicable to any such Convertible Securities or, as applicable, such
market-based rate, and (y) in the case of clause (ii), the Fixed Conversion
Price shall be reduced to such lesser conversion, exchange or exercise price (in
each case of (x) and (y), subject to further adjustments as provided in this
Certificate of Designation (including
pursuant to this Section E)). This prohibition shall not apply to issuances (1)
in connection with the issuance to or grant and/or exercise by employees,
consultants or directors of stock or options, (2) pursuant to the Stockholders
Rights Plan and the Series A Preferred Stock, as amended as of the Closing Date
(or thereafter with the consent of each initial Holder and each initial Holder
and the Majority Holders), or (3) in connection with acquisitions of other
companies, material technologies or business entities.
F. [Intentionally Deleted].
G. [Intentionally Deleted].
H. Notice of Adjustments. Upon the occurrence of each adjustment or
---------------------
readjustment pursuant to this Article XI, the Company, at its expense, shall
promptly compute such adjustment or readjustment and prepare and furnish to each
Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The
Company shall, upon the written request at any time of any Holder, furnish to
such Holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Preferred Stock.
XII. VOTING RIGHTS
The holders of Preferred Stock shall have no voting power whatsoever,
except as otherwise provided by applicable law.
-26-
<PAGE>
Notwithstanding the above, the Company shall provide each Holder with prior
notification of any meeting of the stockholders (and copies of proxy materials
and all other information sent to stockholders). If the Company takes a record
of its stockholders for the purpose of determining stockholders entitled to (a)
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the Company, or
any proposed merger, consolidation, liquidation, dissolution or winding up of
the Company, the Company shall fax a notice to each Holder, at least ten (10)
days prior to the record date specified therein (or ten (10) days prior to the
consummation of the transaction or event, whichever is earlier, but in no event
earlier than public announcement of such proposed transaction), of the date on
which any such record is to be taken for the purpose of such vote, dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such vote, dividend, distribution, right or other event to the
extent known at such time.
To the extent that under applicable law the vote of the holders of the
Preferred Stock, voting separately as a class or series, as applicable, is
required to authorize a given action of the Company, the affirmative vote or
consent of the Holders of at least a majority of the shares of the Preferred
Stock represented at a duly held meeting at which a quorum is present or by
written consent of the Majority Holders (except as otherwise may be required by
applicable law) shall constitute the approval of such action by the class or
series. To the extent that under applicable law Holders are entitled to vote on
a matter with holders of Common Stock, voting together as one class, each share
of Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible (without giving effect
to any limitation on conversion with respect thereto) using the record date for
the taking of such vote of stockholders as the date as of which the Conversion
Price is calculated.
XIII. PROTECTION PROVISIONS
The Company shall not, without first obtaining the approval of each initial
Holder of Preferred Stock (but with respect to (c) and (d) and (h) hereof, such
approval is necessary only so long as one hundred thousand dollars ($100,000)
Face Amount of Preferred Stock remains outstanding) : (a) alter or change the
terms of the Preferred Stock; (b) alter or change the terms of any capital stock
of the Company so as to affect adversely the Preferred Stock; (c) create or
issue any Senior Securities; (d) create or issue any Pari Passu Securities; (e)
---- -----
increase the authorized number of shares of Preferred Stock; (f) redeem, or
declare or pay any dividend or distribution on, any Junior Securities, except
repurchases of stock held by service providers to the Company upon termination
of service, and except redemptions effected with Junior Securities (subject to
the limitations contained herein and in the Securities Purchase Agreement); (g)
do any act or thing not authorized or contemplated by this Certificate of
Designations which would result in any taxation with respect to the Preferred
Stock under Section 305 of the Internal Revenue Code of 1986, as amended, or any
comparable provision of the Internal Revenue Code as hereafter from time to time
amended (or otherwise suffer to exist any taxation as a result of such section
or provision); or (h) sell or otherwise transfer all or
-27-
<PAGE>
substantially all of the assets of the Company (other than in the ordinary
course of business). The Company shall not issue additional shares of Preferred
Stock except to effect the purchase and sale to the Purchasers (as defined in
the Securities Purchase Agreement) in accordance with the Securities Purchase
Agreement and as contemplated by the Registration Rights Agreement.
XIV. MISCELLANEOUS
A. Cancellation of Preferred Stock. If any shares of Preferred Stock are
-------------------------------
converted or redeemed pursuant to Article IV, the shares so converted shall be
canceled, shall return to the status of authorized but unissued preferred stock
of no designated series, and shall not be issuable by the Company as Preferred
Stock.
B. Lost or Stolen Certificates. Upon receipt by the Company of (i)
---------------------------
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Company shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
Holder contemporaneously requests the Company to convert all of such Preferred
Stock.
C. Allocation of Cap Amount, Reserved Amount and Total Amount. The
----------------------------------------------------------
initial Cap Amount, initial Reserved Amount and the Total Amount shall be
allocated to the Holders in the same proportion as the number of shares of
Common Stock to which such each Holder would be entitled if all Preferred Stock
held by such Holder were converted and all Warrants held by such Holder were
exercised bears to the aggregate number of shares of Common Stock to which all
Holders would be entitled if all Preferred Stock held by the Holders were
converted and all Warrants held by the Holders were exercised (without giving
effect to any limitation on conversion or exercise). Each increase to the Cap
Amount or Reserved Amount shall be allocated pro rata among the Holders based on
the number of shares of Common Stock to which each Holder would be entitled if
all Preferred Stock held by such Holder were converted and all Warrants held by
such Holder were exercised (in each case of the foregoing, without giving effect
to any limitation on conversion or exercise) at the time of the increase in the
Cap Amount or Reserved Amount, as the case may be (in each case of the
foregoing, without giving effect to any limitation on conversion or exercise).
In the event a Holder shall sell or otherwise transfer any of such Holder's
shares of Preferred Stock, each transferee shall be allocated a pro rata portion
of such transferor's Cap Amount, Reserved Amount and Total Amount. Any portion
of the Cap Amount, Reserved Amount or Total Amount which remains allocated to
any person or entity which does not hold any Preferred Stock or Warrants (in the
case of the Cap Amount and the Reserved Amount) or Preferred Stock or Warrants
or Registrable Securities (as defined in the Registration Rights Agreement) (in
the case of the Total Amount) shall be allocated to the remaining Holders,
holders of Warrants and, in the case of the Total Amount, holders of Registrable
Securities pro rata based on (x) the number of shares of Common Stock to which
they would be entitled if all Preferred Stock then held by such Holders were
converted and all Warrants then held by such holders were exercised (in each
case of the foregoing, without giving
28
<PAGE>
effect to any limitation on conversion or exercise) and, in the case of the
Total Amount, (y) any additional shares of Common Stock constituting Registrable
Securities held by such holders.
D. Statements of Available Shares. Upon request, the Company shall
------------------------------
deliver to each Holder a written report notifying the Holders of any occurrence
which prohibits the Company from issuing Common Stock upon any such conversion.
The report shall also specify (i) the total number of shares of Preferred Stock
outstanding as of the date of the request, (ii) the total number of shares of
Common Stock issued upon all conversions of Preferred Stock through the date of
the request, (iii) the total number of shares of Common Stock which are reserved
for issuance upon conversion of the Preferred Stock as of the date of the
request, and (iv) the total number of shares of Common Stock which may
thereafter be issued by the Company upon conversion of the Preferred Stock
before the Company would exceed the Cap Amount and Reserved Amount. The Company
shall, within five (5) days after delivery to the Company of a written request
by any Holder, provide all of the information enumerated in clauses (i) - (v) of
this Section XIV.D and, to the extent that any such information constitutes
material non-public information, at the request of a Holder, make simultaneous
public disclosure thereof.
E. Payment of Cash; Defaults. Whenever the Company is required to make
-------------------------
any cash payment to a Holder under this Certificate of Designation (as a
Conversion Default Payment, Redemption Amount, Override Election Amount or
otherwise), such cash payment shall be made to the Holder by the method ( by
certified or cashier's check or wire transfer of immediately available funds)
elected by such Holder. If such payment is not delivered when due (any such
amount not paid when due being a "Default Amount") such Holder shall thereafter
--------------
be entitled to interest on the unpaid amount at a per annum rate equal to the
lower of eighteen percent (18%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the Holder.
F. Status as Stockholder. Upon submission of a Notice of Conversion by a
---------------------
Holder of Preferred Stock and the occurrence of the Conversion Date with respect
thereto, the shares covered thereby shall be deemed converted into shares of
Common Stock and the Holder's rights as a Holder of such converted shares of
Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such Holder because of a failure
by the Company to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of Preferred
Stock for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock) the Holder shall regain the rights of a
holder of Preferred Stock with respect to such unconverted shares of Preferred
Stock and the Company shall, as soon as practicable, return such unconverted
shares to the Holder. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section VII.A to the extent required thereby for
such Conversion Default and any subsequent Conversion Default and (ii) the right
with respect to conversions in accordance with Section XIV.E, to the extent
applicable) for the Company's failure to convert Preferred Stock.
-29-
<PAGE>
G. Remedies, Characterizations, Other Obligations, Breaches and
------------------------------------------------------------
Injunctive Relief. The remedies provided in this Certificate of Designation
- -----------------
shall be cumulative and in addition to all other remedies available under this
Certificate of Designation, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a Holder's right to actual damages for any failure by
the Company to comply with the terms of this Certificate of Designation
(including, without limitation, damages incurred to effect "cover" of shares of
Common Stock anticipated to be received upon a conversion hereunder but not
received in accordance with the terms hereof). The Company covenants to each
Holder that there shall be no characterization concerning this instrument other
than as fully consistent with the express terms hereof. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder hereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the holders of Preferred Stock and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holders shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
H. Specific Shall Not Limit General; Construction. No specific provision
----------------------------------------------
contained in this Certificate of Designation shall limit or modify any more
general provision contained herein. This Certificate of Designation shall be
deemed to be jointly drafted by the Company and all Purchasers and shall not be
construed against any person as the drafter hereof.
I. Failure or Indulgence Not Waiver. No failure or delay on the part of
--------------------------------
a Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, not shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
RESOLVED FURTHER, that the officers of the Company be and they hereby are,
each authorized to execute, verify and file a Certificate of Designation in
accordance with Delaware law.
IN WITNESS WHEREOF, the undersigned has executed this certificate on
December 21, 1998.
P-COM, INC.
/s/ Michael J. Sophie
------------------------------------------
By: Michael J. Sophie
Title: Chief Financial Officer
-30-
<PAGE>
EXHIBIT A
---------
NOTICE OF CONVERSION
The undersigned hereby irrevocably elects to convert (the "Conversion") the Face
----------
Amount of the Series B Convertible Participating Preferred Stock (the "Preferred
Stock") set forth below, plus all accrued and unpaid Premium relating thereto
(each defined term used but not defined in this notice shall have the meaning
assigned to it in the Designation, Preferences and Rights of Series B
Convertible Participating Preferred Stock of P-Com, Inc. (the "Certificate of
Designation")), into shares of common stock ("Common Stock") of P-Com, Inc.
------------
(the "Company") according to the conditions of the Certificate of Designation,
-------
as of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. No fee will be charged to the Holder for any
conversion except as provided herein.
The undersigned covenants that all offers and sales by the undersigned of the
securities issuable to the undersigned upon conversion of this Preferred Stock
shall be made pursuant to registration of the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
---
registration under the Act.
In the event of partial exercise, please reissue an appropriate certificate for
the balance of shares of Preferred Stock which shall not have been converted.
Date of Conversion:_______________________________
Applicable Conversion Price:______________________
Face Amount of Preferred Stock:___________________
Number of Shares of
Common Stock to be Issued:________________________
Signature:________________________________________
Name:_____________________________________________
Address:__________________________________________
Fax Number (for confirmation):
cc: [As a matter of courtesy, holders intend to send a carbon copy to Brobeck,
Phleger & Harrison, LLP, but it shall not be a requirement.]
<PAGE>
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
P-COM, INC.
P-Com, Inc., a corporation organized under and by virtue of the General
Corporation law of the State of Delaware, does hereby certify:
FIRST: The Certificate of Designations, Preferences and Rights of Series B
Convertible Participating Preferred Stock of the corporation was filed in
the office of the Secretary of State of Delaware on December 21, 1998.
SECOND: The Certificate of Designations as so filed was incorrect in that
there was an error in Article III.B as follows:
"B. Closing Date" shall have the meaning set forth in the Securities
------------
Purchase Agreement, dated as of December 18, 1998, by and among the Company
and the other signatories thereto (the "Securities Purchase Agreement")."
-----------------------------
THIRD: Article III.B of the Certificate of Designations in corrected form
is as follows:
"B. Closing Date" shall have the meaning set forth in the Securities
------------
Purchase Agreement, dated as of December 21, 1998, by and among the Company
and the other signatories thereto (the "Securities Purchase Agreement")."
-----------------------------
FOURTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article III.F as follows:
"F. "Fixed Conversion Price" means: (i) up to and including May 14,
----------------------
1999 two hundred percent (200%) of the average of the Closing Bid Prices of
the common stock, $0.0001 par value per share, of the Company (the "Common
------
Stock") for the fifteen (15) consecutive trading days ending on the day
-----
prior to the Closing Date (the "Closing Price"); (ii) beginning on May 15,
-------------
1999 the lesser of the Fixed Conversion Price as defined in (i) of this
section and one hundred and five percent (105%) of the average of the
Closing Bid Prices of the Common Stock for the fifteen (15) consecutive
trading days immediately prior to and ending on May 14, 1999; (iii) if the
Company has not obtained
<PAGE>
Stockholder Approval (as herein defined) by the Approval Date (as defined
herein), then on each day thereafter until the Company obtains Stockholder
Approval, the lesser of the Fixed Conversion Price in effect on such day
and the Average Closing Bid Price (as herein defined) for the period
beginning on, and including, such Approval Date through and including such
day; (iv) if the Company has not obtained Stockholder Approval (as herein
defined) by the Approval Date, then beginning on the date on which the
Company obtains Stockholder Approval, the lesser of the Fixed Conversion
Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the
date on which the Company obtained Stockholder Approval; (v) if the
Registration Statement (as such term is defined in the Registration Rights
Agreement, dated as of December 18, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement")) required
-----------------------------
to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement has not been declared effective by the SEC by the one
hundred eightieth (180th) day following the Closing Date, then on each day
thereafter until such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price in effect on any such day and the
Average Closing Bid Price for the period beginning on, and including, the
180th day following the Closing Date through and including such day; and
(vi) if the Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement has not been declared
effective by the SEC by the 180th day following the Closing Date, beginning
on the date on which such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price then in effect and the Average Closing
Bid Price for the period beginning on, and including, the 180th day
following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to
equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such period and in each case
subject to further adjustment as provided elsewhere herein. For purposes of
this Section F, "Average Closing Bid Price" shall mean the average of the
-------------------------
five (5) lowest Closing Bid Prices during the applicable period (including
the last day of the period); provided, however, that (x) in clauses (iii)
and (iv), if fewer than five (5) trading days have elapsed between the
Approval Date and the last day of the applicable period, Average Closing
Bid Price shall mean the average of the Closing Bid Prices on each trading
day during the period from and including the Approval Date through and
including the last day of the applicable period, and; (y) in clauses (v)
and (vi), if fewer than five (5) trading days have elapsed between the
180th day following the Closing Date and the last day of the applicable
period, Average Closing Bid Price shall mean the average of the Closing Bid
Prices on each trading day during the period from and including the 180th
day following the Closing Date through and including the last day of the
applicable period."
FIFTH: Article III.F of the Certificate of Designations in corrected form
is as follows:
"F. "Fixed Conversion Price" means: (i) up to and including May 14,
----------------------
1999 two hundred percent (200%) of the average of the Closing Bid Prices of
the common stock, $0.0001 par value per share, of the Company (the "Common
------
Stock") for the fifteen
-----
<PAGE>
(15) consecutive trading days ending on the day prior to the Closing Date
(the "Closing Price"); (ii) beginning on May 15, 1999 the lesser of the
-------------
Fixed Conversion Price as defined in (i) of this section and one hundred
and five percent (105%) of the average of the Closing Bid Prices of the
Common Stock for the fifteen (15) consecutive trading days immediately
prior to and ending on May 14, 1999; (iii) if the Company has not obtained
Stockholder Approval (as herein defined) by the Approval Date (as defined
herein), then on each day thereafter until the Company obtains Stockholder
Approval, the lesser of the Fixed Conversion Price in effect on such day
and the Average Closing Bid Price (as herein defined) for the period
beginning on, and including, such Approval Date through and including such
day; (iv) if the Company has not obtained Stockholder Approval (as herein
defined) by the Approval Date, then beginning on the date on which the
Company obtains Stockholder Approval, the lesser of the Fixed Conversion
Price then in effect and the Average Closing Bid Price for the period
beginning on, and including, such Approval Date through and including the
date on which the Company obtained Stockholder Approval; (v) if the
Registration Statement (as such term is defined in the Registration Rights
Agreement, dated as of December 21, 1998, by and among the Company and the
other signatories thereto (the "Registration Rights Agreement")) required
-----------------------------
to be filed by the Company pursuant to Section 2.1 of the Registration
Rights Agreement has not been declared effective by the SEC by the one
hundred eightieth (180th) day following the Closing Date, then on each day
thereafter until such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price in effect on any such day and the
Average Closing Bid Price for the period beginning on, and including, the
180th day following the Closing Date through and including such day; and
(vi) if the Registration Statement required to be filed by the Company
pursuant to the Registration Rights Agreement has not been declared
effective by the SEC by the 180th day following the Closing Date, beginning
on the date on which such Registration Statement is declared effective, the
lesser of the Fixed Conversion Price then in effect and the Average Closing
Bid Price for the period beginning on, and including, the 180th day
following the Closing Date through and including the date on which such
Registration Statement is declared effective; in each case subject to
equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such period and in each case
subject to further adjustment as provided elsewhere herein. For purposes of
this Section F, "Average Closing Bid Price" shall mean the average of the
-------------------------
five (5) lowest Closing Bid Prices during the applicable period (including
the last day of the period); provided, however, that (x) in clauses (iii)
and (iv), if fewer than five (5) trading days have elapsed between the
Approval Date and the last day of the applicable period, Average Closing
Bid Price shall mean the average of the Closing Bid Prices on each trading
day during the period from and including the Approval Date through and
including the last day of the applicable period, and; (y) in clauses (v)
and (vi), if fewer than five (5) trading days have elapsed between the
180th day following the Closing Date and the last day of the applicable
period, Average Closing Bid Price shall mean the average of the Closing Bid
Prices on each trading day during the period from and including the 180th
day following the Closing Date through and including the last day of the
applicable period."
<PAGE>
SIXTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article IV.A as follows:
"A. Conversion at the Option of the Holder. Subject to the
--------------------------------------
limitations on conversions contained in Section IV.G., each Holder may, at
any time and from time to time convert (an "Optional Conversion") any or
-------------------
all of its shares of Preferred Stock into a number of fully paid and non-
assessable shares of Common Stock determined, for each share of Preferred
Stock so to be converted, in accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
-----------------------------------
Conversion Price"
SEVENTH: Article IV.A of the Certificate of Designations in corrected form
is as follows:
"A. Conversion at the Option of the Holder. Subject to the
--------------------------------------
limitations on conversions contained in Section IV.G., each Holder may, at
any time and from time to time convert (an "Optional Conversion") any or
-------------------
all of its shares of Preferred Stock into a number of fully paid and non-
assessable shares of Common Stock determined, for each share of Preferred
Stock so to be converted, in accordance with the following formula:
(Premium (accrued but unpaid) + $1000)
-----------------------------------
Conversion Price
Notwithstanding the foregoing, the Premium may be paid in cash, and if so
paid in cash, shall be due at the expiration of the Delivery Period."
EIGHTH: The Certificate of Designations as so filed was incorrect in that
there was an error in Article XI.C as follows:
"C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge
with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is
unchanged and unissued in such transaction (except for Common Stock
constituting less than twenty percent (20%) of the Company's Common Stock
then outstanding)) or there shall occur any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into
other securities or property or any reclassification or change of the
outstanding shares of Common Stock (each of the foregoing being a "Major
-----
Transaction"), then each Holder shall thereafter be entitled to (a) in the
-----------
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Preferred Stock
and such Preferred Stock shall continue to apply to such Common Stock or
shall apply, as nearly
<PAGE>
as practicable, to such other common stock or equity interest, as the case
may be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for each share of Preferred Stock held by it, equal to the greater
of, as determined in the sole discretion of such Holder: (i) the number of
shares of stock or securities or property of the Company, or of the entity
resulting from such Major Transaction (the "Major Transaction
-----------------
Consideration"), to which a holder of the number of shares of Common Stock
-------------
delivered upon conversion of such shares of Preferred Stock would have been
entitled upon such Major Transaction had the Holder exercised its right of
conversion (without regard to any limitations on conversion herein or
elsewhere contained) (at the lesser of the Fixed Conversion Price and the
Variable Conversion Price (prior to, on or after May 15, 1999)) on the
trading date immediately preceding the public announcement of the
transaction resulting in such Major Transaction and had such Common Stock
been issued and outstanding and had such Holder been the holder of record
of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) one hundred twenty five percent (125%) of the Face
Amount plus accrued and unpaid premiums of such shares of Preferred Stock
in cash; and the Company shall make lawful provision therefor as a part of
such Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under the Registration
Rights Agreement to assume all of the Company's obligations under the
Registration Rights Agreement. In the event that the Company shall
consolidate or merge with any corporation in a transaction in which common
stock of the surviving corporation or the parent thereof (the "Exchange
Securities") is issued to the holders of Common Stock in such transaction
in exchange for all such Common Stock, and (a) the Exchange Securities are
publicly traded, (b) the average daily trading volume of the Exchange
Securities reported by Bloomberg during the ninety (90) day period ending
on the date on which such transaction is publicly disclosed is greater than
two million dollars ($2,000,000) per day, (c) the historical one hundred
(100) day volatility of the Exchange Securities reported by Bloomberg
during the period ending on the date on which such transaction is publicly
disclosed is greater than fifty percent (50%) and (d) the last sale price
of the Exchange Securities on the date immediately before the date on which
such transaction is publicly disclosed is not less than sixty five percent
(65%) of the last sale price of the Exchange Securities on any day during
the twenty (20) trading day period ending on such date (in each case as
reported by Bloomberg) (a "Common Stock Major Transaction"), then each
------------------------------
Holder shall following consummation of such transaction have the right to
receive solely, in exchange for each share of Preferred Stock held by it,
consideration equal to the number of shares of stock or securities or
property issued or paid in such Common Stock Major Transaction to which a
holder of the number of shares of Common Stock which would have been
delivered upon conversion of a share of Preferred Stock would have been
entitled upon such Common Stock Major Transaction had the Holder of such
share of Preferred Stock exercised its right of conversion (without regard
to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) with respect to such share of
Preferred Stock on the trading date immediately preceding the public
announcement of the transaction resulting in such Common Stock Major
Transaction and had such Common Stock been issued and outstanding and had
such Holder been the holder of
<PAGE>
record of such Common Stock at the time of the consummation of such Common
Stock Major Transaction; and the Company shall make lawful provision
therefor as a part of such Common Stock Major Transaction and shall cause
the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume
all of the Company's obligations under the Registration Rights Agreement.
No sooner than ten (10) business days nor later than five (5) business days
prior to the consummation of the Major Transaction or Common Stock Major
Transaction, as the case may be, (each, a "Transaction") but not prior to
-----------
the public announcement of such Transaction, the Company shall deliver
written notice ("Notice of Transaction") to each Holder, which Notice of
---------------------
Transaction shall be deemed to have been delivered one (1) business day
after the Company's sending such notice by telecopy (provided that the
Company sends a confirming copy of such notice on the same day by overnight
courier) of such Notice of Transaction. Such Notice of Transaction shall
indicate the amount and type of the Transaction consideration which such
Holder would receive under this Section. If the Major Transaction
Consideration does not consist entirely of United States currency, such
Holder may elect to receive United States currency in an amount equal to
the value of the Major Transaction Consideration in lieu of the Major
Transaction Consideration by delivering notice of such election to the
Company within five (5) business days of the Holder's receipt of the Notice
of Transaction."
NINTH: Article XI.C of the Certificate of Designations in corrected form
is as follows:
"C. Major Transactions. Except in the case of a Common Stock Major
------------------
Transaction (as defined below), if the Company shall consolidate or merge
with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is
unchanged and unissued in such transaction (except for Common Stock
constituting less than twenty percent (20%) of the Company's Common Stock
then outstanding)) or there shall occur any share exchange pursuant to
which all of the outstanding shares of Common Stock are converted into
other securities or property or any reclassification or change of the
outstanding shares of Common Stock (each of the foregoing being a "Major
Transaction"), then each Holder shall thereafter be entitled to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each
of the foregoing cases which is publicly traded, retain its Preferred Stock
and such Preferred Stock shall continue to apply to such Common Stock or
shall apply, as nearly as practicable, to such other common stock or equity
interest, as the case may be, or (b) regardless of whether (a) applies,
receive consideration, in exchange for each share of Preferred Stock held
by it, equal to the greater of, as determined in the sole discretion of
such Holder: (i) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such Major Transaction (the
"Major Transaction Consideration"), to which a holder of the number of
--------------------------------
shares of Common Stock delivered upon conversion of such shares of
Preferred Stock would have been entitled upon such
<PAGE>
Major Transaction had the Holder exercised its right of conversion (without
regard to any limitations on conversion herein or elsewhere contained) (at
the lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) on the trading date immediately
preceding the public announcement of the transaction resulting in such
Major Transaction and had such Common Stock been issued and outstanding and
had such Holder been the holder of record of such Common Stock at the time
of the consummation of such Major Transaction, and (ii) one hundred twenty
five percent (125%) of the Face Amount plus accrued and unpaid premiums of
such shares of Preferred Stock in cash; and the Company shall make lawful
provision for the foregoing as a part of such Major Transaction and shall
cause the issuer of any security in such transaction which constitutes
Registrable Securities under the Registration Rights Agreement to assume
all of the Company's obligations under the Registration Rights Agreement.
In the event that the Company shall consolidate or merge with any
corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to
the holders of Common Stock in such transaction in exchange for all such
Common Stock, and (a) the Exchange Securities are publicly traded, (b) the
average daily trading volume of the Exchange Securities reported by
Bloomberg during the ninety (90) day period ending on the date on which
such transaction is publicly disclosed is greater than two million dollars
($2,000,000) per day, (c) the historical one hundred (100) day volatility
of the Exchange Securities reported by Bloomberg during the period ending
on the date on which such transaction is publicly disclosed is greater than
fifty percent (50%) and (d) the last sale price of the Exchange Securities
on the date immediately before the date on which such transaction is
publicly disclosed is not less than sixty five percent (65%) of the last
sale price of the Exchange Securities on any day during the twenty (20)
trading day period ending on such date (in each case as reported by
Bloomberg) (a "Common Stock Major Transaction"), then each Holder shall
following consummation of such transaction have the right to receive
solely, in exchange for each share of Preferred Stock held by it,
consideration equal to the number of shares of stock or securities or
property issued or paid in such Common Stock Major Transaction to which a
holder of the number of shares of Common Stock which would have been
delivered upon conversion of a share of Preferred Stock would have been
entitled upon such Common Stock Major Transaction had the Holder of such
share of Preferred Stock exercised its right of conversion (without regard
to any limitations on conversion herein or elsewhere contained) (at the
lesser of the Fixed Conversion Price and the Variable Conversion Price
(prior to, on or after May 15, 1999)) with respect to such share of
Preferred Stock on the trading date immediately preceding the public
announcement of the transaction resulting in such Common Stock Major
Transaction and had such Common Stock been issued and outstanding and had
such Holder been the holder of record of such Common Stock at the time of
the consummation of such Common Stock Major Transaction; and the Company
shall make lawful provision for the foregoing as a part of such Common
Stock Major Transaction and shall cause the issuer of any security in such
transaction which constitutes Registrable Securities under the Registration
Rights Agreement to assume all of the Company's obligations under the
Registration Rights Agreement. No sooner than ten (10) business days nor
later than five (5) business days prior to the consummation of the Major
<PAGE>
Transaction or Common Stock Major Transaction, as the case may be, (each, a
"Transaction") but not prior to the public announcement of such
Transaction, the Company shall deliver written notice ("Notice of
---------
Transaction") to each Holder, which Notice of Transaction shall be deemed
-----------
to have been delivered one (1) business day after the Company's sending
such notice by telecopy (provided that the Company sends a confirming copy
of such notice on the same day by overnight courier) of such Notice of
Transaction. Such Notice of Transaction shall indicate the amount and type
of the Transaction consideration which such Holder would receive under this
Section. If the Major Transaction Consideration does not consist entirely
of United States currency, such Holder may elect to receive United States
currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of the
Holder's receipt of the Notice of Transaction."
<PAGE>
IN WITNESS WHEREOF, P-Com, Inc. has caused this Certificate to be executed
by the Chief Financial Officer of P-Com, Inc. this 23rd day of December, 1998.
/s/ Michael J. Sophie
------------------------------------
Michael J. Sophie
Chief Financial Officer
of P-Com, Inc.
<PAGE>
P-COM, INC.
1995 STOCK OPTION/STOCK ISSUANCE PLAN
-------------------------------------
(As Amended and Restated Effective as of March ___, 1999)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1995 Stock Option/Stock Issuance Plan is intended to promote the
interests of P-COM, Inc., a Delaware corporation, by providing eligible persons
with the opportunity to acquire a proprietary interest, or otherwise increase
their proprietary interest, in the Corporation as an incentive for them to
remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which
eligible persons may, at the discretion of the Plan Administrator, be
granted options to purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons
may, at the discretion of the Plan Administrator, be issued shares of
Common Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent or
Subsidiary), and
(iii) the Automatic Option Grant Program under which Eligible
Directors shall automatically receive option grants at periodic intervals
to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall accordingly govern the interests of all
persons under the Plan.
<PAGE>
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Except to the extent the Primary Committee is
granted sole and exclusive authority under one or more specific provisions of
the Plan, administration of the Discretionary Option Grant and Stock Issuance
Programs with respect to all other persons eligible to participate in these
programs may, at the Board's discretion, be vested in the Primary Committee or a
Secondary Committee, or the Board may retain the power to administer those
programs with respect to all such persons. The members of the Secondary
Committee may be individuals who are Employees eligible to receive discretionary
option grants or direct stock issuances under the Plan or any stock option,
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary).
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and shall be subject to
removal by the Board at any time. The Board may also at any time terminate the
functions of any Secondary Committee and reassume all powers and authority
previously delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant or Stock Issuance Program under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant Program shall be self
- -executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to option
grants made thereunder.
2
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or of the board of
directors of any Parent or Subsidiary, and
(iii) consultants or other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive option grants, the time or times
when such option grants are to be made, the number of shares to be covered by
each such grant, the status of the granted option as either an Incentive Option
or a Non-Statutory Option, the time or times at which each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid by the Participant for such shares.
C. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to receive option grants under the
Automatic Option Grant Program shall be limited to (i) those individuals who
were serving as non-employee Board members on February 1, 1996, (ii) those
individuals who first become non-employee Board members after February 1, 1996,
whether through appointment by the Board or election by the Corporation's
stockholders, and (iii) those individuals who continue to serve as non-employee
Board members at one or more Annual Stockholders Meetings held after February 1,
1996. A non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
initial 40,000-share option grant under the Automatic Option Grant Program at
the time he or she first becomes a non-employee Board member, but such
individual shall be eligible to receive periodic option grants under the
Automatic Option Grant Program upon his or her continued service as a non-
employee Board member.
3
<PAGE>
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
which may be issued over the term of the Plan shall not exceed 14,934,459
shares. Such authorized share reserve is comprised of (i) the number of shares
which remained available for issuance, as of the Plan Effective Date, under the
Predecessor Plan as last approved by the Corporation's stockholders prior to
such date, including the shares subject to the outstanding options incorporated
into the Plan and any other shares which would have been available for future
option grants under the Predecessor Plan, (ii) an additional increase of 640,000
shares of Common Stock previously authorized by the Board and approved by the
Corporation's stockholders prior to the Plan Effective Date, (iii) an additional
increase of 1,600,000 shares of Common Stock authorized by the Board on February
1, 1996 and approved by the Corporation's stockholders at the 1996 Annual
Meeting, (iv) a further increase of 3,000,000 shares of Common Stock authorized
by the Board in April 1997 and approved by the stockholders at the 1997 Annual
Meeting, (v) the 683,737 shares of Common Stock added to the share reserve on
January 2, 1998 by reason of the automatic share increase provisions of Section
V.B of this Article One, (vi) a further increase of 3,500,000 shares of Common
Stock authorized by the Board on March 11, 1998 and approved by the
Corporation's stockholders at the 1998 Annual Meeting, (vii) the 714,834 shares
of Common Stock added to the share reserve on January 4, 1999 by reason of the
automatic share increase provisions of Section V.B of this Article One, plus
(viii) a further increase of 1,500,000 shares of Common Stock authorized by the
Board in March 1999 and subject to the approval of the stockholders at the
1999 Annual Meeting.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of each calendar
year, beginning with the 1998 calendar year and continuing through calendar year
2001, by an amount equal to one and six-tenths percent (1.6%) of the total
number of shares of Common Stock outstanding on the last trading day of the
immediately preceding calendar year. No Incentive Options may be granted on the
basis of the additional shares of Common Stock resulting from such annual
increases.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 2,400,000 shares of Common Stock in the aggregate over the term of the
Plan. The increase to this limitation from 1,600,000 shares to 2,400,000 shares
was authorized by the Board in March 1999, subject to stockholder approval at
the 1999 Annual Meeting.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
(including any options incorporated from the Predecessor Plan) expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regnant provisions of Article Two.
Unvested shares issued under the Plan and subsequently cancelled or repurchased
by the Corporation, at the original option exercise or direct issue price paid
per share, pursuant to
4
<PAGE>
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan (including any option incorporated from the
Predecessor Plan) be paid with shares of Common Stock or should shares of Common
Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares, exchange
of shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and/or class of securities issuable
under the Plan, (ii) the number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances over the term of the Plan, (iii) the number and/or
class of securities for which automatic option grants are to be subsequently
made per Eligible Director under the Automatic Option Grant Program and (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments deter-mined by the Plan Administrator shall be
final, binding and conclusive.
5
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
----------------------------------
I. OPTION TERMS
Each granted option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
--------------
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than eighty-five percent (85%) of the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article
Five and the documents evidencing the option grant, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable written instructions to (A)
a Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (B) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale transaction.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
----------------------------
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6
<PAGE>
C. Effect of Termination of Service.
--------------------------------
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by the personal
representative of the Optionee's estate or by the person or persons to whom
the option is transferred pursuant to the Optionee's will or in accordance
with the laws of descent and distribution.
(iii) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent it is not exercisable for vested shares on
the date of such cessation of Service.
(iv) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while
the option remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the period
otherwise in effect for that option to such greater period of time as the
Plan Administrator shall deem appropriate, but in no event beyond the
expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time of
the Optionee's cessation of Service but also with respect to one or more
additional installments in which the Optionee would have vested had the
Optionee continued in Service.
7
<PAGE>
D. Stockholder Rights. The holder of an option shall have no
------------------
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the
-----------------
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. Limited Transferability of Options. During the lifetime of the
----------------------------------
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Statutory Option
may, in connection with the Optionee's estate plan, be assigned in whole or in
part during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
-----------
B. Exercise Price. The exercise price per share shall not be less
--------------
than one hundred percent (100%) of the Fair Market Value per share of Common
Stock on the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value (determined as
-----------------
of the respective date or dates of grant) of the Common Stock for which one or
more options granted to any Employee under the Plan (or any other option plan of
the Corporation or any Parent or Subsidiary) may for the first time become
exercisable as Incentive Options during any one calendar year shall not exceed
the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee
holds two (2) or more such options which become exercisable for the first time
in the same calendar year, the foregoing limitation on the exercisability of
such options as Incentive Options shall be applied on the basis of the order in
which such options are granted.
8
<PAGE>
D. 10% Stockholder. If any Employee to whom an Incentive Option is
---------------
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable for
all of the shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common Stock.
However, an outstanding option shall not so accelerate if and to the extent:
(i) such option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation (or parent thereof) or to be replaced with
a comparable option to purchase shares of the capital stock of the successor
corporation (or parent thereof), (ii) such option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing on the unvested option shares at the time of the Corporate Transaction
and provides for subsequent payout in accordance with the same vesting schedule
applicable to such option or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final, binding
and conclusive.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Corporate Transaction,
except to the extent: (i) those repurchase rights are to be assigned to the
successor corporation (or parent thereof) in connection with such Corporate
Transaction or (ii) such accelerated vesting is precluded by other limitations
imposed by the Plan Administrator at the time the repurchase right is issued.
C. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to provide for the automatic acceleration of one or more
outstanding options upon the occurrence of a Corporate Transaction, whether or
not those options are to be assumed or replaced in the Corporate Transaction.
D. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable
9
<PAGE>
per share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same. In addition, appropriate
adjustments to reflect the Corporate Transaction shall be made to (i) the class
and number of securities available for issuance over the remaining term of the
Plan and (ii) the maximum number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances in the aggregate over the remaining term of
the Plan.
F. Any options which are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall automatically
accelerate (and any of the Corporation's outstanding repurchase rights which do
not otherwise terminate at the time of the Corporate Transaction shall
automatically terminate and the shares of Common Stock subject to those
terminated rights shall immediately vest in full) in the event the Optionee's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of such Corporate
Transaction. Any options so accelerated shall remain exercisable for fully-
vested shares until the earlier of (i) the expiration of the option term or (ii)
the expiration of the one (1)-year period measured from the effective date of
the Involuntary Termination.
G. The Plan Administrator shall have the discretion, exercisable
either at the time the option is granted or at any time while the option remains
outstanding, to (i) provide for the automatic acceleration of one or more
outstanding options (and the automatic termination of one or more outstanding
repurchase rights with the immediate vesting of the shares of Common Stock
subject to those rights) upon the occurrence of a Change in Control or (ii)
condition any such option acceleration (and the termination of any outstanding
repurchase rights) upon the subsequent Involuntary Termination of the Optionee's
Service within a specified period following the effective date of such Change in
Control. Any options accelerated in connection with a Change in Control shall
remain fully exercisable until the expiration of the option term.
H. The portion of any Incentive Option accelerated in connection with
a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a Non-
Statutory Option under the Federal tax laws.
I. The grant of options under the Discretionary Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding
10
<PAGE>
options incorporated from the Predecessor Plan) and to grant in substitution new
options covering the same or different number of shares of Common Stock but with
an exercise price per share based on the Fair Market Value per share of Common
Stock on the new option grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution from
the Corporation in an amount equal to the excess of (A) the Fair Market
Value (on the option surrender date) of the number of shares in which the
Optionee is at the time vested under the surrendered option (or surrendered
portion thereof) over (B) the aggregate exercise price payable for such
shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator. If the surrender is so approved, then
the distribution to which the Optionee shall be entitled may be made in
shares of Common Stock valued at Fair Market Value on the option surrender
date, in cash, or partly in shares and partly in cash, as the Plan
Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is rejected by the Plan
Administrator, then the Optionee shall retain whatever rights the Optionee had
under the surrendered option (or surrendered portion thereof) on the option
surrender date and may exercise such rights at any time prior to the later of
(A) five (5) business days after the receipt of the rejection notice or (B) the
last day on which the option is otherwise exercisable in accordance with the
terms of the documents evidencing such option, but in no event may such rights
be exercised more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
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<PAGE>
(ii) Upon the occurrence of a Hostile Take-Over, each such
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation, to the extent the option is at the time
exercisable for vested shares of Common Stock. In return for the
surrendered option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price of
the shares of Common Stock which are at the time vested under each
surrendered option (or surrendered portion thereof) over (B) the aggregate
exercise price payable for such shares. Such cash distribution shall be
paid within five (5) days following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the
limited right is granted, the subsequent exercise of that right in
accordance with the terms of the grant and the provisions of this Section
V. No additional approval of the Plan Administrator or the Board shall be
required at the time of the actual option surrender and cash distribution.
(iv) The balance of the option (if any) shall continue in full
force and effect in accordance with the documents evidencing such option.
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<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
----------------------
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below.
A. Purchase Price.
--------------
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than eighty-five percent (85%) of
the Fair Market Value per share of Common Stock on the stock issuance
date.
2. Subject to the provisions of Section I of Article Five, shares
of Common Stock may be issued under the Stock Issuance Program for one
or both of the following items of consideration which the Plan
Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent
or Subsidiary).
B. Vesting Provisions.
------------------
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program, namely:
(i) the Service period to be completed by the Participant or
the performance objectives to be attained,
(ii) the number of installments in which the shares are to
vest,
(iii) the interval or intervals (if any) which are to lapse
between installments, and
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<PAGE>
(iv) the effect which death, Permanent Disability or other
event designated by the Plan Administrator is to have upon the vesting
schedule,
shall be determined by the Plan Administrator and incorporated into the Stock
Issuance Agreement.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to him or her under the Stock Issuance
Program, whether or not his or her interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase-money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase-money note of the Participant
attributable to such surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the non-completion of the
vesting schedule applicable to such shares. Such waiver shall result in the
immediate vesting of the Participant's interest in the shares of Common Stock as
to which the waiver applies. Such waiver may be effected at any time, whether
before or after the Participant's cessation of Service or the attainment or non-
attainment of the applicable performance objectives.
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<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are assigned to the successor corporation (or parent thereof)
in connection with such Corporate Transaction or (ii) such accelerated vesting
is precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to provide for the automatic
termination of one or more of those outstanding rights and the immediate vesting
of the shares of Common Stock subject to such rights upon the occurrence of a
Corporate Transaction.
C. Any repurchase rights that are assigned in the Corporate
Transaction shall automatically terminate, and all the shares of Common Stock
subject to those terminated rights shall immediately vest in full, in the event
the Optionee's Service should subsequently terminate by reason of an Involuntary
Termination within eighteen (18) months following the effective date of such
Corporate Transaction.
D. The Plan Administrator shall have the discretion, exercisable
either at the time the unvested shares are issued or at any time while the
Corporation's repurchase right remains outstanding, to (i) provide for the
automatic termination of one or more of those outstanding rights and the
immediate vesting of the shares subject to such rights upon the occurrence of a
Change in Control or (ii) condition any such accelerated vesting upon the
subsequent Involuntary Termination of the Participant's Service within a
specified period following the effective date of such Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
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<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
------------------------------
I. OPTION TERMS
A. Grant Dates. Pursuant to the provisions of the February 1, 1996
-----------
restatement of this Article Four, option grants shall be made to Eligible
Directors in accordance with the grant date provisions specified below:
1. Each individual serving as an Eligible Director on February 1,
1996 was automatically granted on such date a Non-Statutory Option to
purchase 40,000 shares of Common Stock.
2. Each individual who first becomes an Eligible Director after
February 1, 1996 shall automatically be granted, on the date such
individual is first elected or appointed as a non-employee Board member, a
Non-Statutory Option to purchase 40,000 shares of Common Stock.
3. On the date of each Annual Stockholders Meeting, beginning
with the 1997 Annual Meeting, each individual who is to continue as an
Eligible Director shall automatically be granted, whether or not he or she
is standing for re-election as a Board member at that Annual Meeting, a
Non-Statutory Option to purchase an additional 4,000 shares of Common
Stock, provided such individual has not received an option grant pursuant
to this Automatic Option Grant Program within six (6) months prior to the
date of such Annual Meeting. There shall be no limit on the number of such
4,000-share option grants any one Eligible Director may receive over his or
her period of Board service. The number of shares for which the automatic
option grants are to be made to each newly-elected or continuing Eligible
Director shall be subject to periodic adjustment pursuant to the applicable
provisions of Section V.D. of Article One.
Stockholder approval of this 1998 Restatement at the 1998 Annual
Stockholders Meeting will constitute pre-approval of each option subsequently
granted on or after the date of such Annual Meeting pursuant to the express
terms of this Automatic Option Grant Program and the subsequent exercise of that
option in accordance with its terms.
B. Exercise Price.
--------------
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder
is utilized, payment of the exercise price for the purchased shares must be
made on the Exercise Date.
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<PAGE>
C. Option Term. Each option shall have a term of ten (10) years measured
-----------
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
-------------------------------
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each option, whether
the initial 40,000-share grant or any annual 4,000-share grant, shall vest, and
the Corporation's repurchase right with respect to those shares shall lapse, in
a series of eight (8) successive equal quarterly installments upon the
Optionee's completion of each three (3) months of continued service as a Board
member over the twenty-four (24)-month period measured from the option grant
date.
E. Effect of Termination of Board Service. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or persons
to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution) shall have a twelve
(12)-month period following the date of such cessation of Board service in
which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time of
the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of such shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-month
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Board service, terminate and
cease to be outstanding to the extent it is not exercisable for vested
shares at that time.
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<PAGE>
II. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of such shares as fully-
vested shares of Common Stock. Immediately following the consummation of the
Corporate Transaction, each automatic option grant shall terminate and cease to
be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of such shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for the fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
automatic option held by him or her. The Optionee shall in return be entitled to
a cash distribution from the Corporation in an amount equal to the excess of (i)
the Take-Over Price of the shares of Common Stock at the time subject to the
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation. Stockholder approval of this 1998
Restatement at the 1998 Annual Meeting shall constitute pre-approval of each
option granted with such a surrender right under this Automatic Option Grant
Program on or after the date of that Annual Meeting and the subsequent exercise
of such right in accordance with the terms and provisions of this Section II.C.
No additional approval or consent of the Plan Administrator or the Board shall
be required at the time of the actual option surrender and cash distribution.
D. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
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<PAGE>
ARTICLE FIVE
MISCELLANEOUS
-------------
I. FINANCING
A. The Plan Administrator may permit any Optionee or Participant to
pay the option exercise price under the Discretionary Option Grant Program or
the purchase price of shares issued under the Stock Issuance Program by
delivering a promissory note payable in one or more installments. The terms of
any such promissory note (including the interest rate and the terms of
repayment) shall be established by the Plan Administrator in its sole
discretion. Promissory notes may be authorized with or without security or
collateral. In all events, the maximum credit available to the Optionee or
Participant may not exceed the sum of (i) the aggregate option exercise price or
purchase price payable for the purchased shares plus (ii) any Federal, state and
local income and employment tax liability incurred by the Optionee or the
Participant in connection with the option exercise or share purchase.
B. The Plan Administrator may, in its discretion, determine that one
or more such promissory notes shall be subject to forgiveness by the Corporation
in whole or in part upon such terms as the Plan Administrator may deem
appropriate.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or stock appreciation rights or upon the issuance
or vesting of such shares under the Plan shall be subject to the satisfaction of
all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant Program) with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
(i) Stock Withholding: The election to have the Corporation
-----------------
withhold, from the shares of Common Stock otherwise issuable upon the
exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
(ii) Stock Delivery: The election to deliver to the
--------------
Corporation, at the time the Non-Statutory Option is exercised or the
shares vest, one or more shares of Common Stock previously acquired by such
holder (other than in connection with the option exercise or share vesting
triggering the Taxes) with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
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<PAGE>
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan became effective on the date on which the Underwriting
Agreement was executed and the initial public offering price of the Common Stock
was established. The Plan serves as the successor to the Predecessor Plan, and
no further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan on the Plan
Effective Date have been incorporated into the Plan and treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
B. The Plan was amended and restated by the Board, effective February
1, 1996 (the "February 1996 Restatement") to effect the following revisions: (i)
increase the maximum number of shares of Common Stock authorized for issuance
over the term of the Plan by an additional 1,600,000 shares to 5,535,888 shares
and (ii) enhance the benefit and eligibility provisions of the Automatic Option
Grant Program in order to (A) effect an automatic option grant for 40,000 shares
of Common Stock on February 1, 1996 to each individual serving as a non-employee
Board member at that time, (B) increase the number of shares for which an
initial option grant is to be made under the Automatic Option Grant Program to
each newly-elected non-employee Board member to 40,000 shares, (C) authorize a
series of automatic option grants to be made annually to each non-employee Board
member, in the amount of 4,000 shares per annual grant, over that individual's
period of continued service as a Board member and (D) allow non-employee Board
members who joined the Board prior to the implementation of the Plan to qualify
for such annual option grants. The February 1996 Restatement became effective
immediately upon adoption by the Board and was approved by the Corporation's
stockholders at the 1996 Annual Meeting. All option grants made under the Plan
prior to the February 1996 Restatement shall remain outstanding in accordance
with the terms and conditions of the respective instruments evidencing those
options, and nothing in the February 1996 Restatement shall be deemed to modify
or in any way affect those outstanding options.
C. In April 1997, the Board further amended and restated the Plan
(the "April 1997 Restatement") to effect the following revisions: (i) increase
the number of shares of Common Stock reserved for issuance over the term of the
Plan by an additional 3,000,000 shares to 8,535,888 shares, (ii) implement an
automatic share increase feature pursuant to which the number of shares
available for issuance under the 1995 Plan shall automatically increase on the
first trading day of each calendar year, beginning with the 1998 calendar year
and continuing through calendar year 2001, by an amount equal to one and six
tenths percent (1.6%) of the total number of shares of Common Stock outstanding
on the last trading day of the immediately preceding calendar year, (iii) render
the non-employee Board members eligible to receive option grants under the
Discretionary Option Grant and Stock Issuance Programs, (iv) allow unvested
shares issued under the Plan and subsequently repurchased by the Corporation at
the option exercise or direct issue price paid per share to be reissued under
the Plan, (v) remove certain restrictions on the eligibility of non-employee
Board members to serve as Plan Administrator
20
<PAGE>
and (vi) effect a series of additional changes to the provisions of the Plan
(including the stockholder approval requirements) in order to take advantage of
the recent amendments to Rule 16b-3 of the Securities and Exchange Commission
which exempts certain officer and director transactions under the Plan from the
short-swing liability provisions of the federal securities laws. The
stockholders approved the April 1997 Restatement at the 1997 Annual Meeting.
All option grants made under the Plan prior to the April 1997 Restatement shall
remain outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options, and nothing in the April 1997 Restatement
shall be deemed to modify or in any way affect those outstanding options.
D. On March 11, 1998 the Board further amended and restated the Plan
(the "1998 Restatement") to increase the number of shares of Common Stock
reserved for issuance over the term of the Plan by an additional 3,500,000
shares. The stockholders approved the 1998 Restatement at the 1998 Annual
Meeting. All option grants made under the Plan prior to the 1998 Restatement
shall remain outstanding in accordance with the terms and conditions of the
respective instruments evidencing those options, and nothing in the 1998
Restatement shall be deemed to modify or in any way affect those outstanding
options.
E. In March 1999 the Board further amended and restated the Plan (the
"1999 Restatement") to (i) increase the number of shares of Common Stock
reserved for issuance over the term of the Plan by an additional 1,500,000
shares and (ii) increase the limit on the maximum number of shares for which any
one participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances over the term of the Plan from
1,600,000 shares to 2,400,000 shares. The 1999 Restatement is subject to
stockholder approval at the 1999 Annual Meeting, and no shares of Common Stock
shall issued on the basis of the 1,500,000-share increase to the share reserve
under the Plan or the 800,000-share increase to the per participant limit, and
no option grants made on the basis of those increases under the 1999
Restatement shall become exercisable in whole or in part, unless and until the
1999 Restatement is approved by the stockholders. Should such stockholder
approval not be obtained, then each option grant made pursuant to the 1,500,000-
share increase to the reserve or the 800,000-share increase to the per
participant limit shall terminate and cease to remain outstanding without ever
becoming exercisable for those shares, and no additional option grants or direct
stock issuances shall be made on the basis of those increases. All option
grants and stock issuances made prior to the 1999 Restatement shall remain
outstanding in accordance with the terms and conditions of the respective
instruments evidencing those options or issuances, and nothing in the 1999
Restatement shall be deemed to modify or in any way affect those outstanding
options or issuances. Subject to the foregoing limitations, the Plan
Administrator may make option grants and direct stock issuances under the Plan
at any time before the date fixed herein for the termination of the Plan.
F. The option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plan which do not otherwise provide for such acceleration.
G. The Plan shall terminate upon the earliest of (i) January 10,
2005, (ii) the date on which all shares available for issuance under the Plan
shall have been issued pursuant to the exercise of the options or the issuance
of shares (whether vested or unvested) under the Plan or (iii) the termination
of all outstanding options in connection with a Corporate Transaction.
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<PAGE>
Upon such Plan termination, all options and unvested stock issuances outstanding
on such date shall thereafter continue to have force and effect in accordance
with the provisions of the documents evidencing such options or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, (i) no such amendment
or modification shall adversely affect the rights and obligations with respect
to options, stock appreciation rights or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification, and (ii) any amendment made to the Automatic
Option Grant Program (or any options outstanding thereunder) shall be in
compliance with the limitations of that program. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs are held in escrow until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants or issuances are made, then (i) any unexercised
options granted on the basis of such excess shares shall terminate and cease to
be outstanding and (ii) the Corporation shall promptly refund to the Optionees
and the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any option or
stock appreciation right under the Plan and the issuance of any shares of Common
Stock (i) upon the exercise of any option or stock appreciation right or (ii)
under the Stock Issuance Program shall be subject to the Corporation's
procurement of all approvals and permits required by regulatory authorities
having jurisdiction over the Plan, the options and stock appreciation rights
granted under it and the shares of Common Stock issued pursuant to it.
22
<PAGE>
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
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<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
------------------------------
program in effect under the Plan.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Change in Control shall mean a change in ownership or control of the
-----------------
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time such election or nomination was approved
by the Board.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
----
E. Common Stock shall mean the Corporation's common stock.
------------
F. Corporate Transaction shall mean either of the following stockholder-
---------------------
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction; or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean P-COM, Inc., a Delaware corporation.
-----------
<PAGE>
H. Discretionary Option Grant Program shall mean the discretionary option
----------------------------------
grant program in effect under the Plan.
I. Eligible Director shall mean a non-employee Board member eligible to
-----------------
participate in the Automatic Option Grant Program in accordance with the
provisions of Section IV.E of Article One.
J. Employee shall mean an individual who is in the employ of the
--------
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
K. Exercise Date shall mean the date on which the Corporation shall have
-------------
received written notice of the option exercise.
L. Fair Market Value per share of Common Stock on any relevant date shall
-----------------
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market or any successor system. If there is no closing selling
price for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
M. Hostile Take-Over shall mean the acquisition, directly or indirectly,
-----------------
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
N. Incentive Option shall mean an option which satisfies the requirements
----------------
of Code Section 422.
<PAGE>
O. Involuntary Termination shall mean the termination of the Service of
-----------------------
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially reduces
his or her level of responsibility, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and any non-
discretionary and objective-standard incentive payment or bonus award) by
more than fifteen percent (15%) or (C) a relocation of such individual's
place of employment by more than fifty (50) miles, provided and only if
such change, reduction or relocation is effected by the Corporation without
the individual's consent.
P. Misconduct shall mean the commission of any act of fraud, embezzlement
----------
or dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary) or any other intentional misconduct by such person
adversely affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee, Participant or other person in the Service of the Corporation (or
any Parent or Subsidiary).
Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
--------
R. Non-Statutory Option shall mean an option not intended to satisfy the
--------------------
requirements of Code Section 422.
S. Optionee shall mean any person to whom an option is granted under the
--------
Discretionary Option Grant or Automatic Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in an
------
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Participant shall mean any person who is issued shares of Common Stock
-----------
under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the inability
--------------------------------------------
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
<PAGE>
W. Plan shall mean the Corporation's 1995 Stock Option/Stock Issuance
----
Plan, as set forth in this document and as amended from time to time.
X. Plan Administrator shall mean the particular entity, whether the
------------------
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. Plan Effective Date shall mean the date on which the Underwriting
-------------------
Agreement was executed and the initial public offering price was established.
Z. Predecessor Plan shall mean the Corporation's 1992 Stock Option Plan.
----------------
AA. Primary Committee shall mean the committee of two (2) or more non-
-----------------
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.
BB. Secondary Committee shall mean a committee of two (2) or more Board
-------------------
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
CC. Section 16 Insider shall mean an officer or director of the
------------------
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
DD. Section 12(g) Registration Date shall mean the first date on which
-------------------------------
the Common Stock was registered under Section 12(g) of the 1934 Act.
EE. Service shall mean the provision of services to the Corporation (or
-------
any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant.
FF. Stock Exchange shall mean either the American Stock Exchange or the
--------------
New York Stock Exchange.
GG. Stock Issuance Agreement shall mean the agreement entered into by the
------------------------
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
HH. Stock Issuance Program shall mean the stock issuance program in
----------------------
effect under the Plan.
<PAGE>
II. Subsidiary shall mean any corporation (other than the Corporation) in
----------
an unbroken chain of corporations beginning with the Corporation, provided each
corporation in the unbroken chain (other than the last corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
JJ. Take-Over Price shall mean the greater of (i) the Fair Market Value
---------------
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
KK. 10% Stockholder shall mean the owner of stock (as determined under
---------------
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
LL. Taxes shall mean the Federal, state and local income and employment
-----
withholding taxes incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of such holder's options
or the vesting of his or her shares.
MM. Underwriting Agreement shall mean the agreement executed between the
----------------------
Corporation and the underwriter or underwriters who managed the initial public
offering of the Common Stock.
<PAGE>
P-COM, INC.
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(As Amended and Restated Effective as of March __, 1999)
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests
of P-COM, Inc. by providing eligible employees with the opportunity to acquire a
proprietary interest in the Corporation through participation in a payroll-
deduction based employee stock purchase plan designed to qualify under Section
423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
All share numbers in this document reflect (i) the 1-for-3 reverse
split of the Common Stock effected after the Board's adoption of the Plan but
prior to the Effective Time, (ii) the 2-for-1 forward split of the Common Stock
effected on October 27, 1995, and (iii) the 1-for-1 dividend of the Common Stock
effected on September 25, 1997.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares of Common Stock
purchased on the open market. The maximum number of shares of Common Stock which
may be issued over the term of the Plan shall not exceed One Million Four
Hundred Thousand (1,400,000) shares. Such authorized share reserve is comprised
of (i) the Four Hundred Thousand (400,000) shares initially authorized for
issuance under the Plan, (ii) an additional increase of Two Hundred Thousand
(200,000) shares of Common Stock authorized for issuance by the Board on
February 1, 1996 and approved by the Corporation's stockholders at the 1996
Annual Meeting, (iii) a further increase of Three Hundred Thousand (300,000)
shares authorized for issuance by the Board in April 1997, and approved by the
stockholders at the 1997 Annual Meeting, (iv) an additional increase of 250,000
shares approved by the Board on March 11, 1998, and approved by the stockholders
at the 1998 Annual Meeting and (v) an additional increase of 250,000 shares
approved by the Board on March __, 1999, subject to stockholder approval at the
1999 Annual Meeting.
<PAGE>
B. In the event any change is made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Semi-Annual Purchase Date and (iii) the
number and class of securities and the price per share in effect under each
outstanding purchase right in order to prevent the dilution or enlargement of
benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the
Plan through a series of successive offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall have a maximum duration of twenty-four
(24) months. The duration of each offering period shall be designated by the
Plan Administrator prior to its start date. The initial offering period
commenced at the Effective Time and shall terminate on the last business day in
January 1997. The next offering period shall commence on the first business day
in February 1997, and subsequent offering periods shall commence as designated
by the Plan Administrator.
V. ELIGIBILITY
A. Each Eligible Employee shall be eligible to participate in the
Plan in accordance with the following provisions:
(i). An individual who is an Eligible Employee on the start date
of any offering period shall be eligible to commence participation in that
offering period on such start date or on any subsequent Semi-Annual Entry Date
within that offering period on which he/she remains an Eligible Employee.
(ii). An individual who first becomes an Eligible Employee after
the start date of any offering period may enter that offering period on the
first Semi-Annual Entry Date on which he/she is an Eligible Employee or on any
subsequent Semi-Annual Entry Date within that offering period on which he/she
remains an Eligible Employee.
B. To participate in the Plan for a particular offering period, the
Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization form) and file such forms with the Plan Administrator (or its
designate) on or before his/her scheduled Entry Date.
2
<PAGE>
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes
of acquiring shares of Common Stock under the Plan may be any multiple of one
percent (1%) of the Base Salary paid to the Participant during each Semi-Annual
Period of Participation within the offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect for the
remainder of the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i). The Participant may, at any time during a Semi-Annual
Period of Participation, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one (1) such
reduction per Semi-Annual Period of Participation.
(ii). The Participant may, prior to the commencement of any new
Semi-Annual Period of Participation within the offering period, increase the
rate of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective as of the first day of the first Semi-Annual
Period of Participation following the filing of such form.
B. Payroll deductions shall begin on the first pay day following the
Participant's Entry Date into the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of the offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be held in
any segregated account or trust fund and may be commingled with the general
assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination
of the Participant's purchase right in accordance with the provisions of Section
VII below.
D. The Participant's acquisition of Common Stock under the Plan on
any Semi-Annual Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Semi-Annual Purchase Date, whether
within the same or a different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Right. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive semi-annual
installments over the remainder of such offering period, upon the terms set
forth below. The Participant shall execute a stock purchase agreement embodying
such terms and such other provisions (not inconsistent with the Plan) as the
Plan Administrator may deem advisable.
3
<PAGE>
Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in successive semi-annual installments on each Semi-
Annual Purchase Date in an offering period, and shares of Common Stock shall
accordingly be purchased on behalf of each Participant (other than Participants
whose payroll deductions have previously been refunded in accordance with the
Termination of Purchase Right provisions below) on each such date. The purchase
shall be effected by applying the Participant's payroll deductions for the Semi-
Annual Period of Participation ending on such Semi-Annual Purchase Date
(together with any carryover deductions from the preceding Semi-Annual Period of
Participation) to the purchase of whole shares of Common Stock (subject to the
limitation on the maximum number of shares purchasable per Participant on any
one Semi-Annual Purchase Date) at the purchase price in effect for the
Participant for that Semi-Annual Purchase Date.
C. Purchase Price. The purchase price per share at which Common Stock
will be purchased on the Participant's behalf on each Semi-Annual Purchase Date
within the offering period shall be equal to eighty-five percent (85%) of the
lower of (i) the Fair Market Value per share of Common Stock on the
Participant's Entry Date into that offering period or (ii) the Fair Market Value
per share of Common Stock on that Semi-Annual Purchase Date. However, for each
Participant whose Entry Date is other than the start date of the offering
period, the clause (i) amount shall in no event be less than the Fair Market
Value per share of Common Stock on the start date of that offering period.
D. Number of Purchasable Shares. The number of shares purchasable by a
Participant on each Semi-Annual Purchase Date during the offering period shall
be the number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the Semi-Annual Period of
Participation ending with that Semi-Annual Purchase Date (together with any
carryover deductions from the preceding Semi-Annual Period of Participation) by
the purchase price in effect for that Semi-Annual Purchase Date. However, the
maximum number of shares of Common Stock purchasable per Participant on any one
Semi-Annual Purchase Date shall not exceed Two Thousand (2,000) shares, subject
to periodic adjustments in the event of certain changes in the Corporation's
capitalization.
E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Semi-Annual Purchase Date because they
are not sufficient to purchase a whole share of Common Stock shall be held for
the purchase of Common Stock on the next Semi-Annual Purchase Date. However,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable by the Participant on
the Semi-Annual Purchase Date shall be promptly refunded.
F. Termination of Purchase Right. The following provisions shall govern
the termination of outstanding purchase rights:
4
<PAGE>
(i). A Participant may, at any time prior to the next Semi-Annual
Purchase Date in an offering period, terminate his or her outstanding purchase
right under the offering period by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions shall be
collected from the Participant with respect to the terminated purchase right.
Any payroll deductions collected during the Semi-Annual Period of Participation
in which such termination occurs shall, at the Participant's election, be
immediately refunded or held for the purchase of shares on the next Semi-Annual
Purchase Date. If no such election is made at the time such purchase right is
terminated, then the payroll deductions collected with respect to the terminated
right shall be refunded as soon as possible.
(ii). The termination of such purchase right shall be irrevocable,
and the Participant may not subsequently rejoin the offering period for which
the terminated purchase right was granted. To resume participation in any
subsequent offering period, such individual must re-enroll in the Plan (by
making a timely filing of the prescribed enrollment forms) on or before the date
he or she is first eligible to join the new offering period.
(iii). Should the Participant cease to remain an Eligible Employee
for any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for the
Semi-Annual Period of Participation in which such cessation of Eligible Employee
status occurs shall be immediately refunded.
G. Corporate Transaction. In the event of a Corporate Transaction during
the offering period, each outstanding purchase right shall automatically be
exercised, immediately prior to the effective date of such Corporate
Transaction, by applying the payroll deductions of each Participant for the
Semi-Annual Period of Participation in which such Corporate Transaction occurs
to the purchase of whole shares of Common Stock at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
share of Common Stock on the Participant's Entry Date into the offering period
in which such Corporate Transaction occurs or (ii) the Fair Market Value per
share of Common Stock immediately prior to the effective date of such Corporate
Transaction. However, the applicable share limitations per Participant shall
continue to apply to any such purchase, and the clause (i) amount above shall
not, for any Participant whose Entry Date for the offering period is other than
the start date of that offering period, be less than the Fair Market Value per
share of Common Stock on such start date.
The Corporation shall use its best efforts to provide at least ten
(10)-days prior written notice of the occurrence of any Corporate Transaction,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Corporate Transaction.
H. Pro-ration of Purchase Rights. Should the total number of shares of
Common Stock which are to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of
5
<PAGE>
the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.
I. Assignability. During the Participant's lifetime, the purchase right
shall be exercisable only by the Participant and shall not be assignable or
transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights
with respect to the shares subject to his or her outstanding purchase right
until the shares are purchased on the Participant's behalf in accordance with
the provisions of the Plan and the Participant has become a holder of record of
the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common
Stock pursuant to any purchase right outstanding under this Plan if and to the
extent such accrual, when aggregated with (i) rights to purchase Common Stock
accrued under any other purchase right outstanding under this Plan and (ii)
similar rights accrued under other employee stock purchase plans (within the
meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value of such stock on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations, the following
provisions shall be in effect:
(i). The right to acquire Common Stock under each purchase right
shall accrue on each Semi-Annual Purchase Date for which the right remains
outstanding.
(ii). No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the same
calendar year the right to acquire Common Stock under one (1) or more other
purchase rights at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth
of Common Stock (determined on the basis of the Fair Market Value of such stock
on the date or dates of grant) for each calendar year such rights were at any
time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Semi-Annual Period of
Participation, then the payroll deductions which the Participant made during
that Semi-Annual Period of Participation with respect to such purchase right
shall be promptly refunded.
D. In the event there is any conflict between the provisions of this
article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
6
<PAGE>
A. The Plan was adopted by the Board in January 1995 and approved by the
stockholders in February 1995, and the Plan became effective at the Effective
Time. An increase of 200,000 shares to the reserve of Common Stock available
for issuance under the Plan was authorized by the Board on February 1, 1996 and
approved by the Corporation's stockholders at the 1996 Annual Meeting. An
additional 300,000-share increase to the reserve was authorized by the Board in
April 1997 and approved by the stockholders at the 1997 Annual Meeting. An
additional 250,000-share increase to the reserve was authorized by the Board on
March 11, 1998 and approved by the stockholders at the 1998 Annual Meeting. On
March ___, 1999, the Board authorized an additional increase of 250,000 shares
in the reserve available for issuance under the Plan. The March ___, 1999,
share increase is subject to approval by the Corporation's stockholders at the
1999 Annual Meeting. Should such stockholder approval not be obtained, then the
250,000-share increase will not be implemented, and any purchase rights granted
on the basis of the 250,000-share increase to the Plan will immediately
terminate. No additional purchase rights will be granted on the basis of such
share increase, and the Plan will terminate once the existing share reserve as
last approved by the stockholders has been issued.
B. Unless sooner terminated by the Board, the Plan shall terminate upon
the earliest of (i) the last business day in January 2005, (ii) the date on
which all shares available for issuance under the Plan shall have been sold
pursuant to purchase rights exercised under the Plan or (iii) the date on which
all purchase rights are exercised in connection with a Corporate Transaction.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or discontinue the Plan following
the close of any Semi-Annual Period of Participation. However, the Board may
not, without the approval of the Corporation's stockholders, (i) increase the
number of shares issuable under the Plan, except for permissible adjustments in
the event of certain changes in the Corporation's capitalization, (ii) alter the
purchase price formula so as to reduce the purchase price payable for the shares
purchasable under the Plan, or (iii) materially increase the benefits accruing
to Participants under the Plan or modify the requirements for eligibility to
participate in the Plan.
B. The Corporation shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following the close of any Semi-Annual Period
of Participation. Should the Corporation elect to exercise such right, then the
Plan shall terminate in its entirety. No further purchase rights shall
thereafter be granted or exercised, and no further payroll deductions shall
thereafter be collected, under the Plan.
7
<PAGE>
XI.GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan
shall be paid by the Corporation.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such person)
or of the Participant, which rights are hereby expressly reserved by each, to
terminate such person's employment at any time for any reason, with or without
cause.
C. The provisions of the Plan shall be governed by the laws of the State
of California without resort to that State's conflict-of-laws rules.
8
<PAGE>
Schedule A
----------
Corporations Participating in
Employee Stock Purchase Plan
As of April 1997
----------------
P-COM, Inc.
P-COM United Kingdom, Inc.
P-COM (Barbados) FSC Limited
P-COM Finance Corporation
Geritel Sp.A
P-COM Field Services, Inc.
P-COM Merger Subsidiary, Inc.
<PAGE>
APPENDIX
--------
The following definitions shall be in effect under the Plan:
A. Base Salary shall mean the regular base salary paid to a
-----------
Participant by one or more Participating Companies during such individual's
period of participation in the Plan, plus any pre-tax contributions made by the
Participant to any Code Section 401(k) salary deferral plan or any Code Section
125 cafeteria benefit program now or hereafter established by the Corporation or
any Corporate Affiliate. The following items of compensation shall not be
included in Base Salary: (i) all overtime payments, bonuses, commissions (other
than those functioning as base salary equivalents), profit-sharing distributions
and other incentive-type payments and (ii) any and all contributions (other than
Code Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or any Corporate Affiliate under any employee benefit
or welfare plan now or hereafter established.
B. Board shall mean the Corporation's Board of Directors.
-----
C. Code shall mean the Internal Revenue Code of 1986, as amended.
----
D. Common Stock shall mean the Corporation's common stock.
------------
E. Corporate Affiliate shall mean any parent or subsidiary
-------------------
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
F. Corporate Transaction shall mean either of the following
---------------------
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation.
G. Corporation shall mean P-COM, Inc., a Delaware corporation, and
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any corporate successor to all or substantially all of the assets or voting
stock of P-COM, Inc. which shall by appropriate action adopt the Plan.
H. Effective Time shall mean the time at which the Underwriting
--------------
Agreement was executed and finally priced. Any Corporate Affiliate which
becomes a Participating Corporation after such Effective Time shall designate a
subsequent Effective Time with respect to its employee-Participants.
A-1
<PAGE>
I. Eligible Employee shall mean any person who is engaged, on a
-----------------
regularly-scheduled basis of more than twenty (20) hours per week for more than
five (5) months per calendar year, in the rendition of personal services to any
Participating Corporation as an employee for earnings considered wages under
Section 3401(a) of the Code.
J. Entry Date shall mean the date an Eligible Employee first
----------
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time, and subsequent
Entry Dates shall correspond with the Semi-Annual Entry Dates permitted under
the Plan.
K. Fair Market Value per share of Common Stock on any relevant date
-----------------
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National Market or
any successor system. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange determined
by the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling price on
the last preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which began at
the Effective Time, the Fair Market Value shall be deemed to be equal to the
price per share at which the Common Stock was sold in the initial public
offering pursuant to the Underwriting Agreement.
L. 1933 Act shall mean the Securities Act of 1933, as amended.
--------
M. 1934 Act shall mean the Securities Exchange Act of 1934, as
--------
amended.
N. Participant shall mean any Eligible Employee of a Participating
-----------
Corporation who is actively participating in the Plan.
O. Participating Corporation shall mean the Corporation and such
-------------------------
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan as of the Effective Time are listed in
attached Schedule A.
A-2
<PAGE>
P. Plan shall mean the Corporation's Employee Stock Purchase Plan, as
----
set forth in this document.
Q. Plan Administrator shall mean the committee of two (2) or more
------------------
Board members appointed by the Board to administer the Plan.
R. Semi-Annual Entry Date shall mean the first business day of
----------------------
February and August each calendar year within an offering period in effect under
the Plan. However, the earliest Semi-Annual Entry Date for the initial offering
period under the Plan shall be the Effective Time.
S. Semi-Annual Period of Participation shall mean each semi-annual
-----------------------------------
period for which the Participant participates in an offering period in effect
under the Plan. There shall be a maximum of four (4) semi-annual periods of
participation within each offering period. The first such semi-annual period
(which may be less than six (6) months for the initial offering period) extended
from the Effective Time through the last business day in July 1995. Subsequent
semi-annual periods shall be measured from the first business day of August in
each calendar year to the last business day of January in the succeeding
calendar year and from the first business day of February in each calendar year
to the last business day of July in that calendar year.
T. Semi-Annual Purchase Date shall mean the last business day of each
-------------------------
Semi-Annual Period of Participation. The initial Semi-Annual Purchase Date was
July 31, 1995.
U. Stock Exchange shall mean either the American Stock Exchange or
--------------
the New York Stock Exchange.
V. Underwriting Agreement shall mean the agreement between the
----------------------
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3
<PAGE>
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P-COM, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby appoints George P. Roberts and and each
------
of them as Proxies of the undersigned, with full power of substitution, and
hereby authorizes them to represent and to vote, as designated below, all of the
shares of Common Stock of P-Com, Inc. (the "Company"), held of record by the
undersigned on April 2, 1999 at the Annual Meeting of Stockholders of P-Com,
Inc. to be held on May 17, 1999, or at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR Proposal Nos. 1, 2, 3, 4, 5
and 6. This Proxy, when properly executed, will be voted as specified on the
reverse side. This Proxy will be voted FOR Proposal Nos. 1, 2, 3, 4, 5 and 6 if
no specification is made.
1. To elect two directors to serve for three-year terms ending in the year
2002 or until their successors are duly elected and qualified.
FOR all nominees WITHHOLD AUTHORITY EXCEPTIONS
listed below
INSTRUCTION: To withhold authority to vote for any individual nominee mark the
"EXCEPTIONS" box, and strike a line through the nominee's name in
the list below:
George P. Roberts
Gill Cogan
2. To approve an amendment to the Company's 1995 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock
authorized for issuance over the term of the 1995 Stock Option/Stock
Issuance Plan by an additional 1,500,000 shares and increase the
limitations on the maximum number of shares for which any one
participant may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances from 1,600,000 shares to
2,400,000 in the aggregate.
FOR AGAINST ABSTAIN
(continued, and to be signed, on the other side)
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3. To approve an amendment to the Company's Employee Stock Purchase Plan to
increase the number of shares of Common Stock authorized for issuance
over the term of the Employee Stock Purchase Plan by an additional
250,000 shares.
FOR AGAINST ABSTAIN
4. To approve the issuance of (a) an aggregate of 15,000 shares of Series B
Convertible Participating Preferred Stock at a purchase price of $1,000
per share, (b) warrants to purchase 1,242,257 shares of Common Stock at
an exercise price of $3.47 per share and (c) the conversion or exercise
thereof.
FOR AGAINST ABSTAIN
5. To ratify the appointment of PriceWaterhouseCoopers LLP as independent
auditors of the Company for the fiscal year ending December 31, 1999.
FOR AGAINST ABSTAIN
6. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting, including the election
of any director if any of the above nominees is unable to serve or for
good cause will not serve.
Please sign exactly as your name(s) is (are) shown on the share
certificate to which the Proxy applies. When shares are held by joint tenants,
both should sign. When signing as an attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
DATED: , 1999
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-----------------------------------------------------------
Signature
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(Additional signature if held jointly)
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
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